Final Results

Shanks Group PLC 31 May 2007 31 May 2007 Company Announcement - Preliminary Results 2007 Shanks Group plc, a leading European waste management company, today issues its results for the year ended 31 March 2007. Financial highlights â€¢ Headline profit (profit from continuing operations before exceptional items and tax) rose 15% to Â£39.2m (2006: Â£34.0m) â€¢ 15% increase in turnover to Â£509m (2006: Â£442m) â€¢ 18% increase in adjusted* earnings per share to 11.3p (2006: 9.6p) â€¢ 5% increase in final dividend to 4.0p per share, bringing the total dividend for the year to 5.9p per share (2006: 5.7p per share) Business Highlights â€¢ The Netherlands operating profit ahead 32% with Smink acquisition contributing strongly â€¢ Belgium operating profit up 10% â€¢ Further recent acquisitions expand geographic coverage and provide new technologies â€¢ East London Waste Authority (ELWA) Phase I fully operational and Phase II commissioning â€¢ UK market poised for growth as new regulations take effect and Landfill Tax increases â€¢ Michael Averill to retire. Tom Drury, former executive director of United Utilities and Managing Director of Vertex, will join the Board in September as Group Chief Executive Designate Commenting on the results, Michael Averill, Group Chief Executive of Shanks Group plc said: 'Recent acquisitions, especially Smink in the Netherlands, together with strong organic growth delivered this substantially improved result. Within Benelux further acquisitions will ensure continued robust performance. In the UK Shanks is well placed to exploit growth opportunities within the rapidly evolving municipal market. The Group has established an enviable reputation for the delivery of local authority waste management projects. Many more councils are in or commencing the tendering process for the management of their waste. Rapidly increasing Landfill Tax will also accelerate growth in the Industrial and Commercial (I&C) Solid Waste recycling business. I would like to thank all Shanks staff for their support during my 13 years as Group Chief Executive. Their skills coupled with a strong financial position leave the Group poised for further progress. I wish Tom Drury every success.' *On continuing operations excluding the change in fair value of interest rate swaps net of tax CHAIRMAN'S STATEMENT Financial Performance I am pleased to report a significant improvement in performance for the year to 31 March 2007. Headline profit (profit from continuing operations before exceptional items and tax) rose 15% to Â£39.2m (2006: Â£34.0m) driven principally by a strong performance in the Netherlands following the Smink acquisition in June 2006. Adjusted basic earnings per share improved 18% to 11.3p from last year's 9.6p following a 1% reduction in the effective tax rate to 33% (2006: 34%). As a result your Board is recommending a 5% increase in final dividend to 4.0p per share (2006: 3.8p per share) which, if approved by shareholders, brings the total dividend for the year to 5.9p per share (2006: 5.7p per share). Turnover from continuing operations increased 15% to Â£509m (2006: Â£442m) and profit before tax was Â£46.1m (2006: Â£30.3m) after a Â£6.9m non cash gain (2006: Â£3.7m charge) on the change in the fair value of interest rate swaps. During the year borrowings relating to the core business increased by Â£58m to Â£134m (2006: Â£76m) after acquisition expenditure totalling Â£65m. Private Finance Initiative (PFI) company debt also increased by Â£18m to Â£123m (2006: Â£105m) following continued capital investment in the East London Waste Authority (ELWA) and Dumfries & Galloway (D&G) projects. Divisional Review United Kingdom Operating profit from continuing operations decreased by Â£0.9m to Â£3.2m (2006: Â£4.1m) following lower contributions from PFI projects and Contaminated Land Services. Phase I of the project at Frog Island on the north bank of the river Thames is now fully commissioned and operating at capacity. Phase II of the project suffered a delay caused by the insolvency of a subcontractor. The supplier has been rescued as a going concern and all equipment has now been delivered. Commissioning has commenced in line with the revised timetable with the objective of achieving full operations over the summer. As this is later than expected operating costs will be higher during the delay period. A programmed price increase in Summer 2007 will enhance profitability following recent higher costs associated with the operation of new facilities. Like the ELWA project, the D&G contract is serviced using the innovative Mechanical Biological Treatment (MBT) technology developed with Italian partner Ecodeco. The D&G plant is also fully commissioned and operating normally. There has been significant interest from the cement industry in the Solid Recovered Fuel (SRF) produced by the MBT process and large scale deliveries have commenced. Further increases are programmed when ELWA Phase II is commissioned. As previously reported a stricter interpretation of landfill regulations by the Scottish Environment Protection Agency (SEPA) has caused substantially increased costs on the former local authority landfill sites within our Scottish PFI projects. A mitigation programme has commenced and is beginning to bear fruit. The market for Contaminated Land Services in the year was significantly reduced from a particularly strong 2005/6. Nevertheless, a number of smaller projects have been completed making a positive contribution to results. The logistics and recycling business has recorded substantial increases in trading profit fuelled in part by two acquisitions in the Central Belt of Scotland for a total consideration of Â£12m. Our two landfill joint ventures have also traded well showing increases on the already strong performance recorded last year. Belgium Operating profit improved 10% to Â£17.3m (2006: Â£15.7m). All geographic regions recorded increased profits contributing to this pleasing result. In particular household waste diverted to our landfill from public sector incinerators, which were suffering temporary shut downs, prevented the expected decline in landfill performance. The 10 year contract for municipal waste collection signed in July 2005 with the City of Liege is fully operational and contributing according to its plan. The acquisition of Stordeur, a small waste collection company, in Wallonia was completed for a consideration of Â£0.6m. The Netherlands Netherlands activities delivered a strong performance with operating profits increasing 32% to Â£31.0m (2006: Â£23.5m). The largest contribution to this improvement was the company Smink Beheer BV which was acquired by the Group for a net consideration of Â£43m at the end of June 2006. This acquisition extends our geographic coverage eastward from our strong presence in the Randstad area. The early performance has been in line with our plans and synergy opportunities with our existing business are now being exploited. One further acquisition complementing our existing solid waste activities was completed for a consideration of Â£10m. The majority of these solid waste businesses enhanced their profits during the year as the programme of price and efficiency increases delivered improvements following the negative impact in 2005/6 accruing from the closing off of low cost recycling outlets in Germany. Our hazardous waste divisions in total also delivered a better result than in the prior year. Central Services Central Services costs rose by 20% to Â£5.3m (2006: Â£4.4m). Higher recruitment