Half Yearly Report

RNS Number : 9830B

Shanks Group PLC

05 November 2009

 



5 November 2009

Shanks Group plc, Europe's largest listed independent waste management company, today issues its results for the six months ended 30 September 2009.

Continuing Operations

	2009	2008	Change
Revenue	£335m	£346m	-3%
Group trading profit*	£26.5m	£31.6m	-16%
EBITDA	£51.7m	£54.6m	-5%
Underlying free cash flow**	£16.8m	£(11.5)m	>100%
Underlying profit before tax***	£16.5m	£23.0m	-28%
Underlying EPS****	3.3p	5.4p	-39%
Dividend per share****	1.0p	1.7p	-41%

*Operating profit before amortisation of acquisition intangibles, exceptional items and discontinued operations

**Underlying free cash flow is before dividends, growth capital expenditure, acquisitions and disposals

***Before amortisation of acquisition intangibles, exceptional items and discontinued operations

****Comparative adjusted to reflect the bonus element of the Rights Issue

Statutory Reporting - Continuing Operations

	2009	2008	Change
Operating profit	£24.6m	£31.3m	-21%
Profit before tax	£17.4m	£22.9m	-24%
Cash flow from operations	£44.8m	£11.6m	>100%
Basic EPS*	3.5p	(2.6)p	>100%

*Comparative adjusted to reflect the bonus element of the Rights Issue

Financial Summary

●	In difficult market conditions, as anticipated, Group revenue and profit declined.
●	EBITDA margins maintained at 15.4% (2008/9: 15.8%).
●	Improved underlying free cash flow as a result of increased focus on costs, capital expenditure and working capital.  Cash generated £16.8m (2008/9: outflow of £11.5m).
●	Balance sheet further strengthened through Rights Issue and Avondale disposal.
●	Core net debt decreased by £92m to £198m, with net debt to EBITDA ratio falling to 1.8 times.
●	Dividend per share of 1.0p per share (2008/9: 1.7p as adjusted for Rights Issue) in line with previous stated policy.

Business Achievements

●	Netherlands - in Hazardous Waste significant action taken to reduce disposal costs. New municipal contracts secured for €8m per annum of revenue.
●	Belgium - Roeselare Anaerobic Digester operational. Successful completion of €3.6m Bree facility to process wood to biomass.
●	UK - £720m Cumbria PFI operational and already profitable. Anaerobic Digestion joint venture underway.
●	Planned facilities in UK, Canada, Netherlands and Belgium progressing to schedule.
●	Cost reduction programme on track to deliver £10m of savings.

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

"In what has continued to be challenging economic conditions, we have made good progress in the first half of the year on the delivery of the key priorities set out at the time of our Rights Issue. We have materially strengthened the balance sheet, are making significant progress in reducing costs, improving free cash flow and investing in line with our growth plans."

"We are on track to deliver the £10m per annum of cost savings previously identified and we have been successful in identifying and realising further significant savings in third party disposal costs. The decline in revenue and earnings experienced in Q1 slowed in Q2 and we expect this improving trend to continue reflecting the full benefit of the cost reduction programme, returns from strategic investments and some continued improvement in recyclable material prices. Whilst activity has stabilised, we do not anticipate any rapid pick up in underlying volumes. We expect overall performance for the year to be in line with our expectations."

"Until the recovery materialises we will continue to focus on rigorous management of costs and cash whilst investing selectively in our growth areas of recycling, organic processing and UK PFI. We remain confident that the actions we are taking, together with the compelling regulatory and legislative drivers of the industry now in place, firmly position us to take full advantage of any upturn when economic conditions improve."

Notes:

1.	Management will be holding an analyst presentation at 9:30 a.m. today, 5 November at the offices of RBS Hoare Govett, 250 Bishopsgate, London, EC2M 4AA.
2.	A copy of this announcement is available on the Company's website (www.shanksplc.co.uk) as will the presentation being made today to financial institutions.
3.	The interim dividend of 1.0 pence per share will be paid on 15 January 2010 to shareholders on the register at close of business on 11 December 2009.

For further information contact:

Shanks Group plc Tom Drury; Group Chief Executive Chris Surch; Group Finance Director	on 5 November: telephone [phone] thereafter: [phone]
Tulchan Communications David Allchurch, Stephen Malthouse	on 5 November: telephone + 44 (0) 207 678 0152 thereafter: telephone: + 44 (0) 207 353 4200

Financial Highlights

	H1 2009/10	H1 2008/9	Change
Revenue	£335m	£346m	-3%
Operating profit	£24.6m	£31.3m	-21%
Amortisation of acquisition intangibles1	£1.9m	£2.1m
Exceptional profit on disposals2	£0.0m	£(1.8)m
Trading Profit3	£26.5m	£31.6m	-16%
Profit before tax	£17.4m	£22.9m	-24%
Amortisation of acquisition intangibles1	£1.9m	£2.1m
Exceptional profit on disposals2	£0.0m	£(1.8)m
Change in fair value of interest rate swaps2	£(2.8)m	£(0.2)m
Underlying profit before tax4	£16.5m	£23.0m	-28%
Tax on underlying profit 28% (2008/9: 30%)	£(4.7)m	£(6.8)m
Underlying profit after tax5	£11.8m	£16.2m	-27%
Amortisation of acquisition intangibles1 (net of tax)	£(1.4)m	£(1.5)m
Exceptional profit on disposals2	£0.0m	£1.8m
Change in fair value of interest rate swaps2 (net of tax)	£2.0m	£0.1m
Exceptional tax charge for loss of UK IBAs2	£0.0m	£(24.5)m
Profit from discontinued operations	£16.5m	£1.2m
Profit for the period	£28.9m	£(6.7)m
Underlying basic earnings per share5	3.3p	5.4p	-39%
Basic earnings per share	3.5p	-2.6p
Dividend per share	1.0p	1.7p	-41%
EBITDA6	£51.7m	£54.6m	-5%
	Sept 09	March 09
Core net debt	£198m	£290m
PFI Companies and other project finance net debt7	£129m	£118m
Total Group net debt before fair value adjustment7	£327m	£408m
Fair Value of interest rate swaps	£17m	£16m
Total Group net debt	£344m	£424m

1    Acquisition intangibles comprise intangible assets arising on acquisitions excluding landfill void and computer software

2    The Group considers these items as exceptional for the purposes of determining underlying profit (see note 1 of the interim financial statements)

3    Before amortisation of acquisition intangibles, exceptional items, interest, tax and discontinued operations

4    Before amortisation of acquisition intangibles, exceptional items, tax and discontinued operations

5    Before amortisation of acquisition intangibles, exceptional items and discontinued operations, net of associated tax

6    Earnings before interest, tax, depreciation and amortisation excluding discontinued operations (EBITDA)

7    Non recourse and excluding fair value of interest rate swaps

Chief Executive's Statement

The challenging economic conditions seen in the second half of last year have continued throughout the first half of the current year. GDP growth in our main territories continues to be negative. Although we are not seeing any significant signs of economic recovery, the overall conditions are more stable than at the start of calendar 2009.

The supportive fundamental regulatory and legislative drivers of the industry remain compelling. The focus on reducing the waste disposed to landfill is increasing with consideration of bans for particular waste streams in the UK and support for organic processing by all of the national governments. Therefore, our overall strategy of focusing on the future growth areas of recycling, organic processing and UK PFI, utilising the transfer of know how and technology between our territories, remains unchanged. 

In the short term our priorities have been on ensuring that the Group is in a strong position to benefit from the economic recovery when it comes and deliver on our medium term value enhancing strategy. These management actions, including cost reduction programmes and strong cash management, have been stepped up given the weaker economic environment.

