7th Nov 2007 07:01
Shanks Group PLC07 November 2007 7 November 2007 Company Announcement: Interim Results 2007/8 Shanks Group plc a leading European waste management group announces its interimresults for the six months ended 30 September 2007. Performance in line with our expectations. The Group is positioned withinattractive growth markets with the resources and skills in place to capitaliseon increasing market opportunities. Financial Highlights: • 10% increase in revenue to £271 million (2006: £247 million) • 14% increase in trading profit(1) to £25.9m (2006: £22.7m) • Headline Profit(2) rose 6% to £20.8m (2006: £19.7m) reflecting, in particular, a strong performance in The Netherlands • Adjusted Basic Earnings per Share(3) improved 7% to 6.0p (2006: 5.6p) • Interim dividend up 5% to 2.0p per share (2006: 1.9p per share) Business Highlights: • Netherlands o Recent acquisitions continue to add value o Orgaworld acquisition brings expertise in composting and anaerobic digestion with Group wide roll-out opportunities o buoyant construction sector driving Solid Waste activity levels • Belgium o new growth projects to offset anticipated decline in landfill • UK o Phase II of ELWA operating at capacity o interest in Solid Recovered Fuel (SRF) from MBT increasing o DEFRA estimates £11 billion needs to be spent on waste infrastructure to meet EU municipal waste landfill diversion targets o industrial and commercial Solid Waste profitability increasing (1) operating profit before exceptional items (2) profit before exceptional items and tax (3) excluding exceptional items and associated tax Commenting on the results, Tom Drury, Group Chief Executive of Shanks Group plcsaid: "The Group has delivered good first half performance and is well positionedwithin attractive growth markets. It has a well regarded brand, proventechnological offerings in MBT, anaerobic digestion and composting, a solidbalance sheet and the resources and skills to capitalise on increasing marketopportunities. The Board therefore is confident of achieving our expectationsfor the current year and making further progress in the future." CHIEF EXECUTIVE'S STATEMENT Financial Performance I am pleased to report a good performance in the first half of the 2007/8 yearin line with our expectations. Headline Profit (profit before exceptional itemsand tax) rose 6% to £20.8m (2006/7: £19.7m) driven by the continuing strongperformance in The Netherlands assisted by the Smink acquisition in June 2006.Adjusted basic earnings per share improved 7% to 6.0p from last year's 5.6phelped by a 2% reduction in the effective Headline tax rate to 32% (2006/7:34%). As a result your Board is increasing the interim dividend 5% to 2.0p pershare (2006/7: 1.9p per share). Revenue increased 10% to £271m (2006/7: £247m) and profit before tax was £23.1m(2006/7: £22.0m) after a £1.1m exceptional profit on the disposal of surplusproperty and a £1.2m non-cash gain (2006/7: £2.3m gain) on the change in thefair value of interest rate swaps. During the period borrowings relating to the core business increased by £18m to£152m (31 March 2007: £134m) after acquisition expenditure of £22m (includingdebt acquired). Private Finance Initiative (PFI) company debt also increased by£9m to £132m (31 March 2007: £123m) following continued planned capitalinvestment in the East London Waste Authority (ELWA) project. Divisional Review The Netherlands The Netherlands activities delivered a strong performance with operating profitsincreasing 23% to £17.1m (2006/7: £13.9m). The largest contribution to thisimprovement was the full six month contribution from the Smink business acquiredat the end of June 2006. Performance of this business continues to be in linewith our acquisition plans. In April 2007 the Group completed two further acquisitions. The first wasKluivers, a tuck-in solid waste business in the Randstad area, for aconsideration of £3m. More importantly, the company Orgaworld was purchasedfor £21m (including debt acquired), £3m of which is deferred, with the potentialfor further payments up to £14m (non discounted) dependent on future profitsgrowth. This company is involved in the composting and anaerobic digestion ofbiodegradable waste and brings a new technology and expertise which can beexploited across the Group over time. Both businesses are performing in linewith their acquisition plans. Our hazardous waste divisions in total also delivered a better result than inthe prior year. Whilst underlying trading was better, some of the improvementwas due to the timing of the maintenance shutdown at our one million tonne perannum integrated hazardous waste treatment facility, ATM, which fell in thefirst half in 2006/7. The shutdown will occur in the second half in the currentyear. Belgium Operating profit reduced 5% to £8.9m (2006/7: £9.4m). As expected thecontribution from our landfill reduced compared to a strong performance in theprior year, when it benefited from household waste diverted from public sectorincinerators during non-routine shut downs. Contributions from industrial and commercial (I&C) Solid Waste activities in allgeographic regions were considerably higher than last year reflecting thegeneral buoyant economic conditions and aided by a significant industrialdisposal contract. The hazardous waste market was down on last year, but is showing signs ofstabilising. United Kingdom Trading profit (operating profit before exceptional items) increased by 25% to£2.5m (2006/7: £2.0m) as increased contributions