costs and increase of National Insurance contributions on share options were the largest elements of the movement. Developments United Kingdom In November 2006 the Group was appointed as preferred bidder for the 25 year contract to manage the waste of Cumbria County Council. Negotiations continue and it is expected that the contract will commence in 2008. Offers are also being made for numerous similar local authority contracts as the Group seeks to capitalise on progress already made with the MBT technology in this market. The UK Government estimates that at least Â£10bn must be spent on new infrastructure to process municipal waste if the requirements of the European Union (EU) Landfill Directive are to be met. The March 2007 Budget announced an increase in the Landfill Tax escalator. From April 2008 it will increase from Â£3 per tonne per annum to Â£8 per tonne per annum. The Tax, currently Â£24 per tonne, will therefore rise to Â£32 per tonne in 2008 and continue with a Â£8 per tonne annual increase until a rate of Â£48 per tonne is reached in 2010. This change should accelerate the development of the local authority market. The Tax will also provide a substantial disincentive for the landfilling of I&C waste. This change together with the regulatory requirement from October 2007 to pre treat all waste prior to landfill will provide further stimulus to the Group's emerging I&C recycling activities. Three recent Government policy proposals on Planning, Energy and Waste published in late May 2007 provide endorsement for the Shanks strategy. Household waste recycling is to be increased, landfill reduced and there will be greater emphasis on renewable energy, including, from SRF. Planning for these major items of infrastructure should also be simplified. It is expected that the market for Contaminated Land Services will improve in 2007/8 particularly with opportunities to decontaminate sites which will be used for the 2012 London Olympic Games. The Netherlands Since the end of the year under review the Group has completed the acquisition of a Randstad solid waste business for a consideration of Â£3m. This company, Kluivers was purchased from its management. More importantly, in mid April 2007, the company Orgaworld was purchased for Â£10m, Â£3m of which is deferred, with the potential for further payments up to Â£14m dependent on future profits growth. This company is involved in the composting and anaerobic digestion of biodegradable waste and brings a new technology and expertise which can be exploited Group wide over time. Belgium As landfill volumes are expected to decline the Group continues to search for acquisitions, particularly in recycling industries, which will provide new compensating revenue streams. A number of organic growth projects are also under consideration. Directorate Your Group Chief Executive, Michael Averill, has an agreement with the company whereby he could retire at age 57, an event now less than one year away. The Board therefore considered it prudent to commence a search for his replacement in good time and is delighted to announce the appointment to the Board of Tom Drury (age 45) as Group Chief Executive Designate, with effect from 3 September 2007. Michael Averill will stand down from his present position and resign from the Board on 30 September 2007, and at that time Tom Drury will assume Michael's role. Michael will however be retained in an advisory capacity until May 2008. Following an early career with Unilever and PricewaterhouseCoopers, since 1991 Tom Drury has had a distinguished career with United Utilities plc, and was appointed a main Board director in 2005. In 1996 he was appointed Managing Director of Vertex, and until the recent sale of the business to US private equity, was responsible for taking Vertex to a leading position in the UK's highly competitive business process outsourcing market, with turnover of circa Â£400 million, over 9,000 employees, and a blue chip client base. The Board is delighted that Tom has agreed to accept the position of Group Chief Executive of Shanks, and we look forward to working with him. During his 13 years as Group Chief Executive Michael has successfully overcome many challenges, and he will be delivering to his successor a strong company, which is well positioned to benefit from the rapid changes that are taking place in the waste management sector. The Board offers sincere thanks for his leadership and contribution over the years and wishes him every success for the future. Ian Clubb retired as your Chairman at the 2006 AGM. At the 2007 meeting both Philippe Delaunois and Barry Pointon will also retire from the Group. I thank all retiring directors for their positive contributions and wise counsel and wish them well for the future. I am also delighted to welcome Eric van Amerongen, a Dutch national, and Stephen Riley to the Board. They bring great international and electricity industry experience respectively. Outlook Recent changes across the Group have positioned Shanks within growth markets. It has a strong balance sheet, and the resources and skills are in place to capitalise on market opportunities. I am therefore confident of further progress in the current year and for the future. A Auer Chairman 2007 OPERATING REVIEW Thanks are once again due to the staff who have responded superbly to the industry's rapidly changing conditions to deliver a 19% improvement in Operating Profit from continuing operations which increased Â£7.3m to Â£46.2m (2006: Â£38.9m). Tables 1 and 2 below give an overview of the Group's operating returns by geographical region. Table 1: Turnover and Operating Profit by Geographical Region Turnover Operating Profit 2007 2006 Variance 2007 2006 Variance Â£m Â£m Â£m % Â£m Â£m Â£m % United Kingdom 133 126 7 6% 3.2 4.1 (0.9) (22%) Belgium 123 110 13 12% 17.3 15.7 1.6 10% Netherlands 253 206 47 23% 31.0 23.5 7.5 32% Central Services - - (5.3) (4.4) (0.9) 20% ______________________________________________________________ Continuing 509 442 67 15% 46.2 38.9 7.3 19% Discontinued 23 0.4 _______________ _______________ TOTAL 509 465 46.2 39.3 _______________ _______________ Table 2: Operating Cashflow and Return on Capital Employed after PFI Project Financing Operating Cashflow Return on Capital Employed 2007 2006 Var 2007 2006 Var Â£m Â£m Â£m % % % United Kingdom (14.3) (0.5) (13.8) 17 18 (1) Belgium 21.8 16.1 5.7 55 50 5 Netherlands 33.2 20.6 12.6 12 9 3 Central Services (5.6) (4.4) (1.2) ____________________________________________________________________ Continuing 35.1 31.8 3.3 15 13 3 ____________________________________________________________________ United Kingdom Operating profit was down Â£0.9m at Â£3.2m (2006: Â£4.1m). The major factors behind this are summarised in Table 3 below. Table 3: United Kingdom Operating Profit Major Factor Analysis 2007 2006 Change Â£m Â£m Â£m Operating Profit 3.2 4.1 (0.9) __________________________________ Major Factors: Solid Waste 1.8 Joint Ventures 0.6 Contaminated Land Services (1.2) PFI - Argyll & Bute and Dumfries & Galloway (1.5) Overheads and PFI bid team 0.5 Property disposals and other (1.1) ________ Total (0.9) ________ Solid Waste improved significantly on prior year aided by the acquisition and integration of Eden Ltd and the waste management and recycling activities of John W Hannay & Co Limited during the first half of the year. In the Central Belt of Scotland virtually all waste collected by our vehicles now passes through a recycling centre; there is very little that goes directly to