Overall, underlying performance was in line with our expectations with stronger management actions on pricing and reducing disposal costs offsetting weaker volumes. Reported numbers have also benefited from the impact of the stronger Euro. Due to the very challenging general economic conditions across our key European territories, underlying PBT fell 28% to £16.5m (2008/9: £23.0m). Trading profit was down 16% to £26.5m (2008/9: £31.6m). In addition, the interest charge increased due to the amortisation of refinancing fees and the impact of the strong Euro. 

In the second half, prior year comparatives become progressively easier and we expect an increased benefit from investments made in prior periods together with lower interest costs (subject to the Euro: Sterling exchange rate), due to the full impact of the Rights Issue and lower underlying rates. We remain confident in our expectations for the full year. 

On a statutory basis, revenue in the period was £335m (2008/9: £346m) and profit before tax was £17.4m (2008/9: £22.9m) after amortisation of acquisition intangibles of £1.9m (2008/9: £2.1m), exceptional disposal profits of £nil (2008/9: £1.8m) and a £2.8m non-cash gain (2008/9: £0.2m) on the change in the fair value of interest rate swaps relating to our initial PFI contracts. The profit from discontinued operations (the Avondale joint venture in the UK) was £16.5m (2008/9: £1.2m).

Underlying basic earnings per share3 reduced by 39% to 3.3p despite a 2% reduction in the tax rate due to the increase in the average number of shares associated with the Rights Issue. Basic earnings per share for continuing operations increased to 3.5p (2008/9: 2.6p loss). In the prior year, the loss reflects the impact of the exceptional deferred tax charge relating to the abolition of industrial building tax allowances in the UK.

During the period, core net debt reduced by £92m to £198m principally due to the £66.9m net proceeds from the Rights Issue and the sale of the Avondale Landfill joint venture. We plan to keep the EBITDA to net debt ratio for covenant purposes below 2.5 times compared with the bank limit of 3.0 times. At 30 September 2009 the ratio was 1.8 times. This ratio in the Group's financing was changed during the year such that both EBITDA and net debt are calculated using average exchange rates. This has removed a risk associated with the previous covenant whereby the net debt was calculated using the period end exchange rate.

We will remain focused on controlling cash through close management of capital expenditure and working capital which should lead to a significant increase in the underlying free cash flow conversion in the second half. However we will continue to invest in selected growth projects to put the Group in a strong position to take advantage of the recovery.

The Board has proposed an interim dividend of 1.0p per share and as communicated at the time of the Rights Issue plans to maintain a dividend cover ratio of 2.0 to 2.5 times over the medium term.

1 Profit before tax excluding amortisation of acquisition intangibles, exceptional items and discontinued operations

2 Operating profit before amortisation of acquisition intangibles, exceptional items and discontinued operations

3 Before amortisation of acquisition intangibles and exceptional items, net of tax

Further progress delivering on our strategy

There are five elements to our strategy:

1.	Invest to drive organic growth where returns are greatest
2.	Develop our infrastructure further to support sustainable waste management and conversion of waste to renewable energy
3.	Share our core capabilities and technologies within the Group
4.	Maximise asset utilisation and reduce unit costs
5.	Continue to use acquisitions to improve asset utilisation and re-orient the portfolio to high growth markets

Progress is as follows:

Revenue and profit declined in the first half due to the severe economic conditions. However, we continue to invest where appropriate and the investments in the Glasgow recycling centre, Orgaworld in Ottawa and the Greenmills waste water and anaerobic digestion project in the Netherlands are all proceeding to plan. Also, as referred to above we expect the returns from our prior year investments, including green energy and SRF plants in Belgium, to increase as these projects are fully commissioned.

We continue to invest in our UK based PFI bidding team and the relationship with Wheelabrator, a subsidiary of Waste Management Inc, with whom we offer an energy from waste proposition, continues to be strong. During the period the Cumbria PPP project achieved financial close and is performing well. We remain a key player in this market and are shortlisted on a number of PFI/PPP projects.

The planned cultural evolution is progressing according to plan. As I have discussed previously this involves moving from a very decentralised modus operandi to one of maintaining the entrepreneurial spirit of the business but ensuring it is supported and coordinated by a strong central framework. The pace of change has accelerated following the appointment of a new Group Finance Director who is introducing strengthened reporting procedures based on key financial and operating metrics. Also, project teams have been established to increase the rate of knowledge and technology transfer, review branding and improve human resources management across the Group. The recently announced investment in the Scottish anaerobic digestion facility using Orgaworld technology is a good example of this improved way of working.

The increased focus on maximising asset utilisation and minimising unit costs is proceeding according to plan. The £10m cost reduction programme announced last year is on track.

We remain alert to small bolt on investment opportunities where it will speed up the implementation of our strategy. The main acquisition last year, the Foronex business in Belgium has suffered from adverse market conditions that have impacted the whole sector. We continue to focus on reducing costs in this business and looking for new market opportunities to ensure that the business is well placed when the recovery comes. The investment we made in the Foronex Bree facility to increase the supply of wood product into the electricity industry has recently been completed and is now performing to plan and will contribute more in the second half. We remain confident in the medium term growth prospects of the business.

Outlook

Our assumption is that the economic conditions will remain difficult. Waste volumes have historically moved in line with GDP and we would expect activity levels to pick up as GDP strengthens in our core markets. Analyst projections of GDP in 2010 still vary considerably and so in the meantime we remain focused on managing the business tightly and maximising underlying free cash flow. We are also pursuing selected investments in the strategic growth areas of recycling, organic processing and UK PFI. We are delivering on our key priorities and we remain confident that the actions we are taking position us to benefit when conditions improve.

Operating Review

Table 1: Revenue and Trading Profit by Geographical Region
	First Half Revenue					First Half Trading Profit
	09/10	08/9	Variance			09/10	08/9	Variance
	£m	£m	£m	%		£m	£m	£m	%
Netherlands	174	175	(1)	-1%		18.3	22.0	(3.7)	-17%
Belgium	88	91	(3)	-3%		9.3	10.8	(1.5)	-14%
United Kingdom	69	80	(11)	-14%		(0.2)	1.2	(1.4)	-117%
Canada	4	1	3	135%		0.7	0.3	0.4	150%
Central Services	-	(1)	1	-		(1.6)	(2.7)	1.1	41%
Total	335	346	(11)	-3%		26.5	31.6	(5.1)	-16%
Discontinued ops	1	5	(4)			0.3	1.7	(1.4)
	336	351	(15)	-4%		26.8	33.3	(6.5)	-20%

Table 1 shows the geographical split of revenue and trading profit. The Netherlands remains the main source of the Group's profits contributing 69% with Belgium contributing 35%.  Canada, still being in start up mode, currently contributes less than 3%.

The Netherlands

Table 2: Netherlands Revenue and Trading Profit by Activity
	First Half Revenue					First Half Trading Profit
	09/10	08/9	Variance			09/10	08/9	Variance
	€m	€m	€m	%		€m	€m	€m	%
Solid Waste	125	143	(18)	-13%		13.3	21.5	(8.2)	-38%
Hazardous Waste	69	73	(4)	-5%		8.5	7.4	1.1	15%
Organic Treatment	7	7	-	0%		1.3	1.3	-	0%
Country Central Services	(3)	(3)	-	0%		(2.3)	(2.4)	0.1	4%
Total (€m)	198	220	(22)	-10%		20.8	27.8	(7.0)	-25%
Total (£m at avge FX rate)	174	175	(1)	-1%		18.3	22.0	(3.7)	-17%

Overall trading profit after £1.9m of exchange gains was 17% down on last year.

The Solid Waste business was impacted significantly by the economic downturn, particularly in the construction and demolition sector. The underlying decline in revenue of 13% reflected lower volumes and increased pricing pressure. The cost reduction plans have mitigated the downturn to an extent and 49% of the full year target of £5.7m was delivered by 30 September 2009. Also actions have been taken to offset the downturn by pushing into new markets. We have successfully entered the Dutch municipal market with contracts for 50,000 tonnes of bulky waste, 38,000 tonnes of municipal collection and most recently a contract to collect and sort electrical waste.

