Interim Results

Shanks Group PLC 31 October 2001 31 October 2001 Company Announcement Shanks Group plc - Interim Results * Trading overall in line with expectations * Profit Before Tax, Exceptional Items and Goodwill : £22.7m : (2000 : £25.2m) Amortisation * Turnover : £267m : (2000 : £248m) * Earnings Per Share (before Goodwill Amortisation) : 6.4p : (2000* : 7.3p) * Interim Dividend : 1.90p : (2000 : 1.85p) * Confidence of progress in the current year as a whole Announcing the Interim Results for 2001/2002 Group Chairman Mr G H Waddell made the following statement: The Group's profits before taxation, exceptional items and goodwill amortisation in the six months to 30 September 2001 were £22.7m (2000 : £25.2m). As expected, improved performances in UK Waste Services and the Netherlands were more than offset by lower results in UK Chemical Services and Belgium. Turnover grew by 8% to £267m. Profit after tax amounted to £10.0m (2000* : £12.5m) reflecting goodwill amortisation of £5.0m (2000 : £4.4m) and the overall tax rate of 34%. Earnings per share before the amortisation of goodwill were 6.4 pence per share (2000* : 7.3p). Your Board has declared an interim dividend of 1.9 pence per share, an increase of 3% (2000 : 1.85 pence per share). Net debt fell from £302m to £289m as the Group's strong operating cash flow continued. Interest costs remain well covered at 3.4 times. * 2000 figures have been restated for the adoption of FRS19 - Deferred Taxation DIVISIONAL REVIEW United Kingdom Operating profit prior to the amortisation of goodwill (trading profit) was £16.5m (2000 : £17.1m). Waste Services collects and manages commercial and industrial wastes throughout the United Kingdom. Chemical Services specialises in the treatment of hazardous chemical waste and other related services, including recovery. Waste Services' trading profit improved with a creditable performance from its landfill activities, as a result of price increases, higher contaminated spoil volumes and wastes arising from the foot and mouth crisis. Collection profits, however, were lower and recycling activities suffered from falling commodity prices. Profits on electricity generated from landfill gas increased as new capacity came on stream. Chemical Services, in contrast, recorded a trading loss. The major factor contributing to this disappointing result is the depressed state of the UK hazardous waste market. Waste minimisation, excess disposal capacity and inconsistent regulation have resulted in intense competition and low prices. Belgium Trading profit reduced to £6.5m (2000 : £8.4m). The bonus landfill volumes of the prior two years, as anticipated, have ceased. There have also been two non-recurring issues at De Paepe, acquired in May 2000. A significant loss was made on a demolition contract and costs for the clearance of the Gent site were greater than anticipated. A new management team has been put in place and is rectifying these problems. The remainder of the businesses performed satisfactorily. Netherlands Trading profit amounted to £12.3m (2000 : £11.5m). The performance of all the solid waste businesses has been particularly strong benefiting from the acquisitions made last year and lower disposal costs. The industrial cleaning activity has also improved. The computer recycling business did not match last year's excellent profits and its small Italian operation has been closed. The ATM division has performed well although the pyrolysis plant's temporary permit expired during the period. The application to repermit the whole ATM site is taking much longer than foreseen and processing in the pyrolysis unit is currently limited to internally generated wastes. The division's staff are working closely with the authorities in an endeavour to reach an early conclusion. DEVELOPMENTS A new twenty-five year disposal contract from Argyll and Bute and a three year contract for the disposal of waste from Falkirk have commenced. A number of other municipal contract opportunities are being pursued. The Group is