Final Results

RNS Number : 4626V

Shanks Group PLC

29 May 2008

 



29 May 2008

Company Announcement - Preliminary Results 2008

Shanks Group plc, Europe's largest listed independent waste management company, today issues its results for the year ended 31 March 2008.

Financial Highlights

• 11% increase in Headline Profit* to £44.8m

• 11% increase in revenue to £564m

• 10% increase in adjusted earnings per share** to 12.9p

• 5% increase in full year dividend to 6.2p per share

Business Highlights

• UK trading profit up 109% as rising landfill tax provides good pricing headroom.

• Dutch trading profit up 18% with strong contribution from hazardous waste and recent acquisitions.

• Orgaworld successfully launched in Canada with 200,000 tonnes per annum of compostable material already secured under long term contracts and good pipeline of future opportunities.

• Trading profit from Belgium down by 6% reflecting declining contribution from landfill but other Belgian activities up by more than 20%. 

• Strategy of developing alternative profit streams to replace Belgian landfill bolstered by post year end acquisition of Foronex, a leading provider of wood based products in Belgium and France.

• Flagship MBT facility in East London fully operational and Heads of Terms signed with Novera for the offtake of SRF.

* Profit before amortisation of acquisition intangibles, exceptional items and tax.

** Before amortisation of acquisition intangibles and exceptionals, net of associated tax

Commenting on the results, Tom Drury, Group Chief Executive of Shanks Group plc, said:

'These are a strong set of results founded on good performance in our European businesses and exceptional growth in the UK. Setting aside the Belgian landfill, underlying organic growth in the Group was 11%.  This demonstrates the strong future growth potential for the Group as we align the business to governments' agendas for developing sustainable waste management strategies. These tend to be characterised by higher levels of recycling, increased recovery of renewable energy from waste and reduced reliance on landfill. Shanks has, and will continue to develop, the expertise and technologies to offer these solutions.

The successful launch of Orgaworld in Canada has proven our ability to transfer technologies to other countries with different legislative regimes. Rising landfill tax in the UK now provides the right economic framework for us to transfer our expertise and technologies in recycling and organic treatment from our Benelux countries to the UK. This will help us to continue to increase our UK margins, which this year doubled to 5%.

The Board is confident concerning the future prospects for the Group. The full year effect of the recent decline in landfill volumes in Belgium next year should be more than compensated for by improved performances in the rest of the Group. As a result the Board continues to expect a good overall performance in 2008/9 with increasing growth thereafter as the Group benefits from its more focused investment plans in the future.

We will continue to pursue a strategy to ensure good returns for shareholders as well as investing for the future growth of the Group at this exciting stage of its corporate life.' 

Chairman's Statement

Financial Performance

I am pleased to be able to report upon another good set of financial results for the year to 31 March 2008. Group revenue increased by 11% to £564m and headline profit rose 11% to £44.8m. This improvement reflects strong trading in the majority of our businesses, the principal exception being landfill in Belgium which, as expected, reported a reduced contribution as new legislative restrictions came into effect. Adjusted basic earnings per share improved by 10% to 12.9p after a reduction in the headline tax rate of 1% to 32%.

Recognising the improving long term growth prospects of the Group the Board in future intends to follow a progressive dividend policy, which balances earnings growth and cash generation with the future investment needs of the Group. This year your Board is recommending a final dividend of 4.2p per share which together with the interim dividend produces a total dividend of 6.2p, a 5% increase on last year.

People

The good results for the year reflect the efforts of all our employees across the Group. Shanks is a service business and delivering consistently high levels of customer service in such an environment is only possible with a highly committed workforce. On behalf of the Board I would like to thank them for their hard work and commitment.

During the year Tom Drury took over from Michael Averill as Group Chief Executive. The Board is very pleased with the smooth transition and the fresh perspective that he has brought to the Group. At the Board's request Tom undertook a thorough review of the Group's activities and we believe that this has provided us with clarity of direction and focus for our investment plans going forward. This is described in the Chief Executive's report and the Business Review.

At the end of March 2008 the Head of our Dutch business Fred Knitel retired from the Group after 14 years of dedicated service to Shanks and its predecessor companies. Fred led the development of our Dutch business as managing director from 2000 and was successful in positioning Shanks as one of the leading waste management companies in the Netherlands with a clear market focus and strong financial performance. We would like to thank Fred for his contribution to the Group and wish him well for the future. 

I am delighted that we were able to replace Fred though an internal appointment and on 1 April 2008 Michael van Hulst was appointed managing director of the Netherlands. Michael was previously general manager of Icova, one of our largest companies in the Netherlands and has 17 years experience in the waste industry.

Corporate Responsibility

Shanks operates in a highly regulated industry which rightly requires high standards of health and safety and environmental compliance. It is also an industry that is undergoing considerable change and is increasingly seen as an important contributor to supporting governments' efforts to manage resources and control climate change. Shanks is committed to playing its fullest part in this challenge and achieving the highest professional standards in all its operations. Whilst we have a proud record in this area we will continue to examine ways to improve further our performance and measure our contribution to a society based upon more sustainable waste management techniques. We will be setting specific targets during 2008.  

It was pleasing during the year to report a 21% reduction in reportable accident rate, with particular improvements in our Belgian business. Whilst there were some enforcement actions by regulators relating to our environmental permits, these were relatively minor and our performance remains good in this area compared to our peers. Finally, last year we submitted a response to the Business in the Environment (BiE) index of corporate environmental engagement and I am pleased that we improved our assessment from a silver to a gold band.

Outlook

The Board is confident concerning the future prospects for the Group.  The full year effect of the recent decline in landfill volumes in Belgium should be more than compensated by improved performances in the rest of the Group. As a result the Board continues to expect a good overall performance in 2009 with increasing growth thereafter as the Group benefits from its more focused investment plans.

Chief Executive's Statement

Background

I joined as Group Chief Executive on 1 October 2007 and since then have managed to visit all of our major sites in the Netherlands, Belgium, Canada and the UK and met many of the people upon whom we rely for our success. My overall impression is that Shanks is a great company to be joining at an exciting time for the industry. Governments across the world are urging the waste industry to support them in recovering more resources and energy from the things that society throws away. They are providing economic incentives to increase recycling through taxation on landfill and in some cases incineration, alongside subsidies for treatment processes that support the production of renewable energy from waste. The new European Directive on Waste currently moving through the European Parliament will provide further legislative support for this trend.

Shanks is well placed to prosper in this changing environment. Our Group operates in countries with the highest recycling rates in Europe and has experience of a number of treatment processes capable of producing renewable energy from waste. We have set ourselves the aspiration to be regarded as Europe's leading sustainable waste management company and will be working hard over the coming years to achieve this goal. 

Strategy

Having reviewed the business during my first six months I believe there is an exciting opportunity to generate attractive returns for investors by focusing our investment around sustainable waste management in all of the countries in which we operate. There is sufficient market opportunity for us to generate high organic growth rates from such investment with a lower risk profile than a growth strategy based solely on acquisitions.  

Our Group strategy going forward is therefore a simple one: to deliver organic growth by investing in assets that support sustainable waste management and are capable of delivering attractive returns on capital. Alongside this we will actively share expertise and technology across the Group whilst retaining a very strong focus on keeping our unit costs amongst the lowest in the industry. Finally, we will use acquisitions to improve capacity utilisation (our 'tuck-in' model) or to secure capabilities that re-orient the Group to higher growth activities.

The potential for this growth strategy was shown in this year's financial results with all major business units growing well ahead of inflation other than our Belgian landfill which, as expected, delivered a reduced contribution.

Our investments in each of our country operations during the year reflected the strategic intent highlighted above.

The Netherlands

Strategy -

Maintain our premium margins and grow our Solid and Hazardous Waste businesses ahead of GDP with higher growth coming from Orgaworld and tuck-in acquisitions.