from PFI contracts andlogistics and recycling were offset by reduced Contaminated Land Servicesprofits. The prior year also benefited £0.3m from property disposal profits. Phase II of the ELWA project is now operating at capacity. In addition ascheduled price increase came into effect in July 2007 confirming the contract'sprofitability. Both our ELWA and Dumfries and Galloway (D&G) contracts use theinnovative Mechanical Biological Treatment (MBT) technology developed with ourItalian partner Ecodeco. There continues to be significant interest from thecement and other energy intensive industries in the Solid Recovered Fuel (SRF)produced by the MBT process. Deliveries of SRF are increasing despite atemporary interruption of inputs to a cement kiln in North Wales following aproblem at the plant unrelated to the processing of SRF. This has resulted inan increase in disposal costs for our D&G contract, but it is expected that thekiln will be functioning again by the start of our next financial year. The low activity levels experienced by Contaminated Land Services in the latterpart of last year have persisted into the current year however there has been amarked improvement in the final couple of months of the period. This is due inpart to the contribution from our recently opened "soil hospital" facilityoutside Edinburgh. As yet no decontamination work has come through from theclean up of the sites for the 2012 London Olympics although we remain wellpositioned to secure some of this work. The logistics and recycling business has continued to show substantial increasesin trading profit particularly in the Central Belt of Scotland where theintegration of the two acquisitions, completed during the first half of lastyear, is delivering significant improvements. Shanks is now the largest wastemanagement operator in the central belt of Scotland and we are able to realisethe benefits arising from these economies of scale. Overall our landfill joint ventures have continued to trade well. Central Services Central Services costs were stable at £2.6m (2006/7: £2.6m). Developments The Netherlands The current buoyant market conditions, particularly in the construction sectorwhich is a major client industry for our solid waste activities, are expected topersist. As mentioned above, the purchase of Orgaworld in April 2007 has broughtexpertise and experience in the composting and anaerobic digestion ofbiodegradable waste into the Group. This offering has opened up interestingopportunities not only in the Netherlands but also in Belgium and the UnitedKingdom. Belgium Landfill volumes are expected to continue to decline as the Walloon Regionintroduces new restrictions on landfilling of municipal waste from 2008. At thesame time Landfill Tax will be extended to cover municipal as well as industrialand commercial waste. To offset this decline the Group are investing in anumber of new organic growth projects, including refuse derived fuel (RDF)production and anaerobic digestion capabilities mentioned above. We alsocontinue looking for acquisition opportunities, particularly in recycling andreprocessing industries. 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 mid 2008. Tenders are also being made for similar local authority contracts as the Groupseeks to capitalise on progress already made with its licensed MBT technology inthis market. The UK Government estimates that at least £11 billion must bespent on new infrastructure to process municipal waste if the requirements ofthe European Union Landfill Directive are to be met. In February 2007, DEFRAimplemented a streamlined process for the granting of PFI credits to localauthorities whereby credits are granted in biannual award rounds. This shouldensure a more certain flow rate of contracts coming out to tender in the future.The March 2007 Budget announced an increase in the Landfill Tax escalator;from April 2008 it will increase from £3 per tonne per annum to £8 per tonne perannum. Landfill Tax, currently £24 per tonne, will therefore rise to £32 pertonne in 2008 and continue with a £8 per tonne annual increase until a rate of£48 per tonne is reached in 2010. This change should accelerate the developmentand demand for alternative technologies and waste treatment within the localauthority market. Landfill Tax will also provide a substantial disincentive for the landfilling ofI&C waste. This change, together with the regulatory requirement to pre-treatall waste prior to landfill which came into effect in October 2007, will providefurther stimulus to the Group's emerging I&C recycling activities. We havelaunched a number of products to support our customers with new complianceobligations and are pleased with the initial response. Principal Risks and Uncertainties The Group has set out the principal risks which could impact the performance ofthe Group in its Annual Report and Accounts 2007 (available on our website atwww.shanks.co.uk). There has been no material change in these risks. The Groupoperates a formal framework for the identification and evaluation of key risksapplicable to each area of the business. These along with any mitigationactions are monitored on a continuing basis at both operating and Group Boardlevel. Looking forward over the remainder of the year, the main areas of uncertaintyare the impact of January 2008 legislative changes on landfilling in the WalloonRegion of Belgium, and the magnitude and timing of contaminated soil disposalwork related to the clean up of the sites