31st May 2007 07:01
Shanks Group PLC31 May 2007 31 May 2007 Company Announcement - Preliminary Results 2007 Shanks Group plc, a leading European waste management company, today issues itsresults for the year ended 31 March 2007. Financial highlights • Headline profit (profit from continuing operations before exceptional items and tax) rose 15% to £39.2m (2006: £34.0m) • 15% increase in turnover to £509m (2006: £442m) • 18% increase in adjusted* earnings per share to 11.3p (2006: 9.6p) • 5% increase in final dividend to 4.0p per share, bringing the total dividend for the year to 5.9p per share (2006: 5.7p per share) Business Highlights • The Netherlands operating profit ahead 32% with Smink acquisition contributing strongly • Belgium operating profit up 10% • Further recent acquisitions expand geographic coverage and provide new technologies • East London Waste Authority (ELWA) Phase I fully operational and Phase II commissioning • UK market poised for growth as new regulations take effect and Landfill Tax increases • Michael Averill to retire. Tom Drury, former executive director of United Utilities and Managing Director of Vertex, will join the Board in September as Group Chief Executive Designate Commenting on the results, Michael Averill, Group Chief Executive of ShanksGroup plc said: "Recent acquisitions, especially Smink in the Netherlands, together with strongorganic growth delivered this substantially improved result. Within Benelux further acquisitions will ensure continued robust performance. In the UK Shanks is well placed to exploit growth opportunities within therapidly evolving municipal market. The Group has established an enviablereputation for the delivery of local authority waste management projects. Manymore councils are in or commencing the tendering process for the management oftheir waste. Rapidly increasing Landfill Tax will also accelerate growth in theIndustrial and Commercial (I&C) Solid Waste recycling business. I would like to thank all Shanks staff for their support during my 13 years asGroup Chief Executive. Their skills coupled with a strong financial positionleave the Group poised for further progress. I wish Tom Drury every success." *On continuing operations excluding the change in fair value of interest rateswaps net of tax CHAIRMAN'S STATEMENT Financial Performance I am pleased to report a significant improvement in performance for the year to31 March 2007. Headline profit (profit from continuing operations beforeexceptional items and tax) rose 15% to £39.2m (2006: £34.0m) driven principallyby a strong performance in the Netherlands following the Smink acquisition inJune 2006. Adjusted basic earnings per share improved 18% to 11.3p from lastyear's 9.6p following a 1% reduction in the effective tax rate to 33% (2006:34%). As a result your Board is recommending a 5% increase in final dividend to4.0p per share (2006: 3.8p per share) which, if approved by shareholders, bringsthe total dividend for the year to 5.9p per share (2006: 5.7p per share). Turnover from continuing operations increased 15% to £509m (2006: £442m) andprofit before tax was £46.1m (2006: £30.3m) after a £6.9m non cash gain (2006:£3.7m charge) on the change in the fair value of interest rate swaps. During the year borrowings relating to the core business increased by £58m to£134m (2006: £76m) after acquisition expenditure totalling £65m. PrivateFinance Initiative (PFI) company debt also increased by £18m to £123m (2006:£105m) following continued capital investment in the East London Waste Authority(ELWA) and Dumfries & Galloway (D&G) projects. Divisional Review United Kingdom Operating profit from continuing operations decreased by £0.9m to £3.2m (2006:£4.1m) following lower contributions from PFI projects and Contaminated LandServices. Phase I of the project at Frog Island on the north bank of the river Thames isnow fully commissioned and operating at capacity. Phase II of the projectsuffered a delay caused by the insolvency of a subcontractor. The supplier hasbeen rescued as a going concern and all equipment has now been delivered.Commissioning has commenced in line with the revised timetable with theobjective of achieving full operations over the summer. As this is later thanexpected operating costs will be higher during the delay period. A programmedprice increase in Summer 2007 will enhance profitability following recent highercosts associated with the operation of new facilities. Like the ELWA project,the D&G contract is serviced using the innovative Mechanical BiologicalTreatment (MBT) technology developed with Italian partner Ecodeco. The D&Gplant is also fully commissioned and operating normally. There has beensignificant interest from the cement industry in the Solid Recovered Fuel (SRF)produced by the MBT process and large scale deliveries have commenced. Furtherincreases are programmed when ELWA Phase II is commissioned. As previously reported a stricter interpretation of landfill regulations by theScottish Environment Protection Agency (SEPA) has caused substantially increasedcosts on the former local authority landfill sites within our Scottish PFIprojects. A mitigation programme has commenced and is beginning to bear fruit. The market for Contaminated Land Services in the year was significantly reducedfrom a particularly strong 2005/6. Nevertheless, a number of smaller projectshave been completed making a positive contribution to results. The logistics and recycling business has recorded substantial increases intrading profit fuelled in part by two acquisitions in the Central Belt ofScotland for a total consideration of £12m. Our two landfill joint ventures have also traded well showing increases on thealready strong performance recorded last year. Belgium Operating profit improved 10% to £17.3m (2006: £15.7m). All geographic regionsrecorded increased profits contributing to this pleasing result. In particularhousehold waste diverted to our landfill from public sector incinerators, whichwere suffering temporary shut downs, prevented the expected decline in landfillperformance. The 10 year contract for municipal waste collection signed in July 2005 with theCity of Liege is fully operational and contributing according to its plan. The acquisition of Stordeur, a small waste collection company, in Wallonia wascompleted for a consideration of £0.6m. The Netherlands Netherlands activities delivered a strong performance with operating profitsincreasing 32% to £31.0m (2006: £23.5m). The largest contribution to this improvement was the company Smink Beheer BVwhich was acquired by the Group for a net consideration of £43m at the end ofJune 2006. This acquisition extends our geographic coverage eastward from ourstrong presence in the Randstad area. The early performance has been in linewith our plans and synergy opportunities with our existing business are nowbeing exploited. One further acquisition complementing our existing solid waste activities wascompleted for a consideration of £10m. The majority of these solid wastebusinesses enhanced their profits during the year as the programme of price andefficiency increases delivered improvements following the negative impact in2005/6 accruing from the closing off of low cost recycling outlets in Germany. Our hazardous waste divisions in total also delivered a better result than inthe prior year. Central Services Central Services costs rose by 20% to £5.3m (2006: £4.4m). Higher recruitmentcosts and increase