Final Results
Shanks Group PLC
29 May 2002
29 May 2002
Company Announcement
Shanks Group plc - Preliminary Results 2001/2002
• Trading in line with expectations
• Financial highlights were:
2001/02 2000/01
Turnover £529m £502m
Headline profit (before tax, exceptional items and goodwill £45.3m £45.1m
amortisation)
Exceptional items £(8.4)m £(0.1)m
Goodwill amortisation £(10.0)m £(9.4)m
Profit on ordinary activities before taxation £26.9m £35.6m
Earnings per share (before exceptional items and goodwill 13.2p 12.6p
amortisation)
3.8p 3.7p
• Proposed final dividend per share
Announcing the Preliminary Results for 2001/2002 Group Chairman Mr I M Clubb
made the following statement:
In the year to 31 March 2002, the Group again increased headline profit before
taxation, exceptional items and goodwill amortisation, to £45.3m (2001: £45.1m).
Turnover grew by 5% to £529m (2001: £502m) with approximately half derived from
the Benelux countries. An exceptional charge of £8.4m arose from the decision to
cease operations at the Pontypool incineration plant, caused by the harsh
conditions in the hazardous waste market. The tax rate on headline profit
reduced to 32% (2001: 34%). Profit after tax and goodwill amortisation of £10.0m
was £14.8m (2001: £20.1m).
Helped by the lower tax charge, earnings per share before exceptional items and
goodwill amortisation rose 5% to 13.2p. Your Board recommends a final dividend
of 3.8 pence per share (2001: 3.7p) which, if approved by shareholders, brings
aggregate dividends for the year to 5.7 pence per share, an increase of 3%.
The financial position remains strong with earnings before interest, taxation,
depreciation and amortisation (EBITDA) rising by £3m to £113m. As a result of
this strong cash flow, the Group has funded £62m of capital expenditure and
small acquisitions whilst reducing net debt from £302m to £290m. Interest
expense remained broadly steady at £18.8m (2001: £18.6m) with interest cover,
before exceptional items, at 3.6 times.
DIVISIONAL REVIEW
United Kingdom
Trading profit grew by £1.4m to £32.1m (2001: £30.7m).
The hazardous waste market has proved extremely challenging for Chemical
Services resulting in increased trading losses of £4.0m (2001: £1.4m). The
ending of the first contract for the disposal of Meat and Bone Meal from the BSE
crisis in March 2002 triggered the incineration capacity reduction at Pontypool.
This action will lead to cost savings of £4m in the current year. As previously
announced, the exceptional charge arising is expected to total less than £10m,
of which £8.4m has already been incurred.
In contrast, Waste Services increased its trading profits by £4.0m to £36.1m
(2001: £32.1m). These results were buoyed by landfill inputs arising from the
Foot and Mouth crisis and by contaminated spoil projects. Scottish operations
have shown improved results with contributions from the Argyll and Bute and
Falkirk local authority contracts. The collection and recycling activities
disappointed due to a combination of strong competition and low recyclate
prices. Electricity generation, however, has delivered a record performance as
new capacity came on stream.
Belgium
Trading profits in Belgium reduced by £1.6m to £13.1m (2001: £14.7m). In the two
prior years landfill volumes had benefited indirectly from various health
concerns over dioxins. These supplementary volumes were no longer available and
other landfill inputs also declined. Significantly, our principal landfill site
received planning permission, subject to appeal, for additional void, which will
extend its operating life by approximately ten years. The two non-recurring
issues announced at the half year relating to a demolition contract and site
clearance at De Paepe have largely been resolved, with performance improving
significantly in the second half.
The Netherlands
Trading profits increased by £0.9m to £25.0m (2001: £24.1m). The solid waste
activities performed strongly, aided by lower treatment costs on some waste
streams being exported to Germany. Three small acquisitions were made for an
aggregate of £3m and they contributed £0.2m.
Reym industrial cleaning prospered in the year whilst the Flection computer
refurbishment results were adversely affected by the general price erosion for
new IT equipment.
ATM, the hazardous waste activity, has had a challenging year reflecting
difficulties in the repermitting of one of the three principal processes on the
Moerdijk site. Negotiations on a new permit for this pyrolysis plant continue.