for the 2012 London Olympics. Directorate On 1 October 2007 I took over from Michael Averill as Group Chief Executive.Michael will continue to act in an advisory capacity until May 2008. At the AGM in July 2007 both Philippe Delaunois and Barry Pointon retired fromthe Group Board, and the Board thanks them for their commitment and personalcontributions. Philippe Delaunois will continue to advise our Belgium businesson a consultancy basis. Outlook The Group is well positioned within attractive growth markets. It has a wellregarded brand, proven technological offerings in MBT, anaerobic digestion andcomposting, a solid balance sheet and the resources and skills are in place tocapitalise on increasing market opportunities. The Board is therefore confidentof achieving our expectations for the current year and making further progressfor the future. Tom DruryGroup Chief Executive Notes: 1. Management will be holding an analyst presentation at 9:30 a.m. today, 7 November at the offices of ABN AMRO: 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 Interim Report will be posted to shareholders by 21 November 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's website. 4. The interim dividend of 2.0 pence per share will be paid on 9 January 2008 to shareholders on the register at close of business on 14 December 2007. For further information contact: Shanks Group plc on 7 November: telephone 020 7678 0383Tom Drury; Group Chief Executive thereafter, telephone: 01628 554920Fraser Welham; Group Finance Director Citigate Dewe Rogerson telephone: 020 7282 2945Ginny Pulbrook Consolidated Income Statement First Half ended 30 September 2007 2007/8 2006/7 2006/7 First First Full Half Half Year Note £m £m £m______________________________________________________________________________________________________ Continuing operations Revenue 2 271.1 246.8 508.5Cost of sales (220.0) (200.4) (412.9) ______________________________________________________________________________________________________ Gross profit 51.1 46.4 95.6 ______________________________________________________________________________________________________ Administrative expenses before exceptional items (25.2) (23.7) (49.4)Exceptional profit on disposal of property 1.1 - - ______________________________________________________________________________________________________ Total administrative expenses (24.1) (23.7) (49.4) ______________________________________________________________________________________________________ Operating profit 2 27.0 22.7 46.2______________________________________________________________________________________________________ Finance charges:Interest payable (11.4) (8.1) (18.2)Interest receivable 6.3 5.1 11.2Change in fair value of interest rate swaps 1.2 2.3 6.9 ______________________________________________________________________________________________________ Total finance charges 2 (3.9) (0.7) (0.1) ______________________________________________________________________________________________________ Profit before tax 2 23.1 22.0 46.1Tax 3 (7.1) (7.3) (14.8) ______________________________________________________________________________________________________ Profit after tax for the period 16.0 14.7 31.3 ______________________________________________________________________________________________________ Dividend per share 4 2.0p 1.9p 5.9p Earnings per share- basic 5 6.8p 6.3p 13.3p- diluted 5 6.8p 6.2p 13.3p ______________________________________________________________________________________________________ The interim financial information and related comparative information isunaudited. The notes on pages 9 to 14 form an integral part of this condensed consolidatedhalf yearly financial information. Consolidated Statement of Recognised Income and Expense First Half ended 30 September 2007 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m__________________________________________________________________________________________________________ Exchange gain (loss) on translation of foreign operations 4.4 (4.2) (3.9)Actuarial gain (loss) on defined benefit pension schemes 4.5 (1.0) 0.5 __________________________________________________________________________________________________________ 8.9 (5.2) (3.4)Deferred tax in respect of defined benefit pension schemes (1.3) 0.3 (0.1) __________________________________________________________________________________________________________ Net income (expense) recognised directly in equity 7.6 (4.9) (3.5)Profit for the period 16.0 14.7 31.3 __________________________________________________________________________________________________________ Total recognised income and expense for the period 23.6 9.8 27.8__________________________________________________________________________________________________________ The interim financial information and related comparative information isunaudited. The notes on pages 9 to 14 form an integral part of this condensed consolidatedhalf yearly financial information. Consolidated Balance SheetAt 30 September 2007 At 30 At 30 At 31 September September March 2007 2006 2007 Note £m £m £m__________________________________________________________________________________________________________ Non-current assetsIntangible assets 226.6 199.7 198.3Property, plant and equipment 232.4 194.3 209.0Other investments and loans to joint 1.5 2.0 1.8venturesTrade and other receivables 146.5 138.2 141.9Deferred tax assets 7.8 13.7 