Our Dutch business generated a trading margin of 13% in 2008, a performance which compares favourably with its peers. Our goal is to maintain this premium position whilst growing the business.

The acquisition of Orgaworld in April 2007 for €30m plus a five year earn-out of up to €20m provides the Group with strong capabilities to process source segregated organic waste using advanced composting or anaerobic digestion technologies. These are technologies that have very attractive growth potential in a number of international markets. Already a leading player in the Dutch organics market serving both municipal and commercial customers, we have been able to achieve a strong market position in the Canadian market through the application of Orgaworld's composting product. Long term contracts in Toronto and Ottawa with a total contract value of approximately Can$250m were secured during the year. We are also actively looking to introduce its products into the UK and Belgian markets.

We invested a further €18m (including €3m of deferred payments) in 4 small tuck-in acquisitions in the Netherlands aimed at improving capacity utilisation and increasing our local market share. Our commitment to keeping at the forefront of recycling in the Dutch market was demonstrated by the completion of an investment of €3m in the latest recycling technology at our Vliko plant in Leiderdorp.

Belgium

Strategy -

Grow our Industrial & Commercial (I&C) Solid Waste business to replace declining landfill profits by securing competitive disposal outlets and through renewable energy production.

In 2008 landfill accounted for around a third of the Belgian profits, already down from nearly 50% in 2007.  The contribution from this activity is falling as the government seeks to ban municipal biodegradable waste from going to landfill and we are therefore creating profitable alternatives by focusing on processing I&C, organic and wood waste in a way that creates a fuel source or renewable energy at a lower overall cost than traditional alternatives.

We invested in organic growth projects to produce solid recovered fuel (SRF) from I&C customers at our Ghent plant and in the provision of anaerobic digestion and wastewater treatment at our Roeselare plant. Both of these will generate energy from waste and support strong growth for our non-landfill I&C business in Belgium.

Shortly after the year end we announced the acquisition of the Foronex Group for a consideration of €23m.  Foronex is a leading player in the wood waste and by-products market in the Benelux and a significant provider of wood based products to the rapidly growing energy from biomass marketplace. We see good opportunities to support the continued growth of this exciting business and to access more profitable outlets for the 230,000 tonnes of waste wood we currently process each year in the Benelux.

UK

Strategy -

Make Shanks the preferred alternative to landfill. By establishing a network of processing centres based on the Shanks Benelux model.

Having sold its landfill assets in 2004, Shanks is well positioned to take advantage of rising landfill taxation to divert waste we collect to processing centres that we will create similar to those in our Benelux businesses.  We will continue to grow our municipal treatment business through participation in Public Finance Initiative (PFI) projects.

In November 2007 we completed the acquisition of Wastecom for £11m to provide us with advanced recycling capability in the Kettering area. Building on the success of recent investments in Scotland, this further supports our belief that there is a profitable opportunity in the UK to develop a strong recycling business using our expertise from the Benelux. In April 2008 landfill tax rose by the highest amount ever (£8 per tonne) on its way to a target of £48 per tonne by 2010. The government has confirmed its commitment to further increases beyond this point and this provides the right incentive for investment in recycling and reprocessing centres. We have targeted three regions in the UK which in the short to medium term will provide the geographic focus to build our business. These are the Central Belt of Scotland, the East Midlands and the Northern Home Counties. We have identified the sites that we would like to develop and will be applying for planning permission shortly. These, together with continued tuck-in acquisitions, will support the development of a profitable UK recycling business.

We continue to believe that the UK PFI market offers attractive opportunities for Shanks. Over the next ten years the government estimates £10bn of funding will be required to upgrade the infrastructure needed to divert the biodegradable municipal solid waste away from landfill. Shanks has taken a strong position in the market through its proposition based upon the innovative EcoDeco mechanical biological treatment (MBT) technology. We believe this remains a very attractive solution to the needs of local authorities and so creates a strong pipeline of opportunities as authorities move to meet their 2010 and 2013 reduction targets. We continue our negotiations with Cumbria County Council where we are preferred bidder and expect this opportunity to reach financial closure during the current financial year.

Culture

Shanks has a highly decentralised structure that has allowed it to keep its central overheads low and maintain an entrepreneurial culture in its operating units. This, in my view, has been a strength of Shanks and one which I intend to retain. Waste collection and processing remains essentially a local business and it is important that decision making is as close to the customer as possible. It has also proved an important factor in persuading entrepreneurial managers who join the Group through acquisition to remain with us. 

This said however, our strategy going forward will be to focus on building recycling and energy recovery activities across the Group and it makes good sense to share the technologies and years of expertise that we have within the Group. The Executive Committee, which consists of the managing directors of the three countries together with myself and the Group Finance Director, meets regularly and part of its remit is to ensure that such knowledge transfer takes place. We will focus on specific projects and opportunities and will not seek to centralise activities that are best done locally, thereby avoiding the build-up of unnecessary overhead. 

Performance

We are committed to producing attractive returns for the owners of the business. We have analysed our portfolio and have identified where the best opportunities for maximising returns on capital employed (ROCE) are. Whilst our current overall ROCE of 12% is ahead of our weighted average cost of capital (WACC), we believe that we can and should generate greater returns from our capital base and will be looking for our new investments to contribute to this improvement alongside improving the cash generation and profitability of our underlying existing businesses.

BUSINESS REVIEW

Key Objectives

The key objectives over the coming three years are:

• grow UK Solid Waste trading margins (post overheads) to a high single digit percentage;

• launch Orgaworld in the UK;

• grow trading profit from non-landfill Belgium business by an average of 15% per annum;

• win PFI contracts in the UK increasing residual municipal waste under management to 1.5m tonnes per annum (currently 0.6m tonnes).

By achieving the above the Group will maintain strong underlying organic growth.

2008 Operating Review

In order to come into line with general practice amongst listed companies we have redefined our headline profit to exclude amortisation of intangible assets, excluding landfill void and computer software, arising on acquisition.  This charge is also excluded from operating profit in the derivation of trading profit. The definitions of these two financial measures therefore become:

Trading Profit -

operating profit before amortisation of acquisition intangibles and exceptional items;

Headline Profit -

profit before tax, amortisation of acquisition intangibles and exceptional items, where the latter includes the IAS 39 finance income or charge relating to the mark to market of interest rate swaps on PFI borrowings.

In the years prior to 2007 the impact of this reclassification is immaterial.

Due to the significant impact of movements in foreign currency exchange rates, commentary on the operating performance of the Netherlands and Belgium businesses has been given in Euros to demonstrate the underlying trading performance.

Thanks are once again due to the staff who have responded superbly to the industry's rapidly changing conditions to deliver a 18% improvement in trading profit which increased £8.6m to £55.9m (2007: £47.3m). Tables 1 and 2 below give an overview of the Group's operating returns by geographical region.

Table 1: Revenue and Trading Profit by Geographical Region
	Revenue					Trading Profit
	2008	2007	Variance			2008	2007	Variance
	£m	£m	£m	%		£m	£m	£m	%
Netherlands	295	253	42	17%		37.7	32.0	5.7	18%
Belgium	125	124	1	1%		16.2	17.3	(1.1)	-6%
United Kingdom	145	133	12	9%		6.9	3.3	3.6	109%
Canada	1	-	1	n/a		0.1	-	0.1	n/a
Central Services	(2)	(1)	(1)	-100%		(5.0)	(5.3)	0.3	6%
Total	564	509	55	11%		55.9	47.3	8.6	18%

Table 2:	Operating Cashflow and Return on Capital Employed net of PFI
	Project Financing
		Operating Cashflow1					Return on Capital Employed2
		2008	2007	Var			2008	2007	Var
		£m	£m	£m			%	%	%
Netherlands		36.2	33.2	3.0			10	11	(1)
Belgium		18.6	21.8	(3.2)			60	60	0
United Kingdom		(15.0)	(14.3)	(0.7)			11	10	1
Canada		(1.9)	-	(1.9)			3	n/a	n/a
Central Services		(4.6)	(5.6)	1.0			n/a	n/a	n/a
Total		33.3	35.1	(1.8)			12	13	(1)

1    Net cashflow after project financing before core financing, tax and acquisitions.

2    Trading profit divided by average net assets excluding debt, tax and pension obligations.

The Netherlands

Trading profit in the Netherlands improved 18% to £37.7m (2007: £32.0m) of which £1.4m (4%) is attributable to exchange.  Tables 3 and 4 provide a breakdown by activity of the key financial performance indicators.

