Interim Results

Shanks Group PLC 1 November 2000 Company Announcement 1 November 2000 Shanks Group plc - Interim Results * Group continues to make significant progress * Profit Before Tax, Goodwill Amortisation £25.2m : UP 25% from £ 20.1m and Exceptionals * Turnover £248m : UP 60% from £156m * Earnings Per Share (before Goodwill 7.4p : UP 16% from 6.4p * Interim Dividend 1.85p : UP 6% from 1.75p * Major contributor was the recently acquired Netherlands operation * Robust performances in UK and Belgium Announcing the Interim Results for 2000/2001 Group Chairman Mr G H Waddell made the following statement: The Group has continued to make significant progress in the six months to 30 September 2000 with profits before taxation, exceptional items and goodwill amortisation rising 25% to £25.2m (1999 : £20.1m). Profit before tax but after goodwill amortisation and exceptional items, amounted to £21.5m (1999 : £ 19.8m). Group turnover grew by 60% to £248m. The recently acquired Netherlands operation was the major contributor to these increases. The Group's tax rate on profits before goodwill amortisation has reduced to 34% (1999 : 35%) due to certain deferred tax provisions no longer being required. The financial position of the Group remains healthy. Although its debt has increased from £273m to £292m, due to further acquisitions and seasonal working capital requirements, interest costs remain well covered at 3.8 times. The Group continues to generate strong operating cash with an inflow of £37m (1999 : £27m). Earnings per share before the amortisation of goodwill have improved 16% to 7.4 pence per share. Your Board has declared an interim dividend of 1.85 pence per share an increase of 6% (1999 : 1.75 pence per share). DIVISIONAL REVIEW United Kingdom Waste Services collects and manages commercial and industrial wastes throughout Britain. Chemical Services specialises in the destruction of hazardous organic chemical waste by high temperature incineration, solvent recycling and recovery services. Operating profits prior to the amortisation of goodwill increased 5% to £17.1m (1999 : £16.3m) in the United Kingdom. Within Waste Services, the improvement in profits reflected a robust performance from landfill activities, the benefit of the Caird and other tuck in acquisitions, and continued progress in collections. Electricity generation profits grew, recycling losses have been further reduced, but special waste profits declined in the harsh market conditions currently prevailing. Operating profits in Chemical Services showed a turnaround against the losses in the previous six months but were below the equivalent period in 1999. For most of the first quarter no Meat and Bone Meal (MBM) from the BSE crisis was processed. However, in mid June an extension to the original contract was secured for a further 30,000 tonnes over the next two years. The Fawley plant is now, therefore, operating at capacity. In anticipation of the substantial changes that the Landfill Directive will create in the special waste market, the Group has, from the half year, consolidated all of its special waste activities from Waste Services into Chemical Services. This market driven initiative will ensure that customers will be provided with all their special waste needs through a single interface with the Group. Belgium Encouragingly, operating profits prior to the amortisation of goodwill have increased 5% to £8.4m (1999 : £8.0m). This improvement has been generated despite a 7.5% adverse currency movement and the lack of the 1999 indirect 'bonus' volumes resulting from various food scares. In May of this year the Group concluded its first acquisition since entry into Belgium in 1998. The De Paepe demolition and recycling business in Gent was purchased for £9m. Early results from the business are encouraging. An exceptional gain of £0.7m arose from the sale of the Group's 50% holding in SO.GE.DI. This company held 67% of the shares in a loss making major glass recycling activity. Netherlands The Group is very