Shanks Group plc · 2015-05-04 · 5 2008 Preliminary Highlights 2008 2007 Change Headline Profit*...

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Shanks Group plc2008 Preliminary Results

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2008 Preliminary Results

Introduction Adrian AuerChairman

Operational & Financial Fraser Welham Review Group Finance Director

Business Review Tom DruryGroup Chief Executive

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Executive Team

Tom Drury Group Chief Executive

Fraser WelhamGroup FD

Ian GoodfellowUK MD

Philippe MarcuzBE MD

Michael van HulstNL MD

Operational & Financial ReviewFraser Welham

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2008 Preliminary Highlights

2008 2007 Change

Headline Profit* £44.8m £40.3m £4.5m 11%

Revenue £564m £509m £55m 11%

EBITDA £93m £81m £12m 15%

Adjusted eps# 12.9p 11.7p 1.2p 10%

Annual dividend 6.2p 5.9p 0.3p 5%

* before amortisation of acquisition intangibles, exceptional items and tax# before amortisation of acquisition intangibles and exceptional items

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ActivitiesSolid Waste Non-hazardous solid waste

collections, transfer and recyclingLandfill and Power Landfill disposal and power

generation from landfill gasHazardous Waste Industrial cleaning, hazardous waste

treatment and disposal, contaminated land services

Organic Treatment Anaerobic digestion and tunnel composting of organic waste streams

PFI contracts Long term UK municipal waste treatment contracts

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Segmental Analysis - £m

Revenue Trading Profit*2008 2007 % 2008 2007 %

Netherlands 295 253 17 37.7 32.0 18Belgium 125 124 1 16.2 17.3 (6)United Kingdom 145 133 9 6.9 3.3 109Canada 1 - n/a 0.1 - n/aCentral Services (2) (1) (5.0) (5.3) 6TOTAL 564 509 11 55.9 47.3 18

*Operating profit before amortisation of acquisition intangibles and exceptional items

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NetherlandsTrading Profit*

2008 2007 Variance€m €m €m %

Solid Waste 42.6 39.3 3.3 8Hazardous Waste 13.4 12.3 1.1 9Organic Treatment 2.3 - 2.3 n/aCountry Central Services (4.9) (4.4) (0.5) (11)Total (€m) 53.4 47.2 6.2 13

Total (£m at 2007 FX rate) 36.3 32.0 4.3 13Exchange 1.4 4Total (£m at 2008 FX rate) 37.7

* Operating profit before amortisation of acquisition intangibles and exceptional items

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Netherlands • Solid Waste

– Full year contribution from 2007 acquisitions– Four further tuck-in acquisitions in 2008 (€18m)– Construction industry buoyant– New cheap incineration capacity in Amsterdam limiting

price increases– Moderate underlying growth (1%) however trading

margins maintained at 15%

• Orgaworld contributing, opportunities promising

• ATM volumes and prices strong

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Belgium Trading Profit*2008 2007 Variance

€m €m €m %Solid Waste 10.4 8.6 1.8 21Landfill & Power 11.9 16.3 (4.4) (27)Hazardous Waste 4.7 5.0 (0.3) (6)Sand Quarry 1.0 1.2 (0.2) (17)Country Central Services (5.0) (5.7) 0.7 12Total (€m) 23.0 25.4 (2.4) (9)

Total (£m at 2007 FX rate) 15.7 17.3 (1.6) (9)Exchange 0.5 3Total (£m at 2008 FX rate) 16.2


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Belgium • Solid Waste

– Prices and volumes increased

– Major disposal job for industrial customer

• Landfill reduced

– No repeat of 2007 one-off volumes

– Increased competition for I&C inputs

– Restrictions and tax on municipal inputs from Jan 08

• Foronex acquisition (€23m) post year end

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United KingdomTrading Profit*

2008 2007 Variance£m £m £m %

Solid Waste 6.4 4.6 1.8 39Landfill & Power 5.0 3.8 1.2 32Hazardous Waste 1.7 1.2 0.5 42PFI Contracts 0.4 0.2 0.2 100Country Central Services (5.7) (5.4) (0.3) (6)UK Operations 7.8 4.4 3.4 77PFI Bid Team (0.9) (1.1) 0.2 18Total 6.9 3.3 3.6 109


