Shanks to invest 75m in UK on back of strong results

Shanks has unveiled plans to invest around 75 million in the UK over the next three years as it aims to more than double the proportion of its overall profits that come from its activities in this country.

The revelation came as the Milton Keynes-based waste management company today (May 26) unveiled its preliminary results for 2010/11, revealing that trading profits from its UK operations increased by 69% between 2009/10 and 2010/11, from 4.5 million to 7.6 million.

This was underpinned by a 126% increase in the trading profits from its PFI contracts up from 2.4 million in 2009/10 to 5.6 million in 2010/11 which compensated for a 24% decline in profits from its solid waste activities.

Revenues from the UK also rose up 20% from 147 million in 2009/10 to 176 million in 2010/11.

The performance of its UK operations went someway to compensating for less impressive profit and revenue figures for the Netherlands and Belgium, which account for the lions share of Shanks activity.

Revenue from The Netherlands rose by just 3% between 2009/10 and 2010/11 from 354 million to 362 million, while Belgian revenues fell by 2%, with Shanks attributing the situation in both countries to difficult conditions for its solid waste activities.

Overall, revenues with currency measured at a constant level increased by 5% – from 684 million to 717 million – and pre-tax profits were up by 10% – from 33.2 million to 35.2 million.

UK activity

Despite the increased UK activity, it still contributed just 9% of the companys overall profits before deductions in 2010/11. But, speaking to letsrecycle.com this morning, Shanks chief executive said it now aimed to boost this proportion significantly.

The UK is currently a quarter of our revenues and around 10% of our profits but I can envisage the UK being a quarter of the groups profits because the market dynamics are changing most in the UK, he said.

In particular, Mr Drury pointed to the drive away from landfill which was underpinned by increases in landfill tax.

He explained that around 75 million of the 150 million the company planned to invest group-wide over the next three years would be spent in the UK, adding thats a much bigger proportion than in the past.

In particular, the company plans to invest in its recycling and organic waste treatment activities. The investment will be in more merchant-type facilities, Mr Drury said. Were happy to invest in relatively small flexible plants because with landfill tax going up we think that its good for the companies that get in on the ground first.

Among the existing investment in this area highlighted in the results are the MRF at Kettering that the company is expanding at a cost of 7 million (see letsrecycle.com story) and the anaerobic digestion plant it has built in partnership with Energen Biogas at Cumbernauld, near Glasgow.

Acquisitions

The last financial year saw Shanks complete the 6 million acquisition of Edinburgh-based Allied Waste Services in February 2011, and Mr Drury said it continued to have an interest in future acquisitions.

He said the focus was on relatively small, tuck-in, acquisitions where we secure collection activity in areas where were delivering facilities. Thats very much part of our strategy.

This comes alongside a change in the companys involvement in PFI and PPP contracts, as it moves away from financing them and towards the operational side of the long-term deals. This was highlighted by the September 2010 sale of equity stakes in two of its existing PFI projects to John Laing Investments for 25 million (see letsrecycle.com story).

And, Mr Drury said: Were interested in long-term operating contracts but well probably keep a minority stake in the investment vehicles. You do forgo the financing returns but we want to focus our capital on that 150 million.

Future prospects

While Shanks said that, in general, market conditions remained challenging, it claimed that its trading in the final quarter of 2010/11 and the first quarter of the current financial year had encouraged it that the market for its services was improving.

A continued emphasis on cost control and PFI margin improvement coupled with delivery on our distinct strategy gives us confidence that good growth can again be achieved this year, Mr Drury said.

He added that, as a result of this, it anticipated its trading for 2011/12 would be in line with expectations.

Shanks share price increased by 4p, or 3.37% this morning on the back of the companys results up from 118.6 pence per share at close of trading yesterday to 122.60 pence per share at 10am today.