Interim Results
Shanks Group PLC
31 October 2002
31 October 2002
Company Announcement
Shanks Group plc - Interim Results
Financial highlights: 2002/2003 2001/2002
First Half First Half
• Turnover £275m £267m
• Headline profit (before taxation, exceptional items and £19.2m £22.7m
goodwill amortisation)
Goodwill amortisation £(5.1)m £(5.0)m
__________ __________
Profit on ordinary activities before taxation £14.1m £17.7m
• Earnings per share (before exceptional items and goodwill 5.6p 6.4p
amortisation)
• Interim dividend per share 1.9p 1.9p
Announcing the Interim Results for 2002/2003 Group Chairman Mr I M Clubb made
the following statement:
The Group's profit before taxation, exceptional items and goodwill amortisation
in the six months to 30 September 2002 reduced by £3.5m to £19.2m (2001:
£22.7m). Improved performance in three of the Group's four operations UK
Chemical Services, Belgium and the Netherlands were more than offset by the
decline in UK Waste Services due to difficult market conditions. This was most
pronounced in landfill where profits fell by £7.2m, including loss of the £2.7m
benefit in last year's results from wastes arising from the UK Foot and Mouth
crisis.
Group turnover grew by 3% to £275m (2001: £267m). UK turnover fell by 4%, but
revenue from the successful continental acquisitions increased by 10% and now
represents 50% of the total. Profit after tax amounted to £7.9m (2001: £10.0m)
after goodwill amortisation of £5.1m (2001: £5.0m) and a lower tax charge of 32%
(2001: 34%). Earnings per share before the amortisation of goodwill were 5.6
pence per share (2001: 6.4 pence per share). Your Board has maintained the
interim dividend at 1.9 pence per share.
Net debt at £295m has increased by £6m due to movement in the Sterling/Euro
exchange rate and the higher level of limited recourse debt on the Argyll & Bute
Private Finance Initiative (PFI) project. Interest costs remain well covered at
3.2 times (2001: 3.4 times).
DIVISIONAL REVIEW
United Kingdom
The UK operations consist of two divisions - Waste Services, which collects and
manages municipal, commercial and industrial wastes and Chemical Services, which
specialises in the treatment of hazardous chemical waste and related services
including recovery.
Overall Waste Services trading profit declined by £5.5m to £12.6m (2001: £18.1m)
reflecting the profit decline in landfill and difficulties in collection,
partially offset by the Argyll & Bute PFI contract and improvements in power.
Core landfill volumes were lower, contaminated land projects declined and
certain special wastes were diverted away by the Landfill Directive. Prices were
higher but this improvement has been more than offset by increased regulatory,
insurance and other costs which have eroded margins. Industrial and commercial
collection activities in certain geographic areas are suffering from intense
competitor activity.
Profit accruing from the generation of electricity from landfill gas has
increased by £1.5m to £4.2m with the installation of additional capacity and the
introduction of a premium price under the Renewables Order on 15 MW of existing
capacity.
In response to these changed market conditions the division's organisation has
been refined to bring operating management closer to the customer and to reduce
costs.
Chemical Services trading loss of £0.8m represents an improvement of £0.8m from
last year's £1.6m loss. The suspension of operations at the Pontypool high
temperature incinerator is delivering the expected operational savings. The
remaining plant at Fawley is now operating at full capacity and market prices
appear to have stabilised.
The new fluidised bed plant to process Meat and Bone Meal from the BSE crisis is
still not operating to its design capacity. Remedial measures continue to be
undertaken by our contractor with incremental improvements expected until final
modifications are executed early in 2003.
Belgium
Trading profit increased by £0.5m to £7.0m (2001: £6.5m). The difficulties
reported last year at the De Paepe unit in Gent have largely been resolved. The
improvement generated together with better than expected volumes at our main
landfill have been the principal drivers of performance. A legal challenge to
the recently gained permission to extend this landfill has resulted in the
restarting of the permitting process. Confidence in our ultimate success,
however, remains high.
A small tuck in acquisition for a consideration of £0.3m has been concluded in
the South East of the country.
Netherlands
Trading profit increased by £0.5m to £12.8m (2001: £12.3m) despite substantially
higher insurance costs. The solid waste businesses continue to perform strongly
benefiting from prior year acquisitions and lower cost treatment in Germany. The
industrial cleaning activity is trading well and recording record results. The
computer refurbishment business has also shown a modest improvement.
