Group Finance Director's review



Our programmes to drive long-term margin expansion have made good progress, while our strong cash management has supported our ongoing investment for future growth.

Revenue and trading profit

Group underlying revenue increased by 7% at a constant exchange rate in 2015/16 to £614.8m. Trading profit on continuing businesses, before non-trading and exceptional items, increased by 4% at constant exchange to £33.4m (3% decrease at reported rates).

Margins fell slightly due to currency and mix. Crucially, margins rose in our core Commercial Division. Return on Operating Assets remained broadly flat despite new assets being commissioned and ramping up.

Group Summary

Commercial 297.3  314.2  -5% 1% 15.4  14.0  10% 18%
Hazardous 136.2  138.0  -1% 6% 15.6  16.4  -5% 1%
Municipal 187.7  156.6  20% 21% 9.4  11.3  -17% -15%
Group central services –  –      (7.0) (7.4) 5% 5%
Inter-segment revenue (6.4) (7.4)     –  –     
Total 614.8  601.4  2% 7% 33.4  34.3  -3% 4%

CER = at constant exchange rate.
Revenue in 2016 excludes the impact of the non-trading item of £1.0m (2015: £2.0m).

2016 5.4
2015 5.7
2014 7.2
2013 6.2
2012 7.1
2016 12.0
2015 12.2
2014 15.1
2013 11.4
2012 15.2

1 Early year numbers are as previously reported and include discontinued operations.

Other profit and loss items
Non-trading and exceptional items excluded from pre-tax underlying profits

To enable a better understanding of underlying performance, certain items are excluded from trading profit and underlying profit due to their size, nature or incidence.

Total non-trading and exceptional items from continuing operations amounted to £23.5m (2015: £42.2m). The cash cost of non-trading and exceptionals was £18.5m (2015: £7.8m), however including the benefits from associated asset disposals there was a net receipt of £16.4m. These items are further explained in note 4 to the financial statements and include:

  • Portfolio management activity: loss of £9.5m (2015: £0.8m) in order to reduce ongoing losses and to generate cash. These items include the disposal of the subordinated debt and 49.99% of the equity in the Wakefield SPV, the sale of the Industrial Cleaning business in Wallonia and other acquisition related expenditure;
  • Restructuring charges and associated costs of £2.4m (2015: £6.5m) relating to the prior year and, separately new structural cost reduction programmes across the Group in response to the current market environment;
  • Other items of £9.4m (2015:£9.6m) including a market-related onerous contract provision regarding the Cumbria PPP facilities and the impact of liquidated damages and other associated costs on the Wakefield contract offset by the gain on disposal of land at Vliko;
  • Amortisation of intangible assets acquired in business combinations of £1.8m (2015: £1.9m);
  • Impairment of assets of £0.5m (2015: £23.5m) principally plant and equipment at the Shanks Wood Products biomass facility in Belgium as a result of market changes; and
  • Financing fair value measurements credit of £0.1m (2015: £0.1m).

The operating profit on a statutory basis, after taking account of all non-trading and exceptional items, was £9.8m (2015: loss of £12.4m).

Excluding cash generative actions from our portfolio management, we anticipate a further reduction in other non-trading and exceptional items going forward assuming that the economy and our core markets have now stabilised.

Net finance costs

Net finance costs, excluding the change in the fair value of derivatives, were flat year on year at £13.4m. The higher level of finance income is due to an increase in interest receivable on financial assets relating to PFI/PPP contracts as the build programme for the BDR, Surrey and Wakefield contracts progressed and this is mirrored by an increase in interest payable on non-recourse PFI/PPP debt.

Loss before tax from continuing operations on a statutory basis including the impact of non-trading and exceptional items was £2.5m (2015: £20.5m).


The taxation charge for the year on continuing operations was a charge of £1.5m (2015: credit of £2.3m). The underlying tax charge of £2.3m includes a £2.2m credit from the recognition of tax losses in Belgium as a result of greater certainty of utilisation following the restructuring completed as part of the sale of the Industrial Cleaning business. Excluding this additional deferred tax credit, the underlying effective rate was 21.4%, down slightly from 21.7% last year. There is a tax credit of £0.8m on the non-trading and exceptional items of £23.5m as a significant proportion of these are non-taxable.

