This was the warning in Shanks’ trading update for the second half of 2015/16 today – which suggests that weakening commodities prices have impacted its Municipal Division.
Shanks explains that despite strong improvement in its Commercial Division, it has not been possible to fully compensate the adverse impact of the hazardous waste and municipal markets.
It means that despite an optimistic outlook for the first half of the year, the Group is unlikely to see the financial results it had predicted when the year ends on 31 March 2016.
However, the Group insists that the Division remains ‘robust’ and is still expected to deliver significant profit and cash generation in the long-term.
It claims that the market dip is ‘somewhat offset’ by the Barnsley, Doncaster and Rothertham (BDR) and Wakefield contracts entering full service – as well as improvement programmes which have started at its East London facilities.
And, construction of energy from waste plants in Derby and abroad in Canada are also ‘on track’, underpinned by guaranteed inputs and prices.
Looking forward, the Board expects that an increase in capacity commissioned in 2015/16 together with margin improvement will deliver strong growth.
Wakefield
Shanks has also announced the sale of a proportion of its PFI assets on the Wakefield contract today – which will bring the business’ year-end core net debt down from £201 million as of 31 December to £195 million.
Under the terms of the transaction, the Group has confirmed the sale of 100% of subordinated debt on the contract and 49.99% of the equity to Equitix, which will be formally approved by Wakefield council in a cabinet meeting in March.
By retaining 50.01% of the equity, Shanks Group chief executive Peter Dilnot states the business is “fully committed” to delivering all 25 years of the contract, which is due to expire in 2038.
He said: “This transcation is consistent with our strategy of actively managing the Group’s portfolio. The proceeds will be used to reduce borrowings and support our ongoing investment in infrastructure projects.”
Mr Dilnot added: “Shanks remains wholly committed to the success of our flagship Wakefield contract as both an operator and an ongoing investor.”
Register for free to comment