Shanks sells C&I waste business to Biffa for 9.5m

Shanks Group has agreed to sell the majority of its UK solid waste business to rival firm Biffa for 9.5 million as it gears up to exit the challenging commercial waste market, it was announced today (October 15).

A binding agreement has been made by Shanks to sell the business which collects, sorts and processes commercial and industrial waste in the UK to Biffa. In addition, processes are underway to sell its Blochairn and Kettering materials recycling facilities (MRFs). However, Shanks will retain its profitable Elstow facility which serves municipal customers in Bedfordshire.

Shanks said the acquisition represents an effective exit from loss-making UK solid waste operations where it is sub-scale and not positioned to win. Financially, the move is expected to generate net cash proceeds for Shanks of approximately 14 million including working capital receipts, with 8 million from the disposal assets and a further 6 million from the sale of the MRFs.

It is expected that Shanks will benefit from an additional cash inflow of approximately 3 million following the acquisition.

Following the transactions, Shanks said its UK operations will be focused on its profitable UK municipal business which provides waste and recycling services to local authorities in the UK and is underpinned by long-term contracts.

Strategic move

Peter Dilnot, chief executive of Shanks, said: These transactions deliver on our strategy of focusing on markets where we have sustainable competitive advantage and can generate attractive returns. We are exiting a market where we are sub-scale and not positioned to win, and focusing our UK operations on our growing UK municipal and organics businesses.

He continued: Shanks is well positioned for future growth, with a portfolio of strong businesses in attractive target markets. In addition to our growing UK municipal business, we are market leaders in Benelux solid waste, have a differentiated business in European hazardous waste, and an established leadership position in organics. The combination of these businesses provides a strong platform for delivering profitable growth and generating attractive returns.

He added: On behalf of the Board, I would like to thank all employees in the UK solid waste business for their contribution and commitment to the Group.

Ian Wakelin, chief executive of Biffa, added: This acquisition will enable us to leverage our national infrastructure, grow our market share and enhance our leading industrial and commercial services. It is a progressive move for Biffa in line with industry trends towards consolidation to match waste volume levels. Biffa has a strong platform for growth based on its reputation for excellent customer service and its infrastructure. We are pleased to be able to continue to invest in the business and enhance our position at the forefront of the evolving waste management industry.

Assets

The disposal assets consist of 11 facilities in England and Scotland and all of Shanks UK solid waste business with the exception of Elstow which is being transferred to the Groups UK municipal business. The Blochairn and Kettering MRFs will exit separately in the near future.

As part of the transaction approximately 300 employees will transfer to Biffa under TUPE. As a result of the sale, the Group expects to reduce the cost of its UK divisional central services by 2 million annually.

Rationale

Explaining the rationale for its exit from the UK solid waste market in more details, Shanks said in a statement: For a number of years, European solid waste markets have faced increasing headwinds and to operate successfully participants need to have a leading position with significant scale. The Groups solid waste business in the Benelux has such a leading market position and is well underway with a structural cost programme which will increase profitability over time and position the business to take advantage of a cyclical recovery in due course.

In contrast, Shanks UK solid waste business is sub-scale, loss-making and the Directors believe it is unlikely to return to material profitability in the foreseeable future. Accordingly, the Group decided to exit the UK solid waste market and initiated discussions with Biffa, a market leader in UK solid waste and an ideal owner of the disposal assets.

It added: In selling the disposal assets to Biffa and progressing with the sale of Kettering and Blochairn, Shanks is able to focus its UK activities around its profitable and growing Municipal business. The Group has an established market presence in UK municipal and the business generates long-term, predictable revenues with attractive returns.

Growth for Biffa

Biffa said Shanks UK Solid Waste business will be complementary to its portfolio, growing its market share. It added that the increased volume will enable Biffa to consolidate more waste into recycling and energy-from-waste facilities, leading to growth in its energy and processing operations.

The transaction, subject to regulatory approvals, is due to be completed by the end of December 2013.

Shanks’ UK business

Commenting this morning, Shanks chief executive Peter Dilnot said that the important and exciting sale was a series of transactions, if you will and represented a relatively clean break.

He said: Overall, this is a series of transactions that is fully in line with our strategy, is positive, and is generating cash income.

Mr Dilnot said Shanks had been working very closely leading up to the announcement, and that the deal was signed late last night.

Commenting on Biffa, he said: We are selling to a player who can get the most value from these assets.

But, he said, it is not just about what we are moving away from, its about what we are focussing on, adding that our UK business is absolutely core to us going forwards.

He explained that the sale left Shanks as a market leader in its remaining areas, highlighting areas for growth in the anaerobic digestion sector, for which Shanks is currently planning facilities in Oxfordshire and Wales.

Asked whether the sale was part of a wider strategy to sell further parts of the Shanks business in future, Mr Dilnot said: The simple answer to that is no.

Mr Dilnot also commented on the plans for a 130 million MBT facility on Sinfin Lane, Derby, against which campaigners recently had an appeal dismissed at the Royal Courts of Justice (see letsrecycle.com story).

Mr Dilnot said: It is an interesting situation. The Friends of the Earth appeal was made recently and we are just working through what that means. But overall it has to be positive news for the authority and clearly for us.