DEVELOPMENTS
United Kingdom
The Group is bidding on a selected number of long term local authority waste
disposal contracts. An integrated array of innovative new technologies has been
assembled which allows local authorities to meet the emerging requirements of
the Landfill Directive, without resort to new incineration capacity.
These highly attractive solutions have already resulted in our appointment as
preferred bidder for both Dumfries and Galloway (0.1m tonne/year) and the East
London Waste Authority (0.5m tonne/year) waste management contracts. It is
anticipated that both will move to financial close in the current year with more
projects to follow in due course. A select portfolio of these opportunities,
project financed through the Private Finance Initiative could provide a high
degree of certainty over future cash flows and earnings. The Group's rapidly
growing electricity generating activities have similar characteristics.
Benelux
Tuck-in acquisitions continue to expand the business base and provide scope for
efficiencies and new services. These developments are important as they
facilitate progress in growth market segments compensating for declines in
mature areas of the rapidly changing market. An eventual resolution to the
pyrolysis permit at ATM will also provide a welcome boost.
DIRECTORATE
In this my first Chairman's Statement, I pay tribute to retiring Chairman,
Gordon Waddell, whose skill and wise counsel served the Group well for ten
years. The directors and employees join me in wishing him a long, happy and
healthy retirement.
OUTLOOK
Last year's benefits from the Foot and Mouth crisis and the first MBM contract
will not recur. However, it is currently expected that the positive effect of
the Pontypool cost savings, increased power contribution together with growth in
the core business will lead to modest progress in the current year.
The Group has a strong spread of activities both geographically and technically.
The implementation of European legislation and increases in environmental taxes,
especially in the UK, are trends in our favour. These developments play to the
Group's strengths and provide a platform for future growth, particularly in the
processing of municipal waste.
Note:
Copies of the Annual Report and Accounts will be posted to shareholders by 21
June 2002, after which they will be available, on request, from the company at
Astor House, Station Road, Bourne End, Bucks SL8 5YP. Subject to approval at the
AGM, the proposed final dividend of 3.8 pence per share will be paid on 5 August
2002 to shareholders on the register at close of business on 19 July 2002.
For further information contact:
Ian Clubb; Chairman, Shanks Group plc
Michael Averill; Group Chief Executive
David Downes; Group Finance Director
or John Shaughnessy; Group Head of External Relations
On 29 May 2002, telephone: 020 7678 8000
Thereafter, telephone: 01628 524523
Consolidated Profit and Loss Account
year ended 31 March 2002
Note 2001/02 2000/01
restated*
£m £m
Turnover: Group and share of joint ventures 535.7 508.9
Less: share of turnover of joint ventures (7.2) (6.5)
________ ________
Group turnover 2 528.5 502.4
Cost of sales (420.8) (395.1)
________ ________
Gross profit 107.7 107.3
________ ________
Group operating profit before exceptional items and goodwill 64.8 64.6
amortisation
Exceptional costs 3 - (0.8)
Goodwill amortisation (10.0) (9.4)
________ ________
Group operating profit 54.8 54.4
Share of operating profit of joint ventures 1.6 1.1
________ ________
Total operating profit 2 56.4 55.5
Exceptional costs on closure of operations 3 (8.4) -
Exceptional profit on disposal of operations 3 - 0.7
________ ________
Profit before finance charges and taxation 2 48.0 56.2
Finance charges - interest 4 (18.8) (18.6)
Finance charges - other 5 (2.3) (2.0)
________ ________
Profit on ordinary activities before taxation 2 26.9 35.6
Taxation 6 (12.1) (15.5)
________ ________
Profit on ordinary activities after taxation and profit for the period 14.8 20.1
Equity dividends paid and proposed 7 (13.3) (12.9)
________ ________
Retained profit transferred to reserves 1.5 7.2
________ ________
Earnings per share
basic 8 6.3p 8.6p
adjusted basic before exceptional items and goodwill amortisation 8 13.2p 12.6p
diluted 8 6.3p 8.5p
Dividends per share 7 5.70p 5.55p
* 2001 comparative figures have been restated. See note 12 for details.