10.8__________________________________________________________________________________________________________ 614.8 547.9 561.8__________________________________________________________________________________________________________ Current assetsInventories 5.9 5.2 5.4Trade and other receivables 126.8 105.5 119.4Current tax receivable 2.1 1.4 2.1Cash and cash equivalents 10 35.4 63.1 42.7__________________________________________________________________________________________________________ 170.2 175.2 169.6__________________________________________________________________________________________________________ Total assets 785.0 723.1 731.4__________________________________________________________________________________________________________ Current liabilitiesBorrowings 10 (33.7) (6.0) (28.9)Trade and other payables (131.3) (118.9) (127.3)Current tax payable (16.4) (13.3) (13.4)Provisions 7 (5.6) (7.7) (6.3)__________________________________________________________________________________________________________ (187.0) (145.9) (175.9)__________________________________________________________________________________________________________ Non-current liabilitiesBorrowings 10 (284.5) (304.3) (271.2)Other non-current liabilities (14.2) (0.1) (2.3)Deferred tax liabilities (31.7) (30.6) (27.4)Provisions 7 (23.9) (21.5) (22.5)Retirement benefit obligations (3.4) (10.8) (8.4)__________________________________________________________________________________________________________ (357.7) (367.3) (331.8)__________________________________________________________________________________________________________ Total liabilities (544.7) (513.2) (507.7)__________________________________________________________________________________________________________ Net assets 240.3 209.9 223.7__________________________________________________________________________________________________________ EquityShare capital 23.7 23.5 23.5Share premium 97.2 93.8 94.0Exchange reserve 5.5 0.8 1.1Retained earnings 113.8 91.8 105.1__________________________________________________________________________________________________________ 240.2 209.9 223.7Minority interest 0.1 - -__________________________________________________________________________________________________________ Total equity 8 240.3 209.9 223.7__________________________________________________________________________________________________________ The interim financial information and related comparative information isunaudited. The notes on pages 9 to 14 form an integral part of this condensed consolidatedhalf yearly financial information. Consolidated Cash Flow StatementFirst Half ended 30 September 2007 2007/8 2006/7 2006/7 First First Full Half Half Year Note £m £m £m__________________________________________________________________________________________________________ Net cash from operating activities 9 35.8 26.4 71.3 __________________________________________________________________________________________________________ Investing activitiesPurchases of intangible assets (0.1) (0.5) (1.1)Purchases of property, plant and equipment (18.2) (14.0) (39.3)Disposal of property, plant and equipment 1.9 1.4 2.7Financial asset capital advances (9.6) (13.2) (30.9)Financial asset capital repayments 2.9 1.1 1.4Acquisition of subsidiary and other businesses (21.6) (54.7) (65.3)Income received from other investments 0.2 0.2 1.1__________________________________________________________________________________________________________ Net cash used in investing activities (44.5) (79.7) (131.4)__________________________________________________________________________________________________________ Financing activitiesInterest paid (10.5) (7.6) (17.1)Interest received 6.3 5.1 11.2Proceeds from issue of shares 2.1 0.1 0.3Dividends paid (9.5) (8.9) (13.4)Increase in borrowings 12.5 67.5 64.6Increase in obligations under finance leases 1.8 2.3 0.9Repayments of obligations under finance leases (1.4) (1.5) (3.0)__________________________________________________________________________________________________________ Net cash flow from financing activities 1.3 57.0 43.5 __________________________________________________________________________________________________________ Net (decrease) increase in cash and cash equivalents (7.4) 3.7 (16.6)Cash and cash equivalents at beginning of period 42.8 59.4 59.4__________________________________________________________________________________________________________ Cash and cash equivalents at end of period 35.4 63.1 42.8 __________________________________________________________________________________________________________ The interim financial information and related comparative information isunaudited. The notes on pages 9 to 14 form an integral part of this condensed consolidatedhalf yearly financial information. Notes to the Condensed Consolidated Interim Financial Statements 1 Basis of preparation and status of financial information This condensed consolidated half-yearly financial information for the half yearended 30 September 2007 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34, InterimFinancial Reporting as adopted by the European Union. The half-yearly condensedconsolidated financial report should be read in conjunction with the AnnualReport and Accounts 2007, which have been prepared in accordance with theInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion. The condensed half-yearly financial information is unaudited and was approved bythe