The Solid Waste activity derives approximately half of its trading profit from construction and demolition (C&D) waste, the other half being from more general industrial and commercial (I&C) waste together with landfill and groundworks. All sectors of the business have been impacted by the economic cycle. In the first half, both C&D and I&C volumes were down 5% with landfill and groundworks volumes down 21%. The profitability of the C&D business was also impacted by the significant fall in recyclate prices during the second half of last year with €3m of lower material sales. These prices have now stabilised and in recent weeks have started to increase. Actions are in progress to reduce the costs of disposal to incinerators which will also benefit the second half results.

Excess capacity in the Continental European incineration market is exerting downward pressure on prices. Although there is no direct impact on us we are taking action to mitigate any indirect consequences.

The Hazardous Waste activity consists of two businesses: ATM, a hazardous waste treatment facility which processes soil, waste water and paint and Reym, an industrial cleaning operation. Both businesses have performed well in the first half, particularly ATM which has performed ahead of expectations. ATM has low unit costs and despite quite significant pricing pressure and lower soil volumes has been able to maintain margins through further cost reductions. Volumes at the waste water treatment plant are up on the prior year when an unexpected disruption caused a temporary shutdown and loss of capacity. Investment in increased water treatment storage facilities is being made at ATM. Reym benefits from its close alignment with the oil industry. However, due to the economic downturn we do expect volumes in the second half to reduce particularly for soil in ATM.

Our Organic Treatment activity, Orgaworld, continues to trade satisfactorily in its home market of the Netherlands, generating trading margins of 20%. A large 100,000 tonne per annum anaerobic digestion facility and 300,000 tonne waste water facility in Amsterdam, known as the Greenmills project, is currently under construction and is expected to be commissioned in April 2010.

During the period cost savings have been made in the Central Services function and the headquarters have been relocated from Rotterdam to Wateringen.

Belgium

Table 3: Belgium Revenue and Trading Profit by Activity
	First Half Revenue					First Half Trading Profit
	09/10	08/9	Variance			09/10			08/9		Variance
	€m	€m	€m	%		€m			€m		€m	%
Solid Waste	72	81	(9)	-11%		3.8			5.7		(1.9)	-33%
Landfill & Power	14	14	-	0%		6.4			6.7		(0.3)	-4%
Hazardous Waste	24	30	(6)	-20%		1.9			3.1		(1.2)	-39%
Sand Quarry	2	2	-	0%		0.5			1.0		(0.5)	-50%
Country Central Services	(12)	(12)	-	0%		(2.1)			(2.9)		0.8	28%
Total (€m)	100	115	(15)	-13%		10.5			13.6		(3.1)	-23%
Total (£m at avge FX rates)	88	91	(3)	-3%		9.3			10.8		(1.5)	-14%

Overall trading profit after £0.9m of exchange gains was 14% down on the prior year.

Market conditions in the Belgium Solid Waste business have been more challenging than originally anticipated. Volumes have been lower and pricing has been more difficult. Overall Solid Waste volumes excluding Foronex were down approximately 8%.

The Foronex wood based markets have been adversely impacted by the weak economic backdrop. Overall revenue is down 17% year on year and the business was broadly break even. The downturn in revenue has been mitigated by management action to reduce costs and increase prices particularly for previously low margin contracts. Prices have recently risen by an average of 10% across the various Foronex divisions. One of the key attractions of the business is its ability to produce fuel for the biomass industry from the wood waste and by-products it handles. An investment recently completed at the Bree facility to increase the supply of wood product into the electricity industry is performing to plan and will contribute in the second half. Plans are in place to significantly improve Foronex's profitability in the second half.

As anticipated the Hazardous Waste business has experienced lower revenue and profits. The restructuring plan announced previously to reduce the cost base of this business has been implemented and is expected to contribute strong benefits in the second half.

In Landfill and Power, there was a 6% decline in contribution from the Landfill element which was a better than expected performance. Following the ban in Wallonia on untreated municipal solid waste (MSW) going to landfill from January 2008, inputs from these sources ceased. However, we have been successful in attracting new sources of waste from both municipal (treatment residues) and commercial sources. We expect a further step down in performance from January 2010 as landfill tax is increased to €60 per tonne (effectively €90 with non deductibility) and further bans on MSW come into effect. However, discussions are currently underway to continue with the low tax zone of the landfill after this date. In the medium term the contribution from the Power element of the activity is expected to grow as additional capacity is brought on line and the efficiency of the energy recovery is improved.

United Kingdom

Table 4: United Kingdom Revenue and Trading Profit by Activity
	First Half Revenue					First Half Trading Profit
	09/10	08/9	Variance			09/10	08/9	Variance
	£m	£m	£m	%		£m	£m	£m	%
Solid Waste	32	41	(9)	-22%		2.2	3.6	(1.4)	-39%
Landfill & Power	3	3	-	0%		0.3	0.4	(0.1)	-25%
Hazardous Waste	1	11	(10)	-91%		0.2	0.7	(0.5)	-71%
PFI Contracts	33	25	8	32%		0.6	0.2	0.4	200%
Country Central Services	-	-	-			(2.4)	(2.8)	0.4	14%
UK Operations	69	80	(11)	-14%		0.9	2.1	(1.2)	-57%
PFI Bid Team	-	-	-			(1.1)	(0.9)	(0.2)	-22%
	69	80	(11)	-14%		(0.2)	1.2	(1.4)	-117%
Discontinued operations	1	5	(4)			0.3	1.7	(1.4)
TOTAL	70	85	(15)	-18%		0.1	2.9	(2.8)	-97%

The results of the UK have been significantly impacted by the sale of the Avondale joint venture which is shown above as discontinued operations. Trading profit from continuing UK operations decreased by £1.2m in the period.

Our strategy for the Solid Waste business in the UK is to focus on our core regions of Scotland, East Midlands and Northern Home Counties and take advantage of rising landfill taxes to develop a recycling business using expertise from our Dutch operations. The sale of our 50% share of the Avondale landfill joint venture has provided funds to support the investment for growth strategy. The vision is to build on what is now essentially a logistics business plus PFI and to develop an integrated recycling and organics business incorporating an expanded PFI portfolio.

This process has started with the recent announcement of the investment in the Scottish anaerobic digestion facility using Orgaworld technology. Also, the construction of the Glasgow recycling facility is on plan for a Summer 2010 commissioning and plans for additional recycling and organic processing facilities in England and Wales are progressing well. As referred to below, Shanks remains well placed against strong competition on a number of PFI opportunities.

Given the difficult economic backdrop trading conditions have been challenging in the first half. Overall trading volumes in the core solid waste collections business are down by 14%. This has been in part mitigated by price increases together with strong action on costs where the restructuring programme implemented last year has delivered in line with expectations.

The downturn in the UK construction market has adversely impacted our Hazardous Waste activities which comprise the contaminated land services business. Here the number of site decontamination jobs from general construction activities is down substantially and we have lowered our headcount to reduce costs. A further reason for the fall in profits was the disposal of the 'soil hospital' outside Edinburgh. This generated a profit on sale of £0.5m which is disclosed in country central services.

The contribution from our existing PFI portfolio was up on the previous year due to the contribution from Cumbria, which achieved financial close during the period and is performing well. The planning for the two mechanical biological treatment (MBT) facilities is proceeding well and construction of the Hespin Wood facility has commenced. Both sites are expected to be up and running by 2012. Although the Scottish PFI's continue to have weak financial performance which is expected to continue, the ELWA PFI has shown improvement over last year. The investments made to increase the recycling performance are bearing fruit and we now fully expect to achieve the targets necessary to trigger the payment of supplements to us.