Table 3: Netherlands Revenue and Trading Profit by Activity
	Revenue					Trading Profit
	2008	2007	Variance			2008	2007	Variance
	€m	€m	€m	%		€m	€m	€m	%
Solid Waste	269	249	20	8%		42.6	39.3	3.3	8%
Hazardous Waste	143	127	16	13%		13.4	12.3	1.1	9%
Organic Treatment	10	-	10	n/a		2.3	-	2.3	n/a
Country Central Services	(4)	(3)	(1)	33%		(4.9)	(4.4)	(0.5)	-11%
Total (€m)	418	373	45	12%		53.4	47.2	6.2	13%
Total (£m at avge FX rate)	295	253	42	17%		37.7	32.0	5.7	18%

Table 4: Netherlands Trading Margins and Return on Capital Employed by Activity
(after allocation of Country Central Services)
	Trading Margin				ROCE
	2008	2007	Variance		2008	2007	Variance
	%	%	%		%	%	%
Solid Waste	15	15	-		10	11	(1)
Hazardous Waste	8	8	-		13	12	1
Organic Treatment	21	n/a	n/a		7	n/a	n/a
Netherlands Total	13	13	-		10	11	(1)

In Solid Waste four tuck-in acquisitions were completed during the year for a total gross consideration of €18m (including €3m of deferred payments). These combined with the full year effect of last year's acquisitions contributed some €2.9m of additional trading profit.  The full year effect of the acquisition of Smink Beheer BV on 30 June 2006 was relatively modest as last year's result benefited from a large job during the months immediately following the acquisition.

Profits from the existing Solid Waste businesses have improved slightly by 1%.  There have been a number of factors contributing to this performance. In May 2007 the Amsterdam municipal incinerator commissioned an additional 0.6m tonnes per annum of capacity. A significant proportion of this capacity has been taken by the major waste companies, including Shanks, on long term agreements at a rate below current market rates. This has increased competitive pressure for commercial volumes in the market place. The construction industry, a major source of customers, remains buoyant although competition for volumes has also increased here as operators from outside the Randstad area, attracted by the new lower incineration prices in Amsterdam, backload construction and demolition waste for recycling. Spiralling fuel costs and increasing labour costs have also put pressure on margins.

Our Hazardous Waste activities performed extremely well during the year showing a 9% year on year improvement. Our industrial cleaning business Reym continued to benefit from increased activity in the petrochemical sector, stimulated by ever increasing oil prices.  ATM, our one million tonne per annum treatment facility in the south of the Netherlands, benefited from buoyant market conditions with increases in both volumes and prices.

In April 2007 the Group acquired the organic waste treatment business, Orgaworld, for a gross consideration of €30m, €5m of which is deferred, with the potential for further payments up to €20m dependent on future profits growth. The bulk of the business is in the Netherlands, however it also included a start up operation in Canada more detail of which is given below. The Dutch operations have performed slightly below the acquisition plan following the contamination of a batch of inputs at one of its anaerobic digestion plants. This issue has now been resolved and performance is back in line with our acquisition plan. 

Belgium

Trading profit reduced 6% on last year to £16.2m (2007: £17.3m).  This reduction is net of a £0.6m (3%) increase due to exchange. Tables 5 and 6 provide a breakdown by activity of the key financial performance indicators.

Table 5: Belgium Revenue and Trading Profit by Activity
	Revenue					Trading Profit
	2008	2007	Variance			2008	2007	Variance
	€m	€m	€m	%		€m	€m	€m	%
Solid Waste	109	104	5	5%		10.4	8.6	1.8	21%
Landfill & Power	26	31	(5)	-16%		11.9	16.3	(4.4)	-27%
Hazardous Waste	58	64	(6)	-9%		4.7	5.0	(0.3)	-6%
Sand Quarry	3	4	(1)	-25%		1.0	1.2	(0.2)	-17%
Country Central Services	(19)	(21)	2	-10%		(5.0)	(5.7)	0.7	12%
Total (€m)	177	182	(5)	-3%		23.0	25.4	(2.4)	-9%
Total (£m at avge FX rates)	125	124	1	1%		16.2	17.3	(1.1)	-6%

Table 6: Belgium Trading Margins and Return on Capital Employed by Activity
(after allocation of Country Central Services)
	Trading Margin				ROCE
	2008	2007	Variance		2008	2007	Variance
	%	%	%		%	%	%
Solid Waste	7	5	2		18	13	5
Landfill & Power	44	50	(6)		n/a1	n/a1	n/a
Hazardous Waste	5	5	-		20	22	(2)
Sand Quarry	30	30	-		n/a1	n/a1	n/a
Total	13	14	(1)		60	60	-

1 Due to provisions for environmental liabilities these activities have net liabilities so ROCE is not a valid measure

Solid Waste has performed extremely well during the period aided by a significant industrial disposal contract and progress on prices. During the year two small tuck-in acquisitions with a combined gross consideration of €1m were completed. These together with the full year effect of last year's acquisition account for €0.5m (6%) of the trading profit increase.

As predicted in previous reports, the contribution from our Landfill & Power business has declined sharply in the year ended 31 March 2008.  Several factors contributed to this: bonus volumes received in the prior year did not repeat; increased competition from other landfills in the region resulted in lost inputs and finally, from January 2008 the Walloon Region introduced new restrictions on the landfilling of municipal waste further reducing inputs in the last quarter. Landfill volumes are now believed to have stabilised, however next year is likely to show a further decline in profitability due to the full year effect of the current reduced inputs. In the longer term we expect a further decline in landfill profits as landfill tax is increased and further restrictions come into force from 2010.

Hazardous Waste, whilst still generating reasonable returns on invested capital, had a difficult start to the year due to stiff competition. In the last quarter this has eased and the outlook is now more promising.

At the sand quarry volumes were down due to reduced construction activities in the surrounding area. 

UK

Trading profit in the UK improved 109% to £6.9m (2007: £3.3m). £3.4m of this increase is attributable to the operations which increased 77% to £7.8m, the remaining £0.2m is due to lower PFI bidding costs.  Tables 7 and 8 provide a breakdown by activity of the key financial performance indicators.

Table 7: United Kingdom Revenue and Trading Profit by Activity
	Revenue					Trading Profit
	2008	2007	Variance			2008	2007	Variance
	£m	£m	£m	%		£m	£m	£m	%
Solid Waste	75	70	5	7%		6.4	4.6	1.8	39%
Landfill & Power	16	13	3	23%		5.0	3.8	1.2	32%
Hazardous Waste	11	10	1	10%		1.7	1.2	0.5	42%
PFI Contracts	43	40	3	8%		0.4	0.2	0.2	100%
Country Central Services						(5.7)	(5.4)	(0.3)	-6%
UK Operations	145	133	12	9%		7.8	4.4	3.4	77%
PFI Bid Team						(0.9)	(1.1)	0.2	18%
TOTAL	145	133	12	9%		6.9	3.3	3.6	109%

Table 8: United Kingdom Trading Margins and Return on Capital Employed by Activity
(after allocation of Country Central Services)
	Trading Margin				ROCE
	2008	2007	Variance		2008	2007	Variance
	%	%	%		%	%	%
Solid Waste	3	-	3		5	1	4
Landfill & Power	33	28	5		48	37	11
Hazardous Waste	11	8	3		47	86	(39)
PFI Contracts	(2)	(2)	-		(1)	(5)	4
UK Operations	5	3	2		11	10	1

Solid Waste improved significantly on prior year with £1.3m (28%) of the increase coming from organic growth mainly driven by pricing. Acquisitions contributed a further £0.5m (11%) with a full year's contribution from the 2007 Scottish acquisitions and four months of contribution from the current year acquisition of Wastecom Ltd, a recycling business in the East Midlands acquired for a gross consideration of £11m.

