2011/12 Interim Results
Disclaimer Statement
This presentation contains certain forward-looking statements with respect to the
operations, performance and financial condition of the Group. These forward-looking
statements are subject to risks, uncertainties and other factors which as a result could
cause Shanks Group’s actual future financial condition, performance and results to differ
materially from the plans, goals and expectations set out in the forward-looking
statements. Such statements are made only as at the date of this presentation and,
except to the extent legally required, Shanks Group undertakes no obligation to revise or
update such forward-looking statements.
2
Interim Results
Highlights
Adrian Auer
Financial, Markets &
Operational Review
Chris Surch
Strategy
Chris Surch
Chairman
Acting Group Chief Executive
Acting Group Chief Executive
3
Highlights
Profits
Investment
Strategy
Municipal
Strategy
Cash Flow &
Financing
Dividend
Underlying PBT growth of 20% at constant
currency
Overall annualised post tax return of 9% with
12% for projects which are fully up and running
Strong UK PFI margins at 9%
Strong pipeline – final two bidders for 7 UK
PFI contracts
Net debt to EBITDA ratio at 1.7x
Interim dividend increased by 10% to 1.1p
4
Financial, Markets
& Operational Review
Chris Surch
2011/12 Interim Results
September
2011
(£m)
Revenue
EBITDA
EBITDA margin
Trading profit
Trading margin
PBT
EPS
UFCF%
Dividend
398
54
13.5%
28.1
7.1%
20.8
3.9p
65%
1.1p
Reported
%
14%
10%
Excluding
currency
%
11%
5%
14%
10%
24%
26%
20%
21%
10%
Shanks reports its continuing operations before discontinued operations, exceptional items, amortisation of acquisition
intangibles, exceptional profit on disposals and change in fair value of derivatives. Underlying free cash flow (UFCF) is before
dividends, growth capex, PFI funding, acquisitions and disposals, exceptional items and discontinued operations.
Robust performance
6
Income Statement
6 Months ended September
Revenue
Trading Profit
Net finance charge – PFI
Net finance charge – core
Income from associates
Underlying PBT
Tax – underlying at 26.0% (py: 26.8%)
Underlying PAT
Non trading items*
Other exceptional items**
Profit for the period
2011
£m
2010
£m
Diff
£m
398
348
50
28.1
(0.4)
(7.0)
0.1
20.8
(5.4)
15.4
(2.1)
4.3
17.6
24.7
0.5
(8.4)
16.8
(4.5)
12.3
(7.3)
12.2
17.2
3.4
(0.9)
1.4
0.1
4.0
(0.9)
3.1
5.2
(7.9)
0.4
* Non trading items include amortisation of acquisition intangibles and change in fair value of derivatives
** Other exceptional items include exceptional tax and the profit on sale of PFI equity
7
Trading profit progression: Drivers
£4.8m
£0.1m
£0.9m
Projects and
Investments
Bid costs
Currency
Management Actions
& Strategy
Market
£28.1m
£5.8m
£24.7m
£5.2m
£0.4m
£6.8m
Trading profit
2011/12
Cost Savings
Volumes
Recyclates
Net price
Cost
pressures
Trading profit
2010/11
£19.8m
Average exchange rates: Euro: 1.13 (PY:1.18); Can$ 1.58 (PY:1.64)
Management actions more than offset challenging
market conditions
8
Shanks Netherlands: Summary
6 Months ended
September (£m)
2011
2010
Reported
Excl
Currency
Revenue
201
174
15%
10%
Trading profit
20.9
18.1
15%
10%
10.4%
10.4%
18%
17%
Margin
Return on assets*
* Defined as pre-tax trading profit divided by average operating assets
Trading profit
£m
2010/11
18.1
Solid Waste
(1.9)
Hazardous
3.7
Other activities
0.1
Exchange
0.9
2011/12
20.9
Solid Waste:
– Volumes: Commercial up 1%, C&D up 3%