pleased with this acquisition completed at the end of the last financial year. Operating profits, prior to the amortisation of goodwill amounted to £11.5m. The performance of the solid waste activity has been particularly strong following the over three-fold increase in Dutch landfill tax rates on 1 January 2000. The recycling technologies employed are proving exceptionally valuable in this fiscal environment. The ATM division, which was the subject of certain indemnities from the seller at acquisition, has performed satisfactorily with the pyrolysis plant restarting production at the end of July following permitting difficulties. It is planned that the whole site will be repermitted during 2001 without further processing interruptions. The Group still retains an indemnity against any costs incurred relating to the continuing investigations of operating practices at ATM which existed prior to the change of control. The first follow-on acquisition in the Netherlands was completed with the purchase of the de Wit solid waste business for £3m. DEVELOPMENTS The programme of small tuck in acquisitions continues as does the £20m investment in 32 MW of further electricity generating capacity from landfill gas. Profits from the new generating capacity have commenced with progressive increases expected in each of the following two years. The construction of the 60,000 tonne per year fluidised bed incineration plant at Fawley for the new 190,000 tonne MBM contract is well advanced. It is expected that processing will commence in summer 2001. DIRECTORATE J R Meredith, Managing Director of Shanks Waste Services Limited, has today been appointed to the Board. His appointment recognises the significant contribution he has made to the Group's development during his 13 years of service. OUTLOOK The acquisitions in the Netherlands have proved most successful. Coupled with the robust performances from Belgium and the UK, the full year results should demonstrate further progress for the Group as a whole. G H Waddell, Chairman 1 November 2000 Consolidated Profit and Loss Account First Half ended 30 September 2000 Note Continuing Acquisitions 2000/ 1999/ Operations 2001Total 2000 First First 1999/ Half Half 2000 Full Year £m £m £m £m £m Turnover: Group and share 245.6 6.3 251.9 157.8 320.6 of joint ventures Less: share of turnover of (3.5) - (3.5) (2.3) (6.1) joint ventures _______ _______ _______ _______ _______ Group turnover 2 242.1 6.3 248.4 155.5 314.5 Cost of sales (188.6) (4.7) (193.3)(120.8)(246.6) _______ _______ _______ _______ _______ Gross profit 53.5 1.6 55.1 34.7 67.9 _______ _______ _______ _______ _______ Group operating profit 33.9 0.8 34.7 22.4 43.0 before goodwill and exceptional costs Exceptional costs - - - (0.3) (0.5) Goodwill amortisation 3 (4.2) (0.2) (4.4) (0.5) (1.4) _______ _______ _______ _______ _______ Group operating profit 29.7 0.6 30.3 21.6 41.1 Share of operating profit 0.6 - 0.6 0.3 0.8 of joint ventures _______ _______ _______ _______ _______ Total operating profit 2 30.3 0.6 30.9 21.9 41.9 ____ ____ Exceptional profit on 4 0.7 0.5 0.5 disposal of operations _______ _______ _______ Profit before finance 31.6 22.4 42.4 charges Finance charges - interest (9.2) (2.0) (5.1) Finance charges - other 5 (0.9) (0.6) (1.2) _______ _______ _______ Profit on ordinary 21.5 19.8 36.1 activities before taxation Taxation 6 (8.8) (7.1)(13.4) _______ _______ _______ Profit on ordinary 12.7 12.7 22.7 activities after taxation Equity minority interests - (0.1) (0.1) _______ _______ _______ Profit for the period 12.7 12.6 22.6 Equity dividends paid and 7 (4.3) (4.0)(12.2) proposed _______ _______ _______ Retained profit transferred 8.4 8.6 10.4 to reserves ____ ____ ____ Earnings per share 8 5.5p 6.1p 10.8p - basic 7.4p 6.4p 11.5p - basic before goodwill amortisation 5.4p 6.0p 10.7p - diluted Dividend per share 7 1.85p 1.75p 5.25p Consolidated Summarised Balance Sheet At 30 September 2000 At 30 September At 25 September At 4 April 2000 1999 2000 Note £m £m £m Fixed assets Intangible