Interim Results

Shanks Group PLC 04 November 2004 Shanks Group plc Interim Results 2004/5 Shanks Group plc ('Shanks') a leading European independent waste management company, announces its interim results for the six months ended 30 September 2004 Highlights Results reflect the £227.5m disposal of its UK landfill and related power operations on 1 July 2004 and the associated UK restructuring: Key features are: • Headline Profit (before tax, exceptional items and goodwill amortisation) rose by 24% to £17.5m (2003/4: £14.1m) due to better than expected results from the continuing business; • Continuing business headline profit was approximately £14.5m; • As a result of the disposal, turnover was lower at £270m (2003/4: 293m); • Profit before tax of £54.4m (2003/4: £8.2 million) after exceptional profit of £42.1m; • Adjusted earnings per share were 4.9p per share (2003/4: 4.1p per share); • Maintained interim dividend of 1.9p per share; • Reduction in total debt to £128m (March 2004: £309m), of which £36m (March 2004: £28m) is in PFI companies; • PFI contracts for East London Waste Authority (ELWA) and Argyll & Bute performing to plan. Commenting on the results, Michael Averill, Chief Executive of Shanks Group plc said: 'These results reflect the improved financial strength of the Group following the £227.5m disposal of our UK landfill and related power operations, and the streamlining of our UK operations. In the short term, we envisage continued improvements from within the UK and sound performances from our Dutch and Belgian businesses, where we command strong market positions. With the progress made to date, the directors remain confident of meeting their expectations for the year as a whole. In the medium term, we expect the impact in the UK of the Landfill Directive and Landfill Tax to significantly change the waste market, with future emphasis on landfill diversion. Given Shanks' European expertise and experience, we are well placed to exploit these new business opportunities as they emerge.' CHAIRMAN'S INTERIM REVIEW Financials As a result of recent management action, the performance in the continuing business for the first six months of the 2004/5 year was ahead of expectations. The Group's overall Headline Profit (i.e. before tax, exceptional items and goodwill amortisation) increased by 24% to £17.5m (2003/4: £14.1m), of which approximately £14.5m was earned in the continuing business. Turnover reduced to £270m (2003/4: £293m) reflecting the sale of the UK landfill and related power operations to Terra Firma for a gross consideration of £227.5m on 1 July 2004. These results therefore contain only three months' contribution from the discontinued business and benefit from lower interest expense. There was an exceptional profit of £52.5m on the disposal and an associated exceptional charge of £10.4m on the restructuring of the UK operation. After goodwill amortisation of £5.2m and the net exceptional profit of £42.1m, the Group profit before tax was £54.4m (2003/4: £8.2m). Tax rate on the headline profit increased to 34% (2003/4 31%) due to the increased mix of profits from countries where underlying tax rates are higher than the UK. Profit after tax was £53.7m (2003/4: £3.8m). Adjusted basic earnings per share (before exceptional items and goodwill amortisation) were 4.9 pence per share (2003/4: 4.1 pence per share). Your Board has maintained the interim dividend at 1.9 pence per share. Basic earnings per share were 22.9 pence per share (2003/4: 1.6 pence per share). Since 31 March 2004, debt relating to the core business fell by £189m whilst the debt in Private Finance Initiative (PFI) companies increased by £8m. Total Group debt now stands at £128m of which £92m is core debt and £36m is non recourse debt in the 100% owned PFI companies which is consolidated into the Group balance sheet. Divisional Review United Kingdom Overall the continuing UK activities broke even which, although still unsatisfactory, nevertheless represents a £3.5m improvement in the results of the equivalent activities last year. Following the disposal of the landfill and related power operations, the UK organisation has been streamlined. Shanks Chemical Services and Shanks Waste Services have been amalgamated to form Shanks Waste Management. The £10m restructuring charge comprises £7m non cash balance sheet adjustments and a £3m cash charge to cover reorganisation costs. As a result total annual costs will reduce by at least £3m around half the benefit accruing in the current year and a full year contribution in 2005/6. The management changes made last year together with the restructuring described above are generating improved performance in the collections and recycling activities. Part of the upturn has come from the exit from loss making activities and part from operational efficiency gains. Further progress is expected. Market conditions for hazardous waste remain challenging with little discernible increase in volumes detected since the 16 July Landfill Directive milestone marking the end of co-disposal. The regulatory inconsistencies in this area should finally be settled next July when stringent Waste Acceptance Criteria (WAC) for landfill must be introduced to satisfy European Law. The Group's two integrated