Board of Directors on 6 November 2007. These interim financial results do not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 31 March 2007 were approved by the Board of directors on 30 May 2007and delivered to the Registrar of Companies. The report of the auditors onthose accounts was unqualified, did not contain an emphasis of matter paragraphand did not contain any statement under Section 237 of the Companies Act 1985. The accounting policies adopted are consistent with those of the annualfinancial statements for the year ended 31 March 2007, as described in thoseannual financial statements, with the exception of exceptional items. Items areclassified as exceptional and disclosed separately due to their size orincidence to enable a better understanding of performance and this policy hasbeen adopted during the six month period. The Group's financial statements for the year ended 31 March 2008 will beimpacted by IFRS 7 Financial Instruments: Disclosures which will increase theamount of disclosure in the full financial statements. The accounting, incomeand net assets will remain unchanged. No other new mandatory accountingstandards, amendments to standards or interpretations are expected to materiallyimpact the 31 March 2008 financial statements. 2 Segmental analysis Waste management business shown by management responsibility and geographical area: 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m__________________________________________________________________________________________________________ (a) Profit for the period __________________________________________________________________________________________________________ Revenue Netherlands 137.6 116.0 252.4 Belgium 61.7 61.8 122.9 United Kingdom 71.8 69.0 133.2 ______________________________________ Total revenue 271.1 246.8 508.5 ______________________________________ Group 263.6 239.5 494.0 Share of joint ventures 7.5 7.3 14.5__________________________________________________________________________________________________________ Total revenue 271.1 246.8 508.5__________________________________________________________________________________________________________ Trading profit* Netherlands 17.1 13.9 31.0 Belgium 8.9 9.4 17.3 United Kingdom 2.5 2.0 3.2 Central services (2.6) (2.6) (5.3) ______________________________________ Total trading profit 25.9 22.7 46.2 ______________________________________ Group 23.8 20.7 42.2 Share of joint ventures 2.1 2.0 4.0__________________________________________________________________________________________________________ Total trading profit* 25.9 22.7 46.2 Exceptional profit On disposal of property (United Kingdom) 1.1 - -__________________________________________________________________________________________________________ Total operating profit 27.0 22.7 46.2__________________________________________________________________________________________________________ Finance charges Interest payable (11.4) (8.1) (18.2) Interest receivable 6.3 5.1 11.2 Change in fair value of interest rate 1.2 2.3 6.9 swaps__________________________________________________________________________________________________________ Total finance charges (3.9) (0.7) (0.1)__________________________________________________________________________________________________________ Profit before tax 23.1 22.0 46.1 Tax (7.1) (7.3) (14.8)__________________________________________________________________________________________________________ Profit after tax for the period 16.0 14.7 31.3__________________________________________________________________________________________________________ Intersegment sales are not significant. \* Trading profit excludes profits on disposal of property which have been classified as exceptional due to their size and incidence. Their exclusion allows for better comparability between the years presented. At 30 At 30 At 31 September September March 2007 2006 2007 £m £m £m__________________________________________________________________________________________________________(b) Analysis of net assets__________________________________________________________________________________________________________ Netherlands Gross assets 435.2 365.8 384.0 Gross liabilities (83.4) (59.4) (67.3) ______________________________________ Net operating assets 351.8 306.4 316.7 ______________________________________ Belgium Gross assets 78.7 72.8 74.2 Gross liabilities (49.3) (43.8) (47.6) ______________________________________ Net operating assets 29.4 29.0 26.6 ______________________________________ United Kingdom Gross assets 224.8 204.7 216.6 Gross liabilities (34.4) (46.8) (34.5) ______________________________________ Net operating assets 190.4 157.9 182.1 ______________________________________ Central Services Gross assets 1.0 1.6 0.9 Gross liabilities (11.3) (9.0) (17.3) ______________________________________ Net operating liabilities (10.3) (7.4) (16.4)__________________________________________________________________________________________________________ Total Gross assets 739.7 644.9 675.7 Gross liabilities (178.4) (159.0) (166.7)__________________________________________________________________________________________________________ Net operating assets 561.3 485.9 509.0 Current tax (14.3) (11.9) (11.3) Deferred tax (23.9) (16.9) (16.6) Net debt (282.8) (247.2) (257.4)__________________________________________________________________________________________________________ Net assets 240.3 209.9 