The application to repermit all activities at the ATM hazardous waste unit
continues with progress being made with the soil cleaning and oil/water
separation activities. The pyrolysis plant, however, is still not permitted to
treat wastes from external sources. The appeal continues, albeit slowly, but an
outcome is expected within the current financial year. Concurrently, the
reprocessing industry is seeking to regularise the Dutch specifications for
cleaned soil.
DEVELOPMENTS
The Group's first PFI contract in Argyll & Bute is trading well. Negotiations as
preferred bidder continue for the East London Waste Authority contract and
financial close is expected shortly. Similarly, the Group is negotiating as
preferred bidder with Dumfries and Galloway. Costs relating to these specific
PFI negotiations totalling £4m are held on the balance sheet as a prepayment.
The technological innovation proposed in these two bids is proving attractive to
other municipal authorities both in the UK and in Belgium. It is expected that
municipal contracts using this mechanical biological treatment technology will
be an increasing feature of Group business.
Electricity profits continue to increase in both the UK and Belgium. With
further capacity of 25 MW due either later this year or early next, the future
for this activity is bright.
OUTLOOK
The Landfill Directive has started to constrain the amount and type of waste
authorised for landfill disposal. These developments, although creating
short-term difficulties, are positive for the longer term as waste is diverted
to higher order technologies. The Chemical Services division with its wide range
of treatment options should benefit particularly. A UK Cabinet Office report on
future national compliance with the National Waste Strategy is expected before
the end of 2002 and should reinforce the nature of this longer term opportunity.
Activities in Belgium and the Netherlands now contribute 60% to total trading
profit underscoring the benefit of the overseas acquisition strategy. The new
technologies available to the Group from these acquisitions and elsewhere are
ideally suited to exploit the opportunities being created by the fundamental
changes occurring in the UK market.
The continental businesses are performing robustly but trading in certain UK
activities, as described above, remains difficult. Coupled with normal seasonal
effects, the results in the second half are therefore not expected to reach the
level of the first six months.
Notes:
1. This announcement is available at the company's website (www.shanks.co.uk),
as will the presentation being made today to financial institutions.
2. Copies of the Interim Report will be posted to shareholders by 18 November
2002, after which they will be available, on request, from the company at
Astor House, Station Road, Bourne End, Bucks SL8 5YP, or at the company
website.
3. The interim dividend of 1.9 pence per share will be paid on 13 January 2003
to shareholders on the register at close of business on 20 December 2002.
For further information contact:
Ian Clubb; Chairman, Shanks Group plc
Michael Averill; Group Chief Executive
David Downes; Group Finance Director
or John Shaughnessy; Group Head of External Relations
On 31 October 2002, telephone: +44 (0)20 7678 8000
Thereafter, telephone: +44 (0)1628 524523
Consolidated Profit and Loss Account.
First Half ended 30 September 2002
Note 2002/2003 2001/2002 2001/2002
First Half First Half Full Year
£m £m £m
Turnover: Group and share of joint ventures 279.0 271.0 535.7
Less: share of turnover of joint ventures (4.4) (3.8) (7.2)
_______ _______ _______
Group turnover 2 274.6 267.2 528.5
Cost of sales (223.1) (212.2) (420.8)
_______ _______ _______
Gross profit 51.5 55.0 107.7
_______ _______ _______
Group operating profit before exceptional items and 29.1 32.4 64.8
goodwill amortisation
Goodwill amortisation (5.1) (5.0) (10.0)
_______ _______ _______
Group operating profit 24.0 27.4 54.8
Share of operating profit of joint ventures 0.6 1.0 1.6
_______ _______ _______
Total operating profit 2 24.6 28.4 56.4
Exceptional costs on closure of operations 3 - - (8.4)
_______ _______ _______
Profit before finance charges and taxation 24.6 28.4 48.0
Finance charges - interest (9.4) (9.8) (18.8)
Finance charges - other 4 (1.1) (0.9) (2.3)
_______ _______ _______
Profit on ordinary activities before taxation 2 14.1 17.7 26.9
Taxation 5 (6.2) (7.7) (12.1)
_______ _______ _______
Profit on ordinary activities after taxation and profit 7.9 10.0 14.8
for the period
Equity dividends paid and proposed 6 (4.4) (4.4) (13.3)
_______ _______ _______
Retained profit transferred to reserves 3.5 5.6 1.5
_______ _______ _______
Earnings per share 7
- basic 3.4p 4.3p 6.3p
- adjusted basic before exceptional items and goodwill 5.6p 6.4p 13.2p
amortisation
- diluted 3.4p 4.3p 6.3p
Dividends per share 6 1.9p 1.9p 5.7p
_______ _______ _______
All of the above relates to continuing operations.