Consolidated Balance Sheet
at 31 March 2002
Note 2002 2001
restated*
£m £m
Fixed assets
Intangible assets 183.6 185.9
Tangible assets 298.6 293.5
Investments 1.0 0.9
Investments in joint ventures:
Share of gross assets 13.5 12.8
Share of gross liabilities (8.9) (9.3)
________ ________
Share of net assets 4.6 3.5
Loans to joint ventures 2.6 3.8
________ ________
Total investment in joint ventures 7.2 7.3
________ ________
490.4 487.6
Current assets
Stocks 4.8 6.3
Debtors 134.7 141.7
Cash at bank and in hand 3.7 2.2
________ ________
143.2 150.2
________ ________
Creditors: amounts falling due within one year
Borrowings (14.3) (31.5)
Other creditors (131.6) (131.0)
________ ________
(145.9) (162.5)
________ ________
Net current liabilities (2.7) (12.3)
________ ________
Total assets less current liabilities 487.7 475.3
Creditors: amounts falling due after more than one year
Borrowings (278.9) (272.5)
Other creditors (0.3) (0.3)
________ ________
(279.2) (272.8)
Provisions for liabilities and charges 10 (67.8) (58.1)
________ ________
Net assets 140.7 144.4
________ ________
Capital and reserves
Called up share capital 23.4 23.3
Share premium account 93.0 92.3
Profit and loss account 24.3 28.5
________ ________
Equity shareholders' funds 140.7 144.1
Equity minority interests - 0.3
________ ________
Total equity 140.7 144.4
________ ________
* 2001 comparative figures have been restated. See note 12 for details.
Consolidated Cash Flow Statement
year ended 31 March 2002
Note 2002 2001
restated*
£m £m
Net cash flow from operating activities 11(a) 109.0 102.2
Returns from investments and servicing of finance
Interest paid (17.3) (15.5)
Interest received 0.7 0.2
________ ________
(16.6) (15.3)
Tax paid (15.4) (16.2)
Capital expenditure and financial investment
Purchase of tangible fixed assets (57.7) (53.0)
Sale of tangible assets 5.8 3.2
________ ________
(51.9) (49.8)
Acquisitions and disposals
Purchase of subsidiary undertakings and businesses 11(b) (3.8) (27.1)
Cash acquired with purchase of subsidiary undertakings and - 1.7
businesses
Purchase of and movements in loans with investments and 0.9 (0.8)
joint ventures
Sale of subsidiaries and joint ventures 11(c) - 0.7
________ ________
(2.9) (25.5)
Equity dividends paid (13.0) (12.5)
________ ________
Net cash flow before use of liquid resources and financing 9.2 (17.1)
Financing
Issue of ordinary share capital 0.8 0.7
Debt financing 11(d) (1.2) (6.8)
________ ________
Increase (decrease) in cash 8.8 (23.2)
________ ________
Reconciliation of net cash flow to movement in net debt 11(e)
Increase (decrease) in cash in the year 8.8 (23.2)
Debt financing 11(d) 1.2 6.8
_____ _____
Change in net debt resulting from cash flows 10.0 (16.4)
Financing acquired with subsidiaries - (4.2)
Amortisation of loan fees (0.5) (0.5)
Exchange rate gain (loss) on net debt 2.8 (7.9)
_____ _____
Movement in net debt in the year 12.3 (29.0)
Net debt at 31 March 2001 (301.8) (272.8)
_____ _____
Net debt at 31 March 2002 (289.5) (301.8)
________ ________
* 2001 comparative figures have been restated. See note 12 for details.
Reconciliation of Movements in Shareholders' Funds
at 31 March 2002
Note 2002 2001
restated
£m £m
Profit for the period 14.8 20.1
Equity dividends 7 (13.3) (12.9)
________ ________
1.5 7.2
Issue of share capital 0.8 0.7
Goodwill written off (see note below) (4.6) -
Currency translation (loss) gain (1.6) 3.2
Movements in goodwill: currency translation adjustment 0.5 (1.6)
________ ________
Net movement in equity shareholders' funds (3.4) 9.5
________ ________
Opening equity shareholders' funds - as previously reported 152.1 142.2
Prior year adjustment (see note 12) (8.0) (7.6)
________ ________
Opening equity shareholders' funds - restated 144.1 134.6
________ ________
Closing equity shareholders' funds 140.7 144.1
________ ________
The goodwill written off to reserves in the period relates to the final
determination of the consideration on the Group's acquisition of Page s.a. in
1998. The original goodwill on this acquisition was written off to reserves in
that year, before the introduction of FRS 10 - Goodwill and Intangible Assets.