223.7__________________________________________________________________________________________________________ 3 Tax 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m__________________________________________________________________________________________________________ Current tax UK corporation tax at 30% (2006/7:30%) - Current year 3.9 1.4 5.2 - Prior year - - (0.4) Double tax relief (1.9) (1.4) (2.0) Overseas tax - Current year 5.5 5.3 8.0 - Prior year - (0.1) 1.0__________________________________________________________________________________________________________ Total current tax charge 7.5 5.2 11.8__________________________________________________________________________________________________________ Deferred tax - Current year (1.1) 2.2 2.1 - Prior year 0.7 (0.1) 0.9__________________________________________________________________________________________________________ Total deferred tax (credit) charge (0.4) 2.1 3.0__________________________________________________________________________________________________________ Tax charge for the period 7.1 7.3 14.8__________________________________________________________________________________________________________ The tax rate for the first half of the current year is based on the estimatedcharge for the full year. As a result of changes announced in the 2007 Budget UK corporation tax willreduce from 30% to 28% effective from 6 April 2008 and the deferred tax impactof this has been included above. There will also be a phased withdrawal ofindustrial buildings allowances over a period of 4 years and a reduction ingeneral pool writing down allowances from 25% to 20% which will be enacted inthe Finance Act 2008. It is estimated that this will result in a £10 millionexceptional tax charge in the year ending 31 March 2009. This principallyrelates to the non discounted value of tax relief that would have been availableon the PFI infrastructure towards the end of the 25 year PFI contracts. 4 Dividends 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m__________________________________________________________________________________________________________Amounts recognised as distributions to equity holders in theperiod: Interim dividends - - 4.5Final dividends 9.5 8.9 8.9__________________________________________________________________________________________________________Total dividends 9.5 8.9 13.4__________________________________________________________________________________________________________ An interim dividend of 2.0p per share (2006/7: 1.9p per share) was approved bythe Board on 6 November 2007 and will be paid on 9 January 2008 to shareholderson the register at close of business on 14 December 2007. The final dividend for2006/7 of 4.0p per share (2005/6: 3.8p per share) was approved by the shareholders at the Annual General Meeting on 26 July 2007 and was paid on 3August 2007. 5 Earnings per share 2007/8 2006/7 2006/7 First First Full Half Half Year__________________________________________________________________________________________________________ Number of shares Weighted average number of ordinary shares for basic 235.8m 234.7m 234.8m earnings per share Effect of share options in issue 0.7m 0.6m 0.8m__________________________________________________________________________________________________________ Weighted average number of ordinary shares for diluted 236.5m 235.3m 235.6m earnings per share__________________________________________________________________________________________________________ (a) Calculation of basic and adjusted basic earnings per share Earnings for basic earnings per share being profit for 16.0 14.7 31.3 the period (£m) Change in fair value of interest rate swaps (net of tax) (0.9) (1.6) (4.8) (£m) Other exceptional items (£m) (1.1) - -__________________________________________________________________________________________________________ Earnings for adjusted basic earnings per share (£m) 14.0 13.1 26.5__________________________________________________________________________________________________________ Basic earnings per share (pence) 6.8p 6.3p 13.3p Adjusted basic earnings per share (pence) (see note 6.0p 5.6p 11.3p below)__________________________________________________________________________________________________________ (b) Calculation of diluted earnings per share Earnings for basic earnings per share being profit for 16.0 14.7 31.3 the period (£m) Effect of dilutive potential ordinary shares (£m) - - - __________________________________________________________________________________________________________ Earnings for diluted earnings per share (£m) 16.0 14.7 31.3__________________________________________________________________________________________________________ Diluted earnings per share (pence) 6.8p 6.2p 13.3p__________________________________________________________________________________________________________ The Directors believe that adjusting earnings per share for the effect ofexceptional items enables comparison with historical data calculated on the samebasis. Exceptional items are those that need to be disclosed separately on theface of the income statement because of their size or incidence. Changes in thefair values of interest rate swaps that the Group is required to enter into inrelation to its PFI arrangements are excluded as they do not reflect commercialreality. 