landfill. Across the board recycling levels are increasing as we move towards our Benelux model of collection fleets feeding large regional recycling centres which allow waste to be diverted from landfill to more cost effective outlets. We see this as a significant competitive advantage as the market shifts to accommodate the ban on landfilling of untreated non-hazardous waste from October 2007 and the escalation in the rate of landfill tax; now scheduled to increase by Â£8 per tonne per annum. Our joint venture landfills have improved due to increased waste inputs and, at the Avondale site, additional green electricity production. Contaminated Land Services was down year on year due to a particularly large contract in the previous year and low market activity levels in 2007. The outlook is more promising with the potential of significant work from the clean up of the 2012 Olympics site in East London. The first of our innovative Mechanical Biological Treatment (MBT) facilities used on the East London Waste Authority (ELWA) PFI contract and that used on the Dumfries and Galloway (D&G) contract are now operational. Construction of the second ELWA facility was interrupted by financial problems at a subcontractor during the second half. This has now been resolved and commissioning is underway, albeit a couple of months later than planned. This will not affect the scheduled price rise in summer 2007 which will address the current predicted squeeze in profits on the project. Stricter interpretation of landfill regulations by the Scottish Environmental Protection Agency (SEPA) is causing costs to rise significantly on the former local authority landfill sites now managed by the Group within the D&G and Argyll & Bute (A&B) contracts. Lower investment returns will result. The mitigation programme started early in the year is beginning to yield benefits. The MBT facility in the D&G contract is not affected by this issue. Finally one-off profits from surplus property disposals were significantly lower than in 2006. Belgium Operating profit improved 10% on last year's already strong performance to Â£17.3m (2006: Â£15.7m). The major factors behind this are summarised in Table 4 below. Table 4: Belgian Operating Profit Major Factor Analysis 2007 2006 Change Â£m Â£m Â£m Operating Profit 17.3 15.7 1.6 __________________________________ Major Factors: Industrial & commercial Solid Waste 1.7 Municipal collections 0.2 Other (0.3) ________ Total 1.6 ________ All three Belgian regions showed a marked improvement, particularly in the industrial and commercial sector. Our landfill in Wallonia continued to benefit from bonus volumes diverted from public sector incinerators experiencing operational difficulties. There was also a full year's benefit from the enlarged Liege municipal collection contract which commenced in July 2005. During the year one small tuck-in acquisition costing Â£0.7m was completed. The outlook for the coming year is that the contribution from landfill will fall as the bonus volumes are unlikely to be repeated and restrictions on landfilling of non-hazardous waste from October 2007 and increased landfill tax on municipal waste from January 2008 divert waste away from landfill. The Netherlands Operating profit in the Netherlands improved 32% to Â£31.0m (2006: Â£23.5m). The key factors are summarised in Table 5. Table 5: The Netherlands Operating Profit Major Factor Analysis 2007 2006 Change Â£m Â£m Â£m Operating Profit 31.0 23.5 7.5 __________________________________ Major Factors: Smink (including synergies) 4.7 Solid Waste 2.5 Hazardous Waste 0.2 Other 0.1 ________ Total 7.5 ________ The acquisition of Smink Beheer BV on 30 June 2006 has expanded our geographical coverage eastwards from our strong presence in the Randstad area. The performance in the first nine months, which is in line with our acquisition plan, has significantly enhanced earnings. In December 2006 we completed a second tuck in acquisition for Â£10m which will augment our collection and recycling activities in The Hague. Profits from the existing solid waste businesses have improved. In June 2005 disposal costs rose sharply as the result of the introduction of the landfill ban in Germany, depressing results. The effect of these cost increases had been substantially mitigated by the start of the current year by increased recycling and price increases. The construction industry, a major source of customers, is also buoyant boosting activity levels. Our hazardous waste treatment activities performed well due in part to increased activity in the petrochemical sector, stimulated by high oil prices. Central Services Central Service costs increased by Â£0.9m to Â£5.3m (Â£4.4m). The major elements within this were higher recruitment costs associated with the appointment of new Board Directors and increased provision for National Insurance on share options as the share price has risen. FINANCIAL REVIEW Table 6: Summarised Group Profit and Loss (Â£m) 2007 2006 Variance Â£m Â£m Â£m % Turnover 509 442 67 15 Operating Profit 46.2 38.9 7.3 19 Finance Charges (7.0) (4.9) (2.1) (43) _____________________________________ Headline Profit 39.2 34.0 5.2 15 IAS 39 adjustment 6.9 (3.7) 10.6 ______________________________ Profit Before Tax continuing 46.1 30.3 15.8 ______________________________ Tax - Headline 33% (2005/6:34%) (12.8) (11.6) (1.2) Tax - IAS 39 adjustment (2.0) 1.1 (3.1) ______________________________ Profit After Tax continuing 31.3 19.8 11.5 Profit After Tax discontinued - operations - (0.2) 0.2 Profit After Tax discontinued - disposal - 10.8 (10.8) ______________________________ Profit for the Year 31.3 30.4 0.9 ______________________________ The background to the Group's trading performance is given in the Operating Review above. The contributions to Turnover and Operating Profit from acquisitions during the year were Â£37.0m and Â£5.5m respectively, the majority being attributable to the Smink Beheer BV acquisition. Finance charges for the continuing business increased Â£2.1m to Â£7.0m, before taking into account the International Accounting Standard (IAS) 39 change in market value of financial instruments (see below). This increase reflected interest rate rises since last year and the higher level of core borrowings, due to acquisitions. The IAS 39 change in market value of financial instruments relates to interest rate swaps which fix the interest rate on PFI contract borrowing. At the financial close of a PFI contract the price of the service is determined by, inter alia, the long term interest rate available in the market. The Group therefore protects itself against future fluctuations in interest rates by entering into interest rate swaps to match its future cash inflows and outflows. Under IAS 39 these swaps must be valued at current market value irrespective of the commercial reasons for entering into them. Revaluation of these swaps can lead to large accounting gains or losses but does not affect the long term profitability of the contract as the Group has matched its long term revenue and costs. Whilst IAS 39 does allow these gains and losses to be taken directly to reserves, it is on the proviso that onerous verification requirements are fulfilled. The Group believes it is not worth expending significant resources fulfilling these requirements in respect of an item that does not reflect commercial reality. These changes in value are excluded from our Headline Profit. There was a Â£6.9m favourable (2006: Â£3.7m adverse) change in the market value of these swaps during the