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United Kingdom Non-PFI• 28% organic growth in Solid Waste

• Prior year Scottish acquisitions integrating well

• Wastecom acquisition Nov 2007 (£11m)

• Recycling and landfill diversion increasing

• Avondale JV landfill increased inputs and additional power capacity

• Hazardous waste 42% up despite limited contribution from 2012 Olympics clean up

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United Kingdom PFI• ELWA 2nd phase now fully operational

• ELWA gate fee rise from July 2007 increased cash inflow; limited impact on profits

• SRF delivery increasing, short term interruption to off-take at D&G (additional cost £0.5m)

• Cumbria moving towards close in the current financial year

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Business Summary - £m2008 2007 Diff %

Revenue 564 509 55 11Trading Profit* 55.9 47.3 8.6 18Finance income - PFI 0.7 0.1 0.6 >100Finance charge - core (11.8) (7.1) (4.7) (66)Headline Profit 44.8 40.3 4.5 11Tax - Headline 32% (14.4) (12.9) (1.5) (12)Headline Profit after tax 30.4 27.4 3.0 11Amort of acq. Intangibles# (1.9) (0.9) (1.0)Exceptional - disposals 1.9 - 1.9Exceptional - IAS 39 adj.# (2.1) 4.8 (6.9)Profit for the year 28.3 31.3 (3.0)

* Operating profit before amortisation of acquisition intangibles and exceptional items# Net of tax

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Core Finance Charge - £m2008 2007 Change

£m £m £m

Core Finance Charges (11.8) (7.1) (4.7)

Major Factors: Increase in core borrowing levels (2.5)Increase in bank interest rates (1.0)Discount unwind (0.9)Other (incl exchange) (0.3)

Total (4.7)

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Group Cash Flow - £m2008 2007

Non-PFI PFI Total Total DiffTrading profit 57 (1) 56 47 9Depn/lfill provs 37 - 37 34 3EBITDA 94 (1) 93 81 12Working cap 3 - 3 3 -Net capex (42) (9) (51) (66) 15Int, tax, & divis (34) - (34) (30) (4)Underlying 21 (10) 11 (12) 23Cross funding (22) 22 - - -Acquisitions (48) - (48) (65) 17Restruc. / Discont. - - - (3) 3Shares issued 2 2 - 2Net cashflow (47) 12 (35) (80) 45

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Net Borrowings - £m

Core PFI TotalDebt IAS39

March 07 (134) (123) - (257)Net cashflow (46) 12 - (34)IAS 39 adj. - - (4) (4)Exchange (32) - - (32)March 2008 (212) (111) (4) (327)

Core interest more than 5½ times coveredCore net debt to EBITDA less than 2½ times

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Group Balance Sheet - £mMar 08 Mar 07 Change

FX OtherPFI financial assets 156 147 - 9PFICO net debt (115) (123) - 8PFI net investment 41 24 - 17Intangible assets 274 198 37 39Non-current assets 304 222 36 46Current net liabilities (44) (28) (3) (13)Long term liabilities (83) (58) (9) (16)Core net debt (212) (134) (30) (48)Net assets 280 224 31 25

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Other Financial Information

€/£ Exchange Rates2008 2007 Diff

Trading (average) 1.419 1.473 4%Closing balance sheet 1.254 1.474 17%

UK tax changes (abolition of IBAs)• Exceptional tax charge in 2009 of ~£25m• Current value of increased tax payments over

20 years ~£12m

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Summary - £mRevenue Trading Profit* Headline Profit#

2007 509 100% 47.3 100% 40.3 100%

2008 acquisitions 16 3% 2.9 6% 0.8 2%

Full year 2007 acq's 7 1% 1.5 3% 0.7 2%

BE landfill decline (4) -1% (3.0) -6% (3.0) -7%

Other organic growth 21 4% 5.2 11% 4.4 11%

Exchange 15 3% 2.0 4% 1.6 4%

2008 564 111% 55.9 118% 44.8 111%

*Operating profit before amortisation of acquisition intangibles and exceptional items# Profit before amortisation of acquisition intangibles, exceptional items and tax