assets 180.4 37.6 173.8 Tangible assets 284.2 182.5 271.1 Investments 0.5 0.3 0.3 Investments in joint ventures 9.5 8.7 12.9 Share of gross assets (7.0) (6.5) (10.7) Share of gross liabilities _______ _______ _______ 2.5 2.2 2.2 Loans to joint 4.2 - 4.0 ventures _______ _______ _______ Total investment 6.7 2.2 6.2 in joint ventures _______ _______ _______ 471.8 222.6 451.4 _______ _______ _______ Current assets Stocks 5.1 3.3 4.4 Debtors 142.3 92.9 122.8 Short term 3.3 11.7 9.3 deposits and cash at bank and in hand _______ _______ _______ 150.7 107.9 136.5 _______ _______ _______ Creditors: amounts falling due within one year Borrowings (29.3) (5.0) (14.3) Other creditors (124.6) (81.4) (112.1) _______ _______ _______ (153.9) (86.4) (126.4) _______ _______ _______ Net current (3.2) 21.5 10.1 (liabilities) assets _______ _______ _______ Total assets less 468.6 244.1 461.5 current liabilities Long term (265.9) (97.9) (267.8) borrowings Provisions and 10 (51.4) (42.3) (51.2) other long term creditors _______ _______ _______ 151.3 103.9 142.5 ____ ____ ____ Capital and reserves Called up share 23.3 21.1 23.2 capital Share premium 91.9 57.0 91.7 account Profit and loss 35.8 25.5 27.3 account _______ _______ _______ Equity 11 151.0 103.6 142.2 shareholders' funds Equity minority 0.3 0.3 0.3 interests _______ _______ _______ 151.3 103.9 142.5 ____ ____ ____ Gearing Net borrowing 193% 88% 191% divided by shareholders' funds Consolidated Cash Flow Statement First Half ended 30 September 2000 2000/2001 1999/2000 1999/2000 First Half First Half Full Year Note £m £m £m Net cash flow from 12 37.3 26.6 63.0 operating activities Returns on investments and servicing of finance Net interest paid (8.5) (1.6) (6.9) Tax paid (2.4) (1.6) (15.0) Capital expenditure and financial investment Purchase of tangible fixed (28.2) (13.6) (33.1) assets Sale of tangible assets 2.1 0.9 2.9 _______ _______ _______ (26.1) (12.7) (30.2) Acquisitions and disposals Purchase of subsidiary (12.5) (56.1) (229.5) undertakings and businesses Overdrafts acquired with - (2.1) (1.2) purchase of subsidiary undertakings Purchase of and advances (0.2) (1.7) (2.5) to investments and joint ventures Sale of subsidiaries and 0.8 0.5 0.5 joint ventures _______ _______ _______ Net cash flow from (11.9) (59.4) (232.7) acquisitions and disposals Equity dividends paid (8.2) (6.7) (10.4) _______ _______ _______ Net cash outflow before (19.8) (55.4) (232.2) use of liquid resources and financing Management of liquid resources Amounts received from - 4.4 4.7 deposit Financing Issue of ordinary share 0.3 22.4 22.8 capital Debt financing (1.5) 30.9 205.2 _______ _______ _______ (Decrease) increase in (21.0) 2.3 0.5 cash ____ ____ ____ Reconciliation of net cash flow to movement in net debt (Decrease) increase in (21.0) 2.3 0.5 cash Cash outflow from increase - (4.4) (4.7) in liquid resources Debt financing 1.5 (30.9) (203.4) _______ _______ _______ Change in net debt (19.5) (33.0) (207.6) resulting from cash flows Financing acquired with - (2.7) (3.1) subsidiaries Loan notes issued - - (8.8) Exchange rate gain on net 0.4 1.6 3.8 debt _______ _______ _______ Movement in net debt (19.1) (34.1) (215.7) Net debt as at 4 April (272.8) (57.1) (57.1) 2000 _______ _______ _______ Net debt as at 30 (291.9) (91.2) (272.8) September 2000 ____ ____ ____ Net debt represents total borrowings less cash in hand Notes to the Interim Financial Statements 1 Basis of preparation The interim financial statements have been prepared on the basis of the accounting policies set out in the published accounts of the Group for the year ended 4 April 2000. 