31st Mar 2006 07:01
Shanks Group PLC31 March 2006 31 March 2006 Company Announcement Shanks Group plc Pre-Close Period Trading Statement Shanks Group plc, a leading European waste management company today issues thefollowing pre-close period trading statement. The Group's preliminaryannouncement of the results for the year to 31 March 2006 will be published onThursday 1 June 2006. The Group announces that, except for a small negative impact on Profit BeforeTax due to an additional IFRS accounting change detailed below, overall tradingfor the year to 31 March 2006 is in line with its expectations. Following the recent disposal of the hazardous waste operations, therestructuring of the UK business is substantially complete. Management'sattention is now dedicated to growing the ongoing businesses where performancecontinues to improve. The Group is pursuing opportunities in the increasinglyactive UK market for long-term municipal waste management contracts, bids havingrecently been submitted for 25-year PFI contracts at Greater Manchester,Cambridgeshire and Cumbria. Further news on the progress of these bids isexpected in 2006/7, however none of the contracts is likely to reach financialclose until 2007/8. The Mainland European operations continue to perform robustly. There are signsof improvement in the construction sector in The Netherlands although moregenerally economic conditions remain flat. In June 2005 new landfill regulationscame into force in Germany severely restricting the types of waste that can belandfilled. This has all but extinguished exports of waste from The Netherlandsto Germany, causing Dutch elimination costs to rise sharply. Shanks ismitigating the impact of these increased costs by identifying alternativeelimination routes and increasing prices to our customers. The ongoing effect atthe close of the year is therefore substantially reduced when compared to theinitial impact. From 1 April 2005 the Group has adopted International Financial ReportingStandards (IFRS). IFRS are still in their early stages and interpretation of thestandards and generally accepted practice is still evolving. Since thepublication of the Interim results in November 2005 there has been a move to"Financial Asset" accounting for PFI contracts. This is based on theInternational Financial Reporting Interpretations Committee (IFRIC) draftinterpretation D12 - "Service Concession Arrangements - Determining theAccounting Model". In light of this draft interpretation and the approach beingadopted by other companies involved in the PFI sector, the Group has concludedthat it is appropriate to adopt the "Financial Asset" treatment in respect ofits PFI activities. The impact of this change is to divide the transactions intotwo parts for accounting purposes: • the financing of the construction of assets for the local authority; • the provision of waste management services using existing assets as well as those created under the contract. The income stream from the waste authority is allocated between the two parts,that attributed to the service contract is treated as sales, which afteroperating costs produces an operating profit. The part relating to theconstruction of assets is treated as funding cash flows (i.e. repayment ofcapital and interest). In the balance sheet the costs relating to theconstruction of the assets are classified as an interest bearing "financialasset". It is the Group's opinion that this treatment better reflects thecommercial substance of the transactions and provides greater transparency forthe financial community. The adoption of "Financial Asset" accounting is expected to have a smallnegative impact on Profit Before Tax for the year ending 31 March 2006, but willresult in more significant reclassifications between Turnover, Operating Profitand Interest. There is no effect on the cash flows of the PFI projects, all ofwhich are progressing as planned. Ends For further information contact: Michael Averill, Group Chief ExecutiveFraser Welham, Group Finance DirectorShanks Group plc, telephone +44 (0)1628 554920www.shanks.co.uk Ginny Pulbrook, Executive Director, Citigate Dewe RogersonFiona Bradshaw, Associate Director, Citigate Dewe Rogerson Telephone +44 (0) 207 282 2945 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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