Business ReviewTom Drury

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Contents• Review Summary

• Company Background and Market Trends

• Vision and Corporate Strategy

• Dutch Strategy

• Belgian Strategy

• UK Strategy

• PFI

• Summary and outlook

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Review Summary• Strategy

– High level direction of travel fundamentally sound

– Greater prioritisation and more clarity in detail required

• Execution– Strong organic growth

– Structured approach to portfolio management

– Active operational performance management

– Culture change to drive increased collaboration across the Group

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• Dutch Strategy


• UK Strategy

• PFI


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Company Background• Purchase of Belgium business in 1998 and Dutch

business in 2000

• Divestment of UK Landfill & Power in 2004 and Hazwaste in 2005

• Shanks no.3 in NL, no.4 in BE and no.7 in UK

• Strategic intent was to import advanced Benelux waste management techniques to fast growing UK market

• A strategy ahead of its time ?

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Market TrendsRecent

Legislative Changes

Landfill tax increases in UK to £48/tne (2010) and beyond

Landfill diversion targets & selective bans across EU

Future Emerging Themes

Themes in draft 2008 Waste Directive and individual country waste strategies

– response to threat of climate change

– convergence of waste and energy industries

– move to much higher levels of recycling

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UK Government 2007 Waste Strategy

Less waste, more material recovery, energy from waste and much less landfill

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• Dutch Strategy


• UK Strategy

• PFI


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Vision

To be Europe’s leading provider of sustainable waste management solutions

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Sustainable Waste Management

Prevention

Reuse

Recycling

Energy recovery

Disposalshanks

shanks

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Recycling within ShanksProposed recycling targets EU Waste Directive 2008

Municipal 50%

I&C 70%

C&D 70%

Shanks performance

NL 83%

BE 51%

UK 22%

CAN 50%

GROUP 58%

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Renewable Energy from Waste in Shanks

Organic Wood Industrial & commercial Municipal

Anaerobicdigestion

Biomass production

SRF production MBT

Renewable Energy

Landfill

Construction & demolition

Combined heat & power

Fossil fuel substitute

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Portfolio Analysed Using Strategic and Financial “Lenses”

Strategic

Mar

ket A

ttrac

tiven

ess

Competitive advantage

• Rigorous analysis for each unit

• Poor performers expected to improve

• Used to guide investment

Financial

RO

CE

Profit Growth

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Our Corporate Strategy1. Invest to drive organic growth where returns are greatest

2. Develop our infrastructure further to support sustainable waste management and conversion of waste to renewable energy

3. Share core capabilities and technologies across the Group

4. Maximise asset utilisation and minimise unit costs

5. Continue to use acquisitions to improve asset utilisation and re-orient the portfolio to high growth markets

A strong corporate framework for clear individual country strategies

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Key Objectives - Next 3 Years• Grow UK Solid Waste trading margins (post overheads)

to a high single digit percentage

• Launch Orgaworld in the UK

• Grow trading profit from non-landfill BE business by an average of 15% p.a.

• Win UK PFI contracts increasing residual municipal waste under management to 1.5m tnes p.a. (currently 0.6m)

Maintain strong underlying organic growth

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• Dutch Strategy


• UK Strategy

• PFI


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Maintain premium margins and grow Solid and Hazardous Waste businesses ahead of GDP

Dutch Country Strategy

• Est. market share in Randstad 25% C&D, 15% I&C

• Maintain decentralised structure with greater collaboration

• Invest in recycling technology to maintain cost leadership

• Grow in niche mono streams

• Continue successful track record of “tuck-in” acquisitions

• Maintain strong cash generation

• Engine for greater growth is Orgaworld (NL, Canada & UK) and value creation via “tuck-in” acquisition model

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Track Record in “tuck-in” Acquisitions

• Four “tuck-ins” completed in 2008 for €18m

• Average EBITDA multiple 5 times

• Typical synergies of 5% of cost base

• Actual performance at least as expected

• Strengthened position in local markets

• Resulting value creation significant

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• Provinces of Flevoland and Friesland

• Region of NW Veluwe

• A leading supermarket chain

• A large dairy producer

• A potato chip manufacturer

• A chemical company

• Tunnel composting

• Biological drying

• Anaerobic digestion

– Dry - Biocel®

– Wet

CustomersTechnologies

Orgaworld Technologies and Customers

Current capacity in Shanks NL 295,000 tnes p.a.