preferred bidder for Dumfries and Galloway and one of the last two contractors bidding for the significant East London Waste Authority contract. Technological innovation is an important feature of these proposals. Profits from the £20m investment in new electricity generating capacity have commenced and progressive increases are expected during the next two years. Additionally the proposed new premium electricity prices for renewable energy will provide a benefit. The first MBM contract expires in March 2002 and the commissioning of the 60,000 tonne per year fluidised bed incineration plant at Fawley for the new 190,000 tonne MBM contract is well advanced. In the longer term the implementation of the Landfill Directive should have a positive impact on this business. After many years of negotiation the CETEM landfill site in Belgium has received planning permission for additional capacity which will extend its life by circa 10 years. The tuck-in acquisition programme is continuing with one small business purchased in the Netherlands during the period. DIRECTORATE I will retire after nine years as Chairman of your Board and as a director on 25 April 2002. I will be succeeded by Mr I M Clubb, who is currently the senior independent director. OUTLOOK Overall the Group continues to trade in line with expectations and, barring unforeseen circumstances, I remain confident of progress in the current year as a whole and in the Group's longer term prospects. Note: Copies of the Interim Report will be posted to shareholders by 19 November 2001, after which they will be available, on request, from the company at Astor House, Station Road, Bourne End, Bucks SL8 5YP. For further information contact: Gordon Waddell; Chairman, Shanks Group plc Michael Averill; Group Chief Executive David Downes; Group Finance Director or John Shaughnessy; Group Head of External Relations On 31 October 2001, telephone: 020 7678 8000 Thereafter, telephone: 01628 524523 Consolidated Profit and Loss Account First Half ended 30 September 2001 2001/ 2000/ 2000/ 2002 2001 2001 restated* restated* Note First First Full Half Half Year £m £m £m Turnover: Group and share of joint ventures 271.0 251.9 508.9 Less: share of turnover of joint ventures (3.8) (3.5) (6.5) _______ _______ _______ Group turnover 2 267.2 248.4 502.4 Cost of sales (212.2) (191.9) (395.1) _______ _______ _______ Gross profit 55.0 56.5 107.3 _______ _______ _______ Group operating profit before exceptional items 32.4 34.7 64.6 and goodwill amortisation Exceptional costs - - (0.8) Goodwill amortisation (5.0) (4.4) (9.4) _______ _______ _______ Group operating profit 27.4 30.3 54.4 Share of operating profit of joint ventures 1.0 0.6 1.1 _______ _______ _______ Total operating profit 2 28.4 30.9 55.5 Exceptional profit on disposal of operations 3 - 0.7 0.7 _______ _______ _______ Profit before finance charges and taxation 28.4 31.6 56.2 Finance charges - interest (9.8) (9.2) (18.6) Finance charges - other 4 (0.9) (0.9) (2.0) _______ _______ _______ Profit on ordinary activities before taxation 17.7 21.5 35.6 Taxation 5 (7.7) (9.0) (15.5) _______ _______ _______ Profit on ordinary activities after taxation and 10.0 12.5 20.1 profit for the period Equity dividends paid and proposed 6 (4.4) (4.3) (12.9) _______ _______ _______ Retained profit transferred to reserves 5.6 8.2 7.2 ____ ____ ____ Earnings per share 7 - basic 4.3p 5.4p 8.6p - adjusted basic before goodwill amortisation 6.4p 7.3p 12.7p - diluted 4.3p 5.4p 8.5p ____ ____ ____ Dividend per share 6 1.90p 1.85p 5.55p ____ ____ ____ All of the above relates to continuing operations. * 2000/2001 figures have bee restated for the adoption of FRS 19 - Deferred Taxation. See Note 1 for details. Consolidated Balance Sheet At 30 September 2001 At 30 At 30 At 31 September September March 2001 2001 2001 Note restated* restated* £m £m £m Fixed assets Intangible assets 187.7 180.4 185.9 Tangible assets 289.3 284.2 289.4 Investments 1.1 0.5 0.9 Investments in joint ventures: Share of gross assets 11.7 9.5 12.8 Share of