waste management PFI contracts for Argyll & Bute (A&B)and the East London Waste Authority (ELWA) continue to perform in line with their plans. The new composting plants in A&B have commenced operations. Construction of the ELWA mechanical biological treatment plants has started with a build programme of 27 months leading to commissioning of the first plant in summer 2006. Belgium Trading profit increased by £0.8m to £9.0m (2003/4: £8.2m). Volumes at our landfill in Wallonia recovered following the granting of its new permit and were further boosted by a one-off benefit when waste was diverted to us from the Brussels household waste incinerator which was closed for major refurbishment. Last year's investment in further electricity generation capacity also provided improvement. These increases more than offset the decline caused by the general economic slowdown and the poorer contaminated land market. The recently commenced small operations just across the border in Northern France are performing satisfactorily. Netherlands Trading profit reduced by £0.5m to £11.1m (2003/4: £11.6m). The recession in the Netherlands is proving challenging, especially in the all important construction sector. Although our solid waste businesses serving these markets declined in aggregate the reduction was not uniform with some regions performing well. Whilst no immediate improvement in market conditions is expected, the management is focussed on improving results through various efficiency measures. The hazardous waste business has improved with both ATM and Reym recording better results, although this increase was insufficient to offset the decline in solid waste. ATM has benefited from enhanced volumes for pyrolysis treatment and the investment made last year in soil cleaning capacity. Developments The sale agreement with Terra Firma requires the sale of our 50% interests in two joint venture landfill sites. In each case the process has started and at least one should complete this financial year. Bringing the Dumfries & Galloway integrated waste contract to financial close has been slow. All issues of substance are now resolved and, barring unforeseen circumstances, the project should commence imminently. The Mechanical Biological Treatment (MBT) technology developed with our Italian partner, Ecodeco, is proving extremely interesting to UK local authority customers. Some 10 million tonnes of annual waste arising are due to be tendered in a variety of projects in the coming five years, representing approximately one third of the UK market. As Shanks has sole UK rights to this technology, it is well placed to compete for this growing opportunity. In the Netherlands, the Group has been developing its businesses serving the enormous greenhouse market. The principal thrusts are in the treatment of the used substrate in the growing media and in the composting of green waste products. It is expected that co-operation with this industry will prove mutually fruitful over many years. Following the entry into the municipal waste business in Northern France, a project to serve the industrial waste market is under consideration. Directorate The Group Finance Director, David Downes, is due to retire in December 2005 at age 60. The Board has actively begun to seek his replacement to ensure a smooth handover. Outlook The sale of the UK landfill and related power operations has left the Group in a sound financial position to exploit growth opportunities. Our Benelux businesses have strong franchises in their chosen markets and should continue to prosper. The Landfill Directive and Landfill Tax will change the character of the UK market in a way similar to developments already seen in our continental markets. The alliance with Ecodeco of Italy produces a strong technical offering for the burgeoning municipal waste market, whilst the technologies available in our Benelux operations are ideally suited to exploit the changes which will come in the industrial and commercial sector. These developments provide the platform for medium term growth. In the nearer term, as a result of recent management action, the Board remains confident in their expectations for the year as a whole. Note: Copies of the Interim Report will be posted to shareholders by 22 November 2004, after which they will be available, on request, from the company at Astor House, Station Road, Bourne End, Bucks SL8 5YP. The interim dividend of 1.9 pence per share will be paid on 12 January 2005 to shareholders on the register at close of business on 17 December 2004. For further information contact: Shanks Group plc on 4 November: telephone: 07831 295348 Ian Clubb; Chairman thereafter, telephone: 01628 524523 Michael Averill; Group Chief Executive David Downes; Group Finance Director Citigate Dewe Rogerson telephone 0207 2822945 Ginny Pulbrook Management will be holding an analyst presentation at 9:00am today, Thursday 4 November at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA. Consolidated Profit and Loss Account First Half ended 30 September 2004 Consolidated Profit and Loss Account First Half ended 30 September 2004 2004/5 2003/4 2003/4 First First Full Half Half Year Note Continuing Discontinued Total Total Total £m £m £m £m £m ----------------------------------------------------------------------------------------------------------------------- Turnover: Group and share of joint ventures: 240.5 37.9 278.4 297.5 596.7 Less: share of turnover of joint ventures (8.7) - (8.7) (4.9) (8.6) ----------------------------------------------------------------------------------------------------------------------- Group turnover 2 231.8 37.9 269.7 292.6 588.1 Cost of sales (192.5) (30.5) (223.0) (241.5) (482.3) ----------------------------------------------------------------------------------------------------------------------- Gross profit 39.3 7.4 46.7 51.1 105.8 ======================================================================================================================= Group operating profit before exceptional items and goodwill amortisation 17.6 5.8 23.4 23.4 49.4 Exceptional operating costs 3 (10.4) - (10.4) - - Goodwill amortisation (4.8) (0.4) (5.2) (5.9) (11.6) ----------------------------------------------------------------------------------------------------------------------- Group operating profit 2.4 5.4 7.8 17.5 37.8 Share of operating profit of joint ventures 1.3 - 1.3 0.9 1.6 ----------------------------------------------------------------------------------------------------------------------- Total operating profit 2 3.7 5.4 9.1 18.4 39.4 Non-operating exceptional items: - on disposal of operations 4 52.5 - - ----------------------------------------------------------------------------------------------------------------------- Profit before finance charges and tax 61.6 18.4 39.4 Finance charges - interest (6.3) (8.9) (17.9) Finance charges - other 5 (0.9) (1.3) (2.8) ----------------------------------------------------------------------------------------------------------------------- Profit on ordinary activities before tax 2 54.4 8.2 18.7 Tax 6 (0.7) (4.4) (9.5) ----------------------------------------------------------------------------------------------------------------------- Profit on ordinary activities after tax 53.7 3.8 9.2 and profit for the period Equity dividends paid and proposed 7 (4.4) (4.4) (13.3) ----------------------------------------------------------------------------------------------------------------------- Retained profit (loss) transferred to reserves 49.3 (0.6) (4.1) ======================================================================================================================= Earnings per share - basic 8 22.9p 1.6p 3.9p - adjusted basic before exceptional items and goodwill amortisation 8 4.9p 4.1p 8.9p - diluted 8 22.9p 1.6p 3.9p Dividend per share 7 1.9p 1.9p 5.7p ======================================================================================================================= Consolidated Balance Sheet At 30 September 2004 At At At 30 September 30 September 31 March 2004 2003 2004 Note £m £m £m £m £m £m ---------------------------------------------------------------------------------------------------------------------- Fixed assets Intangible assets 144.2 194.4 183.8 Tangible assets 206.4 328.5 356.2 Investments in joint ventures: Share of gross assets 14.3 12.1 12.8 Share of gross liabilities (9.1) (7.6) (8.1) --------- -------- -------- Share of net assets 5.2 4.5 4.7 Loans to joint ventures 3.7 3.9 3.9 --------- -------- -------- Total investment in joint ventures 8.9 8.4 8.6 Other unlisted investments 1.1 1.2 1.1 ----------------------------------------------------------------------------------------------------------------------- Total fixed assets 360.6 532.5 549.7 Current assets Stocks 7.4 7.5 8.1 Debtors 125.0 134.9 137.7 Cash at bank and in hand 46.7 16.1 30.3 --------- -------- -------- 179.1 158.5 176.1 --------- -------- -------- Creditors: amounts falling due within one year Borrowings (2.4) (4.7) (15.8) Other creditors (144.4) (152.9) (165.9) --------- -------- -------- (146.8) (157.6) (181.7) --------- -------- -------- Net current assets (liabilities) 32.3 0.9 (5.6) ----------------------------------------------------------------------------------------------------------------------- Total assets less current liabilities 392.9 533.4 544.1 Creditors: amounts falling due after more than one year Borrowings (172.1) (320.8) (323.6) Other creditors (0.1) (0.2) (8.4) --------- -------- -------- (172.2) (321.0) (332.0) Provisions for liabilities and charges 9 (23.8) (68.3) (74.8) ----------------------------------------------------------------------------------------------------------------------- Net assets 196.9 144.1 137.3 ======================================================================================================================= Capital and reserves Called up share capital 23.4 23.4 23.4 Share premium account 93.1 93.1 93.1 Profit and loss account 1 80.4 27.6 20.8 ----------------------------------------------------------------------------------------------------------------------- Equity shareholders' funds 10 196.9 144.1 137.3 ======================================================================================================================= Consolidated Cash Flow Statement First Half ended 30 September 2004 2004/5 2003/4 2003/4 First First Full Half Half Year Note £m £m £m £m £m £m ------------------------------------------------------------------------------------------------------------------------ Net