2 Segmental analysis 2000/2001 Acquisitions 2000/2001 1999/ 1999/ Continuing Total 2000 2000 Operations First Half First Full Half Year £m £m £m £m £m (a) Turnover United Kingdom 132.6 - 132.6 117.5 239.0 Belgium 38.0 5.9 43.9 38.0 75.5 Netherlands 71.5 0.4 71.9 - - _______ _______ _______ _______ _______ 242.1 6.3 248.4 155.5 314.5 ____ ____ ____ ____ ____ Share of turnover of 3.5 - 3.5 2.3 6.1 joint ventures ____ ____ ____ ____ ____ (b) Geographical analysis of turnover by customer location United Kingdom 131.0 - 131.0 115.6 236.7 Europe 110.3 6.3 116.6 38.8 76.7 Rest of the World 0.8 - 0.8 1.1 1.1 _______ _______ _______ _______ _______ 242.1 6.3 248.4 155.5 314.5 ____ ____ ____ ____ ____ (c) Operating profits United Kingdom 17.1 - 17.1 16.3 32.4 Belgium 7.7 0.7 8.4 8.0 14.6 Netherlands 11.4 0.1 11.5 - - Central Services (1.7) - (1.7) (1.6) (3.2) _______ _______ _______ _______ _______ Operating profit 34.5 0.8 35.3 22.7 43.8 before goodwill and exceptional costs Exceptional costs - - - (0.3) (0.5) Goodwill amortisation (4.2) (0.2) (4.4) (0.5) (1.4) _______ _______ _______ _______ _______ Total operating 30.3 0.6 30.9 21.9 41.9 profit ____ ____ ____ ____ ____ United Kingdom 16.2 - 16.2 15.5 30.9 Belgium 7.7 0.5 8.2 8.0 14.6 Netherlands 8.2 0.1 8.3 - - Central Services (1.8) - (1.8) (1.6) (3.6) _______ _______ _______ _______ _______ Total operating 30.3 0.6 30.9 21.9 41.9 profit ____ ____ ____ ____ ____ At 30 September At 25 September At 4 April 2000 1999 2000 £m £m £m (d) Net assets United Kingdom 183.3 180.2 181.2 Belgium 39.6 28.0 25.0 Netherlands 222.1 - 216.6 _______ _______ _______ Net operating assets 445.0 208.2 422.8 Unallocated net assets (liabilities): Assets under the course of 21.4 3.1 16.8 construction Net debt (291.9) (91.2) (272.8) Other unallocated net (23.2) (16.2) (24.3) liabilities _______ _______ _______ 151.3 103.9 142.5 ____ ____ ____ Other unallocated net liabilities include debtors and creditors relating to taxation and dividends and an element of goodwill. 3 Goodwill amortisation In accordance with the provisions of FRS10 (Goodwill and Intangible Assets) the Group capitalises and amortises goodwill on a straight line basis over an appropriate period not exceeding 20 years. Prior to March 1998 goodwill was written off directly to reserves on acquisition and, in accordance with the transitional provisions of FRS10, no adjustment has been made in respect of goodwill previously written off under this policy. 4 Exceptional profit on disposal of operations The exceptional profit on disposal in 2000/2001 comprises £0.7m in relation to the sale of the Group's 50% stake in the SO.GE.DI s.a. joint venture in Belgium. The exceptional profit on disposal in 1999/2000 comprises £0.3m in relation to the final settlement of a claim remaining from the sale of the construction division in April 1995 and the remaining £0.2m relates to the sale of a 5% share in the Group's Silvamo joint venture landfill in Belgium. The Group accounts for Silvamo as a joint venture and holds 50% of the equity. 5 Other finance charges Other finance charges relate to the unwinding of discount on long term landfill liabilities of £0.6m (1999: £0.6m) and to the amortisation of bank fees of £0.3m (1999: £Nil). 6 Taxation 2000/2001 First Half 1999/2000First Half 1999/2000 Full Year £m £m £m UK corporation tax 2.8 3.8 7.3 Overseas tax 6.8 3.2 5.9 Deferred tax (1.0) - (0.1) Joint ventures 0.2 0.1 0.3 _______ _______ _______ 8.8 7.1 13.4 ____ ____ ____ The taxation rate for the first half of the current year is based on the estimated taxation charge for the full year. 7 Interim dividend The interim dividend of 1.85p per share (1999: 1.75p per share) will be paid on 8 January 2001 to shareholders on the register at close of business on 15 December 2000. 8 Earnings per share Earnings per share are calculated by dividing the profit for the period by the average number of shares in issue during the period. 