of National Insurance contributions on share options were thelargest elements of the movement. Developments United Kingdom In November 2006 the Group was appointed as preferred bidder for the 25 yearcontract to manage the waste of Cumbria County Council. Negotiations continueand it is expected that the contract will commence in 2008. Offers are also being made for numerous similar local authority contracts as theGroup seeks to capitalise on progress already made with the MBT technology inthis market. The UK Government estimates that at least £10bn must be spent onnew infrastructure to process municipal waste if the requirements of theEuropean Union (EU) Landfill Directive are to be met. The March 2007 Budgetannounced an increase in the Landfill Tax escalator. From April 2008 it willincrease from £3 per tonne per annum to £8 per tonne per annum. The Tax,currently £24 per tonne, will therefore rise to £32 per tonne in 2008 andcontinue with a £8 per tonne annual increase until a rate of £48 per tonne isreached in 2010. This change should accelerate the development of the localauthority market. The Tax will also provide a substantial disincentive for the landfilling of I&Cwaste. This change together with the regulatory requirement from October 2007to pre treat all waste prior to landfill will provide further stimulus to theGroup's emerging I&C recycling activities. Three recent Government policy proposals on Planning, Energy and Waste publishedin late May 2007 provide endorsement for the Shanks strategy. Household wasterecycling is to be increased, landfill reduced and there will be greateremphasis on renewable energy, including, from SRF. Planning for these majoritems of infrastructure should also be simplified. It is expected that the market for Contaminated Land Services will improve in2007/8 particularly with opportunities to decontaminate sites which will be usedfor the 2012 London Olympic Games. The Netherlands Since the end of the year under review the Group has completed the acquisitionof a Randstad solid waste business for a consideration of £3m. This company,Kluivers was purchased from its management. More importantly, in mid April 2007, the company Orgaworld was purchased for£10m, £3m of which is deferred, with the potential for further payments up to£14m dependent on future profits growth. This company is involved in thecomposting and anaerobic digestion of biodegradable waste and brings a newtechnology and expertise which can be exploited Group wide over time. Belgium As landfill volumes are expected to decline the Group continues to search foracquisitions, particularly in recycling industries, which will provide newcompensating revenue streams. A number of organic growth projects are alsounder consideration. Directorate Your Group Chief Executive, Michael Averill, has an agreement with the companywhereby he could retire at age 57, an event now less than one year away. TheBoard therefore considered it prudent to commence a search for his replacementin good time and is delighted to announce the appointment to the Board of TomDrury (age 45) as Group Chief Executive Designate, with effect from 3 September2007. Michael Averill will stand down from his present position and resign fromthe Board on 30 September 2007, and at that time Tom Drury will assume Michael'srole. Michael will however be retained in an advisory capacity until May 2008. Following an early career with Unilever and PricewaterhouseCoopers, since 1991Tom Drury has had a distinguished career with United Utilities plc, and wasappointed a main Board director in 2005. In 1996 he was appointed ManagingDirector of Vertex, and until the recent sale of the business to US privateequity, was responsible for taking Vertex to a leading position in the UK'shighly competitive business process outsourcing market, with turnover of circa£400 million, over 9,000 employees, and a blue chip client base. The Board is delighted that Tom has agreed to accept the position of Group ChiefExecutive of Shanks, and we look forward to working with him. During his 13 years as Group Chief Executive Michael has successfully overcomemany challenges, and he will be delivering to his successor a strong company,which is well positioned to benefit from the rapid changes that are taking placein the waste management sector. The Board offers sincere thanks for hisleadership and contribution over the years and wishes him every success for thefuture. Ian Clubb retired as your Chairman at the 2006 AGM. At the 2007 meeting bothPhilippe Delaunois and Barry Pointon will also retire from the Group. I thankall retiring directors for their positive contributions and wise counsel andwish them well for the future. I am also delighted to welcome Eric van Amerongen, a Dutch national, and StephenRiley to the Board. They bring great international and electricity industryexperience respectively. Outlook Recent changes across the Group have positioned Shanks within growth markets.It has a strong balance sheet, and the resources and skills are in place tocapitalise on market opportunities. I am therefore confident of furtherprogress in the current year and for the future. A Auer Chairman 2007 OPERATING REVIEW Thanks are once again due to the staff who have responded superbly to theindustry's rapidly changing conditions to deliver a 19% improvement in OperatingProfit from continuing operations which increased £7.3m to £46.2m (2006:£38.9m). Tables 1 and 2 below give an overview of the Group's operating returnsby geographical region. Table 1: Turnover and Operating Profit by Geographical Region Turnover Operating Profit 2007 2006 Variance 2007 2006 Variance £m £m £m % £m £m £m %United Kingdom 133 126 7 6% 3.2 4.1 (0.9) (22%)Belgium 123 110 13 12% 17.3 15.7 1.6 10%Netherlands 253 206 47 23% 31.0 23.5 7.5 32%Central Services - - (5.3) (4.4) (0.9) 20% ______________________________________________________________Continuing 509 442 67 15% 46.2 38.9 7.3 19%Discontinued 23 0.4 _______________ _______________TOTAL 509 465 46.2 39.3 _______________ _______________ Table 2: Operating Cashflow and Return on Capital Employed after PFI ProjectFinancing Operating Cashflow Return on Capital Employed 2007 2006 Var 2007 2006 Var £m £m £m % % %United Kingdom (14.3) (0.5) (13.8) 17 18 (1)Belgium 21.8 16.1 5.7 55 50 5Netherlands 33.2 20.6 12.6 12 9 3Central Services (5.6) (4.4) (1.2) ____________________________________________________________________Continuing 35.1 31.8 3.3 15 13 3 ____________________________________________________________________ United Kingdom Operating profit was down £0.9m at £3.2m (2006: £4.1m). The major factorsbehind this are summarised in Table 3 below. Table 3: United Kingdom Operating Profit Major Factor Analysis 2007 2006 Change £m £m £mOperating Profit 3.2 4.1 (0.9) __________________________________Major Factors: Solid Waste 1.8 Joint Ventures 0.6 Contaminated Land Services (1.2) PFI - Argyll & Bute and Dumfries & Galloway (1.5) Overheads and PFI bid team 0.5 Property disposals and other (1.1) ________Total (0.9) ________ Solid Waste improved significantly on prior year aided by the acquisition andintegration of Eden Ltd and the waste management and recycling activities ofJohn W Hannay & Co Limited during the first half of the year. In the CentralBelt of Scotland virtually all waste collected by our vehicles now passesthrough a recycling centre; there is very little that goes directly to landfill.Across the board recycling levels