– Adverse pricing c.7% down (H1 vs. prior
year H2 c.3.5% down)
– Strong recyclate prices
Hazardous:
– Strong volumes & pricing in soil
– Timing of annual maintenance shut down
Excellent HW growth outweighs challenging SW
9
Shanks Netherlands: Key data snapshot
Shanks Netherlands Solid Waste Volumes
2011/12
400,000
2010/11
Tonnes
350,000
2009/10
300,000
250,000
200,000
150,000
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Shanks Netherlands Recyclate Prices - Metal
Average Price (€/tonne)
2011/12
350
2010/11
300
2009/10
250
200
150
100
50
0
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
10
Shanks Belgium: Summary
6 Months ended
September (£m)
2011
2010
Reported
Excl
Currency
Revenue
91
85
7%
3%
Trading profit
5.6
6.8
-17%
-21%
Margin
6.1%
7.9%
Return on assets*
17%
19%
* Defined as pre-tax trading profit divided by average operating assets
Trading profit
£m
2010/11
6.8
Solid Waste
(0.7)
Hazardous
(0.7)
Landfill & Power
(0.3)
Other activities
0.3
Exchange
0.2
2011/12
5.6
Solid Waste:
– Overall volumes up 11%
– Pricing up 2%
– Foronex breakeven
– Reduced incinerator dividend (€0.7m)
Hazardous and Landfill & Power:
– Lower power prices with medium term
recovery expected
Core business performing well
11
Shanks Belgium: Key data snapshot
Shanks Belgium Solid Waste Volumes
2011/12
2010/11
Tonnes
70,000
2009/10
60,000
50,000
40,000
30,000
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
12
Shanks UK: Summary
6 Months ended
September (£m)
2011
2010
Reported
Revenue
100
85
18%
Trading profit (before bid costs)
4.8
3.8
28%
4.9%
20%
4.5%
7%
Margin
Return on assets*
* Defined as pre-tax trading profit divided by average operating assets
Trading profit
£m
2010/11
3.8
Solid Waste
0.8
Hazardous
(0.1)
Municipal PFI Contracts
Other activities
2011/12
2.4
(2.1)
4.8
Solid Waste:
– Overall collections volumes decline of 9%
– Strong pricing actions (c. 3%)
Hazardous:
– Continued high level of projects
Municipal PFI contracts:
– Margin improvement (9% vs. 6%)
– Bid costs at £1.8m
Other:
– Organisation being built for future growth
Significant YoY growth & ROA improvement
13
Shanks UK: Key data snapshot
Shanks UK Solid Waste Collections Volumes
2011/12
35,000
2010/11
Tonnes
2009/10
30,000
25,000
20,000
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Shanks UK PFI rolling 12 month operating margins
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
14
Shanks Canada: Summary
6 Months ended
September (£m)
Revenue
Trading profit
Margin
Return on assets*
2011
2010
Reported
Excl
Currency
7
5
58%
53%
1.9
0.2
>100%
>100%
25.9%
3.5%
8%
5%
* Defined as pre-tax trading profit divided by average operating assets
– The London Ontario plant now operating at target levels
– Ottawa plant continued to perform satisfactorily
Strong recovery
15
Cash Flow
6 Months ended September
2011
2010
Diff
£m
£m
£m
EBITDA
54
49
5
Working capital movement and other
(7)
(10)
3
Net replacement capital expenditure
(21)
(17)
(4)
Financing & tax
(8)
(4)
(4)
Underlying free cash flow
18
18
-
Dividends
(9)
(8)
(1)
(14)
(20)
6
Acquisitions & Disposals
(1)
24
(25)
PFI funding & others
(5)
(8)
3
Net core cash flow
(11)
6
(17)
FCF conversion*
65%
74%
Net growth capital expenditure
*FCF conversion is defined as underlying free cash flow divided by trading profit
Continued good underlying cash flow
16
Second Half Outlook – H2 vs. H2
• Robust business performance to date
• Recyclate prices should remain beneficial