The PFI market remains active with many authorities now beginning their procurement processes. The next two years will see a large number of deals being closed. We believe that our extensive experience in bidding combined with the quality and breadth of our offer positions us well to win our share of tenders.

Following the launch of Orgaworld in the UK we recently announced a joint venture with Energen Biogas.  The partnership will develop and operate a 60,000 tonnes per year Anaerobic Digestion (AD) plant capable of generating enough renewable electricity to power up to 3,000 homes. The plant will utilise proven Orgaworld AD technology to process a range of organic materials including supermarket waste, household and commercial kitchen waste, food processing waste and organic materials generated by existing Shanks operations. The process will produce a high quality fertiliser for use on agricultural land and generate up to 3MW of renewable electricity. The site has been chosen as a result of the Scottish Government's clear strategic objectives to minimise the quantities of both commercial and municipal waste sent to landfill and maximise recycling. It will provide a cost effective alternative to landfill and help local authorities and businesses increase their recycling rates.

Canada

Our emerging business in Canada is based on Orgaworld's tunnel composting technology. During the first half year trading profit increased to £0.7m (2008/9: £0.3m). Although the performance is strong, we did experience some construction damage which slowed the ramp up of the London Ontario plant in the second quarter. The margins for this activity are strong (19%) and we expect them to grow further in the second half. The second facility in Ottawa is due for commissioning in early 2010.

We are pursuing further opportunities elsewhere in Canada which could support additional plants in this territory.

Group Central Services

Group Central Services costs reduced by £1.1m to £1.6m (2008/9: £2.7m) due to cost savings and the reversal of charges for equity settled share-based payments as vesting conditions will not be met.

Financial Review

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

The continued strengthening of the Euro versus Sterling since last year has caused an enhancement in the Sterling value of Euro denominated results year on year. Adjusting for currency, revenue has decreased by 10% and trading profit by 24%. As the majority of the Group's borrowings are in Euros to provide a natural hedge against the Euro denominated assets, the Sterling value of Euro denominated interest has increased due to the strengthening of the Euro. Excluding the overall favourable effect of currency, underlying profit before tax is down by 41%.

Trading margins in the businesses have fallen to 7.9% (2008/9: 9.1%). The major factors impacting trading profit are summarised in Table 5.

Table 5: Trading Profit Bridge
			£m	%
H1 2008/9			31.6	100%
Cost pressures			(9.6)	-30%
Recyclate prices			(4.1)	-13%
Volumes			(9.0)	-28%
Price			4.4	14%
Cost programme			4.6	15%
Disposal cost savings			5.1	16%
New PFI Contracts			0.7	2%
Exchange			2.8	9%
H1 2009/10			26.5	84%

The EBITDA to Revenue margin has been maintained at 15.4% (2008/9: 15.8%). Excluding currency EBITDA is 15% lower than the prior year.

Finance charges excluding the change in fair value of interest rate swaps have increased £1.4m to £10.0m (2008/9: £8.6m). Finance charges on core borrowings in the period increased £1.2m to £10.4m (2008/9: £9.2m). The principal factors for this are detailed in Table 6.

Table 6: Finance Charge on Core Borrowings - Major Factor Analysis
		H1 09/10	H1 08/9	Change
		£m	£m	£m
Finance Charge on Core Borrowings		(10.4)	(9.2)	(1.2)
Major Factors:
	Decrease in core borrowing levels			0.8
	Decrease in bank interest rates			0.7
	Increase in loan fee amortisation			(1.7)
	Exchange			(1.0)
Total				(1.2)

The increase in loan fee amortisation relates to fees of £7.6m incurred in the recent refinancing in April 2009 which are being written off over a two year period.

Net Financial Income from PFI decreased to £0.4m (2008/9: £0.6m). 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.

The IAS39 change in market value of financial instruments relates to interest rate swaps which fix the interest rate on PFI contract borrowings and under IAS39 these must be valued at current market value. There was a £2.8m favourable (2008/9: £0.2m) change in the market value of these swaps in the period. Revaluation of these swaps can lead to large accounting gains and losses but does not affect the long term profitability of the contract as the Group has matched its long term revenue and costs. IAS39 does allow these gains and losses to be taken directly to reserves as long as the actual cash flows remain in close correlation to those originally forecast. For the earlier PFI contracts planning delays rendered the interest rate swaps ineligible to be matched to the underlying loans and as a result changes in fair value are included in the profit and loss account. The Group has recently entered into additional interest rate swaps for the Cumbria PPP contract and loan financing. Interest rate swaps entered into after 31 March 2009 are considered to be effective at this time for hedge accounting purposes and the portion of any effective gain or loss is recognised directly in equity.

The average tax rate on underlying profits fell to 28% (2008/9: 30%). This was attributable to the flow through of recent tax rate reductions in both the Netherlands and the UK. The £24.5m exceptional tax charge in the prior year related to the withdrawal of industrial buildings allowances which were enacted in the Finance Act 2008. 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.

The profits from discontinued operations include a profit on disposal of £16.2m relating to the sale of the Avondale joint venture in May 2009. The sale also included contingent consideration of £3m which has not been reflected in the profit calculation.

The triennial valuation of the Group's UK defined benefit retirement scheme is ongoing and the Group is in negotiations with the trustees over additional funding requirements. The Group uses IAS19 Employee Benefits to account for pensions. At 30 September 2009 the net retirement benefit deficit was £8.3m compared to a surplus of £4.5m at 30 September 2008.

Cash Flow and Net Debt

Details of the Group's cash flow performance are summarised in Table 7 below.

Table 7: Summarised Group Cash Flow
	H1 09/10		H1 08/9				Difference
	£m		£m				£m
Trading profit	27		32				(5)
Depreciation & landfill provisions	25		23				2
EBITDA	52		55				(3)
Working capital movement and other1	(1)		(27)				26
Net replacement capital expenditure	(17)		(21)				4
Interest & tax	(17)		(18)				1
Underlying cash flow	17		(11)				28
Dividends / issue of shares	67		(10)				77
Net growth capital expenditure	(15)		(13)				(2)
Net PFI investment / project funding	(13)		(6)				(7)
Discontinued operations	17		1				16
Acquisitions (incl wrkg cap. injection)	(3)		(25)				22
Net cash flow	70		(64)				134
Exchange	6		1				5
Capitalisation of loan fees	5		-				5
Opening net debt2	(408)		(323)				(85)
Closing net debt2	(327)		(386)				59

1    Other comprises non-landfill provision movements, add back of share based payments and non-exceptional disposal profits. This also includes movements on PFI working capital.

2    Includes £129m of non recourse debt and excludes fair value of interest rate swaps.

All prior period comparatives have been amended to show discontinued operations separately. Underlying cash flow has improved significantly year on year. Working capital levels in the businesses have returned to more normal levels and there has been no repeat of the additional factors which caused the large outflow in the previous year.

The previously announced tighter controls on capital spend have resulted in lower replacement spend which, excluding the effect of timing of payments at last year end, has been maintained close to 50% of depreciation. Growth capital spend of £15m included Orgaworld tunnel composting facilities in Canada, initial spend on the Greenmills waste water and anaerobic project in the Netherlands, processing of wood to biomass at the Foronex Bree facility, increased power capacity in Belgium and new recycling facilities in the UK.

The net proceeds from the Rights Issue of £67m have been used to repay a proportion of the Group's multicurrency term loan and revolving bank credit facility and the scheduled July repayment of £13.6m of the Group's Pricoa private placement. At the end of September 2009 the bank credit facility was approximately 75% utilised.

The net PFI investment includes both financial asset advances and repayments on the PFI contracts. The change in the current period is attributable to the start up of the Cumbria PPP contract and the initial draw downs of debt.

The inflow of £17m from discontinued operations included £15m of cash consideration received from the sale of the UK landfill joint venture, £3m share of debt disposed of together with an outflow of £1m from the joint venture in the period to disposal.