cash flow from operating activities 11 28.7 37.8 95.3 Returns from investments and servicing of finance Net interest paid (8.0) (10.1) (20.1) Tax paid (5.6) (3.2) (8.7) Capital expenditure and financial investment Purchase of tangible fixed assets (25.5) (26.5) (68.3) Sale of tangible fixed assets 3.8 2.3 4.1 ---------- ---------- ---------- (21.7) (24.2) (64.2) Acquisitions and disposals Net proceeds from disposal of subsidiary 199.7 - - undertakings Dividends from and loans repaid by joint 0.6 0.2 - ventures Other acquisitions - - (1.5) --------- ---------- ---------- 200.3 0.2 (1.5) Equity dividends paid (8.9) (8.9) (13.3) ------- ------- ------- Net cash flow before use of liquid 184.8 (8.4) (12.5) resources and financing Financing Debt financing (154.9) 4.2 13.0 ------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash 29.9 (4.2) 0.5 ======================================================================================================================== Reconciliation of net cash flow to movement in net debt Increase (decrease) in cash in the year 29.9 (4.2) 0.5 Debt financing 154.9 (4.2) (13.0) ------------------------------------------------------------------------------------------------------------------------ Change in net debt resulting from cash flows 184.8 (8.4) (12.5) Inception of finance leases - - (1.5) Financing acquired with subsidiaries - - (2.3) Amortisation of loan fees (0.3) (0.4) (0.7) Exchange rate (loss) gain on net debt (3.2) (3.1) 5.4 ------------------------------------------------------------------------------------------------------------------------ Movement in net debt in the year 181.3 (11.9) (11.6) Net debt at 31 March 2004 (309.1) (297.5) (297.5) ------------------------------------------------------------------------------------------------------------------------ Net debt at 30 September 2004 (127.8) (309.4) (309.1) ======================================================================================================================== Net debt represents total borrowings less cash in hand Analysis of Net Debt. At 30 September 2004 At At At 30 September 30 September 31 March 2004 2003 2004 £m £m £m ------------------------------------------------------------------------------------------------------------------ Principal Group net debt 91.9 286.3 280.9 Private Finance Initiative company net debt 35.9 23.1 28.2 ------------------------------------------------------------------------------------------------------------------ Total Group net debt 127.8 309.4 309.1 ================================================================================================================== Notes to the Interim Financial Statements. 1 Basis of preparation 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 2004. 2 Segmental analysis 2004/5 2003/4 2003/4 First First Full Half Half Year £m £m £m ------------------------------------------------------------------------------------------------------------------- (a) Turnover by origin and by destination of service United Kingdom 83.2 77.1 153.7 Belgium 49.9 51.3 102.7 The Netherlands 98.7 98.8 200.4 ------------------------------------------------------------------------------------------------------------------- Continuing operations 231.8 227.2 456.8 Discontinued operations 37.9 65.4 131.3 ------------------------------------------------------------------------------------------------------------------- Group turnover 269.7 292.6 588.1 =================================================================================================================== Share of joint venture turnover 8.7 4.9 8.6 =================================================================================================================== (b) Operating profits Trading profits: United Kingdom - (3.5) (4.5) Belgium 9.0 8.2 15.7 The Netherlands 11.1 11.6 24.2 Central Services (1.2) (1.8) (4.1) ------------------------------------------------------------------------------------------------------------------- Continuing operations 18.9 14.5 31.3 Discontinued operations 5.8 9.8 19.7 ------------------------------------------------------------------------------------------------------------------- Operating profit before exceptional items and goodwill amortisation 24.7 24.3 51.0 Exceptional operating items - reorganisation costs (10.4) - - Goodwill amortisation (5.2) (5.9) (11.6) ------------------------------------------------------------------------------------------------------------------- Total operating profit 9.1 18.4 39.4 =================================================================================================================== United Kingdom (11.0) (4.1) (5.9) Belgium 8.7 7.8 15.1 The Netherlands 7.3 7.6 16.3 Central Services (1.3) (1.9) (4.3) ------------------------------------------------------------------------------------------------------------------- Continuing operations 3.7 9.4 21.2 Discontinued operations 5.4 9.0 18.2 ------------------------------------------------------------------------------------------------------------------- Total operating profit 9.1 18.4 39.4 Non-operating exceptional items 52.5 - - ------------------------------------------------------------------------------------------------------------------- Profit