• Pricing pressure in Netherlands Solid Waste less severe than
H1
• Last year H2 Hazardous Waste businesses boosted by one-off
contracts
• Management actions continue to enhance performance
• Interest costs to increase on higher growth capital expenditure
• Currency – H2 last year average for Euro was 1.16
On track to achieve our expectations for the full year
17
Strategy
Chris Surch
The Strategy
3 elements – Recycling, Organics & Municipal
19
The Cultural Change Programme
Cross border trading and sharing of know-how &
technology
New Brand launched
• New logo
• Brand values
– Responsible, Innovative, Straightforward & Open
Entrepreneurship within a centralised framework
20
£100m Investment Programme (2008-2011)
VVG sorting line
ATM storage tanks
SRF Ghent
Brabant sorting centre
Bree biomass
Glasgow MRF
Canada plants
London & Ottawa
Recycling
Organics
Organics AD
Spend by
country
Canada
38%
Belgium
27%
Netherlands
21%
UK
14%
Orgaworld Amsterdam phase 1
Roeselare green energy
Cumbernauld, Glasgow
Annualised post tax returns of 9%
21
2008-2011 Portfolio Returns
Cumulative annualised post tax return
14%
12.1%
12%
10%
9%
8%
5.3%
6%
4%
2%
In commissioning
phase
Commissioned
and ramping up
14%
41%
Fully operational
and running at
normal operating
levels
0%
45%
Percentage of total investment spend
Achieving target returns
22
£150m Investment Programme (2012-2015)
Broxburn MRF
Kettering MRF
Icopower
ATM
Orgaworld Amsterdam phase 2
Dutch Organics
Hook of Holland
Canada plants 3 & 4
Recycling
Other
organics
Spend by
country
UK
48%
Netherlands
29%
Canada
20%
Belgium
3%
UK Organics
AD
East London
Bicester
Derby
Cumbria
Programme launched – c. £60m approved
23
Cumbernauld AD Plant
24
Hespin Wood MBT, Cumbria
25
UK Municipal Contracts Pipeline
Invitation to
Submit Outline
Solution
Invitation to
Submit Detailed
Solution
Northampton
Heads of the
Valley AD
Edinburgh/Mid
Lothian
West Lothian*
West London
Edinburgh AD
Call for Final
Tenders*
Preferred
Bidder
Glasgow
Derby
Gloucester
Bradford &
Calderdale
Wakefield
Essex
Derry
BDR
South West
Wales
* In the final 2
CFT volume
1.1mtpa
ISDS volume,
0.1mtpa
Current
volume
0.8mtpa
PB volume
0.7mtpa
26
Summary & Longer Term Outlook
Business model continues to deliver
• New markets in the UK and Canada growing strongly
• Continued revenue and profit growth in the more mature Benelux
market
• Improving PFI returns from existing contracts
• Strategic investments achieving target returns
Looking forward
• Increased returns from strategic investment programmes
• Further municipal contract wins
• Balance sheet remains strong
Clear strategy: in a strong position for growth
27
Appendices - Financials
How Do We Measure The Business
Financial KPIs
Sept 11
March 11
Growth in revenue from sustainable activities
7%
8%
Trading profit organic growth
8%
1%
Return on operating assets
15.4%
14.3%
Free cash flow conversion
65%
118%
Post tax return on investment programme
9%
8%
Underlying earnings per share growth
26%
7%
Leverage ratio
1.7 times
1.6 times
Operational KPIs
Sept 11
March 11
Waste volumes handled - tonnes
7.9m
7.7m
Recycling and recovery rate
80%
77%
Sorting centres - utilisation rates
70%
69%
Power production – megawatt hours
91,644
96,523
Lower RIDDOR rate (per 100,000 employees)
3,300
3,000
29
Segmental Analysis - Continuing
6 Months ended September (£m)
Revenue
Netherlands
Belgium
UK
Canada
Central Services
Total
*Operating
Trading Profit*
2011