are increasing as we move towards ourBenelux model of collection fleets feeding large regional recycling centreswhich allow waste to be diverted from landfill to more cost effective outlets.We see this as a significant competitive advantage as the market shifts toaccommodate the ban on landfilling of untreated non-hazardous waste from October2007 and the escalation in the rate of landfill tax; now scheduled to increaseby £8 per tonne per annum. Our joint venture landfills have improved due to increased waste inputs and, atthe Avondale site, additional green electricity production. Contaminated Land Services was down year on year due to a particularly largecontract in the previous year and low market activity levels in 2007. Theoutlook is more promising with the potential of significant work from the cleanup of the 2012 Olympics site in East London. The first of our innovative Mechanical Biological Treatment (MBT) facilitiesused on the East London Waste Authority (ELWA) PFI contract and that used on theDumfries and Galloway (D&G) contract are now operational. Construction of thesecond ELWA facility was interrupted by financial problems at a subcontractorduring the second half. This has now been resolved and commissioning isunderway, albeit a couple of months later than planned. This will not affectthe scheduled price rise in summer 2007 which will address the current predictedsqueeze in profits on the project. Stricter interpretation of landfill regulations by the Scottish EnvironmentalProtection Agency (SEPA) is causing costs to rise significantly on the formerlocal authority landfill sites now managed by the Group within the D&G andArgyll & Bute (A&B) contracts. Lower investment returns will result. Themitigation programme started early in the year is beginning to yield benefits.The MBT facility in the D&G contract is not affected by this issue. Finally one-off profits from surplus property disposals were significantly lowerthan in 2006. Belgium Operating profit improved 10% on last year's already strong performance to£17.3m (2006: £15.7m). The major factors behind this are summarised in Table 4below. Table 4: Belgian Operating Profit Major Factor Analysis 2007 2006 Change £m £m £mOperating Profit 17.3 15.7 1.6 __________________________________Major Factors: Industrial & commercial Solid Waste 1.7 Municipal collections 0.2 Other (0.3) ________Total 1.6 ________ All three Belgian regions showed a marked improvement, particularly in theindustrial and commercial sector. Our landfill in Wallonia continued to benefitfrom bonus volumes diverted from public sector incinerators experiencingoperational difficulties. There was also a full year's benefit from theenlarged Liege municipal collection contract which commenced in July 2005.During the year one small tuck-in acquisition costing £0.7m was completed. The outlook for the coming year is that the contribution from landfill will fallas the bonus volumes are unlikely to be repeated and restrictions on landfillingof non-hazardous waste from October 2007 and increased landfill tax on municipalwaste from January 2008 divert waste away from landfill. The Netherlands Operating profit in the Netherlands improved 32% to £31.0m (2006: £23.5m). Thekey factors are summarised in Table 5. Table 5: The Netherlands Operating Profit Major Factor Analysis 2007 2006 Change £m £m £mOperating Profit 31.0 23.5 7.5 __________________________________Major Factors: Smink (including synergies) 4.7 Solid Waste 2.5 Hazardous Waste 0.2 Other 0.1 ________Total 7.5 ________ The acquisition of Smink Beheer BV on 30 June 2006 has expanded our geographicalcoverage eastwards from our strong presence in the Randstad area. Theperformance in the first nine months, which is in line with our acquisitionplan, has significantly enhanced earnings. In December 2006 we completed a second tuck in acquisition for £10m which willaugment our collection and recycling activities in The Hague. Profits from the existing solid waste businesses have improved. In June 2005disposal costs rose sharply as the result of the introduction of the landfillban in Germany, depressing results. The effect of these cost increases had beensubstantially mitigated by the start of the current year by increased recyclingand price increases. The construction industry, a major source of customers, isalso buoyant boosting activity levels. Our hazardous waste treatment activities performed well due in part to increasedactivity in the petrochemical sector, stimulated by high oil prices. Central Services Central Service costs increased by £0.9m to £5.3m (£4.4m). The major elementswithin this were higher recruitment costs associated with the appointment of newBoard Directors and increased provision for National Insurance on share optionsas the share price has risen. FINANCIAL REVIEW Table 6: Summarised Group Profit and Loss (£m) 2007 2006 Variance £m £m £m % Turnover 509 442 67 15 Operating Profit 46.2 38.9 7.3 19Finance Charges (7.0) (4.9) (2.1) (43) _____________________________________Headline Profit 39.2 34.0 5.2 15IAS 39 adjustment 6.9 (3.7) 10.6 ______________________________Profit Before Tax continuing 46.1 30.3 15.8 ______________________________Tax - Headline 33% (2005/6:34%) (12.8) (11.6) (1.2)Tax - IAS 39 adjustment (2.0) 1.1 (3.1) ______________________________Profit After Tax continuing 31.3 19.8 11.5Profit After Tax discontinued - operations - (0.2) 0.2Profit After Tax discontinued - disposal - 10.8 (10.8) ______________________________Profit for the Year 31.3 30.4 0.9 ______________________________ The background to the Group's trading performance is given in the OperatingReview above. The contributions to Turnover and Operating Profit fromacquisitions during the year were £37.0m and £5.5m respectively, the majoritybeing attributable to the Smink Beheer BV acquisition. Finance charges for the continuing business increased £2.1m to £7.0m, beforetaking into account the International Accounting Standard (IAS) 39 change inmarket value of financial instruments (see below). This increase reflectedinterest rate rises since last year and the higher level of core borrowings, dueto acquisitions. The IAS 39 change in market value of financial instruments relates to interestrate swaps which fix the interest rate on PFI contract borrowing. At thefinancial close of a PFI contract the price of the service is determined by,inter alia, the long term interest rate available in the market. The Grouptherefore protects itself against future fluctuations in interest rates byentering into interest rate swaps to match its future cash inflows and outflows.Under IAS 39 these swaps must be valued at current market value irrespectiveof the commercial reasons for entering into them. Revaluation of these swapscan lead to large accounting gains or losses but does not affect the long termprofitability of the contract as the Group has matched its long term revenue andcosts. Whilst IAS 39 does allow these gains and losses to be taken directly toreserves, it is on the proviso that onerous verification requirements arefulfilled. The Group believes it is not worth expending significant resourcesfulfilling these requirements in respect of an item that does not reflectcommercial reality. These changes in value are excluded from our HeadlineProfit. There was a £6.9m favourable (2006: £3.7m adverse) change in the marketvalue of these swaps during the year. The average tax rate on Headline Profit fell to 33% (2006: 