The £3m outflow on acquisition in the current period related to deferred consideration payable in respect of previous acquisitions in the Netherlands. The £25m outflow in the prior period related principally to the Foronex acquisition in April 2008. 

There has been a £6m reduction on the translation of the Group's Euro denominated debt into Sterling as a result of the movement in balance sheet rates from March to September 2009.

Principal Risks and Uncertainties

The Group has set out the principal risks which could impact the performance of the Group in its 2009 Annual Report and Accounts (available on our website at www.shanksplc.co.uk). There has been no material change in these risks. The Group operates a formal framework for the identification and evaluation of key risks applicable to each area of the business. These along with any mitigating actions are monitored on a continuing basis at both operating and Group Board level. Looking forward over the remainder of the year, the main area of uncertainty is the impact of the downturn in the economy on our trading activities and the timing of the recovery.

Forward-looking statements 

Certain statements in this announcement constitute "forward-looking statements".

Forward-looking statements may sometimes, but not always, be identified by words such as "will", "may", "should", "continue", "believes", "expects"," intends" or similar expressions. These forward-looking statements are subject to risks, uncertainties and other factors which as a result could cause Shanks Group's actual future financial condition, performance and results to differ materially from the plans, goals and expectations set out in the forward-looking statements. Such statements are made only as at the date of this announcement and, except to the extent legally required, Shanks Group undertakes no obligation to revise or update such forward-looking statements.

Consolidated Income Statement

First Half ended 30 September 2009

			2009/10		2008/9	2008/9
			First		First	Full
			Half		Half	Year
	Note		£m		£m	£m
Continuing operations Revenue	2		334.9		345.6	685.1
Cost of sales before amortisation of acquisition intangibles			(278.4)		(284.5)	(560.9)
Amortisation of acquisition intangibles			(1.9)		(2.1)	(3.8)
Total cost of sales			(280.3)		(286.6)	(564.7)
Gross profit			54.6		59.0	120.4
Administrative expenses before exceptional items			(30.0)		(29.5)	(62.5)
Exceptional profit on disposal of property			-		1.8	3.3
Exceptional restructuring charge			-		-	(2.0)
Total administrative expenses			(30.0)		(27.7)	(61.2)
Operating profit	2		24.6		31.3	59.2
Finance charges:
Interest payable			(14.8)		(14.2)	(28.5)
Interest receivable			4.8		5.6	10.7
Change in fair value of interest rate swaps			2.8		0.2	(12.1)
Total finance charges	2		(7.2)		(8.4)	(29.9)
Profit before tax	2		17.4		22.9	29.3
Tax before exceptional items			(5.0)		(6.3)	(7.8)
Exceptional tax			-		(24.5)	(18.4)
Total tax	3		(5.0)		(30.8)	(26.2)
Profit (loss) for the period from continuing operations			12.4		(7.9)	3.1
Profit from discontinued operations	6		16.5		1.2	3.3
Profit (loss) for the period			28.9		(6.7)	6.4
Dividend per share*	4		1.0p	1.7p		1.7p
Earnings (loss) per share from continuing operations*
- basic	5		3.5p	(2.6)p		1.0p
- diluted	5		3.5p	(2.6)p		1.0p
Total earnings (loss) per share for the period*
- basic	5		8.2p	(2.2)p		2.1p
- diluted	5		8.2p	(2.2)p		2.1p

* Comparative per share figures have been restated for the bonus element of the Rights Issue as described in note 5.

The interim financial information and related comparative information is unaudited.

The notes on pages 19 to 26 form an integral part of this condensed consolidated interim financial information.

Consolidated Statement of Comprehensive Income

First Half ended 30 September 2009

	2009/10	2008/9	2008/9
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Profit (loss) for the period	28.9	(6.7)	6.4
Exchange gain (loss) on translation of foreign operations	0.6	(2.5)	35.0
Interest rate hedges, net of tax	(3.3)	-	-
Actuarial loss on defined benefit pension schemes	(11.0)	(4.1)	(12.1)
Deferred tax in respect of defined benefit pension schemes	3.0	1.1	3.4
Other comprehensive income for the period, net of tax	(10.7)	(5.5)	26.3
Total comprehensive income for the period	18.2	(12.2)	32.7

The interim financial information and related comparative information is unaudited.

The notes on pages 19 to 26 form an integral part of this condensed consolidated interim financial information.

Consolidated Balance Sheet

At 30 September 2009

		At 30	At 30		At 31
		September	September		March
		2009	2008		2009
	Note	£m	£m		£m
Non-current assets
Intangible assets		307.9	276.9		314.7
Property, plant and equipment	7	378.8	309.8		388.2
Other investments and loans to joint ventures		2.5	1.4		2.5
Trade and other receivables		175.5	156.1		156.4
Retirement benefit assets		-	6.3		-
Deferred tax assets		16.1	5.8		12.6
		880.8	756.3		874.4
Current assets
Inventories		11.5	9.2		10.4
Trade and other receivables		152.9	174.2		162.7
Current tax receivable		1.6	2.0		1.5
Cash and cash equivalents	10	42.5	13.9		27.0
		208.5	199.3		201.6
Total assets		1,089.3	955.6		1,076.0
Liabilities
Non-current liabilities
Borrowings	10	(374.5)	(379.1)		(420.6)
Other non-current liabilities		(18.5)	(16.8)		(18.0)
Deferred tax liabilities		(66.8)	(64.8)		(66.9)
Provisions	8	(30.6)	(28.5)		(32.3)
Retirement benefit obligations		(11.6)	-		(1.0)
		(502.0)	(489.2)		(538.8)
Current liabilities
Borrowings	10	(11.6)	(23.7)		(30.7)
Trade and other payables		(178.5)	(167.5)		(191.7)
Current tax payable		(9.9)	(11.5)		(12.2)
Provisions	8	(3.4)	(4.4)		(3.0)
		(203.4)	(207.1)		(237.6)
Total liabilities		(705.4)	(696.3)		(776.4)
Net assets		383.9	259.3		299.6
Equity
Share capital		39.7	23.8		23.8
Share premium		99.2	99.0		99.2
Exchange reserve		64.8	26.7		64.2
Retained earnings		180.2	109.8		112.4
Total equity		383.9	259.3		299.6

The interim financial information and related comparative information is unaudited.

The notes on pages 19 to 26 form an integral part of this condensed consolidated interim financial information.

Consolidated Statement of Changes in Equity

First Half ended 30 September 2009

	Share	Share	Exchange	Merger	Retained	Total
	capital	premium	reserve	reserve	earnings	equity
Balance at 1 April 2009	23.8	99.2	64.2	-	112.4	299.6
Profit for the period	-	-	-	-	28.9	28.9
Other comprehensive income	-	-	0.6	-	(11.3)	(10.7)
Total comprehensive income for the period	-	-	0.6	-	17.6	18.2
Proceeds from shares issued*	15.9	-	-	51.0	-	66.9
Transfer to retained earnings*	-	-	-	(51.0)	51.0	-
Share based compensation	-	-	-	-	(0.8)	(0.8)
Balance at 30 September 2009	39.7	99.2	64.8	-	180.2	383.9
Balance at 1 April 2008	23.7	97.4	29.2	-	129.8	280.1
Loss for the period	-	-	-	-	(6.7)	(6.7)
Other comprehensive income	-	-	(2.5)	-	(3.0)	(5.5)
Total comprehensive income for the period	-	-	(2.5)	-	(9.7)	(12.2)
Share based compensation	-	-	-	-	(0.3)	(0.3)
Proceeds from shares issued	0.1	1.6	-	-	-	1.7
Dividends	-	-	-	-	(10.0)	(10.0)
Balance at 30 September 2008	23.8	99.0	26.7	-	109.8	259.3
Balance at 1 April 2008	23.7	97.4	29.2	-	129.8	280.1
Profit for the period	-	-	-	-	6.4	6.4
Other comprehensive income	-	-	35.0	-	(8.7)	26.3
Total comprehensive income for the period	-	-	35.0	-	(2.3)	32.7
Share based compensation	-	-	-	-	(0.1)	(0.1)
Proceeds from shares issued	0.1	1.8	-	-	-	1.9
Dividends	-	-	-	-	(15.0)	(15.0)
Balance at 31 March 2009	23.8	99.2	64.2	-	112.4	299.6

* Relating to the Rights Issue completed in June 2009.