6 Business Combinations (a) On 13 April 2007 the Group acquired 70% of the share capital of Orgaworld B.V. in the Netherlands, for an initial consideration of £7.4m and will acquire the remaining 30% over the next five years. Orgaworld is involved in the composting and anaerobic digestion of biodegradable waste. The goodwill recognised is attributable to Orgaworld's strong market position and technological know-how. From acquisition to 30 September 2007, Orgaworld has contributed £3.9m to revenue and £0.3m 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 - 6.7 6.7 Property, plant and equipment 13.9 1.0 14.9 Trade receivables 0.9 - 0.9 Current tax receivable 0.3 - 0.3 Cash 0.6 - 0.6 Trade payables (1.9) - (1.9) Other payables (1.3) - (1.3) Borrowings (11.3) - (11.3) Deferred tax liabilities (0.9) (2.0) (2.9) Provisions (0.1) - (0.1) Minority interest (0.1) - (0.1) ________________________________________________________________________________________________ 0.1 5.7 5.8 Provisional goodwill 14.0 ________________________________________________________________________________________________ 19.8 ________________________________________________________________________________________________ Satisfied by: Cash consideration 7.1 Deferred consideration (including £10.6m which is 12.4 conditional) Costs incurred 0.3 ________________________________________________________________________________________________ Total consideration 19.8 ________________________________________________________________________________________________ (b) On 5 April 2007 the Group acquired 100% of the share capital of Kluivers Totaal Recycling en Vernietiging B.V., a company specialising in the collecting and recycling of wastepaper in the Netherlands, for a total consideration of £3.3m. The goodwill recognised is attributable to Kluivers profitability and the synergies expected to arise post acquisition. From acquisition to 30 September 2007, Kluivers has contributed £2.1m 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 business, were as follows: Fair Provisional Book Value Fair Value Adjustment Value £m £m £m ________________________________________________________________________________________________ Intangible assets - 2.0 2.0 Property, plant and equipment 0.6 0.1 0.7 Trade receivables 0.5 - 0.5 Cash 0.1 - 0.1 Trade payables (0.4) - (0.4) Other current payables (0.5) 0.1 (0.4) Deferred tax liabilities - (0.5) (0.5) ________________________________________________________________________________________________ 0.3 1.7 2.0 Provisional goodwill 1.3 ________________________________________________________________________________________________ 3.3 ________________________________________________________________________________________________ Satisfied by: Cash consideration 2.7 Deferred consideration 0.6 ________________________________________________________________________________________________ Total consideration 3.3 ________________________________________________________________________________________________ (c) If all the acquisitions had been completed on 1 April 2007 instead of the dates above, total Group revenue and Group profit for the period would not have been materially different on a pro-forma basis. (d) For acquisitions completed in the year to 31 March 2007 there have been no amendments to the provisional fair values. 7 Provisions Site restoration and aftercare Other Total £m £m £m_____________________________________________________________________________________________________At 31 March 2007 21.0 7.8 28.8Provided - cost of sales 0.4 - 0.4 - finance charges 0.5 - 0.5Acquired with acquisition of businesses - 0.1 0.1Utilised (0.4) (0.4) (0.8)Exchange rate movements 0.5 - 0.5_____________________________________________________________________________________________________At 30 September 2007 22.0 7.5 29.5_____________________________________________________________________________________________________ Current 0.4 5.2 5.6Non-current 21.6 2.3 23.9_____________________________________________________________________________________________________At 30 September 2007 22.0 7.5 29.5_____________________________________________________________________________________________________ Current 0.8 5.5 6.3Non-current 20.2 2.3 22.5_____________________________________________________________________________________________________At 31 March 2007 21.0 7.8 28.8_____________________________________________________________________________________________________ Current 1.3 6.4 7.7Non-current 20.3 1.2 21.5_____________________________________________________________________________________________________At 30 September 2006 21.6 7.6 29.2_____________________________________________________________________________________________________ 8 Reconciliation of changes in total equity 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m_____________________________________________________________________________________________________Opening total equity as at 31 March 223.7 208.6 208.6Recognised income and expense for the period 23.6 9.8 27.8Dividends paid (see note 4) (9.5) (8.9) (13.4)Share-based payments 0.3 0.3 0.6Tax on share-based payments (0.1) - (0.2)Minority interest arising on acquisitions in the period 0.1 - -Other reserves movement (1.1) - -Issue of share capital 3.3 0.1 0.3_____________________________________________________________________________________________________Closing total equity 240.3 209.9 223.7_____________________________________________________________________________________________________ 9 Cash