gross liabilities (8.5) (7.0) (9.3) ______ ______ ______ Share of net assets 3.2 2.5 3.5 Loans to joint ventures 2.6 4.2 3.8 ______ ______ ______ Total investment in joint ventures 5.8 6.7 7.3 ______ ______ ______ 483.9 471.8 483.5 ______ ______ ______ Current assets Stocks 4.8 5.1 6.3 Debtors 152.7 142.3 145.8 Cash at bank and in hand 7.8 3.3 2.2 ______ ______ ______ 165.3 150.7 154.3 ______ ______ ______ Creditors: amounts falling due within one year Borrowings (3.4) (29.3) (31.5) Other creditors (136.5) (124.6) (131.0) ______ ______ ______ (139.9) (153.9) (162.5) ______ ______ ______ Net current assets 25.4 (3.2) (8.2) (liabilities) ______ ______ ______ Total assets less current 509.3 468.6 475.3 liabilities ______ ______ ______ Creditors: amounts falling due after more than one year Borrowings (293.3) (265.9) (272.5) Other creditors (0.2) (0.4) (0.3) ______ ______ ______ (293.5) (266.3) (272.8) ______ ______ ______ Provisions for long term 9 (66.0) (58.8) (58.1) liabilities and charges ______ ______ ______ Net assets 149.8 143.5 144.4 ____ ____ ____ Capital and reserves Called up share capital 23.3 23.3 23.3 Share premium account 92.4 91.9 92.3 Profit and loss account 33.8 28.0 28.5 ______ ______ ______ Equity shareholders' funds 10 149.5 143.2 144.1 Equity minority interests 0.3 0.3 0.3 ______ ______ ______ Total equity 149.8 143.5 144.4 ____ ____ ____ Gearing Net borrowings divided by 193% 204% 209% shareholders' funds * 2000/2001 figures have bee restated for the adoption of FRS 19 - Deferred Taxation. See Note 1 for details. Consolidated Cash Flow Statement First Half ended 30 September 2001 Note 2001/02 2000/01 2000/01 First Half First Full Half Year £m £m £m Net cash flow from operating 11 49.9 37.6 96.3 activities Returns on investments and servicing of finance Net interest paid (7.7) (8.5) (15.3) Tax paid (3.7) (2.4) (16.2) Capital expenditure and financial investment Purchase of tangible fixed assets (21.5) (28.2) (47.1) Sale of tangible assets 2.6 2.1 3.2 ______ ______ ______ (18.9) (26.1) (43.9) Acquisitions and disposals 1.4 (11.9) (25.5) Equity dividends paid (8.6) (8.2) (12.5) ______ ______ ______ Net cash flow before 12.4 (19.5) (17.1) financing Financing Issue of ordinary share 0.1 0.3 0.7 capital Debt financing 11.7 (1.8) (6.8) ______ ______ ______ Increase (decrease) in cash 24.2 (21.0) (23.2) ____ ____ ____ Reconciliation of net cash flow to movement in net debt Increase (decrease) in cash 24.2 (21.0) (23.2) Debt financing (11.7) 1.8 6.8 ______ ______ ______ Change in net debt resulting 12.5 (19.2) (16.4) from cash flows Financing acquired with - - (4.2) subsidiaries Amortisation of loan fees (0.2) (0.3) (0.5) Exchange rate gain (loss) on 0.6 0.4 (7.9) net debt ______ ______ ______ Movement in net debt 12.9 (19.1) (29.0) Net debt as at 31 March 2001 (301.8) (272.8) (272.8) ______ ______ ______ Net debt as at 30 September (288.9) (291.9) (301.8) 2001 ____ ____ ____ Net debt represents total borrowings less cash in hand. Notes to the Interim Financial Statements 1 Basis of preparation and restatement of financial statements 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 31 March 2001 with the exception of deferred taxation. Following the introduction of FRS 19 (Deferred Taxation) the Group now makes full provision for the potential liability for deferred taxation. Previously the Group had adopted partial provisioning for deferred taxation. The reported profit for the six months period ended 30 September 2000 has been reduced by £ 0.2m and for the year ended 31 March 2001 has been reduced by £0.4m. Shareholders' funds have been reduced by £7.8m and £8.0m respectively. 