Waste management company Shanks Group has announced its interim results for the six months ending 30 September 2016, reporting overall growth but losses in its UK municipal business.
Shanks reported a fall in profits in its municipal division, due to market and operational challenges
Shanks, which has waste operations in the UK and in Holland and Belgium, reported “strong performances from the Commercial and Hazardous Waste Divisions offsetting the specific market and operational challenges in the Municipal Division.”
But, the company has said that despite losses in the UK municipal division, it is “confident that a sustained recovery in performance will be delivered in the coming 18-24 months.”
Overall, the Commercial Waste Division delivered a trading profit of £11.1m – an increase of 20%. This result was underpinned by a strong performance in the Netherlands and Belgium operations, where trading profit grew by 22% and 16% in local currency.
The Hazardous Waste Division delivered an 11% increase in revenues and a 38% increase in trading profit to £11.4m, driven mainly by improved soil processing compared to the preceding period.
While the Municipal Division reported a 14% increase in revenues there was an 81% fall in profits to £1.1m as a result of the impact of market and operational challenges.
UK Municipal
The UK business grew revenues by 9% to £87.9m, which the Group attributes to six months of revenues from its new BDR waste plant (see letsreycle.com story).
However, the business reported a trading loss of £0.7m, compared with a trading profit of £4.2m last year. According to Shanks, market challenges were largely driven by “severe pressure on output prices” for the products produced at its MBT facilities.
The report notes that the UK market for SRF “remains constrained” and the cost of disposing refuse derived fuel (RDF) has “increased with rising gate fees across Europe, exacerbated by the weakness of Sterling.” Shanks also mentions subdued recyclate prices, as well as a shortage of available organic waste for its Westcott Park facility, leading to ongoing operating losses at that facility.
And, operational challenges have continued at the Wakefield and BDR facilities following their commissioning last year. Wakefield in particular suffered from the insolvency of a major contractor late in the construction phase last year. However, Shanks has claimed that “clear improvement plans are being implemented in both facilities” and that it is “confident that a sustained recovery in performance will be delivered in the coming 18-24 months.”
On a positive note, the Energen Biogas (EBG) joint venture at Cumbernauld in Scotland has continued to perform well, with strong profit growth on the back of new installed capacity (see letsrecycle.com story). The Frog Island facility in the ELWA contract has also fully recommissioned following the major fire in August 2014 (see letsrecycle.com story).
‘Confident’
On the UK market, the report concludes: “We remain confident that the challenges facing the Division will be overcome. We are working to improve and realign our off-take contracts to reduce disposal costs and to adjust intake where necessary and contractually possible.
“On the operational side we will ensure that our new assets ramp up to expected performance levels and that costs and productivity are improved more generally through all contracts. We expect these initiatives to drive sustained profit improvement from these very long-term contracts going forward.”
Expectations
Commenting on the results, Peter Dilnot, group chief executive, said: “We have delivered a good performance in the first half, with revenue and underlying profit growth at constant currency in line with our expectations. Our two Benelux Divisions have performed strongly, offsetting a reduced result in Municipal. We are making good progress with our transformational merger with Van Gansewinkel Groep to create a leading waste-to-product business in the Benelux.
“Our expectations for progress for the full year are unchanged at constant currency and our reported results will benefit materially from recent FX movements. We are therefore well positioned both as Shanks, and as an enlarged group post-merger, to deliver long-term sustainable growth and attractive returns.”
Shanks is set to complete its merger with Dutch and Belgian waste business the Van Gansewinkel Group (VGG) in December 2016 (see letsrecycle.com story).
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Source: letsrecycle.com Waste Managment