The interim financial information and related comparative information is unaudited.

The notes on pages 19 to 26 form an integral part of this condensed consolidated interim financial information.

Consolidated Statement of Cash Flows

First Half ended 30 September 2009

		2009/10	2008/9	2008/9
		First	First	Full
		Half	Half	Year
	Note	£m	£m	£m
Net cash flow from:
Continuing activities	9	44.8	11.6	86.2
Discontinued operations	9	(0.8)	2.7	5.0
Cash flows from operating activities		44.0	14.3	91.2
Investing activities
Continuing operations:
- Purchases of intangible assets		(0.1)	(0.4)	(0.5)
- Purchases of property, plant and equipment		(33.3)	(37.7)	(88.2)
- Disposal of property, plant and equipment		1.5	3.7	8.5
- Financial asset capital advances		(16.5)	(10.7)	(16.1)
- Financial asset capital repayments		5.4	5.2	10.2
- Acquisition of subsidiary and other businesses		(3.3)	(19.8)	(20.5)
- Income received from other investments		-	0.1	0.3
Discontinued operations:
- Disposal of joint venture		18.1	-	-
- Discontinued operations investing activities		(0.1)	(1.5)	(3.3)
Net cash from investing activities		(28.3)	(61.1)	(109.6)
Financing activities
Continuing operations:
- Interest and loan fees paid		(16.4)	(12.8)	(25.7)
- Interest received		4.8	5.1	11.0
- Net proceeds from issue of shares		66.9	0.5	0.7
- Dividends paid		-	(10.0)	(15.0)
- (Decrease) increase in net borrowings		(56.9)	24.2	18.5
- Increase in obligations under finance leases		4.7	3.9	2.5
- Repayments of obligations under finance leases		(2.8)	(3.3)	(2.7)
Discontinued operations financing activities		(0.1)	-	(0.1)
Net cash flow from financing activities		0.2	7.6	(10.8)
Net increase (decrease) in cash and cash equivalents		15.9	(39.2)	(29.2)
Effect of foreign exchange rate changes		(0.4)	(0.1)	3.0
Cash and cash equivalents at beginning of period		27.0	53.2	53.2
Cash and cash equivalents at end of period		42.5	13.9	27.0

The interim financial information and related comparative information is unaudited.

The notes on pages 19 to 26 form an integral part of this condensed consolidated interim financial information.

Notes to the Consolidated Interim Financial Statements

1    Basis of preparation and status of financial information

This condensed consolidated interim financial information for the half year ended 30 September 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, Interim Financial Reporting as adopted by the European Union. The half-yearly condensed consolidated financial report should be read in conjunction with the 2009 Annual Report and Accounts, which have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union.

The condensed interim financial information is unaudited and was approved by the Board of Directors on 5 November 2009.

These interim financial results do not comprise statutory accounts within the meaning of Section 498 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2009 were approved by the Board of directors on 21 May 2009 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

Use of adjusted measures

Shanks Group plc believes that trading profit, underlying profit before tax, underlying profit after tax, underlying free cash flow and underlying earnings per share provide useful information on underlying trends to shareholders. These measures are used by Shanks for internal performance analysis and incentive compensation arrangements for employees. The terms 'trading profit', 'exceptional items' and 'underlying' are not defined terms under IFRS and may therefore not be comparable with similarly titled profit measures reported by other companies. It is not intended to be a substitute for, or superior to GAAP measurements of profit. The term 'underlying' refers to the relevant measure being reported for continuing operations excluding exceptional items, financing fair value remeasurements and amortisation of acquisition intangibles, excluding landfill void and computer software. Trading profit is defined as continuing operating profit before amortisation of acquisition intangibles and exceptional items.

Accounting Policies

Except as described below, accounting policies adopted are consistent with those of the 2009 Annual Report and Accounts for the year ended 31 March 2009 and as described in those annual financial statements.

The following new standards and amendments to standards, which are mandatory for the first time for the financial year beginning 1 April 2009, are relevant for the group:

IAS 1 (revised), Presentation of financial statements, requires non-owner changes in equity to be shown in either one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present two statements. Owner changes in equity are required to be shown in a statement of changes in equity.

IFRS 2 (amendment), Share based payments - Vesting conditions and cancellations, clarifies that vesting conditions are service conditions and performance conditions only. Other features that are not vesting conditions are required to be included in the grant date fair value. The impact of this on the results presented has not been significant. 

The following new standards and interpretations, which are mandatory for the first time for the financial year beginning 1 April 2009, are relevant but were already applied by the Group:

	●	IFRS 8 Operating segments; and
	●	IAS 23 Borrowing Costs (revised).

The following amendments to standards and interpretations, which are mandatory for the first time for the financial year beginning 1 April 2009, are either not currently relevant or material for the Group:

	●	IAS 39 (amendment), 'Financial instruments: Recognition and measurements';
	●	IAS 39 and IFRS 7 (amendment), 'Reclassification of financial assets';
	●	IFRIC 13, 'Customer loyalty programmes';
	●	IFRIC 14, 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction';
	●	IFRIC 15, 'Agreements for the Construction of Real Estate'; and
	●	IFRIC 16, 'Hedges of a net investment in a foreign operation'.

Derivative Financial Instruments

As part of the Group's PFI contracts and loan facility requirements, the Group has a number of interest rate swaps. Swaps entered into before 31 March 2009 are measured at fair value at each reporting date with gains or losses between period ends being taken to finance charges in the income statement. Swaps entered into after 31 March 2009 are considered to be used for hedging purposes when it alters the risk profile of an underlying exposure of the Group in line with the Group's risk management policies and is in accordance with established guidelines, which require that the hedging relationship is documented at its inception, ensure that the derivative is highly effective in achieving its objective, and require that its effectiveness can be reliably measured. The portion of the gain or loss on the hedging instrument which is effective is recognised directly in equity while any ineffectiveness is recognised in the Income Statement. The gains or losses that are recognised directly in equity are transferred to the Income Statement in the same period in which the highly probable forecast transaction affects income, for example when the future interest payment is required.

2    Segmental analysis

The Group operates in The Netherlands, Belgium, the United Kingdom and Canada. As the waste markets are different in each member state of the European Union, 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, recycling and treatment
	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
	Sand Quarry	Mineral extraction

In addition to the waste activities detailed above we have small infrastructure and groundworks operations in Ghent in Belgium and Amersfoort in the Netherlands. Due to their small size the infrastructure and groundworks activities are reported as part of the Solid Waste activities.

The accounting policies of the reportable segments are the same as those described in note 1, 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.  