Statement of Total Recognised Gains and Losses
at 31 March 2002
2002 2001
restated
£m £m
Profit for the period 14.8 20.1
Currency translation (loss) gain on net investments (including (4.4) 11.1
goodwill)
Currency translation gain (loss) on borrowings 2.8 (7.9)
________ ________
Total recognised gains and losses relating to the period 13.2 23.3
________ ________
Notes to the Accounts
1 Status of financial statements
The figures and financial information for the year ended 31 March 2002 are
extracted from but do not constitute the statutory financial statements for that
year. Those financial statements have not yet been delivered to the Registrar,
but include the auditors' report which was unqualified and did not contain a
statement under Section 237 (2) or (3) of the Companies Act 1985. The figures
and financial information for the year ended 31 March 2001 included in the
preliminary announcement are extracted from but do not constitute the financial
statements for that year. Those financial statements have been delivered to the
Registrar and included the auditors' report which was unqualified and did not
contain a statement under Section 237 (2) or (3) of the Companies Act 1985.
2 Segmental analysis
The Group operates in one segment, Waste Management, in the United Kingdom,
Belgium and The Netherlands.
2002 2001
£m £m
(a) Turnover by origin and by destination of service
United Kingdom:
- Waste services 233.5 218.5
- Chemical services 38.7 41.1
________ ________
United Kingdom 272.2 259.6
Belgium 88.4 88.2
The Netherlands 167.9 154.6
________ ________
528.5 502.4
________ ________
Share of joint venture turnover 7.2 6.5
________ ________
(b) Operating profits
Trading profits:
United Kingdom:
- Waste services 36.1 32.1
- Chemical services (4.0) (1.4)
________ ________
United Kingdom 32.1 30.7
Belgium 13.1 14.7
The Netherlands 25.0 24.1
Central Services (3.8) (3.8)
________ ________
Operating profit before exceptional items and goodwill 66.4 65.7
amortisation
Exceptional costs - (0.8)
Goodwill amortisation (10.0) (9.4)
________ ________
Total operating profit 56.4 55.5
________ ________
United Kingdom:
- Waste services 33.9 29.6
- Chemical services (4.1) (2.1)
________ ________
United Kingdom 29.8 27.5
Belgium 12.5 14.2
The Netherlands 18.2 17.6
Central Services (4.1) (3.8)
________ ________
Total operating profit 56.4 55.5
Non-operating exceptional items (8.4) 0.7
________ ________
Profit before finance charges 48.0 56.2
Finance charges - interest (18.8) (18.6)
Finance charges - other (2.3) (2.0)
________ ________
Profit on ordinary activities before taxation 26.9 35.6
________ ________
At 31 March 2002 At 31 March 2001
Restated
£m £m
(c) Net assets
United Kingdom:
- Waste services 162.5 149.6
- Chemical services 36.1 31.0
________ ________
United Kingdom 198.6 180.6
Belgium 34.6 36.9
The Netherlands 220.2 229.3
________ ________
Net operating assets 453.4 446.8
Unallocated net assets (liabilities):
Assets under the course of construction 8.0 29.7
Net debt (289.5) (301.8)
Other unallocated net liabilities (31.2) (30.3)
________ ________
Net assets 140.7 144.4
________ ________
Other unallocated net liabilities include debtors and creditors relating to
taxation and dividends, and an element of capitalised goodwill.
3 Exceptional items
2002 2001
£m £m
Operating items:
Reorganisation costs - (0.8)
________ ________
Non-operating items:
Site closure provision (3.0) -
Impairment of tangible fixed assets (5.4) -
Profit on sale of operations - 0.7
________ ________
(8.4) 0.7
________ ________
The exceptional costs in 2002 arise on the closure of operations at the
Pontypool site in the United Kingdom.