Consolidated Balance Sheet.
At 30 September 2002
Note At 30 September At 30 At 31 March
2002 September 2001 2002
£m £m £m £m £m £m
Fixed assets
Intangible assets 181.9 187.7 183.6
Tangible assets 302.3 296.3 298.6
Investments 1.1 1.1 1.0
Investments in joint
ventures:
- Share of gross assets 11.6 11.7 13.5
- Share of gross liabilities (7.2) (8.5) (8.9)
_______ _______ _______
- Share of net assets 4.4 3.2 4.6
- Loans to joint ventures 2.6 2.6 2.6
_______ _______ _______
Total investment in joint 7.0 5.8 7.2
ventures
_______ _______ _______
Total fixed assets 492.3 490.9 490.4
Current assets
Stocks 5.0 4.8 4.8
Debtors 143.0 145.7 134.7
Cash at bank and in hand 12.8 7.8 3.7
_______ _______ _______
160.8 158.3 143.2
_______ _______ _______
Creditors: amounts falling
due within one year
Borrowings (35.4) (3.4) (14.3)
Other creditors (133.5) (136.5) (131.6)
_______ _______ _______
(168.9) (139.9) (145.9)
_______ _______ _______
Net current (liabilities) (8.1) 18.4 (2.7)
assets
_______ _______ _______
Total assets less current 484.2 509.3 487.7
liabilities
Creditors: amounts falling
due after more than one year
Borrowings (272.5) (293.3) (278.9)
Other creditors (0.3) (0.2) (0.3)
_______ _______ _______
(272.8) (293.5) (279.2)
Provisions for liabilities 9 (66.5) (66.0) (67.8)
and charges
_______ _______ _______
Net assets 144.9 149.8 140.7
_______ _______ _______
Capital and reserves
Called up share capital 23.4 23.3 23.4
Share premium account 93.1 92.4 93.0
Profit and loss account 28.4 33.8 24.3
_______ _______ _______
Equity shareholders' funds 10 144.9 149.5 140.7
Equity minority interests - 0.3 -
_______ _______ _______
Total equity 144.9 149.8 140.7
_______ _______ _______
Gearing
Net borrowings divided by 204% 193% 206%
shareholders' funds
Consolidated Cash Flow Statement.
First Half ended 30 September 2002
Note 2002/2003 2001/2002 2001/2002
First Half First Half Full Year
£m £m £m £m £m £m
Net cash flow from operating activities 11 43.2 55.4 109.0
Returns from investments and servicing of finance
Net interest paid (9.6) (7.7) (16.6)
Tax paid (2.4) (3.7) (15.4)
Capital expenditure and financial investment
Purchase of tangible fixed assets (26.0) (27.0) (57.7)
Sale of tangible assets 3.4 2.6 5.8
_______ _______ _______
(22.6) (24.4) (51.9)
Acquisitions and disposals 0.1 1.4 (2.9)
Equity dividends paid (8.9) (8.6) (13.0)
_______ _______ _______
Net cash flow before financing (0.2) 12.4 9.2
Financing
Issue of ordinary share capital 0.1 0.1 0.8
Debt financing 8.0 11.7 (1.2)
_______ _______ _______
Increase in cash 7.9 24.2 8.8
_______ _______ _______
Reconciliation of net cash flow to movement in net debt
Increase in cash 7.9 24.2 8.8
Debt financing (8.0) (11.7) 1.2
_______ _______ _______
Change in net debt resulting from cash flows (0.1) 12.5 10.0
Amortisation of loan fees (0.2) (0.2) (0.5)
Exchange rate (loss) gain on net debt (5.3) 0.6 2.8
_______ _______ _______
Movement in net debt in the period (5.6) 12.9 12.3
Net debt at 31 March 2002 (289.5) (301.8) (301.8)
_______ _______ _______
Net debt at 30 September 2002 (295.1) (288.9) (289.5)
_______ _______ _______
Net debt represents total borrowings less cash in hand.
Analysis of Net Debt.
At 30 September 2002
At 30 September 2002 At 30 September At 31 March 2001
2001
£m £m £m
Principal Group net borrowings 291.1 288.9 288.2
Private Finance Initiative company net borrowings 4.0 - 1.3
_______ _______ _______
295.1 288.9 289.5
_______ _______ _______
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 2002. Comparative information for the six months to 30 September
2001 has been amended to reflect the changes in accounting policy adopted in the
year ended 31 March 2002.