2 Segmental analysis 2001/ 2000/ 2000/ 2002 2001 2001 First First Full Half Half Year £m £m £m (a) Turnover by origin of service United Kingdom 141.2 132.6 259.6 Belgium 45.1 43.9 88.2 The Netherlands 80.9 71.9 154.6 ______ ______ ______ 267.2 248.4 502.4 ____ ____ ____ Share of joint venture turnover 3.8 3.5 6.5 ____ ____ ____ (b) Operating profits Trading profits: United Kingdom 16.5 17.1 30.7 Belgium 6.5 8.4 14.7 The Netherlands 12.3 11.5 24.1 Central Services (1.9) (1.7) (3.8) ______ ______ ______ Operating profit before exceptional items and 33.4 35.3 65.7 goodwill amortisation Exceptional reorganisation costs - - (0.8) Goodwill amortisation (5.0) (4.4) (9.4) ______ ______ ______ Total operating profit 28.4 30.9 55.5 ____ ____ ____ (c) Profit on ordinary activities before taxation United Kingdom 15.3 16.2 27.5 Belgium 6.2 8.2 14.2 The Netherlands 8.9 8.3 17.6 Central Services (2.0) (1.8) (3.8) ______ ______ ______ Total operating profit 28.4 30.9 55.5 Exceptional profit on disposal of operations - 0.7 0.7 ______ ______ ______ Profit before finance charges 28.4 31.6 56.2 Finance charges - interest (9.8) (9.2) (18.6) Finance charges - other (0.9) (0.9) (2.0) ______ ______ ______ Profit on ordinary activities before taxation 17.7 21.5 35.6 ____ ____ ____ (d) Analysis of profit on ordinary activities before taxation Group 16.9 20.9 34.8 Joint ventures 0.8 0.6 0.8 ______ ______ ______ Profit on ordinary activities before taxation 17.7 21.5 35.6 ____ ____ ____ At 30 At 30 At 31 September September March 2001 2000 2001 £m restated restated £m £m (e) Net assets United Kingdom 171.6 183.3 180.6 Belgium 39.5 39.6 36.9 The Netherlands 222.9 222.1 229.3 ______ ______ ______ Net operating assets 434.0 445.0 446.8 Assets under the course of construction 30.3 21.4 29.7 Net debt (288.9) (291.9) (301.8) Other unallocated net liabilities (25.6) (31.0) (30.3) ______ ______ ______ Net assets 149.8 143.5 144.4 ____ ____ ____ Other unallocated net liabilities include debtors and creditors relating to taxation and dividends, and an element of capitalised goodwill. 3 Exceptional profit on disposal of operations The exceptional profit of £0.7m in 2000/2001 arose on the sale of the Group's 50% stake in the SO.GE.DI s.a. joint venture in Belgium. 4 Finance charges - other Other finance charges relate to the unwinding of discount on long term landfill liabilities of £0.7m (2000/01: £0.6m) and the amortisation of bank fees of £0.2m (2000/01: £0.3m). 5 Taxation 2001/2002 2000/2001 2000/2001 First Half restated restated £m First Half Full Year £m £m UK corporation tax 1.9 2.8 5.5 Overseas tax 4.5 6.8 10.4 Deferred tax 1.0 (0.8) (0.6) Joint ventures 0.3 0.2 0.2 _______ _______ _______ 7.7 9.0 15.5 ____ ____ ____ The taxation rate for the first half of the current year is based on the estimated taxation charge for the full year. The taxation charge for the first half and full year of 2000/2001 has been restated following the adoption of FRS 19 - Deferred Taxation. See Note 1 for details. 6 Interim dividend The interim dividend of 1.90p per share (2000/01: 1.85p per share) will be paid on 14 January 2002 to shareholders on the register at close of business on 21 December 2001. 7 Earnings per share Basic earnings per share are calculated by dividing the profit for the period by the average number of shares in issue during the period. 2001/2002 2000/ 2000/ 2001 2001 First Half restated restated £m First Full Half Year £m £m Calculation of basic earnings per share: Profit for the period (£m) 10.0 12.5 20.1 Goodwill amortisation (£m) 5.0 4.4 9.4 ________ ________ ________ Earnings before goodwill amortisation (£m) 15.0 16.9 29.5 _____ _____ _____ Average number of shares in issue during the period 233.2m 232.6m 232.8m Basic earnings per share (pence) 4.3p 5.4p 8.6p Adjusted basic earnings per share before goodwill 6.4p 7.3p 12.7p amortisation (pence) _____ _____ _____ Calculation of diluted earnings per share: Average number of shares in issue during the period 233.2m 232.6m 232.8m Effect of share options in issue 0.6m 0.6m 5.0m ________ ________ ________ Total 233.8m 233.2m 237.8m _____ _____ _____ Diluted earnings per share (pence) 4.3p 5.4p 8.5p _____ _____ _____ The Directors believe that adjusting the earnings per share for the effect of goodwill amortisation enables a comparison with historical data calculated on the same basis under the accounting policy for goodwill prior to the introduction of FRS 10. 