year. The average tax rate on Headline Profit fell to 33% (2006: 34%). This was attributable to a reduction in the Dutch headline rate from 29% to 25.5% in January 2007. The underlying rates of tax in the United Kingdom and Belgium remained unchanged at 30% and 34% respectively. In Belgium the effective rate on landfill derived profits is higher as landfill tax is non-deductible for corporation tax. This is mitigated via a deduction for notional interest on Belgian equity introduced in January 2006. Average Euro / Sterling exchange rates have been stable year on year and so have had little impact on reported profits. Small differences in year end rates have had a minor impact on the balance sheet. Cash Flow Details of the Group's cash flow performance are summarised in Table 7 below. Table 7: Summarised Group Cashflow 2007 2006 Core PFI Total Total Diff Â£m Â£m Â£m Â£m Â£m Operating Profit 47 (1) 46 39 7 Depreciation & Landfill Provisions 35 - 35 30 5 ___________________________________________________________ EBITDA 82 (1) 81 69 12 Working Capital Movement 9 (4) 5 (2) 7 Net Capital Expenditure (39) (30) (69) (76) 7 Interest,Tax,Dividends,Other (46) 17 (29) (20) (9) ___________________________________________________________ Underlying Cashflow 6 (18) (12) (29) 17 Acquisitions (65) - (65) (4) (61) Discontinued & Exceptional (3) - (3) 29 (32) Exchange 4 - 4 (2) 6 ___________________________________________________________ Debt Movement (58) (18) (76) (6) (70) ___________________________________________________________ The underlying cash generated by the core business was Â£6m after net capital expenditure of Â£39m. The Â£65m outflow on acquisitions is the amount paid plus net debt in the acquired entities. In the case of Smink this was a significant positive cash balance. The discontinued and exceptional cash outflow of Â£3m comprises costs related to the UK reorganisation instigated in 2004 and the disposed of UK Landfill and Power and Hazardous Waste businesses. There was a Â£4m favourable movement on the translation of Group's Euro denominated debt into Sterling, giving an increase in core net debt of Â£58m. The non-recourse aggregated net debt in the PFI companies increased by Â£18m mainly due to the funding of the construction work in the ELWA and D&G contracts. Capital Expenditure The Group spent Â£69m net on capital expenditure (2006: Â£76m) of which Â£39m was in the core business and Â£30m on PFI contracts. The core business maintenance capital expenditure was Â£28m (2006: Â£23m), asset disposal proceeds were Â£2m and expenditure on growth projects was Â£13m. Major growth projects in the core business included the expansion of the sorting facilities at one of our Dutch Solid Waste sites, extra storage facilities at our ATM hazardous waste treatment facility in Moerdijk and additional green electricity generation at our joint venture landfill in Scotland. The capital expenditure on PFI contracts relates principally to construction of MBT facilities at our ELWA and D&G contracts. This expenditure is treated as Financial Asset advances. Treasury The Group's treasury policy is to use financial instruments with a spread of maturity dates and sources in order to reduce funding risk. Borrowings are drawn in the same currencies as the underlying investment to reduce cash and net translation exposure on exchange rate movements. No other currency hedging mechanisms are used. The Group maintains a significant proportion of its debt on fixed rates of interest in order to protect interest cover. The Group's principal financing is a Â£250m multicurrency revolving credit facility with five major banks expiring in April 2010. Adjusting for cash, this facility was less than 50% utilised at 31 March 2007. The 2001 notes issued under the Group's private placement of Â£35m have maturity dates between 2009 and 2013. The Group also has Â£26m of working capital facilities with various banks. Each of the Group's PFI projects has senior debt facilities which contribute approximately 85% of the capital funding required. These facilities are secured on the future cash flows of the PFI companies with no recourse to the Group as a whole. Repayment of these facilities, and any equity bridge facility in respect of the remaining capital funding, commences when construction is complete and concludes one to two years prior to the expiry of the PFI contract period. As the Group currently holds 100% of the equity in its PFI companies, the net debt of Â£123m is fully consolidated in the Group balance sheet. The maximum which could be drawn down under these facilities at 31 March 2007 is Â£155m. Insurance The Group places all its insurance with leading insurance companies with sound financial credentials. For obligatory insurances, the policy is to obtain the necessary cover at competitive rates. For other areas, regular risk assessments are undertaken to identify and assess risks; where appropriate insurance is then used to mitigate these risks. The level of cover put in place will depend on the nature of the risks and the cost and extent of cover available in the market. The majority of our insurances are renewed annually. The Group uses renowned international brokers to advise on risk management, appropriate insurers, cover levels and benchmarking. Insurance requirements for our UK PFI contracts are set out in the funding and project agreements. Pensions The Group uses IAS19 - Employee Benefits to account for pensions. The pension charge for the continuing business for the year has increased to Â£6.6m (2006: Â£5.7m). The net retirement benefit obligations, which relate solely to the defined benefit section of our UK scheme, have reduced to Â£8.4m (2006: Â£10.3m). The majority of pension arrangements within our Belgian and Dutch operations are considered to be defined contribution in nature. The defined benefit section of the UK scheme was closed to new members in September 2002 and new employees are now offered a defined contribution arrangement. During the year a triennial actuarial valuation was completed based on the assets and liabilities as at 5 April 2006. This showed a funding deficit of Â£2.5m, Â£19.2m less than the previous valuation. The main factors which have affected the funding position since the previous valuation are: â€¢ favourably: the returns on the scheme assets and additional contributions over and above the ongoing service cost. The additional contributions include a total of Â£15m paid into the scheme following the sale of the UK Landfill and Power business in 2004 and the UK Hazardous waste activities in 2005 in respect of the residual liabilities of those employees who became deferred pensioners as a result of the sales; â€¢ adversely: the reduction in gilt yields and increase in the life expectancy of the members. Going Concern The Directors, having reviewed the Group's 2007/8 budget, its medium term plans and its banking arrangements are satisfied that the Group has sufficient resources to continue operations for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the financial statements. Notes: 1. Management will be holding an analyst presentation at 9:30 a.m. today, 31 May at ABN AMRO's offices at 250 Bishopsgate, London, EC2M 4AA. 2. A copy of this announcement is available on the company's website (www.shanks.co.uk) as will the presentation being made today to financial institutions. 3. Copies of the Annual Report will be posted to shareholders on 25 June 2007 after which they will be available, on request from the company at Astor House, Station Road, Bourne End, Buckinghamshire, SL8 5YP, or on the company website. 