Across the board recycling levels are increasing as we move towards our Benelux model of collection fleets feeding large regional recycling centres which allow waste to be diverted from landfill to more cost effective outlets. We see this as a significant competitive advantage as the market shifts to accommodate the escalation in the rate of landfill tax; now at £32 per tonne and scheduled to increase by £8 per tonne per annum for at least the next two years.

Landfill & Power improved due to increased waste inputs and additional green electricity production at our Avondale joint venture, in Scotland.

Hazardous Waste, which comprises our Contaminated Land Services business, improved due to the contribution from our 'soil hospital' outside Edinburgh, which opened in May 2007. The performance fell short of expectations due to a delay in work from the clean up of the sites for the 2012 London Olympics which has started in the final quarter but only contributed £0.1m of trading profit in the year.

The innovative Mechanical Biological Treatment (MBT) facilities used at two sites on the East London Waste Authority (ELWA) PFI contract and one on the Dumfries and Galloway (D&G) contract are now fully operational.  At ELWA the scheduled significant increase in gate fee came into effect in July 2007, which substantially increased the cash inflows from the contract. This only produced a limited uplift on trading profit as under IFRS accounting most of the increased income is allocated to repayment of the financial asset and the interest thereon.  Interest from the cement and other energy intensive industries in the SRF produced by the MBT process continues to increase and we have a secured long term outlet contract for 50k tonnes per annum, with negotiations at an advanced stage for a further 150k tonnes.  Whilst profits on our ELWA and Argyll and Bute (A&B) contracts are improving, these increases have been offset by a set back at D&G due to an interruption of inputs to a cement kiln in North Wales following a problem at the plant unrelated to the processing of SRF. This has resulted in a temporary increase in disposal costs for the contract. The operators of the facility in North Wales have made significant progress with repairs and it is expected that the kiln will be functioning again during the first quarter of the 2009 financial year. At the same time we are also pursuing alternative outlets for this SRF stream.

Country Central Services costs of £5.7m were net of disposal profits totalling £0.6m relating to several small surplus property sales. A similar amount was included in the 2007 cost of £5.4m.

Canada

As mentioned above the acquisition of Orgaworld in the Netherlands included a start up operation in Canada. At the time of the acquisition in April 2007 Orgaworld had already secured a 10 year contract with the City of York in Ontario to treat 33k tonnes per annum of source segregated organic municipal waste using tunnel composting. Since acquisition two further contracts have been won, a five year contract for Toronto for 70k tonnes per annum and a 20 year contract for Ottawa for 100k tonnes per annum. The construction of a facility in London Ontario to process York's waste was underway at the time of acquisition and started accepting waste in June 2007. This facility is currently being extended to handle the Toronto waste resulting in a combined facility capable of processing 150k tonnes per annum. The Ottawa contract will be serviced from a second CA$15m facility capable of processing 100k tonnes per annum in the outskirts of Ottawa. This is scheduled to be operational in summer 2009.

Group Central Services

Group Central Services costs reduced by £0.3m to £5.0m (2007 £5.3m) due to the non repeat of recruitment costs experienced last year associated with the appointment of new Board Directors.

Financial Review

Table 9: Summarised Group Income Statement
	2008	2007	Variance
	£m	£m	£m	%
Revenue	564	509	55	11
Operating profit	55.3	46.2	9.1	20
Exceptional profits on disposals	(1.9)	-	(1.9)	n/a
Amortisation of acquisition intangibles	2.5	1.1	1.4	127
Trading profit	55.9	47.3	8.6	18
Net financial income from PFI	0.7	0.1	0.6	>100
Core finance charges	(11.8)	(7.1)	(4.7)	-66
Headline Profit	44.8	40.3	4.5	11
Tax - Headline 32% (2007:33%)	(14.4)	(12.9)	(1.5)	-12
Headline profit after tax	30.4	27.4	3.0	11
Exceptional profits on disposals	1.9	-	1.9
Amortisation of acquisition intangibles (net of tax)	(1.9)	(0.9)	(1.0)
IAS 39 adjustment (net of tax)	(2.1)	4.8	(6.9)
Profit for the year	28.3	31.3	(3.0)

The major factors impacting revenue, trading and headline profit are summarised in table 10. Operating profit, which includes exceptional property disposals in the UK of £1.9m and amortisation of acquisition intangibles has increased 20% to £55.3m (2007: £46.2m).

Table 10: Revenue, Trading Profit and Headline Profit Bridge
	Revenue		Trading Profit		Headline Profit
	£m		£m		£m
2007	509	100%	47.3	100%	40.3	100%
Current year acquisitions	16	3%	2.9	6%	0.8	2%
Full year of prior year acquisitions	7	1%	1.5	3%	0.7	2%
Belgium landfill decline	(4)	-1%	(3.0)	-6%	(3.0)	-7%
Organic growth (excluding Belgium landfill)	21	4%	5.2	11%	4.4	11%
Exchange	15	3%	2.0	4%	1.6	4%
2008	564	111%	55.9	118%	44.8	111%

Details of the Group's trading performance and acquisitions are given in the Operating Review above.

Table 11 shows the average and year end exchange rates used to translate our foreign currency denominated results. The Euro has strengthened significantly verses Sterling particularly in the latter part of our financial year. This has caused a moderate 4% enhancement to Euro denominated profits; the impact on the Euro denominated year end balances is much more substantial at 17%. The Group only entered Canada during the current year so there has been no impact year on year.

Table 11: Exchange Rates
	2008	2007	Change
Euro:
Average	1.419	1.473	4%
Closing	1.254	1.474	17%
Canadian Dollar:
Average	2.044	n/a	n/a
Closing	2.039	n/a	n/a

Net Financial Income from PFI increased to £0.7m (2007:£0.1m). As shown in table 12 this comprises interest income on financial assets arising on the UK PFI contracts net of the interest charge on the PFI net debt before taking into account the International Accounting Standard (IAS) 39 change in market value of financial instruments (see below).

Table 12: Net Financial Income from PFI
	2008	2007	Variance
	£m	£m	£m	%
Interest income from financial assets	8.8	7.7	1.1	14
Interest charge on PFI net debt1	(8.1)	(7.6)	(0.5)	-7
Net Financial Income from PFI	0.7	0.1	0.6	>100

1    PFI net debt is the external net debt in the Special Purpose Vehicles set up to project finance the UK PFI contracts.

The £1.1m increase in interest income from financial assets results from the increase in the financial asset value driven by ongoing capital expenditure, principally on the ELWA project. The £0.5m increase in interest charge on PFI net debt reflects the higher average level of debt during 2008 than during 2007, despite the balance being lower at the year end than at the start of the year. PFI net debt rose during the first nine months as it funded the ongoing PFI capital expenditure then, in December 2007, the Group injected £23m of subordinated debt and equity into the ELWA PFI company which was used to repay project funding causing the fall at the year end.

Core Finance Charges increased £4.7m to £11.8m (2007 £7.1m), the main components of which are given in table 13.

Table 13: Core Finance Charges
		2008	2007	Change
		£m	£m	£m
Finance charge on core borrowings		(10.7)	(6.8)	(3.9)
Discount unwind on deferred consideration		(0.9)	(0.1)	(0.8)
Loan fee amortisation		(0.9)	(0.4)	(0.5)
Discount unwind on other long term provisions		(0.7)	(0.6)	(0.1)
Finance income from defined pension schemes		1.4	0.8	0.6
Core Finance Charge		(11.8)	(7.1)	(4.7)

The major factors behind the increase in the finance charge on core borrowings are detailed in table 14.