8 Acquisitions During the period the Group made the following acquisitions: Date Activities and Geographical Area Van der Heiden May 2001 Waste Management - The Netherlands Argyll and Bute Waste Management Sept 2001 Waste Management - United Kingdom Services The book value of net assets acquired and the provisional fair value to the Group were as follows: Book value at date Fair value Provisional fair of acquisition adjustments value to the Group £m £m £m Tangible assets 0.1 - 0.1 Long term provisions - (5.0) (5.0) _______ _______ _______ 0.1 (5.0) (4.9) ____ ____ Capitalised goodwill 6.4 _______ Cash consideration 1.5 (including costs) ____ The fair value adjustment arises on the acquisition of Argyll and Bute Waste Management Services where remediation and restoration work on landfill sites is required. During the period, further fair value provisions of £0.9m have been made in respect of the prior period acquisition of N V De Beer & Partners ('de Paepe'). 9 Provisions for liabilities and charges At 31 Provided in Arising on Utilised in At 30 March 2001 period acquisitions period September 2001 Restated £m £m £m £m £m Site 16.2 1.3 5.0 (0.6) 21.9 restoration Aftercare 23.7 1.2 - - 24.9 Onerous 0.4 - - - 0.4 leases Deferred 17.8 1.0 - - 18.8 taxation ______ ______ ______ ______ ______ 58.1 3.5 5.0 (0.6) 66.0 ____ ____ ____ ____ ____ The deferred taxation provision at 31 March 2001 has been restated following the adoption of FRS 19 - Deferred Taxation. See Note 1 for details. 10 Reconciliation of movements in equity shareholders' funds 2001/ 2000/ 2000/ 2002 2001 2001 First Half restated restated First Full £m Half Year £m £m Profit for the period 10.0 12.5 20.1 Equity dividends (4.4) (4.3) (12.9) _______ _______ _______ Issue of share capital 0.1 0.3 0.7 Currency translation (losses) gains (0.4) 0.2 3.2 Currency translation adjustment on goodwill 0.1 (0.1) (1.6) _______ _______ _______ Net addition to equity shareholders' funds 5.4 8.6 9.5 _______ _______ _______ Opening equity shareholders' funds - as previously 144.1 142.2 142.2 reported Prior year adjustment (see Note 1) - (7.6) (7.6) _______ _______ _______ Opening equity shareholders' funds - restated 144.1 134.6 134.6 _______ _______ _______ Closing equity shareholders' funds 149.5 143.2 144.1 ____ ____ _____ 11 Net cash flow from operating activities 2001/ 2000/ 2000/ 2002 2001 2001 First Half restated restated First Full £m Half Year £m £m Total operating profit 28.4 30.9 55.5 Amortisation of intangible assets 5.0 4.4 9.4 Depreciation of fixed assets 18.9 18.1 37.9 Provision for aftercare and site restoration 1.8 2.1 3.1 _______ _______ _______ Earnings before interest, taxation, depreciation and 54.1 55.5 105.9 amortisation (EBITDA) Gain on sale of fixed assets (0.2) - (0.2) Increase in working capital (2.4) (16.5) (6.6) Utilisation of provisions (0.6) (0.8) (1.7) Share of profits of joint ventures (1.0) (0.6) (1.1) _______ _______ _______ Net cash flow from operating activities 49.9 37.6 96.3 ____ ____ ____ 12 Status of financial information The interim financial information, which was approved by the Directors on 31 October 2001, is unaudited but has been reviewed by the auditors and their report to the Directors is set out on page 11. The financial information for the year ended 31 March 2001 does not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985, and has been extracted from the Group's 2001 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 on pages 4 to 11 and we have read the other information contained in the interim report and considered whether it contains 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 Directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which 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 for use in the United Kingdom. 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 UK 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 2001. PricewaterhouseCoopers Chartered Accountants London 31 October 2001

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