Interim Management Statement

RNS Number : 7171P

Shanks Group PLC

22 July 2010

 



Shanks Group plc

22 July 2010

Shanks Group plc, Europe's largest listed independent waste management business, today issues its Interim Management Statement ahead of its AGM being held today.

·     Trading for the period in line with our expectations

·     Strong underlying performance offsetting the expected one off decline in the Belgian landfill and adverse currency movements

·     PFI margin improvement plan on track

·     Strong balance sheet and core net debt of £189m (31 March 2010: £186m)

Trading performance to 30 June 2010

Trading for the period was in line with our expectations.

Underlying market conditions have been generally as anticipated, with improved recyclate prices, new contract volumes and further cost saving initiatives offsetting expected volume reductions and pricing pressures.

Overall, returns from our strategic investment programme and improvements in PFI margins are offsetting the expected one off decline in the Belgian landfill and adverse currency movements.

Growth Investment Programme

We are at an important stage in our programme of investing in growth projects supported by regulatory and legislative drivers. Expenditure on growth projects this year is forecast at approximately £40m and is again expected to be funded from free cash flow. This will bring the total invested over three years to approximately £100m.

Projects recently commissioned include a new 100,000 tonne composting facility in Ottawa, Canada, a Foronex biomass production facility at Bree, Belgium, and an expanded SRF (Solid Recovered Fuel) facility in Ghent, Belgium. All three projects are performing satisfactorily.

Other major projects include:

·     the largest wet Anaerobic Digestion ("AD") facility in Europe at Greenmills, Netherlands with an annual operating capacity of 100,000 tonnes of digestion and 300,000 tonnes of waste water is now being commissioned

·     our first AD facility in the UK at Cumbernauld; a 60,000 facility which will commission in the Autumn

·     a 150,000 tonne recycling centre at Blochairn, Scotland utilising advanced technologies will also commission in the Autumn, as part of the development of the UK business into higher value added processing businesses

·     a new steam turbine at the Belgian landfill site which will increase power production.

PFI

Our plan to improve the margins in the existing PFI businesses is progressing on track and we remain comfortable with our target of 7% operating margin for the full year. We have also been successful in strengthening the pipeline for future PFI contracts. In particular, we have progressed to the final two bidders on four bids, including most recently the Bradford and Calderdale bid.

In May, we announced our intention to sell the subordinated debt and the majority of our equity stakes in two of our existing PFI contracts, whilst retaining the long term operating contracts. Discussions with a number of parties are continuing.

Borrowings

Focus remains on maximising free cash flow through the close control of working capital and keeping replacement capital expenditure at lower than historical rates as a percentage of depreciation.

As at 30 June 2010 core debt was £189m (31 March 2010: £186m) and the key leverage covenant was 1.99 times. We continue to manage the business carefully and run the business with a leverage ratio of 2.5 times or lower, compared with the covenant requirement of 3.0 times. 

Tom Drury, Group Chief Executive of Shanks Group plc, commented:

"We remain focused on the delivery of our key priorities; controlling costs to offset the impact of difficult market conditions, executing our investment programme across the three strategic areas of recycling, organic processing and municipal contracts (UK PFI), improving the PFI margins and maintaining a strong free cash flow.

Despite remaining cautious about the near term macro economic outlook, we expect that in the current year these actions will produce strong underlying growth to mitigate the impact of the expected decline in the Belgian landfill and the weaker Euro. We expect the full year results to be in line with our expectations.

In the medium term we remain well positioned to benefit from the continuation of this underlying growth and the cyclical recovery."

Enquiries:

Tulchan Communications                               [phone]

John Sunnucks/David Allchurch

 

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