Table 14: Finance Charge on Core Borrowings Major Factor Analysis
		2008	2007	Change
		£m	£m	£m
Finance Charge on Core Borrowings		(10.7)	(6.8)	(3.9)
Major Factors:
	Increase in core borrowing levels			(2.5)
	Increase in bank interest rates			(1.0)
	Exchange			(0.4)
Total				(3.9)

The factors behind the increase in the level of core borrowing are covered in the cash flow section below. For reasons explained in the Treasury section below, a significant proportion of the Group's borrowings is in Euros and therefore attracts Euro denominated interest. The Sterling value of this has therefore increased due to the strengthening of the Euro. Over the last two years the Group has opted to leave a significant proportion of the debt on variable interest rates due to the forward profile of interest rate curves. The variable rate borrowings are at a margin over the London Inter Bank Offer Rates (LIBOR) the annual averages of which have risen by nearly 30% over the last two years.

Under IFRS all long term liabilities and provisions, except for deferred tax, have to be stated at current value. This involves discounting the nominal value of a future liability which then unwinds as time progresses. The Group uses a 5% discount rate, this being an estimate of long term interest rates. The acquisition of Orgaworld in April 2007 included a €25m deferred element €20m of which is dependent on achieving future profitability targets. The conditional element has been recognised in full at the acquisition date so is generating a significant finance charge even though the trading profits on which it depends will only arise in the future.

The average tax rate on headline profit fell to 32% (2007: 33%).  This was attributable to a full year of the reduction in the Dutch headline rate from 29.6% to 25.5% in January 2007.  The underlying rates of tax in the UK and Belgium remained unchanged at 30% and 34% respectively.  In Belgium the effective rate on landfill derived profits is higher as landfill tax is non-deductible for corporation tax. This is mitigated via a deduction for notional interest on Belgian equity. 

The exceptional disposal profits of £1.9m relate to the disposal of two surplus properties in the UK. These have been excluded from headline profit due to their exceptional size. There was no tax payable on these disposals as the capital gains arising were sheltered by significant brought forward capital tax losses within the Group.

The IAS 39 change in market value of financial instruments relates to interest rate swaps which fix the interest rate on PFI contract borrowing. At the financial 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 Group therefore protects itself against future fluctuations in interest rates by entering into interest rate swaps to match its future cash inflows and outflows.  Under IAS 39 these swaps must be valued at current market value irrespective of the commercial reasons for entering into them. Revaluation of these swaps can lead to large accounting gains or losses but does not affect the long term profitability of the contract as the Group has matched its long term revenue and costs. Whilst IAS 39 does allow these gains and losses to be taken directly to reserves, it is on the proviso that onerous verification requirements are fulfilled. The Group believes it is not worth expending significant resources fulfilling these requirements in respect of an item that does not reflect commercial reality.  These changes in value are excluded from our headline profit. There was a £2.9m adverse (2007: £6.9m favourable) change in the market value of these swaps during the year.

Cash Flow

Details of the Group's cash flow performance are summarised in Table 15 below.

Table 15: Summarised Group Cashflow
			2008		2007
	Core	PFI	Total		Total		Diff
	£m	£m	£m		£m		£m
Trading profit	57	(1)	56		47		9
Depreciation & landfill provisions	37	-	37		34		3
EBITDA	94	(1)	93		81		12
Working capital movement and other1	3	-	3		3		-
Net capital expenditure	(42)	(9)	(51)		(66)		15
Interest, tax & dividends	(34)	-	(34)		(30)		(4)
Underlying cashflow	21	(10)	11		(12)		23
Cross funding	(22)	22	-		-		-
Acquisitions	(48)	-	(48)		(65)		17
Discontinued / restructuring	-	-	-		(3)		3
Issue of shares	2	-	2		-		2
Net cashflow	(47)	12	(35)		(80)		45
Exchange	(32)	-	(32)		4		(36)
Debt Movement	(79)	12	(67)		(76)		9

1    Other comprises non-landfill provision movements and add back of share based payments and non-exceptional disposal profits.

The underlying cash generated by the core business was £21m after net capital expenditure of £42m. The £22m cross funding represents the net cash flow between the core and PFI activities (including the PFI bid team) the major element of this was the injection of £23m of subordinated debt and equity into the ELWA PFI company mentioned above. The £48m outflow on acquisitions is the amount paid plus £21m of net debt in the acquired entities. There was a £32m adverse movement on the translation of Group's Euro denominated debt into Sterling, giving an overall increase in core net debt of £79m.

The non-recourse aggregated net debt in the PFI companies, excluding fair value of interest rate swaps, reduced by £12m to £111m (2007 £123m); increases due to funding of ongoing capital investment principally at ELWA being offset by a repayment resulting from the £23m equity and subordinated debt injection into the ELWA PFI company.

Capital Expenditure

The Group spent £51m net on capital expenditure (2007: £66m) of which £42m was in the core business and £9m on PFI contracts. The core business maintenance capital expenditure was £32m, net of disposal proceeds of £2m from assets being replaced. Gross expenditure on growth projects was £14m and proceeds from sale of surplus assets was £4m. Major projects in the core business included the installation of SRF production facilities in Belgium, construction of tunnel composting facilities in Canada, the expansion of a recycling centre in the Netherlands and the installation of additional green energy generation at our joint venture landfill in Scotland.

The capital expenditure on PFI contracts comprised £17m (2007: £31m) of financial asset advances net of £9m (2007:£1m) of financial asset repayments and £1m of capitalised bid costs relating to the Cumbria contract where we are preferred bidder. The financial asset advances related principally to the completion of the MBT facilities at our ELWA and D&G contracts. The £8m increase in the repayments reflected the step up in the ELWA gate fee in July 2007 mentioned in the Operating Review above.

Treasury

The Group's treasury policy is to use financial instruments with a spread of maturity dates and sources in order to reduce funding risk. Borrowings are drawn in the same currencies as the underlying investment to reduce cash and net translation exposure on exchange rate movements. No other currency hedging mechanisms are used. The Group maintains a significant proportion of its debt on fixed rates of interest in order to protect interest cover.

The Group's principal financing is a £250m multicurrency revolving credit facility with five major banks expiring in April 2010. Adjusting for cash on deposit, this facility was less than 65% utilised at 31 March 2008. The 2001 notes issued under the Group's private placement of £41m have maturity dates between 2009 and 2013. The Group also has £27m of working capital facilities with various banks.

Each of the Group's PFI projects has senior debt facilities which contribute approximately 85% of the capital funding required. These facilities are secured on the future cash flows of the PFI companies with no recourse to the Group as a whole. Repayment of these facilities, and any equity bridge facility in respect of the remaining capital funding, commences when construction is complete and concludes one to two years prior to the expiry of the PFI contract period. As the Group currently holds 100% of the equity in its PFI companies, the net debt of £111m is fully consolidated in the Group balance sheet. The maximum which could be drawn down under these facilities at 31 March 2008 is £18m.

Insurance

The Group places all its insurance with leading insurance companies with sound financial credentials. For obligatory insurances, the policy is to obtain the necessary cover at competitive rates. For other areas, regular risk assessments are undertaken to identify and assess risks; where appropriate insurance is then used to mitigate these risks. The level of cover put in place will depend on the nature of the risks and the cost and extent of cover available in the market. 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 and project agreements.

Pensions

The Group uses IAS19 - Employee Benefits to account for pensions. The pension charge for the year has increased to £7.7m (2007: £6.6m). Using assumptions laid down in IAS 19 there was a net retirement benefit surplus of £9.4m (2007: £8.4m deficit). This relates solely to the defined benefit section of our UK schemes. The defined benefit section of the UK scheme was closed to new members in September 2002 and new employees are now offered a defined contribution arrangement. 

