Shanks` annual report: Growing despite difficult market conditions

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Source: Shanks Group plc

Milton Keynes, UK — A clear strategy, supported by continuous improvement initiatives and the efforts of our people, has enabled Shanks Group plc to deliver despite difficult market conditions. The Group made good progress against its strategic and operational objectives in 2015/16 despite the tough macro market, according to the review of the Group Chief Executive Peter Dilnot in the final annual report.

Shanks` core commercial waste markets in the Netherlands showed signs of improvement after a number of years of contraction. In addition, Shanks made good progress with its self-help initiatives, although the Group was unable to offset fully the impact of a weakening macro-economic environment, particularly in the second half of the financial year. With global energy and commodity prices at what appear to be cyclical lows, plans for growth are based on current market conditions with no material expectation of recovery in the short-term.

Concerning the Group`s performance, revenues from continuing businesses grew by 7 percent at constant currency to £ 615m, and by 2 percent at reported currency (2015: £ 601m). Trading profit grew by 4 percent (a reduction of 3 percent at actual rates) to £ 33.4m and underlying earnings per share grew by 1 percent at constant currency to 4.7p (2015: 5.0p). Exceptional items totalled £ 23.5m (2015: £ 42.2m).

Commercial Waste produced a strong performance in the year, growing trading profit by 18 percent at constant currency to € 21.1m on revenues that grew by 1 percent to € 406m. The Netherlands strongly increased trading profit by 37 percent to € 13.7m while Belgium fell by 6 percent to € 7.4m, as expected. The benefit of improving conditions in the Dutch construction market was countered by weaker recyclate and energy prices in the second half of the financial year. However, Shanks was still able to deliver profit growth from its self-help initiatives and ongoing portfolio management.

Hazardous waste delivered a robust performance despite difficult oil and gas markets, which represent over 50 percent of its revenues. Revenues increased by 6 percent at constant currency to € 186m, and trading profit increased by 1 percent to € 21.2m. Record waterside and soil volumes were processed to offset intake and off-take pricing pressure, productivity pressure and lower sludge volumes.

Municipal waste had a challenging year, although revenue grew by 21 percent at constant currency to £ 190m as a result of the commissioning of new sites and construction activity in Surrey, Canada. However, trading profit fell by 15 percent at constant currency to £ 9.6m as a result of off-take, recyclate and energy price pressures, as well as higher insurance costs. As previously disclosed, the impact of changes in market conditions on Shanks` Cumbria PFI contract has caused the company to take a £ 5m onerous contract provision. Shanks was pleased to commission both the Barnsley Doncaster and Rotherham (BDR) and Wakefield flagship facilities during the year, both of which will contribute to profit and cash performance over the next 25 years.

Strong cash management and capital discipline continued in 2015/16, which theGroup had highlighted as a year of peak capital investment in a range of strategic and long-term projects. The company kept tight control of its operating cash flows, delivering an underlying free cash flow of £ 56.8m (2015: £ 23.4m). The core net debt on 31 March 2016 was better than expected at £ 193m, representing a multiple of 2.6 times EBITDA, comfortably within the covenant level.

More information can be found under shanks.co.uk.

Source: Shanks Group plc