4. The final dividend of 4.0 pence per share, if approved by shareholders, will be paid on 3 August 2007 to shareholders on the register at close of business on 13 July 2007. For further information contact: Shanks Group plc on 31 May, telephone: 020 7678 0383 Adrian Auer, Chairman thereafter, telephone: 01628 554920 Michael Averill, Group Chief Executive Fraser Welham, Group Finance Director Citigate Dewe Rogerson telephone: 020 7282 2945 Ginny Pulbrook Consolidated Income Statement Year ended 31 March 2007 2007 2006 Note Â£m Â£m ________________________________________________________________________________ Continuing operations Revenue 2 508.5 442.5 Cost of sales (412.9) (358.6) ________________________________________________________________________________ Gross profit 95.6 83.9 Administrative expenses (49.4) (45.0) ________________________________________________________________________________ Operating profit 2 46.2 38.9 ________________________________________________________________________________ Finance charges: Interest payable (18.2) (12.7) Interest receivable 11.2 7.8 Change in fair value of interest rate swaps 6.9 (3.7) ________________________________________________________________________________ Total finance charges 3 (0.1) (8.6) ________________________________________________________________________________ Profit before tax from continuing operations 2 46.1 30.3 Tax 4 (14.8) (10.5) ________________________________________________________________________________ Profit after tax for the year from continuing operations 2 31.3 19.8 Discontinued operations Profit after tax for the year from discontinued operations 2 - 10.6 ________________________________________________________________________________ Profit for the year 9 31.3 30.4 ================================================================================ Dividend per share 5 5.9p 5.7p Earnings per share - basic 6 13.3p 13.0p - diluted 6 13.3p 12.9p Earnings per share from continuing operations - basic 6 13.3p 8.5p - diluted 6 13.3p 8.4p ================================================================================ Consolidated Statement of Recognised Income and Expense Year ended 31 March 2007 2007 2006 Â£m Â£m ________________________________________________________________________________ Exchange (loss) gain on translation of foreign operations (3.9) 1.9 Actuarial gain (loss) on defined benefit pension schemes 0.5 (0.6) ________________________________________________________________________________ (3.4) 1.3 Deferred tax in respect of defined benefit pension schemes (0.1) 0.2 ________________________________________________________________________________ Net (expense) income recognised directly in equity (3.5) 1.5 Profit for the year 31.3 30.4 ________________________________________________________________________________ Total recognised income and expense for the year 27.8 31.9 ================================================================================ Consolidated Balance Sheet At 31 March 2007 At 31 At 31 March 2007 March 2006 Note Â£m Â£m ________________________________________________________________________________ Non-current assets Intangible assets 198.3 144.4 Property, plant and equipment 209.0 183.6 Other investments and loans to joint ventures 1.8 2.9 Trade and other receivables 141.9 120.1 Deferred tax assets 10.8 15.0 ________________________________________________________________________________ 561.8 466.0 ________________________________________________________________________________ Current assets Inventories 5.4 9.0 Trade and other receivables 119.4 97.3 Current tax receivable 2.1 1.4 Cash and cash equivalents 42.7 59.4 ________________________________________________________________________________ 169.6 167.1 ________________________________________________________________________________ Total assets 731.4 633.1 ________________________________________________________________________________ Current liabilities Borrowings (28.9) (10.9) Trade and other payables (127.3) (114.1) Current tax payable (13.4) (8.3) Provisions 8 (6.3) (9.1) ________________________________________________________________________________ (175.9) (142.4) ________________________________________________________________________________ Non-current liabilities Borrowings (271.2) (237.3) Other non-current liabilities (2.3) (0.7) Deferred tax liabilities (27.4) (17.5) Provisions 8 (22.5) (16.3) Retirement benefit obligations (8.4) (10.3) ________________________________________________________________________________ (331.8) (282.1) ________________________________________________________________________________ Total liabilities (507.7) (424.5) ________________________________________________________________________________ Net assets 223.7 208.6 ================================================================================ Equity Share capital 23.5 23.5 Share premium 94.0 93.7 Exchange reserve 1.1 5.0 Retained earnings 105.1 86.4 ________________________________________________________________________________ Total equity 223.7 208.6 ================================================================================ Consolidated Cash Flow Statement Year ended 31 March 2007 2007 2006 Note Â£m Â£m ________________________________________________________________________________ Net cash from operating activities 10 (c) 71.3 58.9 ________________________________________________________________________________ Investing activities Purchase of intangible assets (1.1) (0.2) Purchases of property, plant and equipment (39.3) (31.9) Disposal of property, plant and equipment 2.7 3.1 Financial asset capital advances (30.9) (48.8) Financial asset capital repayments 1.4 1.9 Acquisition of subsidiary and other businesses (65.3) (4.2) Net proceeds from disposal of subsidiary and other businesses - 34.0 Income received from other investments 1.1 0.7 ________________________________________________________________________________ Net cash used in investing activities 10 (c) (131.4) (45.4) ________________________________________________________________________________ Financing activities Interest paid (17.1) (12.6) Interest received 11.2 7.8 Proceeds from issue of shares 0.3 0.6 Dividends paid (13.4) (13.4) Increase in borrowings 64.6 32.2 Increase in obligations under finance leases 0.9 1.8 Repayments of obligations under finance leases (3.0) (3.0) ________________________________________________________________________________ Net cash flow from financing activities 43.5 13.4 ________________________________________________________________________________ Net (decrease) increase in cash and cash equivalents (16.6) 26.9 Cash and cash equivalents at beginning of year 59.4 32.5 ________________________________________________________________________________ Cash and cash equivalents at end of year 42.8 59.4 ================================================================================ Consolidated Movement in Net Debt Year ended 31 March 2007 2007 2006 Â£m Â£m ________________________________________________________________________________ Net (decrease) increase in cash and cash equivalents (16.6) 26.9 Increase in borrowings and finance leases (62.5) (31.0) Amortisation of loan fees (0.4) (0.4) Exchange gain (loss) 4.0 (1.9) Change in fair value of interest rate swaps 6.9 (3.7) ________________________________________________________________________________ Movement in net debt (68.6) (10.1) Net debt