Trading Update

RNS Number : 1546W

Shanks Group PLC

07 February 2017

 

THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION

7 February 2017

Trading Update

Shanks Group plc (LSE:SKS), the international waste-to-product business, today issues its trading update for the period from 1 October 2016 to date.

Shanks trading performance

In the third quarter, trading has continued in line with that in the first half, with strong underlying performances from the Commercial and Hazardous Waste Divisions offset by continuing market and operational challenges in the UK Municipal business.

The Commercial Division has continued to perform well.  Pricing pressure remains in end markets, but volumes have continued to show encouraging growth compared to prior year.  In addition, recyclate prices have stabilised in general, and energy prices have shown some improvement.  The new Vliko facility, which was commissioned on schedule in October, is performing well.

The Hazardous Waste Division has also delivered a strong performance since the half year.  Soil, water and packed chemical waste intake volumes and throughput remained above last year.  Construction work has started on a new intake warehouse at the ATM facility in Moerdijk that will improve both capacity and compliance for packed chemical waste operations.  The Reym industrial cleaning business has also remained productive during the quieter winter season with cleaning activity in line with our expectations.

The Municipal Division had a very difficult third quarter, with the impact of both the mix and prices of the fuels that we produce being worse than expected, particularly at ELWA.  The Barnsley, Doncaster and Rotherham (BDR) facility was also temporarily closed to allow the main contractor to make modifications to the plant to improve future performance.  Management continue to focus closely on this division: the recovery initiatives announced with the interim results in November are being implemented and further plans are being developed by the new divisional management team to improve performance.  We believe that these actions will turnaround the business, with the benefits starting to be seen in 2017/18.

Cash levels continue to be managed closely.  Core net debt decreased by £109m from 30 September 2016 to £134m as at 31 December 2016, with the benefit of the equity raise being partly offset by capital investment in Municipal and by settlement of transaction costs.   

Van Gansewinkel trading performance

On 29 September 2016, Shanks and Van Gansewinkel Groep BV (VGG) announced their agreed merger. VGG has today announced a very strong performance in its unaudited preliminary trading update for the twelve months ended 31 December 2016, with self-help initiatives delivering a significant increase in adjusted EBITDAE.  Revenues fell slightly, primarily due to the sale of non-core businesses. 

As with our Commercial Division, VGG experienced a slight improvement in market conditions driven by the improving economy in the Benelux which has more than offset the weakness in recyclate and product prices.  VGG delivered a range of cost reduction initiatives during the year as well as initiating a top-line revitalisation project to improve margins and the quality of earnings.  After adjustments made to align with Shanks' accounting policies, VGG estimates it achieved a 23% increase in adjusted EBITDAE* to €91.0m on revenues^# down 3% to €882.5m. 

Merger progress

Progress with the VGG merger continues as announced with our interim results.  The shareholders of Shanks and VGG have approved the merger including the associated equity issue which was completed by Shanks in November 2016.  Competition clearance has been received from the Belgian competition authorities, as announced on 25 January 2017.  We are making good progress with the Netherlands filing and expect to complete in line with our previous expectations. 

In depth planning for the integration phase of the merger is also underway.  Works Council approval has been sought and received for the top structure of the new organisation which will be implemented at deal close. Both companies are finalising plans for a successful "Day 1" of the merger and a blueprint for the first 100 days.  A new brand will be launched on completion which reflects both the history and the aspirations of the combined Group.             

Outlook
 

The Board believes that the ongoing strong performance of Shanks' Commercial and Hazardous Waste Divisions will continue to offset the weaker performance from the Municipal Division.  As a result, the Board continues to expect the Group to deliver a result for the year ending 31 March 2017 in line with its expectations. 

The Board believes that the combination of Shanks and VGG is an excellent strategic and operational fit, bringing two strong companies together to create a new industry leader which is focused on the emerging circular economy. The importance of recycling and its role in managing the world's limited resources is increasingly recognised, with companies and governments setting stretching new targets.  The combined Group will be well positioned to meet these needs and will be supported by underlying end markets that are expected to improve.  This positive market backdrop and the anticipated delivery of aggregate annual risk-weighted cost synergies of approximately €40m is expected to underpin strong growth for the combined Group over the medium and long term.

Footnotes:

* Adjusted EBITDAE is defined as the VGG Group's EBITDA adjusted to show the result before the impact of certain items that the VGG Group considers to be non-recurring costs and exceptional items.

^# Note that the VGG press release refers to values on a going concern basis which excludes businesses sold in the prior year.

For further information:

Shanks Group plc	[phone]
Peter Dilnot
Toby Woolrych

Brunswick Group	[phone]
Carole Cable
Fiona Micallef-Eynaud

Notes to editors

Shanks Group is a leading international waste to product business.

The Group uses a range of cost-effective sustainable technologies to make valuable products from what is thrown away. We produce green energy, recovered fuel, recycled commodities and organic fertiliser.

Shanks meets the growing need from public and private sectors to manage waste sustainably without damaging the environment. Our solutions reduce greenhouse gas emissions, recycle natural resources and limit fossil fuel dependency.

Shanks operates in three divisions that reflect its markets:  Hazardous, Commercial and Municipal. It has operations in the Netherlands, Belgium, UK and Canada and employs around 3,500 people.

For more information, visit: www.shanksplc.com

 

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