Chairman's statement

CHAIRMAN'S STATEMENT

A solid base for sustained growth

Our core waste-to-product business model has proven resilient against market headwinds and is well supported by long-term legislative and environmental drivers.

Shanks is a leading international waste-to-product business. During the course of the year the Group has made good progress in implementing its margin improvement programmes and in commissioning a range of new infrastructure and assets. We have delivered revenue and profit growth at constant currency, despite the adverse impact of a weakening macro-economic environment. Our unique waste-to-product business model has proven resilient in the face of these market headwinds and remains well supported by long-term legislative and environmental drivers.

Review of the year

Encouragingly, conditions in our core commercial markets in the Benelux showed some improvement during the year, after a number of years of contraction. The benefit of this was, however, offset by the weak macro-economic environment, particularly in the second half. The significant impact of sharply lower energy and commodity markets was largely offset by our actions to drive growth and manage cost. Our strong focus on cash ensured that year-end core net debt was lower than expected.

Consistent growth strategy

Our strategy is based on delivering growth from our market-facing divisions: Commercial Waste, Hazardous Waste and Municipal. Across all our divisions we aim to drive margin expansion, invest in infrastructure, and manage the portfolio. As the significant investments we have made over the last few years result in new facilities coming online, we will now place greater emphasis on the other two levers: margin expansion and portfolio management.

Market conditions suggest consolidation

In response to the structural over-capacity in European waste markets, there are signs of increased M&A activity. This may lead to opportunities to deliver value through synergistic acquisitions. We remain alert to opportunities which will strengthen our market positions, and will continue to exercise capital discipline. We will also explore opportunities to realise value and reduce leverage through the selective sale of non-core or under-performing assets.

Robust financial position

We focus on capital discipline and good management of our cash. This year we have delivered another year of strong underlying free cash flow (UFCF). UFCF was £56.8m (2015: £23.4m) and the UFCF% was 172% (2015: 69%).

Last year we indicated that net debt would rise as we reached a peak of capital investment during this financial year and into 2016/17. Accordingly, we put in place amended bank covenants to allow greater headroom during this leverage peak. We also implemented a range of projects to recycle capital, including the successful sale of our Wakefield PFI assets in March for £30m of which £26m was received by 31 March. As a result, core net debt at the year end was £193m, better than expectations. Net debt to EBITDA increased to 2.6 times.

Earnings per share and dividend

Underlying basic earnings per share for the year reduced to 4.7 pence (2015: 5.0 pence). This reflects stable underlying earnings, with the prior year benefiting from a one-off tax credit. Based on the Board’s confidence in the Group’s future earnings potential, I am pleased to confirm that we will be recommending an unchanged final dividend of 2.35 pence per share, payable on 29 July 2016 to shareholders on the register on 1 July 2016. The Board intends to maintain this level of dividend until earnings recover, such that the dividend is back within the range of 2.0 to 2.5 times cover. Once this is the case a progressive dividend policy can be resumed.

Corporate governance

The Board is committed to the highest standards of corporate governance. Details of our processes and approach, including those relating to the role and effectiveness of the Board, and compliance with the Governance Code, are set out in the Governance section on pages xx to xx.

At the 2014 AGM shareholders approved our Directors’ Remuneration Policy. Our policy continues to be to recruit, retain and motivate high calibre senior management, and to provide a competitive remuneration package directly linked to performance and the interests of shareholders.

Board changes

On 5 November 2015, Adrian Auer informed the Board that he wished to step down as Chairman, after ten years on the Board, nine of which were as Chairman. During that time he steered Shanks through testing market challenges with skill and dedicated leadership. Under his leadership, Shanks was transformed from a landfill business into a leading and highly respected waste-to-product company. We would like to thank Adrian for his significant contribution to Shanks over the past 10 years and wish him well in the future.

Initial impressions

I am delighted to have been appointed as Chairman of Shanks. In my opening weeks I have visited all the Divisions and met many of our senior management. I have been impressed by the professionalism, entrepreneurial spirit and passion throughout the Group. This is a pivotal time for Shanks as markets reach the bottom of the cycle and I believe that there is excellent opportunity to deliver growth going forward.

Summary and outlook

Shanks is a well-positioned business with a clear growth strategy. Our margin expansion initiatives are delivering results and we have new assets coming online. In parallel, we will continue to actively manage our portfolio to ensure we deliver growth and increasing returns.

On behalf of the Board, I thank all the employees of Shanks for their commitment to our unique company. Finally, to our shareholders, I thank you for your ongoing support.

Colin Matthews
Group Chairman

Important information:

On 28 February Shanks Group plc merged with Van Gansewinkel Groep BV to form Renewi plc. Information on this website is no longer being updated and is for historical reference only. Please visit www.renewi.com for latest information, or continue to the historic Shanks Group plc website.