4 Finance charges - interest
2002 2001
£m £m
Net interest payable:
Interest payable on bank loans and overdrafts repayable in five years 13.6 16.2
Interest payable on other loans 5.6 2.3
Share of interest of joint ventures 0.3 0.3
________ ________
19.5 18.8
Interest receivable (0.7) (0.2)
________ ________
18.8 18.6
________ ________
5 Finance charges - other
Other finance charges relate to the unwinding of the discount on long term
landfill liabilities of £1.8m (2001: £1.5m) and the amortisation of bank fees of
£0.5m (2001: £0.5m).
6 Taxation
The taxation charge based on the profits for the year is made up as follows:
2002 2001
restated
£m £m
Corporation tax: UK 30% (2001: 30%)
- current year 3.1 5.5
- prior year (1.1) -
Overseas 9.5 10.4
Deferred tax 0.2 (0.6)
Joint ventures 0.4 0.2
________ ________
12.1 15.5
________ ________
The deferred taxation charge for 2001 has been restated following the adoption
of FRS 19 - Deferred Taxation. See note 12 for details.
7 Equity dividends
2002 2001
£m £m
Interim dividend of 1.90p per ordinary share (2001: 1.85p) 4.4 4.3
Proposed final dividend of 3.80p per ordinary share (2001: 3.70p) 8.9 8.6
________ ________
13.3 12.9
________ ________
8 Earnings per share
Basic earnings per share are calculated by dividing the profit for the period by
the average number of shares in issue during the period.
2002 2001
restated
Calculation of basic earnings per share
Profit for the period (£m) 14.8 20.1
Exceptional items (net of tax) (£m) 5.9 (0.1)
Goodwill amortisation (£m) 10.0 9.4
________ ________
Earnings before exceptional items and goodwill amortisation (£m) 30.7 29.4
________ ________
Average number of shares in issue during the period 233.4m 232.8m
Basic earnings per share (pence) 6.3p 8.6p
Adjusted basic earnings per share before exceptional items and goodwill 13.2p 12.6p
amortisation (pence)
________ ________
Calculation of diluted earnings per share
Average number of shares in issue during the period 233.4m 232.8m
Effect of share options in issue 0.5m 5.0m
________ ________
Total 233.9m 237.8m
________ ________
Diluted earnings per share (pence) 6.3p 8.5p
________ ________
9 Acquisitions
The book values of net assets for the four acquisitions made by the Group during
the year, and their provisional fair value to the Group, were as follows:
Book value at date of Fair value Provisional fair
acquisition adjustments value to the Group
£m £m £m
Tangible assets 1.0 - 1.0
Debtors 1.5 - 1.5
Other liabilities (2.8) - (2.8)
Long term provisions - (5.0) (5.0)
________ ________ ________
(0.3) (5.0) (5.3)
________ ________
Goodwill 8.6
________
Cash consideration (including costs) 3.3
________
The fair value adjustments arise on the acquisition of Argyll & Bute Waste
Management Services where remediation and restoration work on landfill sites is
required.
In addition to the above, the Group also purchased the minority interest held in
a subsidiary undertaking, Andre de Vriendt s.a., for £0.5m cash. This gave rise
to £0.2m of goodwill.
10 Provisions for liabilities and charges
Site restoration Aftercare Reorganisation Onerous Deferred Total
leases taxation
£m £m £m £m £m £m
At 31 March 2001 - restated 16.2 23.7 - 0.4 17.8 58.1
Provided - cost of sales 2.7 0.5 - - - 3.2
- finance charges 0.7 1.1 - - - 1.8
- exceptional costs - - 3.0 - - 3.0
- taxation - - - - 0.2 0.2
Utilised (4.1) - (1.1) - - (5.2)
Acquired businesses 5.0 - - - - 5.0
New landfill sites 1.8 - - - - 1.8
Exchange rate movements - - - - (0.1) (0.1)
________ ________ ________ ________ ________ ________
At 31 March 2002 22.3 25.3 1.9 0.4 17.9 67.8
________ ________ ________ ________ ________ ________
The deferred taxation provision at 31 March 2001 has been restated following the
adoption of FRS 19 - Deferred Taxation. See note 12 for details.