2000/2001 1999/ 1999/ First Half 2000First 2000Full Half Year Calculation of basic earnings per share: Profit for the period (£m) 12.7 12.6 22.6 Goodwill amortisation (£m) 4.4 0.5 1.4 _______ _______ _______ Earnings before goodwill amortisation 17.1 13.1 24.0 (£m) ____ ____ ____ Average number of shares in issue 232.6m 207.0m 209.3m during the period Basic earnings per share (pence) 5.5p 6.1p 10.8p Basic earnings per share before 7.4p 6.4p 11.5p goodwill amortisation (pence) ____ ____ ____ Calculation of diluted earnings per share Average number of shares in issue 232.6m 207.0m 209.3m during the period Effect of share options in issue 1.2m 3.0m 1.9m _______ _______ _______ Total 233.8m 210.0m 211.2m ____ ____ ____ Diluted earnings per share (pence) 5.4p 6.0p 10.7p ____ ____ ____ The Directors believe that adjusting the earnings per share (eps) for the effect of goodwill amortisation enables a comparison of eps with historical data calculated on the same basis under the accounting policy for goodwill prior to the introduction of FRS 10. 9 Acquisitions During the period the Group made the following acquisitions: Activities and Geographical Area N.V. De Beer & Partners (trading as May Waste Management - Gent, Belgium De Paepe) 2000 de Wit July Waste Management - The Hague, 2000 Netherlands The book value of net assets acquired and the provisional fair value to the Group are as follows: £m Tangible fixed assets and investments 5.1 Other assets and liabilities (3.6) _______ 1.5 Capitalised goodwill 11.0 _______ Cash consideration 13.1 ____ 10 Provisions and other long term creditors At 4 April Provided in Utilised in At 30 September 2000 Period Period 2000 £m £m £m £m Aftercare provision 20.9 1.6 - 22.5 Site restoration 15.7 1.1 (0.7) 16.1 provision Onerous lease 0.6 - (0.1) 0.5 provision Deferred taxation 12.9 (1.0) - 11.9 provision _______ _______ _______ _______ 50.1 1.7 (0.8) 51.0 ____ ____ Other long term 1.1 0.4 creditors _______ _______ 51.2 51.4 ____ ____ 11 Reconciliation of movement in equity shareholders' funds 2000/2001 1999/2000 1999/2000 First Half First Half Full Year £m £m £m Profit on ordinary activities after taxation 12.7 12.7 22.7 Equity minority interests - (0.1) (0.1) Equity dividends paid and proposed (4.3) (4.0) (12.2) _______ _______ _______ Retained profit transferred to reserves 8.4 8.6 10.4 Currency translation gains (losses) 0.2 (1.2) (4.1) Issue of share capital 0.3 22.4 59.2 Movements in goodwill: Currency translation adjustment on goodwill written off to reserves on acquisition (0.1) 1.7 4.6 _______ _______ _______ Net addition to equity shareholders' funds 8.8 31.5 70.1 Opening equity shareholders' funds 142.2 72.1 72.1 _______ _______ _______ Closing equity shareholders' funds 151.0 103.6 142.2 ____ ____ ____ 12 Net cash inflow from operating activities 2000/2001 1999/ 1999/2000 First Half 2000First Full Year Half £m £m £m Total operating profit 30.9 21.9 41.9 Depreciation and amortisation 22.5 13.8 27.7 Aftercare and site restoration charge 2.7 2.3 3.5 _______ _______ _______ Earnings before interest, taxation, 56.1 38.0 73.1 depreciation and amortisation (EBITDA) Gain on sale of fixed assets - - (0.3) Utilisation of provisions (0.8) (0.6) (1.9) Increase in working capital (15.5) (10.0) (6.9) Other non cash movements (2.5) (0.8) (1.0) _______ _______ _______ Net cash inflow from operating activities 37.3 26.6 63.0 ____ ____ ____ 13 Status of financial information The interim financial information, which was approved by the Directors on 1 November 2000, is unaudited but has been reviewed by the auditors and their report to the Directors is set out below. The financial information for the year ended 4 April 2000 does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985, and has been extracted from the Group's 2000 published accounts which have been filed with the Registrar of Companies. The auditors' opinion on those financial statements was unqualified and did not include a statement under section 237 (2) or (3) of the Companies Act 1985. Auditors' Report to the Directors of Shanks Group plc Introduction We have been instructed by the Company to review the financial information set out above and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the Directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999 /4 issued by the Auditing Practices Board. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2000. PricewaterhouseCoopers Chartered Accountants London 1 November 2000

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