at beginning of year (188.8) (178.7) ________________________________________________________________________________ Net debt at end of year (257.4) (188.8) ================================================================================ Analysis of Net Debt. At 31 March 2007 At 31 At 31 March 2007 March 2006 Â£m Â£m ________________________________________________________________________________ Core Business net debt (134.0) (75.9) Private Finance Initiative net debt (122.9) (105.5) ________________________________________________________________________________ Total Group net debt before fair value of interest rate swaps (256.9) (181.4) Fair value of Private Finance Initiative interest rate swaps (0.5) (7.4) ________________________________________________________________________________ Total Group net debt (257.4) (188.8) ================================================================================ Notes to the Financial Statements 1 Basis of preparation of financial statements The figures and financial information for the year ended 31 March 2007 are extracted from but do not constitute the statutory financial statements for that year. The figures and financial information for the year are audited. The income statement, statement of recognised income and expense and cash flow statement for the year ended 31 March 2006 and the balance sheet at 31 March 2006 have been derived from the full Group accounts published in the Annual Report and Accounts 2006 which have been delivered to the Registrar of Companies and on which the report of the independent auditors was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as required by Article 4 of the European Union IAS Regulation. The Group has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2006. The IFRS accounting policies have been applied consistently to all periods presented and throughout the Group for the purposes of the consolidated financial statements. 2 Segmental reporting Waste management business shown by management responsibility and geographical area: 2007 2006 Â£m Â£m _____________________________________________________________________________________ (a) Continuing operations Revenue United Kingdom 133.2 126.1 Belgium 122.9 110.2 Netherlands 252.4 206.2 ______________________ Total revenue 508.5 442.5 ______________________ Group 494.0 429.9 Share of joint ventures 14.5 12.6 _____________________________________________________________________________________ Total revenue 508.5 442.5 ===================================================================================== Operating profit United Kingdom 3.2 4.1 Belgium 17.3 15.7 Netherlands 31.0 23.5 Central Services (5.3) (4.4) ______________________ Total operating profit 46.2 38.9 ______________________ Group 42.2 35.7 Share of joint ventures 4.0 3.2 _____________________________________________________________________________________ Total operating profit 46.2 38.9 ===================================================================================== Finance charges Interest payable (18.2) (12.7) Interest receivable 11.2 7.8 Change in fair value of financial instruments 6.9 (3.7) _____________________________________________________________________________________ Total finance charges (0.1) (8.6) _____________________________________________________________________________________ Profit before tax from continuing operations 46.1 30.3 Tax (14.8) (10.5) _____________________________________________________________________________________ Profit after tax for the year from continuing operations 31.3 19.8 ===================================================================================== (b) Discontinued operations Revenue United Kingdom - 18.4 Netherlands - 4.9 _____________________________________________________________________________________ Total revenue - 23.3 ===================================================================================== Operating profits United Kingdom - 0.7 Netherlands - (0.3) _____________________________________________________________________________________ Total operating profit - 0.4 _____________________________________________________________________________________ Profit on disposal of operations (United Kingdom) - 8.7 _____________________________________________________________________________________ Finance charges Interest payable - (0.6) _____________________________________________________________________________________ Profit before tax from discontinued operations - 8.5 Tax - 2.1 _____________________________________________________________________________________ Profit after tax and profit for the year from discontinued operations - 10.6 ===================================================================================== (c) Analysis of net assets At 31 March 2007 At 31 March 2006 Â£m Â£m _____________________________________________________________________________________ United Kingdom Gross assets 216.6 175.0 Gross liabilities (34.5) (50.9) ________________________________ Net operating assets 182.1 124.1 ________________________________ Belgium Gross assets 74.2 73.8 Gross liabilities (47.6) (42.4) ________________________________ Net operating assets 26.6 31.4 ________________________________ Netherlands Gross assets 384.0 307.9 Gross liabilities (67.3) (47.8) ________________________________ Net operating assets 316.7 260.1 ________________________________ Central Services Gross assets 0.9 0.6 Gross liabilities (17.3) (9.4) ________________________________ Net operating assets (16.4) (8.8) _____________________________________________________________________________________ Total Gross assets 675.7 557.3 Gross liabilities (166.7) (150.5) _____________________________________________________________________________________ Net operating assets 509.0 406.8 Current tax (11.3) (6.9) Deferred tax (16.6) (2.5) Net debt (257.4) (188.8) _____________________________________________________________________________________ Net assets 223.7 208.6 ===================================================================================== 3 Finance charges 2007 2006 Â£m Â£m _____________________________________________________________________________________ Continuing operations Interest payable: Interest payable on borrowings wholly repayable within five years 9.3 6.2 Interest payable on other borrowings 7.6 5.7 Share of interest of joint ventures 0.1 0.1 Unwinding of discount on long term landfill liabilities 0.8 0.3 Amortisation of bank fees 0.4 0.4 _____________________________________________________________________________________ Total interest payable 18.2 12.7 _____________________________________________________________________________________ Interest receivable: Interest receivable (3.4) (2.2) Interest receivable on financial assets relating to PFI contracts (7.8) (5.6) _____________________________________________________________________________________ Total interest receivable (11.2) (7.8) _____________________________________________________________________________________ Change in fair value of interest rate swaps (6.9) 3.7 _____________________________________________________________________________________ Net finance charges 0.1 8.6 ===================================================================================== 4 Tax The tax charge based on the profit for the year is made up as follows: 2007 2006 Â£m Â£m ___________________________________________________________________________ Current tax UK corporation tax at 30% (2006: 30%) - Current year 5.2 