The pension arrangements within our Belgian and Dutch operations are considered to be defined contribution in nature.

Notes:

1.	Management will be holding an analyst presentation at 9:30 a.m. today, 29 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 24 June 2008 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 4.2 pence per share, if approved by shareholders, will be paid on 1 August 2008 to shareholders on the register at close of business on 11 July 2008.

For further information contact:

Shanks Group plc
Adrian Auer, Chairman Tom Drury, Group Chief Executive Fraser Welham, Group Finance Director	on 29 May, telephone: [phone] thereafter, telephone: [phone]

Citigate Dewe Rogerson	telephone: [phone]
Ginny Pulbrook

Consolidated Income Statement

Year ended 31 March 2008

		2008	2007
	Note	£m	£m
Continuing operations
Revenue	2	563.7	508.5
Cost of sales		(458.5)	(412.9)
Gross profit		105.2	95.6
Administrative expenses before exceptional items		(51.8)	(49.4)
Exceptional profit on disposal of properties		1.9	-
Total administrative expenses		(49.9)	(49.4)
Operating profit	2	55.3	46.2
Finance charges:
Interest payable		(23.8)	(18.2)
Interest receivable		12.7	11.2
Change in fair value of interest rate swaps		(2.9)	6.9
Total finance charges	3	(14.0)	(0.1)
Profit before tax	2	41.3	46.1
Tax	4	(13.0)	(14.8)
Profit for the year		28.3	31.3
Dividend per share	5	6.2p	5.9p
Earnings per share
- basic	6	12.0p	13.3p
- diluted	6	12.0p	13.3p

Consolidated Statement of Recognised Income and Expense

Year ended 31 March 2008

		2008	2007
	Note	£m	£m
Exchange gain (loss) on translation of foreign operations	9	28.1	(3.9)
Actuarial gain on defined benefit pension schemes		16.0	0.5
		44.1	(3.4)
Deferred tax in respect of defined benefit pension schemes		(4.7)	(0.1)
Net income (expense) recognised directly in equity		39.4	(3.5)
Profit for the year		28.3	31.3
Total recognised income and expense for the year	9	67.7	27.8

Consolidated Balance Sheet

At 31 March 2008

		At  31 March 2008	At  31 March 2007
	Note	£m	£m
Non-current assets
Intangible assets		273.7	198.3
Property, plant and equipment		287.5	209.0
Other investments and loans to joint ventures		1.6	1.8
Trade and other receivables		150.7	141.9
Retirement benefit asset		9.4	-
Deferred tax assets		3.7	10.8
		726.6	561.8
Current assets
Inventories		7.7	5.4
Trade and other receivables		152.8	119.4
Current tax receivable		1.4	2.1
Cash and cash equivalents		53.2	42.7
		215.1	169.6
Total assets		941.7	731.4
Current liabilities
Borrowings		(8.1)	(28.9)
Trade and other payables		(175.5)	(127.3)
Current tax payable		(16.2)	(13.4)
Provisions	8	(4.1)	(6.3)
		(203.9)	(175.9)
Non-current liabilities
Borrowings		(371.8)	(271.2)
Other non-current liabilities		(18.5)	(2.3)
Deferred tax liabilities		(39.1)	(27.4)
Provisions	8	(28.3)	(22.5)
Retirement benefit obligations		-	(8.4)
		(457.7)	(331.8)
Total liabilities		(661.6)	(507.7)
Net assets		280.1	223.7
Equity
Share capital	9	23.7	23.5
Share premium	9	97.4	94.0
Exchange reserve	9	29.2	1.1
Retained earnings	9	129.8	105.1
Total equity	9	280.1	223.7

Consolidated Cash Flow Statement

Year ended 31 March 2008

		2008	2007
	Note	£m	£m
Net cash from operating activities	10	87.1	71.3
Investing activities
Purchase of intangible assets		(0.5)	(1.1)
Purchases of property, plant and equipment		(47.7)	(39.3)
Disposals of property, plant and equipment		5.3	2.7
Financial asset capital advances		(17.1)	(30.9)
Financial asset capital repayments		8.8	1.4
Acquisition of subsidiary and other businesses	7	(47.5)	(65.3)
Income received from other investments		0.4	1.1
Net cash used in investing activities		(98.3)	(131.4)
Financing activities
Interest paid		(21.1)	(17.1)
Interest received		10.6	11.2
Proceeds from issue of shares		2.3	0.3
Dividends paid		(14.3)	(13.4)
Increase in borrowings		38.5	64.6
Increase in obligations under finance leases		3.8	0.9
Repayments of obligations under finance leases		(2.7)	(3.0)
Net cash flow from financing activities		17.1	43.5
Net increase (decrease) in cash and cash equivalents		5.9	(16.6)
Effect of foreign exchange rate changes		4.6	(0.1)
Cash and cash equivalents at beginning of year		42.7	59.4
Cash and cash equivalents at end of year		53.2	42.7

Notes to the Financial Statements

1    Basis of preparation of financial statements

 The figures and financial information for the year ended 31 March 2008 are extracted from but do not constitute the statutory financial statements for that year. The figures and financial information are audited. The income statement, statement of recognised income and expense and cash flow statement for the year ended 31 March 2007 and the balance sheet as at 31 March 2007 have been derived from the full Group accounts published in the Annual Report and Accounts 2007 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 statutory accounts for the year ended 31 March 2008 will be filed with the Registrar of Companies in due course.

 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 and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS.  The Group has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2007.  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

The Group operates in the Netherlands, Belgium, the United Kingdom and Canada.  As discussed in the Business Review the waste markets are different in each member state of the European Union. As a result, the Group is organised and managed mainly by geographical location. Each geographical location can be analysed according to the following types of activity: 

Solid Waste	Non-hazardous solid waste collections, transfer and recycling
Landfill and Power	Landfill disposal (including contaminated soils) and power generation from landfill gas
Hazardous Waste	Industrial cleaning, hazardous waste transport, treatment (including contaminated soils) and disposal and contaminated land remediation
Organic Treatment	Anaerobic digestion and tunnel composting of source segregated organic waste streams
PFI contracts	Long term United Kingdom municipal waste treatment contracts

The accounting policies of the reportable segments are the same as those of the Group, except that pension expense for the United Kingdom is recognised and measured on the basis of cash payments to the pension plan. The profit measure the Group uses to evaluate performance is trading profit.  Trading profit is operating profit before the amortisation of acquisition intangibles excluding landfill void and computer software and exceptional items.  The Group accounts for inter segment trading on an arm's length basis.  The information for the 2007 comparatives has been restated in the new format.

