Shanks posts loss but remains positive

In the face of what it termed as very challenging solid waste markets, waste management company Shanks Group plc today posted results for the year ending 31 March 2013 showing a pretax loss of 35.3 million.

While the loss contrasts with a profit in the previous year of 29.9 million, the company remains generally upbeat about future prospects with a business restructure and increased revenues seen in its Municipal and Organics divisions.

“Shanks is on track to emerge a leaner, more focused and stronger business for the future”

Peter Dilnot, Shanks

Peter Dilnot, Shanks Group chief executive, said: This has been a challenging and transformational year for Shanks. Against a backdrop of very difficult markets, we have reorganised the Group into four market-facing segments to enable us to manage the business more effectively and create a platform for future growth.

He added: This new structure is already delivering benefits and, while Solid Waste end markets are expected to remain challenging in the year ahead, Shanks is on track to emerge a leaner, more focused and stronger business for the future. As a sign of confidence in the Groups medium-term growth prospects, the Board is pleased to propose a maintained final dividend for the year.

Performance

The varying fortunes of the company are clear from figures for the four divisions created in the wake of a business shake-up by Mr Dilnot who joined in February 2012. Shanks is now run on a divisional rather than regional/country basis as well as its activities in the UK, it has significant operations in the Benelux countries and smaller operation in America.

The divisions, with their respective profit performance are:

Solid Waste: down 50%
Hazardous Waste: stable
Organics: up 7%
UK Municipal: up 80%

The results detail the depth of the changes within the business. These include substantial exceptional costs for the year of 61.8 million (2011/12 7.4m) and a reduction in headcount of about 420 people across the UK and Benelux Solid Waste businesses. There has also been the closure of some smaller recycling facilities and the mothballing of the companys Blochairn materials recycling facility in Scotland.

Mr Dilnot told letsrecycle.com that the business is on the move. In the last 12 months we have reorganised the business which sheds light on where the growth is. We have a new executive committee with three new hirees with waste management industry experience and we have a cost reduction plan.

And, he highlighted the positive performance in hazardous waste and municipal/PFI. Hazardous waste is one of our growth divisions and is giving us a favourable return on assets. In the Netherlands we are leaders in soil treatment and also have good performing harbour facilities.

Municipal

On the municipal side Mr Dilnot noted that the company has five contracts underway already We were an early entrant into the PFI market. And, the business is delivering operational improvements working in partnership with local authorities. We will be investing 200 million of capital into the Bradford, Doncaster and Rotherham (BDR) and Wakefield contracts and as they come on line profits will come through to contribute to our growth.

Reflecting on the overall performance of the Shanks Group, Mr Dilnot said: there is no surprise with the numbers the other point I would say is that we are managing the cash effectively and we have strong areas such as hazardous waste and organics.

In the future, while there would still be some exceptional costs relating to the restructuring, he did not expect them to be to the same extent as last year.

Organics

Summarising Shanks activities in organics in the UK, the company said that our joint venture in Energen Biogas at Cumbernauld successfully ramped up production and moved into profit. In October 2012, we signed a power purchase agreement with Marks and Spencer (M&S) to deliver up to 19,000 MWh of green electricity per annum to them and we also contracted to process the companys organic waste. This has helped M&S achieve their sustainability targets, whilst underpinning the commercial performance of the Cumbernauld site.

And, it noted that construction work has largely been completed on our new AD facility at Westcott Park in Buckinghamshire, which will be commissioned over the summer and move into production in the second half. It is expected to reach profitability in 2014/15. We also made good progress in Wales, where we have been awarded preferred bidder status for South West Wales and remain in the process for Heads of Valleys and Cardiff.

Looking at the UK Municipal side in more details, the results described performance as very good, delivering strong growth through improved performance and diversion within existing assets, while also making good progress with new assets. However, confirming stresses within its Scottish operations, Shanks said that losses had been reduced on its onerous Dumfries & Galloway contract.

• Analyst Investec, in a briefing note released today commented: Shanks has been battling some tough headwinds in recent times and whilst the markets remain challenging, the group is beginning to see the benefits of some major structural changes. It marked shares in the business as Buy. Last month, analysts at Goldman Sachs suggested that Shanks might be a takeover target in the waste management marketplace which was likely to have more consolidation. Shanks shares were virtually unchanged in early trading today.