1.9 - Prior year (0.4) (3.2) Double tax relief (2.0) (2.2) Overseas tax - Current year 8.0 10.7 - Prior year 1.0 (0.1) ___________________________________________________________________________ Total current tax 11.8 7.1 ___________________________________________________________________________ Deferred tax - Current year 2.1 1.6 - Prior year 0.9 (0.3) ___________________________________________________________________________ Total deferred tax 3.0 1.3 ___________________________________________________________________________ Total tax charge for the year 14.8 8.4 =========================================================================== Total tax charge - continuing operations 14.8 10.5 Total tax credit - discontinued operations - (2.1) ___________________________________________________________________________ Total tax charge for the year 14.8 8.4 =========================================================================== 5 Dividends 2007 2006 Â£m Â£m ___________________________________________________________________________________________________________________ Amounts recognised as distributions to equity holders in the year: Final dividend paid for the year ended 31 March 2006 of 3.8p per ordinary share (2005: 3.8p) 8.9 8.9 Interim dividend paid for the year ended 31 March 2007 of 1.9p per ordinary share (2006: 1.9p) 4.5 4.5 ___________________________________________________________________________________________________________________ 13.4 13.4 =================================================================================================================== Proposed final dividend for the year ended 31 March 2007 of 4.0p per share (2006: 3.8p) 9.4 8.9 =================================================================================================================== The proposed final dividend for the year ended 31 March 2007 of 4.0 pence per share was approved by the Board on 29 May 2007 and, subject to approval by the Shareholders at the Annual General Meeting on 26 July 2007, will be paid on 3 August 2007 to shareholders on the Register at close of business on 13 July 2007. 6 Earnings per share 2007 2006 ______________________________________________________________________________________________ Number of shares Weighted average number of ordinary shares for basic earnings per share 234.8 234.3 Effect of share options in issue 0.8 0.8 ______________________________________________________________________________________________ Weighted average number of ordinary shares for diluted earnings per share 235.6 235.1 ============================================================================================== Calculation of basic and adjusted basic earnings per share Earnings for basic earnings per share being profit for the year (Â£m) 31.3 30.4 Earnings from discontinued operations (Â£m) - (10.6) ______________________________________________________________________________________________ Earnings for basic earnings per share from continuing operations (Â£m) 31.3 19.8 Change in fair value of interest rate swaps (net of tax) (Â£m) (4.8) 2.6 ______________________________________________________________________________________________ Earnings for adjusted basic earnings per share (Â£m) 26.5 22.4 ______________________________________________________________________________________________ Basic earnings per share (pence) 13.3p 13.0p Basic earnings per share from continuing operations (pence) 13.3p 8.5p Basic earnings per share from discontinued operations (pence) - 4.5p Adjusted basic earnings per share (pence) 11.3p 9.6p ============================================================================================== Calculation of diluted earnings per share Earnings for basic earnings per share being profit for the year (Â£m) 31.3 30.4 Effect of dilutive potential ordinary shares (Â£m) - - ______________________________________________________________________________________________ Earnings for diluted earnings per share (Â£m) 31.3 30.4 Earnings from discontinued operations (Â£m) - (10.6) ______________________________________________________________________________________________ Earnings for diluted earnings per share from continuing operations (Â£m) 31.3 19.8 ______________________________________________________________________________________________ Diluted earnings per share (pence) 13.3p 12.9p Diluted earnings per share on continuing operations (pence) 13.3p 8.4p Diluted earnings per share on discontinued operations (pence) - 4.5p ============================================================================================== The Directors believe that adjusting profits and earnings per share for the effect of exceptional items enables comparison with historical data calculated on the same basis. Exceptional items are those items that need to be disclosed separately on the face of the income statement because of their size or incidence. Changes in fair values of interest rate swaps that the Group is required to enter into in relation to its PFI arrangements are excluded as they do not reflect commercial reality. 7 Business combinations (a) On 30 June 2006 the Group acquired 100% of the share capital of Smink Beheer B.V., a waste management company in the Netherlands, for a total consideration of Â£60.8m. The goodwill recognised is attributable to Smink's strong position and profitability and the significant synergies expected to arise post acquisition. From acquisition to 31 March 2007, Smink Beheer B.V. has contributed Â£27.0m to revenue and Â£2m to profit after tax. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the business, were as follows: Fair Provisional Book value fair value adjustment value Â£m Â£m Â£m _______________________________________________________________________________ Intangible assets 1.8 24.9 26.7 Property, plant and equipment 9.6 3.3 12.9 Other non-current receivables - 1.5 1.5 Inventories 0.1 - 0.1 Trade receivables 6.0 - 6.0 Other current receivables 0.4 - 0.4 Cash 16.7 - 16.7 Trade payables (2.1) - (2.1) Other current payables (3.8) - (3.8) Current tax payable (5.5) 3.3 (2.2) Deferred tax liabilities (1.1) (9.9) (11.0) Provisions (5.3) (1.5) (6.8) _______________________________________________________________________________ 16.8 21.6 38.4 Provisional goodwill 22.4 _______________________________________________________________________________ 60.8 =============================================================================== Satisfied by: Cash consideration 59.0 Deferred consideration 1.5 Costs incurred 0.3 _______________________________________________________________________________ Total consideration 60.8 =============================================================================== (b) During the period the Group completed the acquisition of other tuck-in businesses. The goodwill recognised is attributable to synergy benefits through the amalgamation of the acquired businesses with existing businesses. From acquisition to 31 March 2007, the businesses contributed Â£10.0m to revenue and Â£0.1m to profit after tax. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the businesses, were as follows: Fair Provisional Book value fair value adjustment value Â£m Â£m Â£m _______________________________________________________________________________ Intangible assets - 1.1 1.1 Property, plant and equipment 8.6 4.4 13.0 Other current liabilities (0.1) - (0.1) Borrowings (0.5) - (0.5) Deferred tax liabilities - (0.4) (0.4) _______________________________________________________________________________ 8.0 5.1 13.1 Provisional goodwill 9.1 _______________________________________________________________________________ 22.2 =============================================================================== Satisfied by: Cash consideration 21.8 Costs incurred 0.4 _______________________________________________________________________________ Total consideration 22.2 =============================================================================== 8 Provisions Site restoration and aftercare Other Total Â£m Â£m Â£m ______________________________________________________________________________ At 31 March 2006 17.2 8.2 25.4 Provided - cost of sales 2.1 - 2.1 Provided - finance charges 0.8 - 0.8 Acquired with acquisitions of businesses 4.3 2.4 6.7 Utilised (3.1) (2.8) (5.9) Exchange (0.3) - (0.3) ______________________________________________________________________________ At 31 March 2007 21.0 7.8 28.8 ============================================================================== Current 0.8 5.5 6.3 Non-current 20.2 2.3 22.5 ______________________________________________________________________________ At 31 March 2007 21.0 7.8 28.8 ============================================================================== Current 2.3 6.8 9.1 Non-current 14.9 1.4 16.3 ______________________________________________________________________________ At 31 March 2006 17.2 8.2 25.4 ============================================================================== 9 Consolidated statement of changes in shareholders' funds Share Share Exchange Retained capital premium Reserve Earnings Total Â£m Â£m Â£m Â£m Â£m ___________________________________________________________________________________________________ Balance carried forward at 31 March 2006 23.5 93.7 5.0 86.4 208.6 Issue of share capital - 0.3 - - 0.3 Exchange loss on translation of foreign operations - - (3.9) - (3.9) Profit for the year - - - 31.3 31.3 Actuarial gain on defined benefit pension schemes - - - 0.4 0.4 Share based payments - - - 0.4 0.4 Dividends paid in the year (see note 5) - - - (13.4) (13.4) ___________________________________________________________________________________________________ Balance carried forward at 31 March 2007 23.5 94.0 1.1 105.1 223.7 =================================================================================================== 10 Notes to the cash flow statement 2007 2006 Â£m Â£m __________________________________________________________________________________________ (a) Continuing operations Net cash from operating activities Operating profit from continuing operations 46.2 38.9 Amortisation of intangible assets 2.3 0.5 Depreciation of property, plant and equipment 30.0 28.7 Charge for long term landfill provisions 2.1 0.5 __________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation ('EBITDA') 80.6 68.6 Gain on disposal of property, plant and equipment (1.0) (1.3) Decrease in provisions (4.3) (4.4) Share based payments 0.6 0.5 __________________________________________________________________________________________ Operating cash flows before movements in working capital 75.9 63.4 Decrease (increase) in inventories 3.7 (1.2) (Increase) decrease in receivables (7.3) 7.9 Increase (decrease) in payables 8.9 (10.9) __________________________________________________________________________________________ Cash generated by operations 81.2 59.2 Income taxes paid (9.9) (1.5) __________________________________________________________________________________________ Net cash from operating activities 71.3 57.7 ========================================================================================== Investing activities Purchase of intangible assets (1.1) (0.2) Purchases of property, plant and equipment (39.3) (30.7) Disposal of property, plant and equipment 2.7 3.1 Financial assets capital advances (30.9) (48.8) Financial assets capital repayments 1.4 1.9 Acquisitions of subsidiary and other businesses (65.3) (4.2) Net proceeds from disposal of subsidiary and other businesses - 34.0 Income received from other investments 1.1 0.7 __________________________________________________________________________________________ Net cash used in investing activities (131.4) (44.2) ========================================================================================== (b) Discontinued operations Net cash from operating activities Operating profit from discontinued activities - 0.4 Depreciation of property, plant and equipment - 2.1 Decrease in provisions - (2.8) __________________________________________________________________________________________ Operating cash flows before movements in working capital - (0.3) Increase in inventories - (0.4) Decrease in receivables - 1.4 Increase in payables - 0.5 __________________________________________________________________________________________ Cash generated by operations - 1.2 __________________________________________________________________________________________ Net cash from operating activities - 1.2 ========================================================================================== Investing activities Purchases of property, plant and equipment - (1.2) __________________________________________________________________________________________ Net cash used in investing activities - (1.2) ========================================================================================== 2007 2006 Â£m Â£m __________________________________________________________________________________________ (c) Total Group operations Net cash from operating activities Operating profit from all operations 46.2 39.3 Amortisation of intangible assets 2.3 0.5 Depreciation of property, plant and equipment 30.0 30.8 Charge for long term landfill provisions 2.1 0.5 __________________________________________________________________________________________ Earnings before interest, tax, depreciation and amortisation ('EBITDA') 80.6 71.1 Gain on disposal of property, plant and equipment (1.0) (1.3) Decrease in provisions (4.3) (7.2) Share based payments 0.6 0.5 __________________________________________________________________________________________ Operating cash flows before movements in working capital 75.9 63.1 Decrease (increase) in inventories 3.7 (1.6) (Increase) decrease in receivables (7.3) 9.3 Increase (decrease) in payables 8.9 (10.4) __________________________________________________________________________________________ Cash generated by operations 81.2 60.4 Income taxes paid (9.9) (1.5) __________________________________________________________________________________________ Net cash from operating activities 71.3 58.9 ========================================================================================== Investing activities Purchases of intangible assets (1.1) (0.2) Purchases of property, plant and equipment (39.3) (31.9) Disposal of property, plant and equipment 2.7 3.1 Financial assets debtor capital advances (30.9) (48.8) Financial assets capital repayments 1.4 1.9 Acquisitions of subsidiary and other businesses (65.3) (4.2) Net proceeds from disposal of subsidiary and other businesses - 34.0 Income received from other investments 1.1 0.7 __________________________________________________________________________________________ Net cash used in investing activities (131.4) (45.4) ========================================================================================== This information is provided by RNS The company news service from the London Stock Exchange

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