34%). This wasattributable to a reduction in the Dutch headline rate from 29% to 25.5% inJanuary 2007. The underlying rates of tax in the United Kingdom and Belgiumremained unchanged at 30% and 34% respectively. In Belgium the effective rateon landfill derived profits is higher as landfill tax is non-deductible forcorporation tax. This is mitigated via a deduction for notional interest onBelgian equity introduced in January 2006. Average Euro / Sterling exchange rates have been stable year on year and so havehad little impact on reported profits. Small differences in year end rates havehad a minor impact on the balance sheet. Cash Flow Details of the Group's cash flow performance are summarised in Table 7 below. Table 7: Summarised Group Cashflow 2007 2006 Core PFI Total Total Diff £m £m £m £m £mOperating Profit 47 (1) 46 39 7Depreciation & Landfill Provisions 35 - 35 30 5 ___________________________________________________________EBITDA 82 (1) 81 69 12Working Capital Movement 9 (4) 5 (2) 7Net Capital Expenditure (39) (30) (69) (76) 7Interest,Tax,Dividends,Other (46) 17 (29) (20) (9) ___________________________________________________________Underlying Cashflow 6 (18) (12) (29) 17Acquisitions (65) - (65) (4) (61)Discontinued & Exceptional (3) - (3) 29 (32)Exchange 4 - 4 (2) 6 ___________________________________________________________Debt Movement (58) (18) (76) (6) (70) ___________________________________________________________ The underlying cash generated by the core business was £6m after net capitalexpenditure of £39m. The £65m outflow on acquisitions is the amount paid plusnet debt in the acquired entities. In the case of Smink this was a significantpositive cash balance. The discontinued and exceptional cash outflow of £3mcomprises costs related to the UK reorganisation instigated in 2004 and thedisposed of UK Landfill and Power and Hazardous Waste businesses. There was a£4m favourable movement on the translation of Group's Euro denominated debt intoSterling, giving an increase in core net debt of £58m. The non-recourse aggregated net debt in the PFI companies increased by £18mmainly due to the funding of the construction work in the ELWA and D&Gcontracts. Capital Expenditure The Group spent £69m net on capital expenditure (2006: £76m) of which £39m wasin the core business and £30m on PFI contracts. The core business maintenancecapital expenditure was £28m (2006: £23m), asset disposal proceeds were £2m andexpenditure on growth projects was £13m. Major growth projects in the corebusiness included the expansion of the sorting facilities at one of our DutchSolid Waste sites, extra storage facilities at our ATM hazardous waste treatmentfacility in Moerdijk and additional green electricity generation at our jointventure landfill in Scotland. The capital expenditure on PFI contracts relates principally to construction ofMBT facilities at our ELWA and D&G contracts. This expenditure is treated asFinancial Asset advances. Treasury The Group's treasury policy is to use financial instruments with a spread ofmaturity dates and sources in order to reduce funding risk. Borrowings are drawnin the same currencies as the underlying investment to reduce cash and nettranslation exposure on exchange rate movements. No other currency hedgingmechanisms are used. The Group maintains a significant proportion of its debt onfixed rates of interest in order to protect interest cover. The Group's principal financing is a £250m multicurrency revolving creditfacility with five major banks expiring in April 2010. Adjusting for cash, thisfacility was less than 50% utilised at 31 March 2007. The 2001 notes issuedunder the Group's private placement of £35m have maturity dates between 2009 and2013. The Group also has £26m of working capital facilities with various banks. Each of the Group's PFI projects has senior debt facilities which contributeapproximately 85% of the capital funding required. These facilities are securedon the future cash flows of the PFI companies with no recourse to the Group as awhole. Repayment of these facilities, and any equity bridge facility in respectof the remaining capital funding, commences when construction is complete andconcludes one to two years prior to the expiry of the PFI contract period. Asthe Group currently holds 100% of the equity in its PFI companies, the net debtof £123m is fully consolidated in the Group balance sheet. The maximum whichcould be drawn down under these facilities at 31 March 2007 is £155m. Insurance The Group places all its insurance with leading insurance companies with soundfinancial credentials. For obligatory insurances, the policy is to obtain thenecessary cover at competitive rates. For other areas, regular risk assessmentsare undertaken to identify and assess risks; where appropriate insurance is thenused to mitigate these risks. The level of cover put in place will depend onthe nature of the risks and the cost and extent of cover available in themarket. The majority of our insurances are renewed annually. The Group uses renowned international brokers to advise on risk management,appropriate insurers, cover levels and benchmarking. Insurance requirements for our UK PFI contracts are set out in the funding andproject agreements. Pensions The Group uses IAS19 - Employee Benefits to account for pensions. The pensioncharge for the continuing business for the year has increased to £6.6m (2006:£5.7m). The net retirement benefit obligations, which relate solely to thedefined benefit section of our UK scheme, have reduced to £8.4m (2006: £10.3m).The majority of pension arrangements within our Belgian and Dutch operations areconsidered to be defined contribution in nature. The defined benefit section of the UK scheme was closed to new members inSeptember 2002 and new employees are now offered a defined contributionarrangement. During the year a triennial actuarial valuation was completedbased on the assets and liabilities as at 5 April 2006. This showed a fundingdeficit of £2.5m, £19.2m less than the previous valuation. The main factorswhich have affected the funding position since the previous valuation are: • favourably: the returns on the scheme assets and additional contributions over and above the ongoing service cost. The additional contributions include a total of £15m paid into the scheme following the sale of the UK Landfill and Power business in 2004 and the UK Hazardous waste activities in 2005 in respect of the residual liabilities of those employees who became deferred pensioners as a result of the sales; • adversely: the reduction in gilt yields and increase in the life expectancy of the members. Going Concern The Directors, having reviewed the Group's 2007/8 budget, its medium term plansand its banking arrangements are satisfied that the Group has sufficientresources to continue operations for the foreseeable future. Accordingly theycontinue to adopt the going concern basis in preparing the financial statements. Notes: 1. Management will be holding an analyst presentation at 9:30 a.m. today, 31 May at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA. 2. A copy of this announcement is available on the company's website (www.shanks.co.uk) as will the presentation being made today to financial institutions. 3. Copies of the Annual Report will be posted to shareholders on 25 June 2007 after which they will be available, on request from the company at Astor House, Station Road, Bourne End, Buckinghamshire, SL8 5YP, or on the company website. 