11 Notes to the cash flow statement
2002 2001
restated
£m £m
(a) Net cash flow from operating activities
Total operating profit 56.4 55.5
Amortisation of intangible assets 10.0 9.4
Depreciation of fixed assets included in operating 43.2 42.1
profits
Provision for aftercare and site restoration 3.2 3.1
________ ________
Earnings before interest, taxation, depreciation and 112.8 110.1
amortisation (EBITDA)
Gain on sale of fixed assets (0.7) (0.2)
Decrease (increase) in stocks 1.5 (1.6)
Decrease (increase) in debtors 3.8 (11.8)
(Decrease) increase in creditors (1.6) 8.5
Utilisation of provisions (5.2) (1.7)
Share of profits of joint ventures (1.6) (1.1)
________ ________
Net cash flow from operating activities 109.0 102.2
________ ________
(b) Subsidiary undertakings and businesses purchased during the year
Tangible fixed assets 1.0 8.7
Net liabilities assumed (6.3) (2.9)
Buy-out of minority interest 0.3 -
________ ________
Net (liabilities) assets acquired (including £Nil net (5.0) 5.8
borrowings (2001: £2.5m net borrowings)
Goodwill capitalised 8.8 17.5
________ ________
Total estimated consideration 3.8 23.3
Consideration in respect of prior year acquisitions - 3.8
________ ________
Net cash consideration 3.8 27.1
________ ________
(c) Sale of subsidiaries and joint ventures
Proceeds of sale less costs of sale - 0.7
________ ________
(d) Analysis of financing
Short term loan repayments (9.9) (3.8)
Long term loan advances 79.8 -
Long term loan repayments (70.4) (4.9)
Finance lease net (repayments) advances (0.7) 1.9
________ ________
Net cash flow from debt (1.2) (6.8)
________ ________
(e) Analysis of net debt in the balance sheet
At 31 March Cash flows Non cash items At 31 March
2001 2002
£m £m £m £m
Cash at bank and in hand 2.2 1.5 - 3.7
Overdrafts (20.1) 7.3 - (12.8)
________
8.8
________
Debt due within one year (10.4) 9.9 - (0.5)
Debt due after more than one year (271.2) (9.4) 2.3 (278.3)
Finance leases (2.3) 0.7 - (1.6)
________
1.2
________ ________ ________ ________
Total (301.8) 10.0 2.3 (289.5)
________ ________ ________ ________
Non cash items comprise the amortisation of loan fees of £0.5m and exchange
gains on translation of long term loans in currencies other than sterling of
£2.8m.
12 New accounting standards and changes in accounting policies
FRS 17 - Retirement Benefits is applicable to the Group for the first time this
year. As permitted, the Group has elected to apply the transitional arrangements
for adoption of the FRS. Accordingly, no change has been made to the accounting
policy for retirement benefits.
FRS 18 - Accounting Policies has been adopted in the current year but this did
not require any change in accounting policy.
FRS 19 - Deferred Taxation has been adopted for the first time in these
financial statements. As required by the standard, deferred tax has been
calculated using the full provision approach rather than the partial provision
approach previously employed. This change has been dealt with as a prior year
adjustment and previously reported figures have been restated accordingly. The
reported profit for the year ended 31 March 2001 has been reduced by £0.4m and
shareholders' funds at 31 March 2001 have been reduced by £8.0m due to the
resulting increase in the deferred tax liability.
Expenditure incurred on long term engineering works at United Kingdom landfill
sites has been classified as tangible fixed assets in 2002. Previously this
expenditure had been classed as a prepayment debtor. A prior year adjustment has
been made to increase the net book value of tangible fixed assets by £4.1m as at
31 March 2001 with a corresponding decrease to debtors. The depreciation charge
for 2001 has been increased by £4.2m offset by a reduction to other cost of
sales. There was no net impact on the reported profits for 2001. The Directors'
believe that the revised classification more appropriately reflects the nature
of the expenditure which is then amortised over the relevant usage at the
landfill site.
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