2010
%
2011
2010
%
201
174
15
20.9
18.1
15
91
85
7
5.6
6.8
(17)
100
85
18
3.0
1.9
60
7
5
58
1.9
0.2
>100
(1)
(1)
-
(3.3)
(2.3)
43
398
348
14
28.1
24.7
14
profit before amortisation of acquisition intangibles, exceptional items and discontinued operations
30
Shanks Netherlands
6 Months ended September (€m)
Revenue
Trading Profit*
2011
2010
%
2011
2010
%
130
126
3
10.6
12.8
(17)
Hazardous Waste
90
76
18
13.5
9.2
47
Organic Treatment
10
7
37
2.0
1.7
18
Central Services
(3)
(3)
-
(2.4)
(2.2)
(8)
Total (€m)
227
206
10
23.7
21.5
10
Total (£m at 10/11 FX)
192
174
10
20.0
18.1
10
9
5
0.9
5
201
15
20.9
15
Solid Waste
Exchange
Total (£m at 11/12 FX)
*Operating
profit before amortisation of acquisition intangibles and exceptional items
31
Shanks Belgium
6 Months ended September (€m)
Revenue
Trading Profit*
2011
2010
%
2011
2010
%
Solid Waste
77
75
2
4.0
4.9
(18)
Hazardous Waste
27
28
(5)
1.5
2.3
(34)
Landfill
4
3
29
0.9
1.1
(13)
Power
3
4
(7)
1.7
2.0
(13)
Sand Quarry
2
2
(7)
0.4
0.4
-
(9)
(11)
17
(2.2)
(2.7)
17
3
6.3
8.0
(21)
3
5.4
6.8
(21)
4
4
0.2
4
91
7
5.6
(17)
Central Services
Total (€m)
Total (£m at 10/11 FX)
Exchange
Total (£m at 11/12 FX)
*Operating
104
87
101
85
profit before amortisation of acquisition intangibles and exceptional items
32
Shanks UK
6 Months ended September (£m)
Revenue
Trading Profit*
2011
2010
%
2011
2010
%
35
34
2
3.2
2.4
31
Hazardous Waste
7
8
(13)
1.4
1.5
(9)
Organic Treatment
-
1
(87)
(0.1)
0.1
>100
55
39
40
4.8
2.4
>100
Landfill & Power
3
3
12
(0.2)
0.1
>100
Country Central Services
-
-
-
(4.3)
(2.7)
(59)
100
85
18
4.8
3.8
28
-
-
-
(1.8)
(1.9)
4
100
85
18
3.0
1.9
60
Solid Waste
Municipal - PFI Contracts
UK Operations
PFI Bid Team
Total
*Operating
profit before amortisation of acquisition intangibles and exceptional items
33
Net Debt
£m
Core Net debt at start of period
Net cash flow
Exchange
(160)
(11)
5
Core Net debt at end of period
(166)
Non recourse debt
Financial ratios for core debt
EBITDA / interest cover: 6.1 times
Debt / EBITDA: 1.7 times
(52)
Cover ratios
> 3 times
< 3 times
Closing exchange rates: Euro: 1.16 (Mar :1.13); Can$ 1.62 (Mar :1.56)
34
Return on Capital
Post tax ROIC
Sept 11
Mar 11
Sept 10
6.7%
6.4%
6.3%
15.4%
14.3%
13.5%
9%
8%
-
(on depreciated capital base including goodwill)
Return on operating assets
(trading profit on depreciated operating assets
excluding debt, tax and goodwill)
Post tax project returns – on £100m
programme
(on the original invested capital)
35
Appendices - Strategy
Strong Drivers For Strategy
37
Industry Position: Making More From Waste
Waste as a valuable resource:
recycling, compost/fertiliser, energy generation
38
Our Values
Responsible
Straightforward
We take personal responsibility for our actions
A ‘no-nonsense’ approach means we do what
both as individuals and as a group. We
we say we will do, empower our people to
recognise our obligations to fellow employees,
make decisions and are easy to do business
the environment and the communities in which
with.
we operate and can be trusted to do the right
thing.
Open
We are honest, trustworthy and consistent in
Innovative
everything we do. This transparent approach
We aim to create an environment which
means that we are able to maintain the
encourages and supports an entrepreneurial
highest professional and ethical standards.
spirit. We are never afraid to be different.
Internally, our open culture enables us to
benefit from shared knowledge and
experience.
39