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Orgaworld Products• Compost • Orgapower® biostimulators• Green electricity from biogas• Energy products• Bio-fertilizers

For more information visit www.Orgaworld.com

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Canadian Market OpportunityIn 2004 Orgaworld identified Canada as key market

• Canada heavy reliance on US landfill

• Provinces aiming for 60% diversion by 2008

• 5.7m tonnes of organic waste produced p.a.

• Waste management $4.3bn industry but fragmented, organic market immature and behind Europe

• Significant early progress with its tunnel composting offer for source segregated organics (SSO)

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Orgaworld Canada –Progress & Prospects

Already contracted

Length Vols TCV*yrs ktnes $m

York 10 33 35Toronto 5 70 38Ottawa 20 100 179TOTAL 203 252

* Total Contract Value

Opportunities

Volsktnes

Ontario London/Toronto 40Kitchener 40Guelph 25Kingston 25

Quebec Gatineau 40Quebec City 80

Later:Alberta Calgary >100BC Vancouver >100

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Orgaworld Canada - Business Model• Typical site 100-150 ktne p.a. capacity

• Capital cost approx Can$15m

• Target post tax returns >15%

• No collection activity by Shanks

• Gate fee set for duration of contract with indexing & guaranteed minimum volume

• Managed locally, monitored remotely via “virtual”control centre

• Good outlets for final compost

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UK Market Opportunity• WRAP* market situation report April 2008

– 25m tnes of organic waste arisings– Capacity shortage to process food waste– Food waste gate fees c.£50/tne, now less than landfill– Anaerobic digestion eligible for double ROC’s #

• Orgaworld technology transferable– Shanks only major UK waste company with own proven

technology– Design, build, operate model gives cost effective solution– Highly referenceable– Animal by-products compliant

* Waste & Resources Action Programme # Renewables Obligation Certificate

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• Dutch Strategy


• UK Strategy

• PFI


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Belgian StrategyGrow I&C business to replace declining landfill profits by securing

competitive disposal outlets and through renewable energy production

• Investment in SRF production in Ghent then Brussels• Price advantage through securing lower cost outlets than

landfill or incineration (€120-€130/tne)• Contracts for SRF secured

– CCB (10 years)– Holcim (5 years)– Stora (5 years)– Electrawind (10 years)

• Further investment in green energy production at landfill and hazardous waste facility (anaerobic digestion)

• Foronex

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ForonexOpens up the European wood waste and by-products market

and creates opportunities in biomass and cogeneration

• Revenue €54m, cost €23m (gross) – c.5 times EBITDA

• No.1 in Belgian / French wood waste processing market

• 1m tnes p.a. of inputs

• Outputs – biomass, woodchip for board manufacturers, animal bedding and bark

• Biomass major growth market– Currently supply >100ktnes p.a. to Electrabel, Erda, Norbord

– Opportunities to invest in cogeneration using biomass and SRF

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Foronex – Synergies• Shanks BE and NL process c.230k tnes p.a. of wood waste

• Opportunity to access more profitable outlets

• Potential outlets for compost residues

• Overhead cost synergies with Shanks Belgium

• Large customer base for other Shanks services

• Ultimately consider UK market opportunities

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• Dutch Strategy


• UK Strategy

• PFI


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Up to 2010 2010-13 Post 2013

Most economic disposal/ treatment technology

Volume implications for landfill

Landfill

Transition

Stable / modest decline

Decrease

New Technologies

UK Waste Market Development

Key:

Source : L.E.K. Consulting Analysis

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Shanks UK StrategyCreate enabling platform to make Shanks the preferred alternative to landfill

• Focus as regional I&C provider in 3 regions

• Import NL know-how to move to resource management and reprocessing business

• Win PFI contracts and converge with I&C business

• Meet significant UK demand for AD / composting

• Leverage improved profitability and new business model

• Establish broader regional “footprint”

• Participation in industry consolidation

Phase 2Phase 1 (2 years to 2010)

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Shanks UK I&C Strategy

• Focus on 3 regions where we have customers and density

ScotlandEast MidlandsNorthern Home counties

• New organisation reflects this• Develop in these regions and then

out from PFI wins• Detailed investment programmes

by site

Exploit rising landfill tax to divert waste we collect from landfill to our own new reprocessing assets.