before finance charges and tax 61.6 18.4 39.4 Finance charges - interest (6.3) (8.9) (17.9) Finance charges - other (0.9) (1.3) (2.8) ------------------------------------------------------------------------------------------------------------------- Profit on ordinary activities before tax 54.4 8.2 18.7 =================================================================================================================== (c) Analysis of profit on ordinary activities before tax Group 53.2 7.4 17.3 Joint ventures 1.2 0.8 1.4 ------------------------------------------------------------------------------------------------------------------- Profit on ordinary activities before tax 54.4 8.2 18.7 =================================================================================================================== At 30 At 30 At 31 September September March 2004 2003 2004 £m £m £m ------------------------------------------------------------------------------------------------------------------- (d) Net assets United Kingdom 65.6 99.0 98.5 Belgium 26.3 24.6 22.0 The Netherlands 242.1 240.7 229.6 Discontinued operations - 105.6 115.4 ------------------------------------------------------------------------------------------------------------------- Net operating assets 334.0 469.9 465.5 Unallocated net assets (liabilities): Assets under the course of construction 16.6 10.0 14.8 Net debt (127.8) (309.4) (309.1) Other unallocated net liabilities (25.9) (26.4) (33.9) -------------------------------------------------------------------------------------------------------------------- Net assets 196.9 144.1 137.3 ==================================================================================================================== Other unallocated net liabilities include debtors and creditors relating to taxation and dividends, and an element of capitalised goodwill. 3 Exceptional items - operating The operating exceptional item in the six months to 30 September 2004 of £10.4m arises on the integration and reorganisation of the Group's business in the United Kingdom. The effect of this item is to reduce the tax charge by £1.8m. 4 Exceptional items - non-operating The non-operating exceptional profit in the six months to 30 September 2004 of £52.5m relates to the disposal of the Group's UK landfill and power business on 1 July 2004. This transaction was principally tax free but associated costs have given rise to a net tax credit of £3.5m. 5 Finance charges - other Other finance charges relate to the unwinding of discount on long term landfill liabilities of £0.6m (2003/4: £0.9m) and the amortisation of bank fees of £0.3m (2003/4: £0.4m). 6 Taxation 2004/5 2003/4 2003/4 First First Full Half Half Year £m £m £m ---------------------------------------------------------------------------------------------------------------------- UK Corporation tax: - Current year 1.7 3.9 2.7 - Double tax relief (3.4) (3.9) (3.0) Overseas tax 3.8 5.8 10.1 Deferred tax (1.7) (1.6) (0.7) Joint ventures 0.3 0.2 0.4 ---------------------------------------------------------------------------------------------------------------------- 0.7 4.4 9.5 ====================================================================================================================== The tax rate for the first half of the current year is based on the estimated tax charge for the full year. 7 Interim dividend The interim dividend of 1.9p per share (2003/4: 1.9p per share) will be paid on 12 January 2005 to shareholders on the register at close of business on 17 December 2004. 8 Earnings per share Basic earnings per share are calculated by dividing the profit for the period by the average number of shares in issue during the period. 2004/5 2003/4 2003/4 First First Full Half Half Year £m £m £m ---------------------------------------------------------------------------------------------------------------------- Calculation of basic earnings per share Profit for the period (£m) 53.7 3.8 9.2 Exceptional items (after tax credit) (£m) (47.4) - - Goodwill amortisation (£m) 5.2 5.9 11.6 ---------------------------------------------------------------------------------------------------------------------- Earnings before exceptional items and goodwill amortisation (£m) 11.5 9.7 20.8 ====================================================================================================================== Average number of shares in issue during the period 234.0m 234.0m 234.0m Basic earnings per share (pence) 22.9p 1.6p 3.9p Adjusted basic earnings per share before exceptional items and goodwill amortisation (pence) 4.9p 4.1p 8.9p ====================================================================================================================== Calculation of diluted earnings per share Average number of shares in issue during the period 234.0m 234.0m 234.0m Effect of share options in issue 0.4m - 0.4m ---------------------------------------------------------------------------------------------------------------------- Total 234.4m 234.0m 234.4m ====================================================================================================================== Diluted earnings per share (pence) 22.9p 1.6p 3.9p ====================================================================================================================== The Directors believe that adjusting basic earnings per share for the effect of exceptional items and goodwill amortisation enables a comparison with historical data calculated on the same basis. 