		2008	2007
Revenue		£m	£m
Netherlands	Solid Waste	189.5	169.1
	Hazardous Waste	100.6	85.8
	Organic Treatment	7.2	-
	Intra-segment revenue	(2.6)	(1.9)
		294.7	253.0
Belgium	Solid Waste	77.2	70.9
	Landfill and Power	18.0	20.9
	Hazardous Waste	40.9	43.8
	Sand Quarry	2.2	2.5
	Intra-segment revenue	(13.2)	(14.5)
		125.1	123.6
United Kingdom	Solid Waste	75.1	69.6
	Landfill and Power	15.2	13.5
	Hazardous Waste	10.9	10.1
	PFI Contracts	43.2	40.0
	Intra-segment revenue	-	-
		144.4	133.2
Canada	Organic Treatment	1.4	-
Inter-segment revenue		(1.9)	(1.3)
Total revenue		563.7	508.5
Group		547.3	494.0
Share of joint ventures		16.4	14.5
Total revenue		563.7	508.5

		2008	2007
Profit before tax		£m	£m
Trading Profit*
Netherlands	Solid Waste	30.0	26.6
	Hazardous Waste	9.5	8.4
	Organic Treatment	1.6	-
	Country Central Services	(3.4)	(3.0)
		37.7	32.0
Belgium	Solid Waste	7.4	5.8
	Landfill and Power	8.3	11.1
	Hazardous Waste	3.3	3.4
	Sand Quarry	0.7	0.8
	Country Central Services	(3.5)	(3.8)
		16.2	17.3
United Kingdom	Solid Waste	6.4	4.6
	Landfill and Power	5.0	3.8
	Hazardous Waste	1.7	1.2
	PFI Contracts	0.4	0.2
	PFI Bid Team	(0.9)	(1.1)
	Country Central Services	(5.7)	(5.4)
		6.9	3.3
Canada	Organic Treatment	0.1	-
Group Central Services		(5.0)	(5.3)
Total trading profit		55.9	47.3
Amortisation of acquisition intangibles		(2.5)	(1.1)
Exceptional profit on disposal of properties		1.9	-
		(0.6)	(1.1)
Total operating profit		55.3	46.2
Group		50.1	42.2
Share of joint ventures		5.2	4.0
Total operating profit		55.3	46.2
Finance charges	Interest payable	(23.8)	(18.2)
	Interest receivable	12.7	11.2
	Change in fair value of interest rate swaps	(2.9)	6.9
Total finance charges		(14.0)	(0.1)
Profit before tax		41.3	46.1

* Trading profit is operating profit before amortisation of acquisition intangibles excluding landfill void and computer software and exceptional items.

		2008	2007
Net assets		£m	£m
Netherlands	Gross non-current assets	451.3	329.1
	Gross current assets	78.8	54.9
	Gross liabilities	(117.6)	(67.3)
		412.5	316.7
Belgium	Gross non-current assets	55.0	41.9
	Gross current assets	37.5	32.4
	Gross liabilities	(62.6)	(47.7)
		29.9	26.6
United Kingdom	Gross non-current assets	199.8	179.6
	Gross current assets	43.5	37.0
	Gross liabilities	(37.0)	(34.5)
		206.3	182.1
Canada	Gross non-current assets	7.2	-
	Gross current assets	0.4	-
	Gross liabilities	(0.5)	-
		7.1	-
Central Services	Gross non-current assets	9.6	0.4
	Gross current assets	0.3	0.5
	Gross liabilities	(8.7)	(17.3)
		1.2	(16.4)
Total	Gross non-current assets	722.9	551.0
	Gross current assets	160.5	124.8
	Gross liabilities	(226.4)	(166.8)
Net operating assets		657.0	509.0
Current tax		(14.8)	(11.3)
Deferred tax		(35.4)	(16.6)
Net debt		(326.7)	(257.4)
Net assets		280.1	223.7

3    Finance charges

	2008	2007
	£m	£m
Interest payable:
Interest payable on borrowings wholly repayable within five years	12.8	9.3
Interest payable on other borrowings	8.1	7.6
Share of interest of joint ventures	0.3	0.1
Unwinding of discount on long term landfill liabilities	0.8	0.7
Unwinding of discount on deferred consideration	0.9	0.1
Amortisation of bank fees	0.9	0.4
Total interest payable	23.8	18.2
Interest receivable:
Interest receivable	(3.8)	(3.4)
Interest receivable on financial assets relating to PFI contracts	(8.9)	(7.8)
Total interest receivable	(12.7)	(11.2)
Change in fair value of PFI interest rate swaps	2.9	(6.9)
Net finance charges	14.0	0.1

4    Tax

The tax charge (credit) based on the profit (loss) for the year is made up as follows:

		2008	2007
		£m	£m
Current tax:	UK corporation tax at 30% (2007:30%)
	- Current year	5.5	5.2
	- Prior year	(1.6)	(0.4)
	Double tax relief	(2.9)	(2.0)
	Overseas tax
	- Current year	10.8	8.0
	- Prior year	(2.1)	1.0
Total current tax		9.7	11.8
Deferred tax
	- Current year	2.7	2.1
	- Prior year	0.6	0.9
Total deferred tax		3.3	3.0
Total tax charge (credit) for the year		13.0	14.8

As a result of changes announced in the 2007 Budget, UK corporation tax will reduce from 30% to 28% effective from April 2008 and the deferred tax impact of this has been included above. There will also be a phased withdrawal of industrial buildings allowances over a period of 4 years and a reduction in general pool writing down allowances from 25% to 20% which will be enacted in the Finance Act 2008. It is estimated that this will result in a £25m exceptional tax charge in the year ending 31 March 2009. This principally relates to the non discounted value of tax relief that would have been available on the PFI infrastructure towards the end of the 25 year PFI contracts.

5    Dividends

	2008	2007
	£m	£m
Amounts recognised as distributions to equity holders in the year:
Final dividend paid for the year ended 31 March 2007 of 4.0p per ordinary share (2006: 3.8p)	9.5	8.9
Interim dividend paid for the year ended 31 March 2008 of 2.0p per ordinary share (2007: 1.9p)	4.8	4.5
	14.3	13.4
Proposed final dividend for the year ended 31 March 2008 of 4.2p per share (2007: 4.0p)	9.9	9.4

The proposed final dividend for the year ended 31 March 2008 of 4.2 pence per share was approved by the Board on 27 May 2008 and, subject to approval by the Shareholders at the Annual General Meeting on 24 July 2008, will be paid on 1 August 2008 to shareholders on the Register at close of business on 11 July 2008.

6    Earnings per share

	2008	2007
Number of shares
Weighted average number of ordinary shares for basic earnings per share	236.2	234.8
Effect of share options in issue	0.5	0.8
Weighted average number of ordinary shares for diluted earnings per share	236.7	235.6
Calculation of basic and adjusted basic earnings per share
Earnings for basic earnings per share being profit for the year (£m)	28.3	31.3
Change in fair value of interest rate swaps (net of tax) (£m)	2.1	(4.8)
Amortisation of acquisition intangibles (net of tax) (£m)	1.9	0.9
Exceptional profit on disposal of properties (net of tax) (£m)	(1.9)	-
Earnings for adjusted basic earnings per share (£m)	30.4	27.4
Basic earnings per share (pence)	12.0p	13.3p
Adjusted basic earnings per share (pence) (see note below)	12.9p	11.7p
Calculation of diluted earnings per share
Earnings for basic earnings per share being profit for the year (£m)	28.3	31.3
Effect of dilutive potential ordinary shares (£m)	-	-
Earnings for diluted earnings per share (£m)	28.3	31.3
Diluted earnings per share (pence)	12.0p	13.3p

The Directors believe that adjusting earnings per share for the effect of the amortisation of acquisition intangibles excluding landfill void and computer software and exceptional items enables comparison with historical data calculated on the same basis.  Adjusting for amortisation of acquisition intangibles brings the Group's adjusted measure into line with general practice.  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 considered to be exceptional items.