The Group statutory loss after tax and including all discontinued and exceptional items was therefore £3.9m (2015: £16.9m).

Earnings per share (EPS)

Underlying EPS from continuing operations, which excludes the effect of non-trading and exceptional items, increased by 1% at constant currency (down 6% at actual rates) to 4.7p per share (2015: 5.0p). Basic EPS from continuing operations improved from a loss of 4.6p per share to a loss of 1.0p per share.


The Board is recommending an unchanged final dividend per share of 2.35p. Subject to shareholder approval, the final dividend will be paid on 29 July 2016 to shareholders on the register on 1 July 2016. Total dividend cover, based on earnings before non-trading and exceptional items from continuing operations, is 1.3 times (2015: 1.4 times).

Discontinued operations

The profit from discontinued operations of £0.1m (2015: £1.3m) relates to the UK solid waste activities.

Cash flow performance

A summary of the total cash flows in relation to core funding is shown in the table below.

EBITDA 68.2  72.8 
Working capital movement and other 24.8  (1.7)
Net replacement capital expenditure (18.6) (29.3)
Interest and tax (17.6) (18.4)
Underlying free cash flow 56.8  23.4 
Growth capital expenditure (9.9) (12.8)
Acquisitions and disposals 27.8  (1.5)
Restructuring spend (2.6) (7.6)
Dividend paid (13.7) (13.7)
UK PFI funding (53.9) (7.3)
Canada Municipal funding (10.3)
Other (15.2) (5.2)
Net core cash flow (21.0) (24.7)
Free cash flow conversion 172% 69%

All numbers above include both continuing and discontinued operations.
Free cash flow conversion is underlying free cash flow as a percentage of trading profit.

The Group demonstrated its ability to control free cash flow in order to generate cash for the final phases of the UK and Canadian investment activities. Free cash flow conversion increased significantly year on year as a result of lower replacement capital spend and other working capital improvements. The working capital movement included the sale of certain trade receivables in Belgium and Hazardous Waste. The ratio of replacement capital spend to depreciation decreased from 75% last year to 52% this year, impacted by the receipt of proceeds from the sale of the old Vliko site as part of the relocation programme with the majority of the spend on the new facility falling into the new financial year. Excluding this asset sale the ratio increases to 65%. The lower cash interest and tax spend in the year was due to reduced tax payments in Belgium. Interest payments are lower this year as the first annual payment for the 2015 Green retail bond falls in the next financial year and this saving has been reduced by the payment of £1.4m of arrangement and adviser fees relating to the March 2015 refinancing and the bond issue in June 2015.

Growth capital spend of £9.9m was principally focused on the Hazardous Waste Division and included storage tanks and jetty extension at ATM and the Theemsweg facility. In the current year the acquisitions and disposal inflow included the Wakefield divestment and the sale of the UK Solid Waste site at Kettering net of spend on the acquisition of the small paper recycler in the Netherlands and the exit from the Industrial Cleaning business in Wallonia. The value in the prior year included the acquisition of the Hazardous Waste purchase in Farmsum in the north of the Netherlands. The current year UK PFI funding included the subordinated debt investments of £35m in relation to the BDR and Wakefield contracts following full service delivery along with additional spend relating to project completion and commissioning at these two locations. A similar injection of £17.5m into the Derby contract is due to be paid in March 2017. The other category included the payment of liquidated damages and other associated costs as a result of the delays at Wakefield and costs associated with the decontamination at ATM, along with the deficit funding on the closed UK defined benefit pension scheme along with costs of contamination at ATM and other non-trading cash flows.

Investment activities and performance
Investment programme

The Group has a stated strategy of investing in sustainable waste management infrastructure, with a target pre-tax trading profit return of 15-20% on fully operational assets (post-tax return of 12-15%). At 31 March 2016, the fully operational proportion of the investment portfolio delivered a pre-tax return of 19.5% (2015: 18.1%). The portfolio as a whole delivered a pre-tax return of 16.1% (2015: 14.9%).