				2009/10	2008/9	2008/9
				First	First	Full
				Half	Half	Year
Revenue				£m	£m	£m
Netherlands	Solid Waste			109.4	113.4	225.6
	Hazardous Waste			60.6	58.0	124.3
	Organic Treatment			6.3	5.2	10.2
	Intra-segment revenue			(2.0)	(2.0)	(4.3)
				174.3	174.6	355.8
Belgium	Solid Waste			63.4	64.1	126.4
	Landfill and Power			11.9	11.1	22.2
	Hazardous Waste			21.5	23.4	49.0
	Sand Quarry			1.8	1.7	3.2
	Intra-segment revenue			(10.7)	(9.5)	(21.0)
				87.9	90.8	179.8
United Kingdom	Solid Waste			31.8	40.5	72.6
	Landfill and Power			3.1	2.7	4.9
	Hazardous Waste			1.6	11.3	20.1
	PFI Contracts			32.9	25.2	48.8
				69.4	79.7	146.4
Canada	Organic Treatment			3.6	1.5	4.7
Inter-segment revenue				(0.3)	(1.0)	(1.6)
Total revenue from continuing operations				334.9	345.6	685.1
Group				329.4	341.0	674.2
Share of joint ventures				5.5	4.6	10.9
Total revenue from continuing operations				334.9	345.6	685.1
Total revenue from discontinued operations				1.5	5.3	11.4
Total revenue				336.4	350.9	696.5

				2009/10	2008/9	2008/9
				First	First	Full
				Half	Half	Year
Profit before tax				£m	£m	£m
Trading Profit *
Netherlands	Solid Waste			11.7	17.1	31.6
	Hazardous Waste			7.4	5.8	15.4
	Organic Treatment			1.3	1.0	1.7
	Country Central Services			(2.1)	(1.9)	(3.8)
				18.3	22.0	44.9
Belgium	Solid Waste			3.4	4.5	8.0
	Landfill and Power			5.6	5.3	10.0
	Hazardous Waste			1.6	2.5	4.7
	Sand Quarry			0.5	0.8	1.2
	Country Central Services			(1.8)	(2.3)	(4.4)
				9.3	10.8	19.5
United Kingdom	Solid Waste			2.2	3.6	6.3
	Landfill and Power			0.3	0.4	0.9
	Hazardous Waste			0.2	0.7	1.7
	PFI Contracts			0.6	0.2	(0.4)
	PFI Bid Team			(1.1)	(0.9)	(2.1)
	Country Central Services			(2.4)	(2.8)	(5.4)
				(0.2)	1.2	1.0
Canada	Organic Treatment			0.7	0.3	1.2
Group Central Services				(1.6)	(2.7)	(4.9)
Total trading profit *				26.5	31.6	61.7
Amortisation of acquisition intangibles				(1.9)	(2.1)	(3.8)
Exceptional profit on disposal				-	1.8	3.3
Exceptional restructuring charge				-	-	(2.0)
				(1.9)	(0.3)	(2.5)
Total operating profit from continuing operations				24.6	31.3	59.2
Group				24.2	30.7	58.0
Share of joint ventures				0.4	0.6	1.2
Total operating profit				24.6	31.3	59.2
Finance charges
Interest payable				(14.8)	(14.2)	(28.5)
Interest receivable				4.8	5.6	10.7
Change in fair value of interest rate swaps				2.8	0.2	(12.1)
Total finance charges				(7.2)	(8.4)	(29.9)
Profit before tax for the period				17.4	22.9	29.3

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

		At 30	At 30	At 31
		September	September	March
		2009	2008	2009
Analysis of net assets		£m	£m	£m
Netherlands	Gross non-current assets	512.7	445.3	523.9
	Gross current assets	75.1	79.5	84.1
	Gross liabilities	(106.8)	(102.6)	(120.7)
	Net operating assets	481.0	422.2	487.3
Belgium	Gross non-current assets	115.9	83.1	113.1
	Gross current assets	52.6	52.2	53.4
	Gross liabilities	(76.4)	(68.1)	(80.7)
	Net operating assets	92.1	67.2	85.8
United Kingdom	Gross non-current assets	212.5	203.4	205.6
	Gross current assets	34.5	50.1	34.1
	Gross liabilities	(40.1)	(40.6)	(37.4)
	Net operating assets	206.9	212.9	202.3
Canada	Gross non-current assets	23.4	11.8	19.0
	Gross current assets	1.8	0.8	1.1
	Gross liabilities	(1.1)	(0.3)	(1.1)
	Net operating assets	24.1	12.3	19.0
Group Central Services	Gross non-current assets	0.2	6.9	0.2
	Gross current assets	0.4	0.8	0.4
	Gross liabilities	(18.2)	(5.6)	(6.1)
	Net operating (liabilities) assets	(17.6)	2.1	(5.5)
Total	Gross non-current assets	864.7	750.5	861.8
	Gross current assets	164.4	183.4	173.1
	Gross liabilities	(242.6)	(217.2)	(246.0)
Net operating assets		786.5	716.7	788.9
Current tax		(8.3)	(9.5)	(10.7)
Deferred tax		(50.7)	(59.0)	(54.3)
Net debt		(343.6)	(388.9)	(424.3)
Net assets		383.9	259.3	299.6

3    Tax 

Tax expense is recognised based on management's best estimate of the weighted average annual tax rate expected for the full financial year. The estimated average annual tax rate for the year to 31 March 2010 is 28.7% (2008/9: 27.5%). 

4    Dividends

	2009/10	2008/9	2008/9
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Amounts recognised as distributions to equity holders in the period:
Interim dividends	-	-	5.0
Final dividends	-	10.0	10.0
Total dividends	-	10.0	15.0
An interim dividend of 1.0p per share was approved by the Board on 5 November 2009 and will be paid on 15 January 2010 to shareholders on the register at close of business on 12 December 2009. In 2008/9 an interim dividend of 2.1p per share (1.7p per share after adjustment for the Rights Issue as described in note 5) was paid. There was no final dividend for 2008/9.

5    Earnings per share

	2009/10	2008/9	2008/9
	First	First	Full
	Half	Half*	Year*
Number of shares
Weighted average number of ordinary shares for basic earnings per share	352.4m	298.7m	299.1m
Effect of share options in issue	0.1m	0.5m	0.1m
Weighted average number of ordinary shares for diluted earnings per share	352.5m	299.2m	299.2m
Calculation of basic and underlying basic earnings per share for continuing operations
Earnings for basic earnings per share being profit (loss) for the period (£m)	12.4	(7.9)	3.1
Change in fair value of interest rate swaps (net of tax) (£m)	(2.0)	(0.1)	8.7
Amortisation of acquisition intangibles (net of tax) (£m)	1.4	1.5	2.8
Exceptional restructuring charge (net of tax) (£m)	-	-	1.4
Exceptional profit on disposal of properties (net of tax) (£m)	-	(1.8)	(3.3)
Exceptional tax charge (£m)	-	24.5	18.4
Earnings for underlying basic earnings per share (£m)	11.8	16.2	31.1
Basic earnings (loss) per share	3.5p	(2.6)p	1.0p
Underlying earnings per share (see note below)	3.3p	5.4p	10.4p
Calculation of diluted earnings per share for continuing operations
Earnings for basic earnings per share being profit (loss) for the period (£m)	12.4	(7.9)	3.1
Effect of dilutive potential ordinary shares (£m)	-	-	-
Earnings for diluted earnings per share (£m)	12.4	(7.9)	3.1
Diluted earnings (loss) per share	3.5p	(2.6)p	1.0p

Total earnings per share
Basic and diluted earnings per share for continuing operations	3.5p	(2.6p)	1.0p
Basic and diluted earnings per share for discontinued operations	4.7p	0.4p	1.1p
Total basic and diluted earnings per share	8.2p	(2.2p)	2.1p

*The average number of shares is adjusted in the prior periods for the impact of the rights issue. The bonus factor used was 1.2585. 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. Exceptional items are those that need to be disclosed separately on the face of the income statement because of their size or incidence to enable a better understanding of performance. Changes in the fair values of interest rate swaps that the Group is required to enter into in relation to its earlier PFI arrangements are considered to be exceptional items.