Grow margins to high single digit %ages over coming 3 years

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UK Strategy

• Retain JV landfills in medium term

• Contaminated Land Services - cyclical business but generates profits with little capital requirement

• Reduce UK overheads by £1m in medium term, £0.5m in 2009

• Combine Group Head Office and UK back office in Milton Keynes

• LEK engaged since March to support market analysis, facilitate technology transfer and support implementation

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• Dutch Strategy


• UK Strategy

• PFI


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UK PFI Market • Shanks successful early entrant to UK PFI market

• Provides good opportunity to build scale and presence in UK

• Fundamental driver of landfill diversion remains strong

• Increasingly competitive market which has evolved since Shanks’ entry

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UK PFI – Positioning for Changes

Shanks will evolve in response to the changing market and broaden its offer to meet customer needs

• New Head of PFI and Business Development recruited

• Separate dedicated Head of PFI Delivery appointed

• Ecodeco remains only 5 star-rated MBT solution in the UK and only one with an operational reference site

• Where we bid MBT we will deliver an SRF solution

• Orgaworld solutions complementary

• Participation in efficient incineration as appropriate

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Delivering an SRF Solution

• Off-take up from 3k tnes in Oct 07 to 7k tnes in April 08

• Long-term contracts secured with cement industry– SRM: 8 years, 50k tnes p.a.

• Heads of Agreement signed to use SRF for gassification– Novera at ELWA– Scotgen at D&G

• Embed thermal treatment in future bids, e.g. Merseyside

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• Dutch Strategy


• UK Strategy

• PFI


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Summary• Clear strategy aligns Shanks with EU move towards more

recycling, energy from waste and resource recovery

• Active operational performance management essential

• Strong commitment to organic profit growth plus value creation from acquisitions

• Fastest profit growth from UK I&C, PFI, Orgaworld, Belgian I&C and renewable energy

• Mature businesses generate good cashflow for investment

• Detailed plans and resources to make technology transfer real and realise benefits for the Group

• No immediate change to the core portfolio but a commitment to test continually and manage for value

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Outlook for the Current Year• Rise in UK landfill tax to £32 driving increased recycling• Strong Dutch construction & hazardous waste markets• Belgian landfill inputs stabilised but full year impact of

Jan 08 reductions will be felt• Strong organic growth from rest of Group expected to

continue• Continuing investment to develop our infrastructure

Good overall performance in 2008/9Confidence in future prospects

Back-up Slides

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Local Authority PFI TendersApproximate annual volumesTranch 1 (2007) Ktes Tranche 3 (October 08) KtesCheshire 320 Essex 600Merseyside WDA 560 Gloucestershire 190

Leicestershire 230Tranche 2 (April 08) Lincolnshire 190Barns. Donc. Roth. 300 Milton Keynes / Northants 230Bradford 180 Norfolk (phase2) 220Leeds 300 South London 280Suffolk 180 South Tyne & Wear 300

Staffordshire 230

Tranche 4 (November 09)Hertfordshire 570North London WA 1,000Plymouth & Torbay 160

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Capex - £mNL BE UK CAN Total

Maint.: additions 24.0 7.1 2.5 - 33.6disposals (1.0) (0.4) (0.2) - (1.6)

23.0 6.7 2.3 - 32.0Depreciation 24.9 7.8 3.8 0.2 36.7

Growth: additions 5.6 3.4 2.3 2.2 13.5disposals (0.4) (3.6) - (4.0)

5.2 3.4 (1.3) 2.2 9.5Total Core 28.2 10.1 1.0 2.2 41.5

PFI: fin. asset advances 17.1fin. asset repayments (8.8)capitalised bid costs 0.7

9.0

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PFI Illustrative Structure

Equity andSub-Debt

Non-recourseSeniorDebt

LocalAuthority

PFICO Shanks PFIInvestments Ltd

Shanks Groupplc

Funders

Operationand

Maintenance(O&M)

Contract

Engineer,Procure,

Construct(EPC)

Contract

Shanks WasteManagement Ltd

Shanks WasteManagement Ltd

Performance Guarantees

Shanks Group plc · 2015-05-04 · 5 2008 Preliminary Highlights 2008 2007 Change Headline Profit*...

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Transcript of Shanks Group plc · 2015-05-04 · 5 2008 Preliminary Highlights 2008 2007 Change Headline Profit*...