4. The final dividend of 4.0 pence per share, if approved by shareholders, will be paid on 3 August 2007 to shareholders on the register at close of business on 13 July 2007. For further information contact: Shanks Group plc on 31 May, telephone: 020 7678 0383Adrian Auer, Chairman thereafter, telephone: 01628 554920Michael Averill, Group Chief ExecutiveFraser Welham, Group Finance Director Citigate Dewe Rogerson telephone: 020 7282 2945Ginny Pulbrook Consolidated Income StatementYear ended 31 March 2007 2007 2006 Note £m £m________________________________________________________________________________Continuing operationsRevenue 2 508.5 442.5Cost of sales (412.9) (358.6)________________________________________________________________________________Gross profit 95.6 83.9Administrative expenses (49.4) (45.0)________________________________________________________________________________Operating profit 2 46.2 38.9________________________________________________________________________________Finance charges:Interest payable (18.2) (12.7)Interest receivable 11.2 7.8Change in fair value of interest rate swaps 6.9 (3.7)________________________________________________________________________________Total finance charges 3 (0.1) (8.6)________________________________________________________________________________Profit before tax from continuing operations 2 46.1 30.3Tax 4 (14.8) (10.5)________________________________________________________________________________Profit after tax for the year from continuing operations 2 31.3 19.8 Discontinued operationsProfit after tax for the year from discontinued operations 2 - 10.6________________________________________________________________________________Profit for the year 9 31.3 30.4================================================================================ Dividend per share 5 5.9p 5.7p Earnings per share- basic 6 13.3p 13.0p- diluted 6 13.3p 12.9p Earnings per share from continuing operations- basic 6 13.3p 8.5p- diluted 6 13.3p 8.4p================================================================================ Consolidated Statement of Recognised Income and ExpenseYear ended 31 March 2007 2007 2006 £m £m________________________________________________________________________________Exchange (loss) gain on translation of foreign operations (3.9) 1.9Actuarial gain (loss) on defined benefit pension schemes 0.5 (0.6)________________________________________________________________________________ (3.4) 1.3Deferred tax in respect of defined benefit pension schemes (0.1) 0.2________________________________________________________________________________Net (expense) income recognised directly in equity (3.5) 1.5Profit for the year 31.3 30.4________________________________________________________________________________Total recognised income and expense for the year 27.8 31.9================================================================================ Consolidated Balance SheetAt 31 March 2007 At 31 At 31 March 2007 March 2006 Note £m £m________________________________________________________________________________Non-current assetsIntangible assets 198.3 144.4Property, plant and equipment 209.0 183.6Other investments and loans to joint ventures 1.8 2.9Trade and other receivables 141.9 120.1Deferred tax assets 10.8 15.0________________________________________________________________________________ 561.8 466.0________________________________________________________________________________Current assetsInventories 5.4 9.0Trade and other receivables 119.4 97.3Current tax receivable 2.1 1.4Cash and cash equivalents 42.7 59.4________________________________________________________________________________ 169.6 167.1________________________________________________________________________________Total assets 731.4 633.1________________________________________________________________________________Current liabilitiesBorrowings (28.9) (10.9)Trade and other payables (127.3) (114.1)Current tax payable (13.4) (8.3)Provisions 8 (6.3) (9.1)________________________________________________________________________________ (175.9) (142.4)________________________________________________________________________________Non-current liabilitiesBorrowings (271.2) (237.3)Other non-current liabilities (2.3) (0.7)Deferred tax liabilities (27.4) (17.5)Provisions 8 (22.5) (16.3)Retirement benefit obligations (8.4) (10.3)________________________________________________________________________________ (331.8) (282.1)________________________________________________________________________________Total liabilities (507.7) (424.5)________________________________________________________________________________Net assets 223.7 208.6================================================================================EquityShare capital 23.5 23.5Share premium 94.0 93.7Exchange reserve 1.1 5.0Retained earnings 105.1 86.4________________________________________________________________________________Total equity 223.7 208.6================================================================================ Consolidated Cash Flow StatementYear ended 31 March 2007 2007 2006 Note £m £m________________________________________________________________________________Net cash from operating activities 10 (c) 71.3 58.9________________________________________________________________________________Investing activitiesPurchase of intangible assets (1.1) (0.2)Purchases of property, plant and equipment (39.3) (31.9)Disposal of property, plant and equipment 2.7 3.1Financial asset capital advances (30.9) (48.8)Financial asset capital repayments 1.4 1.9Acquisition of subsidiary and other businesses (65.3) (4.2)Net proceeds from disposal of subsidiary and other businesses - 34.0Income received from other investments 1.1 0.7________________________________________________________________________________Net cash used in investing activities 10 (c) (131.4) (45.4)________________________________________________________________________________Financing activitiesInterest paid (17.1) (12.6)Interest received 11.2 7.8Proceeds from issue of shares 0.3 0.6Dividends paid (13.4) (13.4)Increase in borrowings 64.6 32.2Increase in obligations under finance leases 0.9 1.8Repayments of obligations under finance leases (3.0) (3.0)________________________________________________________________________________Net cash flow from financing activities 43.5 13.4________________________________________________________________________________Net (decrease) increase in cash and cash equivalents (16.6) 26.9Cash and cash equivalents at beginning of year 59.4 32.5________________________________________________________________________________Cash and cash equivalents at end of year 42.8 59.4================================================================================ Consolidated Movement in Net DebtYear ended 31 March 2007 2007 2006 £m £m________________________________________________________________________________Net (decrease) increase in cash and cash equivalents (16.6) 26.9Increase in borrowings and finance leases (62.5) (31.0)Amortisation of loan fees (0.4) (0.4)Exchange gain (loss) 4.0 (1.9)Change in fair value of interest rate swaps 6.9 (3.7)________________________________________________________________________________Movement in net debt (68.6) (10.1)Net debt at beginning of year (188.8) (178.7)________________________________________________________________________________Net