2 Segmental analysis
2002/2003 2001/2002 2001/2002 Full
First Half First Half Year
£m £m £m
(a) Turnover by origin and destination of service
United Kingdom:
- Waste Services 118.6 122.0 233.5
- Chemical Services 17.5 19.2 38.7
________ ________ ________
United Kingdom 136.1 141.2 272.2
Belgium 47.3 45.1 88.4
The Netherlands 91.2 80.9 167.9
________ ________ ________
Group turnover 274.6 267.2 528.5
________ ________ ________
Share of joint venture turnover 4.4 3.8 7.2
________ ________ ________
(b) Operating profit
Trading profits:
United Kingdom:
- Waste Services 12.6 18.1 36.1
- Chemical Services (0.8) (1.6) (4.0)
________ ________ ________
United Kingdom 11.8 16.5 32.1
Belgium 7.0 6.5 13.1
The Netherlands 12.8 12.3 25.0
Central Services (1.9) (1.9) (3.8)
________ ________ ________
Operating profit before goodwill amortisation 29.7 33.4 66.4
Goodwill amortisation (5.1) (5.0) (10.0)
________ ________ ________
Total operating profit 24.6 28.4 56.4
________ ________ ________
(c) Profit on ordinary activities before taxation
United Kingdom:
- Waste Services 11.5 17.0 33.9
- Chemical Services (0.9) (1.7) (4.1)
________ ________ ________
United Kingdom 10.6 15.3 29.8
Belgium 6.8 6.2 12.5
The Netherlands 9.2 8.9 18.2
Central Services (2.0) (2.0) (4.1)
________ ________ ________
Total operating profit 24.6 28.4 56.4
Non-operating exceptional items - - (8.4)
________ ________ ________
Profit before finance charges 24.6 28.4 48.0
Finance charges - interest (9.4) (9.8) (18.8)
Finance charges - other (1.1) (0.9) (2.3)
________ ________ ________
Profit on ordinary activities before taxation 14.1 17.7 26.9
________ ________ ________
(d) Analysis of profit on ordinary activities before taxation
Group 13.6 16.9 25.6
Joint ventures 0.5 0.8 1.3
Profit on ordinary activities before taxation 14.1 17.7 26.9
________ ________ ________
At 30 At 30 At 31 March
September 2002 September 2001 2002
£m £m £m
(e) Net assets
United Kingdom:
- Waste Services 167.3 142.0 162.5
- Chemical Services 36.3 29.6 36.1
________ ________ ________
United Kingdom 203.6 171.6 198.6
Belgium 32.0 39.5 34.6
The Netherlands 220.9 222.9 220.2
________ ________ ________
Net operating assets 456.5 434.0 453.4
Unallocated net assets (liabilities):
Assets under the course of construction 13.4 30.3 8.0
Net debt (295.1) (288.9) (289.5)
Other unallocated net liabilities (29.9) (25.6) (31.2)
________ ________ ________
Net assets 144.9 149.8 140.7
________ ________ ________
Other unallocated net liabilities include debtors and creditors relating to taxation and dividends, and
an element of capitalised goodwill.
3 Exceptional costs on closure of operations
For the year ended 31 March 2002 the exceptional costs arose on the closure of
operations at the Pontypool site in the United Kingdom.
4 Finance charges - other
Other finance charges relate to the unwinding of discount on long term landfill
liabilities of £0.9m (2001/02: £0.7m) and the amortisation of bank fees of £0.2m
(2001/02: £0.2m).
5 Taxation
2002/2003 2001/2002 2001/2002 Full
First Half First Half Year
£m £m £m
UK corporation tax:
- Current year (0.2) 1.9 3.1
- Prior year - - (1.1)
Overseas tax 5.8 4.5 9.5
Deferred tax 0.4 1.0 0.2
Joint ventures 0.2 0.3 0.4
________ ________ ________
6.2 7.7 12.1
________ ________ ________
The taxation rate for the first half of the current year is based on the
estimated taxation charge for the full year.
6 Interim dividend
The interim dividend of 1.9p per share (2001/02: 1.9p per share) will be paid on
13 January 2003 to shareholders on the register at close of business on 20
December 2002.
7 Earnings per share
Basic earnings per share are calculated by dividing the profit for the period by
the average number of shares in issue during the period.