The investment in the Municipal programme has progressed rapidly during the year with both BDR and Wakefield entering full service and good progress in construction at Derby and the Canadian plant in Surrey. For the year to 31 March 2016, the PFI/PPP related financial assets reduced by £119.6m to £158.6m principally as a result of the sale of equity in the Wakefield SPV and the deconsolidation of the associated assets. Once the Surrey construction is completed in the last quarter of 2016/17 and all contracts are then in full service, the value of PFI/PPP financial assets will start to reduce year on year through repayments. The build on the Derby contract is not reflected in financial assets as we hold our interest in this contract in a joint venture.

Group return on assets

The Group return on operating assets (excluding debt, tax and goodwill) from continuing operations has fallen slightly from 12.2% at 31 March 2015 to 12.0% at 31 March 2016. The total Group post-tax return on capital employed increased from 6.0% to 6.3%.

Treasury and cash management
Core net debt and gearing ratios

Core net debt of £192.6m was better than our expectations at the year-end, especially considering the weakening of Sterling against the Euro. This represents a covenant ratio of 2.6 times net debt:EBITDA which is well within our banking limits of 3.5 times. Core net debt increased by £37.6m principally as a result of the net core cash outflow of £21.0m, supplemented by an adverse exchange rate effect of £17.2m on the translation of the Group’s Euro and Canadian Dollar denominated debt into Sterling.

Debt structure and strategy

Core borrowings which exclude PFI/PPP non-recourse borrowings, are all long term. During the year, we issued a 3.65% €100m Green retail bond in the Belgian market, our third bond issue in Belgium, but our first Green bond. A bond can only be classified as Green if the funds raised will be used for sustainable purposes, which is the case for almost all of the investments made by Shanks. In October 2015 we redeemed our first Belgian retail bond. We also redeemed in June 2015 our PRICOA senior notes of €40m which were at a fixed interest rate of 5.025%.

At 31 March 2016, the Group’s bank financing comprised a €180m multicurrency revolving credit facility with seven major banks entered into on 31 January 2014 and expiring in January 2019. At 31 March 2016, €77m equivalent of the facility was drawn. The margin varies on a ratchet fixed by the Net Debt:EBITDA ratio. As announced on 5 April 2016, the financial covenants of this facility were amended to extend leverage and reduce the total net worth requirement. These amendments provide further flexibility while we complete the build phases on our Derby and Surrey PPP contracts and will give further protection against currency fluctuation as the EU referendum approaches. The principal covenants are the ratio of Net Debt:EBITDA of less than 3.5:1, interest cover of not less than 3.0:1 and a minimum net worth of £175m. The six year retail bonds of €100m, issued in July 2013 to investors in Belgium and Luxembourg have an annual coupon of 4.23%, are quoted on the London Stock Exchange.

The Group also has access to £25.1m of undrawn uncommitted working capital facilities with various banks. Cash flows are pooled at a country level and each operation is tasked with operating within the limits of the locally available working capital facilities.

Debt borrowed in the special purpose vehicles (SPVs) for the financing of UK PFI/PPP programmes is separate from the Group’s core debt and is secured over the assets and future cash flows of the SPVs with no recourse to the Group as a whole. Interest rates are fixed by means of interest rate swaps at the time of contract inception. At 31 March 2016 the UK PFI/PPP borrowings were £91.1m (2015: £222.6m). The significant decrease in the year arose following the disposal of 49.99% of the equity in the Wakefield contract on 30 March and the consequent equity accounting for our remaining interest as a joint venture.

Directors’ valuation of PFI portfolio

The Directors’ valuation of the PFI portfolio, excluding Canada is based on the net present value of the future cash flows of the PFI contracts and has been maintained at £115m as per 30 September 2015. The Directors’ valuation is not recorded in the Group’s balance sheet. In arriving at the valuation, the Directors have assumed that some recovery in commodity market pricing from current cyclical lows will take place over the long duration of these contracts.

Retirement benefits

The Group operates a defined benefit pension scheme for certain UK employees which is closed to new entrants. At 31 March 2016, the net retirement benefit deficit relating to the UK scheme was £8.8m compared with £13.1m at 31 March 2015. The reduction in the deficit was due to an increase in the discount rate being used to value the liabilities. The most recent actuarial valuation of the scheme was carried out at 5 April 2015 and this is currently being finalised by the trustees and the Company. It is anticipated that a new funding plan of £3.1m per annum will be agreed for a further six years with the trustees.

Toby Woolrych
Group Finance Director

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 for latest information, or continue to the historic Shanks Group plc website.