6    Discontinued operations

On 14 May 2009, the Group completed the sale of the 50% holding in Avondale Environmental Limited for a consideration of £15m payable on completion, £3m deferred for twelve months, £6m payable over the next seven years and £3m contingent on planning approval for an increase in the landfill void. As planning has not yet been approved no contingent consideration is included in the profit on disposal calculation. The results of the business are presented in this interim financial information as a discontinued operation. Financial information relating to Avondale for the period to the date of disposal is set out below. The income statement and cash flow statement distinguish discontinued operations from continuing operations. Comparative figures have been restated. Income statement information

	2009/10	2008/9	2008/9
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Revenue	1.5	5.3	11.4
Cost of sales	(0.8)	(3.2)	(6.4)
Gross profit	0.7	2.1	5.0
Administrative expenses	(0.4)	(0.4)	(0.3)
Operating profit	0.3	1.7	4.7
Finance charges	-	-	(0.1)
Profit before tax	0.3	1.7	4.6
Tax	-	(0.5)	(1.3)
Profit from discontinued operations	0.3	1.2	3.3

Net assets disposed:	£m
Property, plant and equipment	10.4
Inventories	0.1
Trade and other receivables	2.4
Trade and other payables	(1.7)
Provisions	(0.6)
Tax	(1.2)
Borrowings	(3.4)
Net assets disposed	6.0

	£m
Total consideration, net of costs	22.2
Net assets disposed	(6.0)
Profit on disposal	16.2
	£m
Cash consideration received, net of costs	14.7
Net debt disposed of	3.4
Cash inflow on disposal	18.1

7    Property, plant and equipment

During the six months ended 30 September 2009, the Group acquired assets with a cost of £30.2m (2008/9: £38.0m), disposed of assets with a net book value of £1.3m (2008/9: £1.4m) and charged depreciation of £24.6m (2008/9: £22.5m). The major growth projects are as defined in the financial review.

At 30 September 2009, the Group had capital commitments of £23.1m (2008/9: £37.3m).

8    Provisions

	Site restoration
	and aftercare		Other		Total
	£m		£m		£m
At 31 March 2009	28.4		6.9		35.3
Provided - cost of sales	0.1		-		0.1
- finance charges	0.8		-		0.8
Disposals of business	(0.6)		-		(0.6)
Utilised	(0.1)		(1.1)		(1.2)
Exchange rate movements	(0.3)		(0.1)		(0.4)
At 30 September 2009	28.3		5.7		34.0
Current	0.4		3.0		3.4
Non-current	27.9		2.7		30.6
At 30 September 2009	28.3		5.7		34.0
Current	0.4		2.6		3.0
Non-current	28.0		4.3		32.3
At 31 March 2009	28.4		6.9		35.3
Current	0.4		4.0		4.4
Non-current	26.0		2.5		28.5
At 30 September 2008	26.4		6.5		32.9

9    Cash flows from operating activities

	2009/10	2008/9	2008/9
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Continuing operations
Operating profit from continuing operations	24.6	31.3	59.2
Amortisation of intangible assets	2.8	2.9	5.5
Depreciation of property, plant and equipment	24.4	21.9	44.6
Charge for long term landfill provisions	(0.1)	0.3	1.7
Exceptional gain on disposal of property, plant and equipment	-	(1.8)	(3.3)
Earnings before interest, tax, depreciation and amortisation (EBITDA)	51.7	54.6	107.7
Non-exceptional gain on disposal of property, plant and equipment	(0.2)	(0.5)	(2.0)
Net decrease in provisions	(1.2)	(0.8)	(6.1)
Share based payments	(0.8)	0.4	0.8
Operating cash flows before movement in working capital	49.5	53.7	100.4
(Increase) decrease in inventories	(1.5)	0.2	(2.6)
Decrease (increase) in receivables	5.2	(12.1)	18.6
Decrease in payables	(3.6)	(19.9)	(15.5)
Cash generated by operations	49.6	21.9	100.9
Income taxes paid	(4.8)	(10.3)	(14.7)
Net cash from operating activities - continuing operations	44.8	11.6	86.2
Discontinued operations
Operating profit from continuing operations	0.3	1.7	4.7
Depreciation of property, plant and equipment	0.2	0.6	1.3
Charge for long term landfill provisions	-	0.1	(0.6)
Earnings before interest, tax, depreciation and amortisation (EBITDA)	0.5	2.4	5.4
Operating cash flows before movement in working capital	0.5	2.4	5.4
(Increase) decrease in receivables	(0.1)	0.3	0.3
(Decrease) increase in payables	(1.1)	0.4	0.4
Cash generated by operations	(0.7)	3.1	6.1
Income taxes paid	(0.1)	(0.4)	(1.1)
Net cash from operating activities - discontinued operations	(0.8)	2.7	5.0

10    Consolidated movement in net debt

	2009/10	2008/9	2008/9
	First	First	Full
	Half	Half	Year
	£m	£m	£m
Net increase (decrease) in cash and cash equivalents	15.9	(39.2)	(29.2)
Net decrease (increase) in borrowings and finance leases	55.0	(24.8)	(18.3)
Capitalisation of loan fees	7.6	-	-
Amortisation of loan fees	(1.9)	(0.2)	(0.5)
Exchange gain (loss)	5.8	1.8	(37.5)
Change in fair value of interest rate swaps	(1.7)	0.2	(12.1)
Movement in net debt	80.7	(62.2)	(97.6)
Net debt at beginning of period	(424.3)	(326.7)	(326.7)
Net debt at end of period	(343.6)	(388.9)	(424.3)

    Analysis of net debt

	At 30	At 30	At 31
	September	September	March
	2009	2008	2009
	£m	£m	£m
Cash and cash equivalents	42.5	13.9	27.0
Current borrowings	(11.6)	(23.7)	(30.7)
Non-current borrowings	(374.5)	(379.1)	(420.6)
Total Group net debt	(343.6)	(388.9)	(424.3)

	At 30	At 30	At 31
	September	September	March
	2009	2008	2009
	£m	£m	£m
Core net debt	(197.9)	(270.0)	(290.0)
PFI companies and other project finance net debt	(128.4)	(115.6)	(118.7)
Total Group net debt before fair value of interest rate swaps	(326.3)	(385.6)	(408.7)
Fair value of interest rate swaps	(17.3)	(3.3)	(15.6)
Total Group net debt	(343.6)	(388.9)	(424.3)

11    Related party transactions

There have been no additional significant or unusual related party transactions to those disclosed in the Group's Annual Report for 31 March 2009.

12    Post balance sheet events

On 1 October 2009 the Group signed a £8 million joint venture agreement with Scottish-based Energen Biogas to develop a new Anaerobic Digestion facility in Scotland. The partnership will develop and operate a 60,000 tonnes per year Anaerobic Digestion plant capable of generating enough renewable electricity to power up to 3,000 homes. 

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge:

This condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union.

The interim management report herein includes:

●	a fair review of the information required by DTR 4.2.7 of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;
●	a description of the principal risks and uncertainties for the remaining six months of the year; and
●	DTR 4.2.8 of the Disclosure and Transparency Rules, being related party transaction or changes in the related party transactions described in the 2009 Annual Report that materially affected the Group's results or financial position during the six months ended 30 September 2009.

The directors of Shanks Group plc are listed in the Shanks Group plc Annual Report and Accounts 2009. A list of current directors is maintained on the Shanks Group plc website: www.shanksplc.co.uk.

By order of the Board

T W Drury Group Chief Executive 5 November 2009

C Surch  Group Finance Director 5 November 2009

Independent Review Report to Shanks Group plc

Introduction

We have been engaged by the company to review the condensed consolidated financial information in the half-yearly financial report for the six months ended 30 September 2009 which comprises the consolidated income statement and statement of comprehensive income, consolidated statement of changes in equity, consolidated balance sheet, consolidated cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated financial information included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed consolidated financial information in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial information in the half-yearly financial report for the six months ended 30 September 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP
Chartered Accountants
5 November 2009

London

Notes:

(i) The maintenance and integrity of the Shanks Group plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(ii) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

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