2002/2003 2001/2002 2001/2002 Full
First Half First Half Year
Calculation of basic earnings per share
Profit for the period (£m) 7.9 10.0 14.8
Exceptional items (net of tax) (£m) - - 5.9
Goodwill amortisation (£m) 5.1 5.0 10.0
_________ _________ _________
Earnings before exceptional items and goodwill amortisation (£m) 13.0 15.0 30.7
_________ _________ _________
Average number of shares in issue during the period 234.0m 233.2m 233.4m
Basic earnings per share (pence) 3.4p 4.3p 6.3p
Adjusted basic earnings per share before exceptional items and 5.6p 6.4p 13.2p
goodwill amortisation (pence)
_________ _________ _________
Calculation of diluted earnings per share
Average number of shares in issue during the period 234.0m 233.2m 233.4m
Effect of share options in issue 0.8m 0.6m 0.5m
_________ _________ _________
Total 234.8m 233.8m 233.9m
_________ _________ _________
Diluted earnings per share (pence) 3.4p 4.3p 6.3p
_________ _________ _________
The Directors believe that adjusting the earnings per share for the effect of
exceptional items and goodwill amortisation enables a comparison with historical
data calculated on the same basis.
8 Acquistions
During the period the Group acquired Watco's Stavelot business in Belgium for a
total cash consideration of £0.3m. The consideration related to tangible fixed
assets and no goodwill arose on this transaction.
9 Provisions for liabilities and charges
At 31 Provided in Utilised in Exchange At 30 September
March 2002 period period 2002
£m £m £m £m £m
Site restoration 22.3 1.4 (3.1) 0.1 20.7
Aftercare 25.3 0.7 (0.1) 0.1 26.0
Reorganisation 1.9 - (0.9) - 1.0
Onerous leases 0.4 - - - 0.4
Deferred taxation 17.9 0.4 - 0.1 18.4
________ ________ ________ ________ ________
67.8 2.5 (4.1) 0.3 66.5
________ ________ ________ ________ ________
10 Reconciliation of movements in equity shareholders' funds
2002/2003 First 2001/2002 First 2001/2002 Full
Half Half Year
£m £m £m
Profit for the period 7.9 10.0 14.8
Equity dividends (4.4) (4.4) (13.3)
________ ________ ________
Retained profit transferred to reserves 3.5 5.6 1.5
Issue of share capital 0.1 0.1 0.8
Goodwill written off (see below) - - (4.6)
Currency translation gain (loss) 1.8 (0.4) (1.6)
Currency translation adjustment on goodwill (1.2) 0.1 0.5
________ ________ ________
Net movement in equity shareholders' funds 4.2 5.4 (3.4)
Opening equity shareholders' funds 140.7 144.1 144.1
________ ________ ________
Closing equity shareholders' funds 144.9 149.5 140.7
________ ________ ________
The goodwill written off to reserves in 2002 relates to the final determination
of the consideration on the Group's acquisition of Page s.a. in 1998. The
original goodwill on this acquisition was written off to reserves in that year,
before the introduction of FRS 10 - Goodwill and Intangible Assets.
11 Net cash flow from operating activities
2002/2003 First 2001/2002 First 2001/2002 Full
Half Half Year
£m £m £m
Total operating profit 24.6 28.4 56.4
Amortisation of intangible assets 5.1 5.0 10.0
Depreciation of fixed assets included in operating profits 21.8 21.5 43.2
Provision for site restoration and aftercare 1.2 1.8 3.2
________ ________ ________
Earnings before interest, taxation, depreciation and 52.7 56.7 112.8
amortisation (EBITDA)
Gain (loss) on sale of fixed assets 0.1 (0.2) (0.7)
(Increase) decrease in working capital (4.9) 0.5 3.7
Utilisation of provisions (4.1) (0.6) (5.2)
Share of profits of joint ventures (0.6) (1.0) (1.6)
________ ________ ________
Net cash flow from operating activities 43.2 55.4 109.0
________ ________ ________
12 Status of financial information
The interim financial information, which was approved by the Directors on 31
October 2002, is unaudited but has been reviewed by the auditors and their
report is set out on page 12.
The financial information for the year ended 31 March 2002 does not comprise
financial statements within the meaning of section 240 of the Companies Act
1985, and has been extracted from the Group's 2002 published accounts which have
been filed with the Registrar of Companies. The auditors' opinion on those
financial statements was unqualified and did not include a statement under
section 237 (2) or (3) of the Companies Act 1985.
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 and 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.
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 2002.
PricewaterhouseCoopers
Chartered Accountants
London, 31 October 2002
This information is provided by RNS
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