UK business helps boost Shanks’ profits by 8%

Shanks Group today reported an 8% rise in pre-tax profitfor the2011/12 financial year despite ‘challenging market conditions’.

Preliminary results for the Group for the year ended March 31 2012 show that underlying profit before tax rose to 38.8 million from 34.2 million in 2010/11. This represents an 8% rise at constant currency.

“During the year Shanks continued to deliver profitable growth, despite softer market volumes and price pressures in some of our markets”

Peter Dilnot, Shanks

At the same time, revenues were up 3% at constant currency, from 717.3 million in 2010/11 to 750.1 million.

The Group put the robust performance’ largely down to success in its UK and organics businesses, where revenue grew by 6% and 28% year-on-year respectively. This helped to offset a poorer performance in the companys soild waste business in the Benelux countries.

In the UK, the Groups results were boosted by the signing of the 750 million Barnsley, Doncaster and Rotherham municipal contract in March 2012 (see letsrecycle.com story).

Growth

Peter Dilnot, Shanks Group chief executive, told letsrecycle.com: During the year Shanks continued to deliver profitable growth, despite softer market volumes and price pressures in some of our markets.Revenue grew by 3% at constant currency and underlying earnings per share increased by 9%.

Based in Milton Keynes, Shanks has four core business activities: Solid waste; hazardous waste; organics and UK municipal (PFI/PP).Over the last three years, the proportion of Group profit from hazardous, organics and UK municipal has increased from 33% to around 60%.

The Group operates in the Netherlands, Belgium, UK and Canada.

UK

Looking at the UK in particular, Shanks saidthat waste volumes in the collection business were down by 9%. But, this was compensated for by a 2% price increaseand the diversion of more waste fromlandfill. The Group noted that overall recyclate prices were favourable despite a recent decline in paper pricing.

On the organics side, the commissioning ofShanks’ AD plant in Glasgow (see letsrecycle.com story), a joint partnership with Energen Biogas,wasdelayed, whichresulted in losses for the year. Gate fees also came under pressure as other AD plants came on stream. However, Shanks said that electricity was being delivered to the grid and would increase in the new financial year and that the development of its other AD plants in Oxfordshire and East London remains on track.

PFI/PPP

Meanwhile, the Groupimprovedthe profitability of its PFI/PPP portfolio, with marginsincreasing from 6.4% in 2010/11to 10% in 2011/12. It noted: We expect these to be in the 8-10% range going forward. The first of two Cumbrian mechanical biological treatment (MBT) plants was delivered ahead of schedule in December 2011 and Shanks said the second facility was also on track to be completed early.

The Group said it continued to invest in the PFI market albeit at a lower level of activity during the year. As well as signing the Barnsley Doncaster and Rotherham contract as part of a majority-owned joint venture with SSE, the company is preferred bidder for contracts in Wakefield and Derby. The Group said its current PFI/PPP assets had been valued at around 80 million, unchanged from 2010/11.

Mr Dilnot said: Our UK organics investment is on track and the PPP market will be interesting going forward. There are still a very large number of local authorities who do not have sustainable alternatives to landfill and we need to sort that out and we are seeing a move to shorter contracts. We see MBT and AD having an important role here.

Growth

Looking forward, Mr Dilnot said that market conditions looked set to remain challenging but that the Group was well positioned to deliver growth and the outlook was very positive.

Mr Dilnot said the Group was unusual among the big players as it had a clear strategy for meeting demand for sustainable alternatives to landfill and mass burn incineration.

He said: We intend to accelerate the execution of this strategy by driving improved productivity and further Group synergies, and by focusing our ongoing investments in the core growth areas of organics and the UK.