Trading Statement

RNS Number : 5628T

Shanks Group PLC

30 September 2010

 



Trading Statement

Shanks Group plc 30 September 2010  Shanks Group plc, Europe's largest listed independent waste management business, today announces an important development to its PFI portfolio. This statement also provides an update on trading as it enters its close period, for the six months ending 30th September 2010. ·      Sale of subordinated debt and majority of equity in two PFI contracts to John Laing Investments for £25m in cash ·      Memorandum of understanding signed with John Laing to share equity investments and bid costs on future PFI contracts ·      Benelux Retail Bond successfully launched ·      Trading for the period in line with our expectations ·      Strong underlying profit performance offsetting the expected one off decline in the Belgian landfill operations and adverse currency movements ·      PFI margin improvement plan on track ·      Strong underlying cash flow and robust balance sheet maintained Sale of PFI "Equity" and future arrangements with John Laing We previously announced the intention to sell the subordinated debt and the majority of the equity stakes in two of the Group's existing PFI contracts. We are pleased to confirm today that all of the subordinated debt and eighty percent of the equity in the East London Waste Authority (ELWA) and Dumfries and Galloway (D&G) PFI contracts has been sold to John Laing Investments for £25m in cash. Shanks will retain the long term operating contracts for both ELWA and D&G. A Memorandum of Understanding has also been signed with John Laing Investments which provides for them to co-invest in the investment vehicles of future PFI contracts and, as part of the arrangement, to contribute to the bid costs associated with winning those contracts. Each bid will be considered on a case by case basis. This fits with our overall PFI strategy of reducing our equity contribution but maintaining the long term operating contracts. The sale proceeds are in line with the estimate included in the Directors Valuation of PFI contracts announced with the Group's year ended March 2010 financial results and represents a small premium to the net cash invested by Shanks in the investment vehicles. The impact on the overall trading results is not material but the sale will improve the future return on assets of the PFI business. As a consequence, it will also simplify the reporting of the Group's financial results, including the removal of £105m, as at 31 March 2010, of non-recourse debt from the balance sheet. The proceeds will initially be used to pay down existing bank debt. Benelux Retail Bond On 24th September, the Group announced that it had launched a retail bond to investors in the Benelux region. This innovative offering, the first by a UK company in the Benelux region, has the objective of raising a minimum of €50m as part of the strategy to increase the maturity of the Group's funding. The subscription period remains open until 22 October 2010. Trading performance to 30 September 2010 Trading for the period has continued in line with our expectations Underlying market conditions, although remaining difficult have been generally as anticipated. These conditions together with the expected one off decline in the Belgian Landfill and the adverse currency movements have been offset by improved recyclate prices, new contract volumes, further cost saving initiatives, improvements in PFI margins, early returns from our strategic £100m investment programme and lower financing costs. In the Netherlands, the Construction and Demolition business, as expected, remains weak, although we have seen a further stabilisation of the Industrial and Commercial business. The benefits of improved recyclate prices and the cost saving programme, together with good trading in the hazardous waste business have offset the challenging trading conditions in solid waste. In Belgium, the main impact has been the one off decline in Landfill, with other improvements in the business offsetting adverse currency movements. In the UK, there is significant profit growth, principally driven by improvement in PFI margins. The upgrade necessitating a temporary closure at the London Ontario facility in Canada is now complete. The plant is expected to be operational again within the next few days. The Ottawa plant continues to perform well, in line with our expectations. In line with our previous statements, excluding the impact of the one off decline in the Belgian Landfill and adverse currency movements, there has been strong underlying growth in the profit before tax in the period to September 2010 and we expect this to continue in the remainder of the year. Borrowings The Group remains focused  on maximising free cash flow through the close control of working capital and replacement capital expenditure.  We expect the ratio of core net debt to EBITDA at 30th September 2010 to be approximately 2.0. This excludes the benefit from the sale of the PFI interests referred to above, the contribution for which we expect to receive in early October. Tom Drury, Group Chief Executive of Shanks Group plc, commented: "The sale of the PFI equity stakes and the ongoing relationship we will have with John Laing on future bids has significantly strengthened the Group's already solid position in one of our key strategic areas. PFI is central to our UK strategy and we have a strong platform offering sustainable solutions to meet local authorities' needs of diverting residual household waste from landfill. The investments in the other strategic areas of recycling and organic processing continue on track. During the period ended 30th September 2010, projects at Ghent, Belgium; Bree, Belgium; Greenmills, Netherlands and Blochairn, Scotland were successfully commissioned and have begun their operational ramp up. The progress we are making on re-positioning the Group's long term funding together with the continued focus on cash flow generation and maintaining a strong balance sheet provides a robust platform to continue to invest in projects which can deliver sustainable growth. Despite remaining cautious about the near term macro economic outlook, we expect that in the current year the actions we are taking through focused cost control and improving the PFI margins will produce strong underlying profit 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 improving market conditions and the returns from our £100m investment programme". Enquiries: Tulchan Communications                               [phone] John Sunnucks/David Allchurch

 

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