flows from operating activities 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m_____________________________________________________________________________________________________Net cash from operating activitiesOperating profit from continuing operations 27.0 22.7 46.2Amortisation of intangible assets 1.8 0.7 2.3Depreciation of property, plant and equipment 16.1 14.5 30.0Charge for long term landfill provisions 0.4 1.0 2.1Gain on disposal of property, plant and equipment (1.5) (0.6) (1.0)_____________________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation 43.8 38.3 79.6(EBITDA)Net decrease in provisions (0.9) (2.7) (4.3)Share based payments 0.4 0.3 0.6_____________________________________________________________________________________________________ Operating cash flows before movement in working capital 43.3 35.9 75.9(Increase) decrease in inventories (0.5) 3.9 3.7Increase in receivables (4.3) (7.9) (7.3)(Increase) decrease in payables (0.1) (2.8) 8.9_____________________________________________________________________________________________________ Cash generated by operations 38.4 29.1 81.2Income taxes paid (2.6) (2.7) (9.9)_____________________________________________________________________________________________________Net cash from operating activities 35.8 26.4 71.3_____________________________________________________________________________________________________ 10 Net debt Consolidated movement in net debt 2007/8 2006/7 2006/7 First First Full Half Half Year £m £m £m_____________________________________________________________________________________________________Net (decrease) increase in cash and cash equivalents (7.4) 3.7 (16.6)Increase in borrowings and finance leases (12.9) (68.3) (62.5)Amortisation of loan fees (0.4) (0.2) (0.4)Exchange (loss) gain (5.9) 4.1 4.0Change in fair value of interest rate swaps 1.2 2.3 6.9_____________________________________________________________________________________________________Movement in net debt (25.4) (58.4) (68.6)Net debt at beginning of period (257.4) (188.8) (188.8)_____________________________________________________________________________________________________Net debt at end of period (282.8) (247.2) (257.4)_____________________________________________________________________________________________________ Net debt represented by: At 30 At 30 At 31 September September March 2007 2006 2007 £m £m £m_____________________________________________________________________________________________________Cash and cash equivalents 35.4 63.1 42.7Current borrowings (33.7) (6.0) (28.9)Non-current borrowings (284.5) (304.3) (271.2)_____________________________________________________________________________________________________Total Group net debt (282.8) (247.2) (257.4)_____________________________________________________________________________________________________ Consolidated analysis of net debt At 30 At 30 At 31 September September March 2007 2006 2007 £m £m £m_____________________________________________________________________________________________________Core Business net debt (151.8) (120.8) (134.0)Private Finance Initiative net debt (131.7) (121.3) (122.9)_____________________________________________________________________________________________________Total Group net debt before fair value of interest rate (283.5) (242.1) (256.9)swapsFair value of Private Finance Initiative interest rate swaps 0.7 (5.1) (0.5)_____________________________________________________________________________________________________ Total Group net debt (282.8) (247.2) (257.4)_____________________________________________________________________________________________________ 11 Related party transactions There have been no additional significant or unusual related party transactionsto those disclosed in the Group's Annual Report for 31 March 2007. Statement of directors' responsibilities The directors confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The directors of Shanks Group plc are listed in the Shanks Group plc AnnualReport and Accounts 2007, with the exception of the following changes in theperiod. Mr R B Pointon and Mr P Delaunois retired on 26 July 2007, Mr M Averillretired on 30 September 2007 and Mr T Drury was appointed on 1 October 2007. Alist of current directors is maintained on the Shanks Group plc website:www.shanks.co.uk. By order of the Board T W Drury F A N WelhamGroup Chief Executive Group Finance Director Independent Review Report to Shanks Group plc Introduction We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30September 2007, which comprises the income statement, balance sheet, statementof recognised income and expense, cash flow statement and related notes. Wehave read the other information contained in the half-yearly financial reportand considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. As disclosed in note 1, the annual financial statements of the group areprepared in accordance with the IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, 'Interim Financial Reporting', as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the company for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Scope of review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 30 September 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. PricewaterhouseCoopers LLPChartered AccountantsLondon6 November 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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