7    Business combinations

(a)    On 13 April 2007 the Group entered into a contract to acquire 100% of the share capital of Orgaworld B.V. in the Netherlands, for an initial consideration of £7.3m and with deferred consideration payable 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 31 March 2008, Orgaworld has contributed £7.2m to revenue and £0.4m 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:

	Book  value	Fair  value adjustment	Provisional fair  value
	£m	£m	£m
Intangible assets	-	6.7	6.7
Property, plant and equipment	13.9	1.0	14.9
Trade receivables	0.8	-	0.8
Current tax receivable	0.3	-	0.3
Cash	0.7	-	0.7
Trade payables	(2.3)	-	(2.3)
Borrowings	(12.6)	-	(12.6)
Deferred tax liabilities	(1.0)	(1.9)	(2.9)
Provisions	(0.1)	-	(0.1)
Net assets acquired	(0.3)	5.8	5.5
Provisional goodwill			14.6
			20.1
Satisfied by:
Cash consideration			7.3
Deferred consideration (including £10.6m which is conditional)			12.5
Costs incurred			0.3
Total consideration			20.1

(b)    On 12 December 2007 the Group acquired 100% of the share capital of Tammer Beheermaatschappij B.V. in the Netherlands, for an initial consideration of £5.6m.  Tammer is involved in industrial and commercial waste collection and recycling. The goodwill recognised is attributable to synergies expected to arise post acquisition.  From acquisition to 31 March 2008, Tammer has contributed £2.0m 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 business, were as follows:

	Book  value	Fair value adjustment	Provisional fair  value
	£m	£m	£m
Intangible assets	-	1.9	1.9
Property, plant and equipment	3.9	1.8	5.7
Trade receivables and other receivables	1.7	-	1.7
Current tax receivable	0.1	-	0.1
Cash	0.4	-	0.4
Trade payables and other payables	(1.2)	-	(1.2)
Borrowings	(5.0)	-	(5.0)
Deferred tax liabilities	(0.5)	(0.9)	(1.4)
Net assets acquired	(0.6)	2.8	2.2
Provisional goodwill			5.4
			7.6
Satisfied by:
Cash consideration			5.6
Deferred consideration			1.7
Costs incurred			0.3
Total consideration			7.6

(c)    On 7 November 2007 the Group acquired 100% of the share capital of Wastecom Limited in the United Kingdom, for a consideration of £6.4m.  Wastecom is a recycling and waste transfer business. The goodwill recognised is attributable to expected long term synergy benefits from the amalgamation of operations.  From acquisition to 31 March 2008, Wastecom has contributed £1.3m to revenue and reduced profit after tax by £0.1m.  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:

	Book  value	Fair value adjustment	Provisional fair value
	£m	£m	£m
Intangible assets	-	5.6	5.6
Property, plant and equipment	4.1	1.0	5.1
Trade receivables and other receivables	0.6	(0.1)	0.5
Trade payables and other payables	(0.3)	-	(0.3)
Borrowings	(3.6)	(1.1)	(4.7)
Deferred tax liabilities	-	(1.4)	(1.4)
Net assets acquired	0.8	4.0	4.8
Provisional goodwill			1.6
			6.4
Satisfied by:
Cash consideration			6.4
Total consideration			6.4

(d)    During the period the Group completed the acquisition of five 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 2008, the businesses contributed £5.9m to revenue and £0.4m 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:

	Book value	Fair  value adjustment	Provisional fair  value
	£m	£m	£m
Intangible assets	-	3.2	3.2
Property, plant and equipment	1.2	0.1	1.3
Trade receivables and other receivables	0.7	-	0.7
Cash	0.2	-	0.2
Trade payables and other payables	(1.1)	0.1	(1.0)
Deferred tax liabilities	-	(0.6)	(0.6)
Net assets acquired	1.0	2.8	3.8
Provisional goodwill			3.0
			6.8
Satisfied by:
Cash consideration			6.5
Deferred consideration			0.3
Costs incurred			-
Total consideration			6.8

(e)    If all of the acquisitions had been completed on 1 April 2007 instead of the dates above, total Group revenue and Group profit for the year would have been approximately £575.3m and £28.4m respectively on a pro forma basis. The pro forma amounts include the results of the acquired companies from the date of acquisition together with pre-acquisition results from 1 April 2007 to the acquisition date as adjusted for the effect of significant fair value adjustments.  The pro forma information is provided for comparative purposes only and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined companies and businesses.

(f)    For acquisitions completed in the year ended 31 March 2007 there have been no amendments to the provisional fair values.

8    Provisions 

	Site restoration and aftercare	Other	Total
	£m	£m	£m
At 31 March 2007	21.0	7.8	28.8
Provided - cost of sales	1.2	-	1.2
Provided - finance charges	0.8	-	0.8
Acquired with acquisitions of businesses	-	0.1	0.1
Utilised	(0.4)	(1.5)	(1.9)
Exchange	3.0	0.4	3.4
At 31 March 2008	25.6	6.8	32.4
Current	0.5	3.6	4.1
Non-current	25.1	3.2	28.3
At 31 March 2008	25.6	6.8	32.4
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

9    Consolidated statement of changes in shareholders' funds

	Share capital	Share premium	Exchange reserve	Retained earnings	Total
	£m	£m	£m	£m	£m
At 31 March 2006	23.5	93.7	5.0	86.4	208.6
Recognised income and expense for the year	-	-	(3.9)	31.7	27.8
Dividends paid	-	-	-	(13.4)	(13.4)
Share-based payments	-	-	-	0.6	0.6
Tax on share-based payments	-	-	-	(0.2)	(0.2)
Issue of share capital	-	0.3	-	-	0.3
At 31 March 2007	23.5	94.0	1.1	105.1	223.7
Recognised income and expense for the year	-	-	28.1	39.6	67.7
Dividends paid	-	-	-	(14.3)	(14.3)
Share-based payments	-	-	-	0.8	0.8
Tax on share-based payments	-	-	-	(0.2)	(0.2)
Other reserves movement	-	-	-	(1.2)	(1.2)
Issue of share capital	0.2	3.4	-	-	3.6
At 31 March 2008	23.7	97.4	29.2	129.8	280.1

The exchange reserve comprises all foreign exchange differences arising since 1 April 2005 from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Group's net investment in foreign operations.

10    Notes to the cash flow statement

	2008	2007
	£m	£m
Net cash from operating activities
Operating profit from continuing operations	55.3	46.2
Amortisation of intangible assets	4.0	2.3
Depreciation of property, plant and equipment	34.3	30.0
Charge for long term landfill provisions	1.0	2.1
Exceptional gain on disposal of property, plant and equipment	(1.9)	-
Earnings before interest, tax, depreciation and amortisation ('EBITDA')	92.7	80.6
Non-exceptional gain on disposal of property, plant and equipment	(1.2)	(1.0)
Decrease in provisions	(1.7)	(4.3)
Share based payments	0.8	0.6
Operating cash flows before movements in working capital	90.6	75.9
(Increase) decrease in inventories	(1.3)	3.7
Decrease in receivables	(14.0)	(7.3)
Increase in payables	20.2	8.9
Cash generated by operations	95.5	81.2
Income taxes paid	(8.4)	(9.9)
Net cash from operating activities	87.1	71.3

Consolidated Movement in Net Debt

	2008	2007
	£m	£m
Net increase (decrease) in cash and cash equivalents	5.9	(16.6)
Increase in borrowings and finance leases	(39.6)	(62.5)
Amortisation of loan fees	(0.9)	(0.4)
Exchange (loss) gain	(31.8)	4.0
Change in fair value of interest rate swaps	(2.9)	6.9
Movement in net debt	(69.3)	(68.6)
Net debt at beginning of year	(257.4)	(188.8)
Net debt at end of year	(326.7)	(257.4)

Net debt represented by:

	At 31 March 2008	At 31 March 2007
	£m	£m
Cash and cash equivalents	53.2	42.7
Current borrowings	(8.1)	(28.9)
Non-current borrowings	(371.8)	(271.2)
Total Group net debt	(326.7)	(257.4)

Consolidated Analysis of net debt

	At 31 March 2008	At 31 March 2007
	£m	£m
Core Business net debt	(211.7)	(134.0)
Private Finance Initiative net debt	(111.5)	(122.9)
Total Group net debt before fair value of interest rate swaps	(323.2)	(256.9)
Fair value of Private Finance Initiative interest rate swaps	(3.5)	(0.5)
Total Group net debt	(326.7)	(257.4)

11    Post balance sheet events

On 1 April 2008 the Group acquired 100% of the share capital of the Foronex group for a cash consideration of £10.4m. Foronex is a leading player in the wood waste and by-products market in the Benelux.  The purchase price allocation, including the fair value of the individual assets and liabilities has not been finalised.

 

END

 

 

FR EAXSPALSPEFE