debt at end of year (257.4) (188.8)================================================================================ Analysis of Net Debt.At 31 March 2007 At 31 At 31 March 2007 March 2006 £m £m________________________________________________________________________________Core Business net debt (134.0) (75.9)Private Finance Initiative net debt (122.9) (105.5)________________________________________________________________________________Total Group net debt before fair value of interest rate swaps (256.9) (181.4)Fair value of Private Finance Initiative interest rate swaps (0.5) (7.4)________________________________________________________________________________Total Group net debt (257.4) (188.8)================================================================================ Notes to the Financial Statements 1 Basis of preparation of financial statements The figures and financial information for the year ended 31 March 2007 are extracted from but do not constitute the statutory financial statements for that year. The figures and financial information for the year are audited. The income statement, statement of recognised income and expense and cash flow statement for the year ended 31 March 2006 and the balance sheet at 31 March 2006 have been derived from the full Group accounts published in the Annual Report and Accounts 2006 which have been delivered to the Registrar of Companies and on which the report of the independent auditors was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as required by Article 4 of the European Union IAS Regulation. The Group has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2006. The IFRS accounting policies have been applied consistently to all periods presented and throughout the Group for the purposes of the consolidated financial statements. 2 Segmental reporting Waste management business shown by management responsibility and geographical area: 2007 2006 £m £m _____________________________________________________________________________________ (a) Continuing operations Revenue United Kingdom 133.2 126.1 Belgium 122.9 110.2 Netherlands 252.4 206.2 ______________________ Total revenue 508.5 442.5 ______________________ Group 494.0 429.9 Share of joint ventures 14.5 12.6 _____________________________________________________________________________________ Total revenue 508.5 442.5 ===================================================================================== Operating profit United Kingdom 3.2 4.1 Belgium 17.3 15.7 Netherlands 31.0 23.5 Central Services (5.3) (4.4) ______________________ Total operating profit 46.2 38.9 ______________________ Group 42.2 35.7 Share of joint ventures 4.0 3.2 _____________________________________________________________________________________ Total operating profit 46.2 38.9 ===================================================================================== Finance charges Interest payable (18.2) (12.7) Interest receivable 11.2 7.8 Change in fair value of financial instruments 6.9 (3.7) _____________________________________________________________________________________ Total finance charges (0.1) (8.6) _____________________________________________________________________________________ Profit before tax from continuing operations 46.1 30.3 Tax (14.8) (10.5) _____________________________________________________________________________________ Profit after tax for the year from continuing operations 31.3 19.8 ===================================================================================== (b) Discontinued operations Revenue United Kingdom - 18.4 Netherlands - 4.9 _____________________________________________________________________________________ Total revenue - 23.3 ===================================================================================== Operating profits United Kingdom - 0.7 Netherlands - (0.3) _____________________________________________________________________________________ Total operating profit - 0.4 _____________________________________________________________________________________ Profit on disposal of operations (United Kingdom) - 8.7 _____________________________________________________________________________________ Finance charges Interest payable - (0.6) _____________________________________________________________________________________ Profit before tax from discontinued operations - 8.5 Tax - 2.1 _____________________________________________________________________________________ Profit after tax and profit for the year from discontinued operations - 10.6 ===================================================================================== (c) Analysis of net assets At 31 March 2007 At 31 March 2006 £m £m _____________________________________________________________________________________ United Kingdom Gross assets 216.6 175.0 Gross liabilities (34.5) (50.9) ________________________________ Net operating assets 182.1 124.1 ________________________________ Belgium Gross assets 74.2 73.8 Gross liabilities (47.6) (42.4) ________________________________ Net operating assets 26.6 31.4 ________________________________ Netherlands Gross assets 384.0 307.9 Gross liabilities (67.3) (47.8) ________________________________ Net operating assets 316.7 260.1 ________________________________ Central Services Gross assets 0.9 0.6 Gross liabilities (17.3) (9.4) ________________________________ Net operating assets (16.4) (8.8) _____________________________________________________________________________________ Total Gross assets 675.7 557.3 Gross liabilities (166.7) (150.5) _____________________________________________________________________________________ Net operating assets 509.0 406.8 Current tax (11.3) (6.9) Deferred tax (16.6) (2.5) Net debt (257.4) (188.8) _____________________________________________________________________________________ Net assets 223.7 208.6 ===================================================================================== 3 Finance charges 2007 2006 £m £m _____________________________________________________________________________________ Continuing operations Interest payable: Interest payable on borrowings wholly repayable within five years 9.3 6.2 Interest payable on other borrowings 7.6 5.7 Share of interest of joint ventures 0.1 0.1 Unwinding of discount on long term landfill liabilities 0.8 0.3 Amortisation of bank fees 0.4 0.4 _____________________________________________________________________________________ Total interest payable 18.2 12.7 _____________________________________________________________________________________ Interest receivable: Interest receivable (3.4) (2.2) Interest receivable on financial assets relating to PFI contracts (7.8) (5.6) _____________________________________________________________________________________ Total interest receivable (11.2) (7.8) _____________________________________________________________________________________ Change in fair value of interest rate swaps (6.9) 3.7 _____________________________________________________________________________________ Net finance charges 0.1 8.6 ===================================================================================== 4 Tax The tax charge based on the profit for the year is made up as follows: 2007 2006 £m £m ___________________________________________________________________________ Current tax UK corporation tax at 30% (2006: 30%) - Current year 5.2 1.9 - Prior year (0.4) (3.2) Double tax relief (2.0) (2.2) Overseas tax - Current year 8.0 10.7 - Prior year 1.0 (0.1) ___________________________________________________________________________ Total current tax 11.8 7.1 ___________________________________________________________________________ Deferred tax - Current year 2.1 1.6 - Prior year 0.9 (0.3) ___________________________________________________________________________ Total deferred tax 3.0 1.3 ___________________________________________________________________________ Total tax charge for the year 14.8 8.4 =========================================================================== Total tax charge - continuing operations 14.8 10.5 Total tax credit - discontinued operations - (2.1) ___________________________________________________________________________ Total tax charge for the year 14.8 8.4 =========================================================================== 5 Dividends 2007 2006 £m £m ___________________________________________________________________________________________________________________ Amounts recognised as distributions to equity holders in the year: Final dividend paid for the year ended 31 March 2006 of 3.8p per ordinary share (2005: 3.8p) 8.9 8.9 Interim dividend paid for the year ended 31 March 2007 of 1.9p per ordinary share (2006: 1.9p) 4.5 4.5 ___________________________________________________________________________________________________________________ 13.4 13.4 =================================================================================================================== Proposed final dividend for the year ended 31 March 2007 of 4.0p per share (2006: 3.8p) 9.4 8.9 =================================================================================================================== The proposed final dividend for the year ended 31 March 2007 of 4.0 pence per share was approved by the Board on 29 May 2007 and, subject to approval by the Shareholders at the Annual General Meeting on 26 July 2007, will be paid on 3 August 2007 to shareholders on the Register at close of business on 13 July 2007. 6 Earnings per share 2007 2006 ______________________________________________________________________________________________ Number of shares Weighted average number of ordinary shares for basic earnings per share 234.8 234.3 Effect of share options in issue 0.8 0.8 ______________________________________________________________________________________________ Weighted average number of ordinary shares for diluted earnings per share 235.6 235.1 ============================================================================================== Calculation of basic and adjusted basic earnings per share Earnings for basic earnings per share being profit for the year (£m) 31.3 30.4 Earnings from discontinued operations (£m) - (10.6) ______________________________________________________________________________________________ Earnings for basic earnings per share from continuing operations (£m) 31.3 19.8 Change in fair value of interest rate swaps (net of tax) (£m) (4.8) 2.6 ______________________________________________________________________________________________ Earnings for adjusted basic earnings per share (£m) 26.5 22.4 ______________________________________________________________________________________________ Basic earnings per share (pence) 13.3p 13.0p Basic earnings per share from continuing operations (pence) 13.3p 8.5p Basic earnings per share from discontinued operations (pence) - 4.5p Adjusted basic earnings per share (pence) 11.3p 9.6p ============================================================================================== Calculation of diluted earnings per share Earnings for basic earnings per share being profit for the year (£m) 31.3 30.4 Effect of dilutive potential ordinary shares (£m) - - ______________________________________________________________________________________________ Earnings for diluted earnings per share (£m) 31.3 30.4 Earnings from discontinued operations (£m) - (10.6) ______________________________________________________________________________________________ Earnings for diluted earnings per share from continuing operations (£m) 31.3 19.8 ______________________________________________________________________________________________ Diluted earnings per share (pence) 13.3p 12.9p Diluted earnings per share on continuing operations (pence) 13.3p 8.4p Diluted earnings per share on discontinued operations (pence) - 4.5p ============================================================================================== The Directors believe that adjusting profits and earnings per share for the effect of exceptional items enables comparison with historical data calculated on the same basis. Exceptional items are those items that need to be disclosed separately on the face of the income statement because of their size or incidence. Changes in fair values of interest rate swaps that the Group is required to enter into in relation to its PFI arrangements are excluded as they do not reflect commercial reality. 7 Business combinations (a) On 30 June 2006 the Group acquired 100% of the share capital of Smink Beheer B.V., a waste management company in the Netherlands, for a total consideration of £60.8m. The goodwill recognised is attributable to Smink's strong position and profitability and the significant synergies expected to arise post acquisition. From acquisition to 31 March 2007, Smink Beheer B.V. has contributed £27.0m to revenue and £2m to profit after tax. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the business, were as follows: Fair Provisional Book value fair value adjustment value £m £m £m _______________________________________________________________________________ Intangible assets 1.8 24.9 26.7 Property, plant and equipment 9.6 3.3 12.9 Other non-current receivables - 1.5 1.5 Inventories 0.1 - 0.1 Trade receivables 6.0 - 6.0 Other current receivables 0.4 - 0.4 Cash 16.7 - 16.7 Trade payables (2.1) - (2.1) Other current payables (3.8) - (3.8) Current tax payable (5.5) 3.3 (2.2) Deferred tax liabilities (1.1) (9.9) (11.0) Provisions (5.3) (1.5) (6.8) _______________________________________________________________________________ 16.8 21.6 38.4 Provisional goodwill 22.4 _______________________________________________________________________________ 60.8 =============================================================================== Satisfied by: Cash consideration 59.0 Deferred consideration 1.5 Costs incurred 0.3 _______________________________________________________________________________ Total consideration 60.8 =============================================================================== (b) During the period the Group completed the acquisition of other tuck-in businesses. The goodwill recognised is attributable to synergy benefits through the amalgamation of the acquired businesses with existing businesses. From acquisition to 31 March 2007, the businesses contributed £10.0m to revenue and £0.1m to profit after tax. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the businesses, were as follows: Fair Provisional Book value fair value adjustment value £m £m £m _______________________________________________________________________________ Intangible assets - 1.1 1.1 Property, plant and equipment 8.6 4.4 13.0 Other current liabilities (0.1) - (0.1) Borrowings (0.5) - (0.5) Deferred tax liabilities - (0.4) (0.4) _______________________________________________________________________________ 8.0 5.1 13.1 Provisional goodwill 9.1 _______________________________________________________________________________ 22.2 =============================================================================== Satisfied by: Cash consideration 21.8 Costs incurred 0.4 _______________________________________________________________________________ Total consideration 22.2 =============================================================================== 8 Provisions Site restoration and aftercare Other Total £m £m £m ______________________________________________________________________________ At 31 March 2006 17.2 8.2 25.4 Provided - cost of sales 2.1 - 2.1 Provided - finance charges 0.8 - 0.8 Acquired with acquisitions of businesses 4.3 2.4 6.7 Utilised (3.1) (2.8) (5.9) Exchange (0.3) - (0.3) ______________________________________________________________________________ At 31 March 2007 21.0 7.8 28.8 ============================================================================== Current 0.8 5.5 6.3 Non-current 20.2 2.3 22.5 ______________________________________________________________________________ At 31 March 2007 21.0 7.8 28.8 ============================================================================== Current 2.3 6.8 9.1 Non-current 14.9 1.4 16.3 ______________________________________________________________________________ At 31 March 2006 17.2 8.2 25.4 ============================================================================== 9 Consolidated statement of changes in shareholders' funds Share Share Exchange Retained capital premium Reserve Earnings Total £m £m £m £m £m ___________________________________________________________________________________________________ Balance carried forward at 31 March 2006 23.5 93.7 5.0 86.4 208.6 Issue of share capital - 0.3 - - 0.3 Exchange loss on translation of foreign operations - - (3.9) - (3.9) Profit for the year - - - 31.3 31.3 Actuarial gain on defined benefit pension schemes - - - 0.4 0.4 Share based payments - - - 0.4 0.4 Dividends paid in the year (see note 5) - - - (13.4) (13.4) ___________________________________________________________________________________________________ Balance carried forward at 31 March 2007 23.5 94.0 1.1 105.1 223.7 =================================================================================================== 10 Notes to the cash flow statement 2007 2006 £m £m __________________________________________________________________________________________(a) Continuing operations Net cash from operating activities Operating profit from continuing operations 46.2 38.9 Amortisation of intangible assets 2.3 0.5 Depreciation of property, plant and equipment 30.0 28.7 Charge for long term landfill provisions 2.1 0.5 __________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation ("EBITDA") 80.6 68.6 Gain on disposal of property, plant and equipment (1.0) (1.3) Decrease in provisions (4.3) (4.4) Share based payments 0.6 0.5 __________________________________________________________________________________________ Operating cash flows before movements in working capital 75.9 63.4 Decrease (increase) in inventories 3.7 (1.2) (Increase) decrease in receivables (7.3) 7.9 Increase (decrease) in payables 8.9 (10.9) __________________________________________________________________________________________ Cash generated by operations 81.2 59.2 Income taxes paid (9.9) (1.5) __________________________________________________________________________________________ Net cash from operating activities 71.3 57.7 ========================================================================================== Investing activities Purchase of intangible assets (1.1) (0.2) Purchases of property, plant and equipment (39.3) (30.7) Disposal of property, plant and equipment 2.7 3.1 Financial assets capital advances (30.9) (48.8) Financial assets capital repayments 1.4 1.9 Acquisitions of subsidiary and other businesses (65.3) (4.2) Net proceeds from disposal of subsidiary and other businesses - 34.0 Income received from other investments 1.1 0.7 __________________________________________________________________________________________ Net cash used in investing activities (131.4) (44.2) ========================================================================================== (b) Discontinued operations Net cash from operating activities Operating profit from discontinued activities - 0.4 Depreciation of property, plant and equipment - 2.1 Decrease in provisions - (2.8) __________________________________________________________________________________________ Operating cash flows before movements in working capital - (0.3) Increase in inventories - (0.4) Decrease in receivables - 1.4 Increase in payables - 0.5 __________________________________________________________________________________________ Cash generated by operations - 1.2 __________________________________________________________________________________________ Net cash from operating activities - 1.2 ========================================================================================== Investing activities Purchases of property, plant and equipment - (1.2) __________________________________________________________________________________________ Net cash used in investing activities - (1.2) ========================================================================================== 2007 2006 £m £m __________________________________________________________________________________________(c) Total Group operations Net cash from operating activities Operating profit from all operations 46.2 39.3 Amortisation of intangible assets 2.3 0.5 Depreciation of property, plant and equipment 30.0 30.8 Charge for long term landfill provisions 2.1 0.5 __________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation ("EBITDA") 80.6 71.1 Gain on disposal of property, plant and equipment (1.0) (1.3) Decrease in provisions (4.3) (7.2) Share based payments 0.6 0.5 __________________________________________________________________________________________ Operating cash flows before movements in working capital 75.9 63.1 Decrease (increase) in inventories 3.7 (1.6) (Increase) decrease in receivables (7.3) 9.3 Increase (decrease) in payables 8.9 (10.4) __________________________________________________________________________________________ Cash generated by operations 81.2 60.4 Income taxes paid (9.9) (1.5) __________________________________________________________________________________________ Net cash from operating activities 71.3 58.9 ========================================================================================== Investing activities Purchases of intangible assets (1.1) (0.2) Purchases of property, plant and equipment (39.3) (31.9) Disposal of property, plant and equipment 2.7 3.1 Financial assets debtor capital advances (30.9) (48.8) Financial assets capital repayments 1.4 1.9 Acquisitions of subsidiary and other businesses (65.3) (4.2) Net proceeds from disposal of subsidiary and other businesses - 34.0 Income received from other investments 1.1 0.7 __________________________________________________________________________________________ Net cash used in investing activities (131.4) (45.4) ========================================================================================== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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