9 Provisions for liabilities and charges At 31 Provided Utilised Disposed Exchange At 30 March in in of in September 2004 period period period 2004 £m £m £m £m £m £m -------------------------------------------------------------------------------------------------------------------- Site restoration 24.4 1.4 (0.7) (19.9) 0.1 5.3 Aftercare 30.4 1.8 - (28.1) 0.1 4.2 Leachate 1.2 - (0.7) (0.5) - - Reorganisation 0.3 0.1 (0.1) - - 0.3 Onerous lease 0.4 0.6 - - - 1.0 Deferred tax 18.1 (1.7) - (3.7) 0.3 13.0 -------------------------------------------------------------------------------------------------------------------- 74.8 2.2 (1.5) (52.2) 0.5 23.8 ==================================================================================================================== 10 Reconciliation of movements in equity shareholders' funds 2004/5 2003/4 2003/4 First First Full Half Half Year £m £m £m -------------------------------------------------------------------------------------------------------------------- Profit for the period 53.7 3.8 9.2 Equity dividends (4.4) (4.4) (13.3) -------------------------------------------------------------------------------------------------------------------- Retained profit transferred to reserves 49.3 (0.6) (4.1) Goodwill previously written off to reserves and now charged in the profit for the period 7.3 - - on disposal of operations Currency translation gain (loss) 4.3 1.7 (4.0) Currency translation adjustment on goodwill (1.3) (0.8) 1.6 -------------------------------------------------------------------------------------------------------------------- Net movement in equity shareholders' funds 59.6 0.3 (6.5) Opening equity shareholders' funds 137.3 143.8 143.8 -------------------------------------------------------------------------------------------------------------------- Closing equity shareholders' funds 196.9 144.1 137.3 ==================================================================================================================== 11 Net cash flow from operating activities 2004/5 2003/4 2003/4 First First Full Half Half Year £m £m £m -------------------------------------------------------------------------------------------------------------------- Total operating profit 9.1 18.4 39.4 Amortisation and impairment of intangible assets 7.3 5.9 11.6 Depreciation and impairment of fixed assets 22.0 23.3 46.7 Amounts written off joint venture investment - - 0.5 Provision for aftercare and site restoration 2.4 2.8 6.1 -------------------------------------------------------------------------------------------------------------------- Earnings before interest, taxation, depreciation and amortisation (EBITDA) 40.8 50.4 104.3 Profit on sale of fixed assets - (0.4) (0.6) Increase in working capital (10.0) (8.8) (1.2) Exceptional provision charge 0.6 - - Other provision cost - - 0.1 Utilisation of provisions (1.4) (2.5) (5.7) Share of profits of joint ventures (1.3) (0.9) (1.6) --------------------------------------------------------------------------------------------------------------------- Net cash flow from operating activities 28.7 37.8 95.3 ===================================================================================================================== 12 Contingent liabilities Under the terms of the Sale & Purchase Agreement with Terra Firma for the disposal of the Group's landfill and power operations, the Group has given a number of indemnities and warranties relating to the disposed operations, including one in respect of the Greengairs mineral rights claim that was disclosed as a contingent liability in the Group's financial statements for the year ended 31 March 2004. 13 Status of financial information The interim financial information, which was approved by the Directors on 4 November 2004, is unaudited but has been reviewed by the auditors and their report is set out below. The financial information for the year ended 31 March 2004 does not comprise financial statements within the meaning of section 240 of the Companies Act 1985, and has been extracted from the Group's 2004 published financial statements 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. Independent Auditors' Review Report to Shanks Group plc. Introduction We have been instructed by Shanks Group plc ('the Group') to review the financial information which comprises the profit & loss account, the balance sheet, the cash flow statement, the statement of total recognised gains and losses and the related notes. 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 United Kingdom 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. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Listing 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. 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 2004. PricewaterhouseCoopers LLP Chartered Accountants London 4 November 2004 This information is provided by RNS The company news service from the London Stock Exchange

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