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Big Interview: A creative approach to UK waste

Seven months into the job, Shanks chief executive Peter Dilnot is aiming to offer a fresh perspective on waste management. Neil Roberts examines his philosophy for the firm.

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From its Victorian beginnings as a construction company in the west of Scotland, Shanks has evolved to become a stalwart of the UK waste industry. Before it dumped its landfill business in 2004, it was one of the biggest operators in the country, putting five million tonnes of waste a year into the ground.

Today, Shanks is the third largest UK-owned waste and recycling firm by revenue, behind Biffa and Viridor, and seventh largest overall.

Like the rest of the industry, Shanks wants to be seen as being different, as having left behind the old ways of waste management. Shanks spurns landfill and mass- burn incineration; it wants to be seen as a producer, “making more from waste”.

When he was appointed group chief executive in November 2011, Peter Dilnot says the board wanted “fresh perspectives” from outside the sector. In an industry notorious for lifelong careerists, Dilnot acknowledges that he has an “unusual background”.

After graduating with a mechanical engineering degree, he went to the Royal Military Academy at Sandhurst and then spent nine years as an army helicopter pilot.

He says his army officer days gave him the leadership skills for business, although his immaculate clothes, precision diction and vice-like handshake suggest he carries more with him from Sandhurst than battle plans.

Whatever advantage there is in being led in a competitive industry by a military man, it is Dilnot’s more recent experience in manufacturing that comes to the fore when he talks about Shanks’ “unique” strategy.

“Essentially,” he says, “we create products. We have a fundamental belief there are better things to do with waste than mass burning it or landfilling it. And in terms of making products - whether the input is a waste stream or raw materials - driving productivity, and the levers you pull, are consistent across industries.”

“Essentially, we create products. We have a fundamental belief there are better things to do with waste than mass burning it or landfilling it”

One of Shanks’ key products is solid recovered fuel (SRF). In 2010, the company gained the first Environment Agency approval to export SRF produced from treated residual waste, and began sending 40,000 tonnes of pellets to energy-from-waste facilities in Europe.

Exporting a low-cost, carbon-neutral, high-calorie fuel with the potential to meet 5% of the UK’s energy needs is not ideal, Dilnot acknowledges, arguing that shadow environment minister Mary Creagh was last week right to say that exporting recovered material is exporting jobs.

Shanks has been lobbying the Government to reclassify SRF as a product rather than a waste so it can co-fire existing UK power stations. This potential domestic market motivates Dilnot’s “fundamental belief” that the UK “does not need as much [new] infrastructure as many people in the industry think”.

What is required, he argues, is for the Government to work with industry to find an appropriate classification for the fuel. So far, ministers have been receptive to the idea: “The logic is compelling but there are practical, technological and political implications,” says Dilnot.

Shanks’ other major focus is organics. A recent WRAP study of the organics sector found only one anaerobic digestion (AD) operation that was actually selling the digestate it produced. But Dilnot maintains there are markets for it: “I think it’s a question of developing appropriate quality digestate and developing the market before building a facility.”

He points to Shanks’ Amsterdam wet-AD plant, the largest in Europe. There, he says, they are processing digestate to create fertilisers with specific chemical compositions: “Not all digestate is created equal. This is about the appropriate application of advanced technology to create a product.”

“Not all digestate is created equal. This is about the appropriate application of advanced technology to create a product”

There has been growing scepticism from some quarters about the Government’s commitment to AD. The smile from Dilnot when I mention the coalition’s keenness to talk up AD suggests he may have his own doubts. But with a fresh victory under the industry’s belt after the energy department backed down on proposals to cut Renewables Obligation subsidies to AD plants of less than 5MW, Dilnot says “for the moment” it looks like there is support.

Two weeks ago Shanks released a shock profit warning to the City which sent its shares plummeting 15%, although they partially recovered to close down 9%. Brokers revised down guidance for the firm’s annual profits from £34.5m to £29m. Shanks blamed market conditions in the UK and Dutch solid waste markets which, hit by the recession, had “deteriorated significantly”.

The solid waste market is “very challenged”, says Dilnot, with waste arisings hit by lower output in the wider economy. In fact, he believes the solid waste market at large will not recover “for the foreseeable future”. But he maintains that Shanks will increase its profitability in that sector by countering the market drivers, increasing productivity and restructuring the business.

“We are planning for lower volumes and a tough pricing regime, and taking action to offset that,” he says.

While solid waste will remain an important part of Shanks’ business, Dilnot is eager to point out that it accounts for 40% of profits, while the organics, hazardous waste and UK private finance initiative (PFI) arms bring in 60%. Of course, that means solid waste is still the largest single part of the business. In 2011/12, solid waste had a revenue of £411m, hazardous waste 326m, organics £31m and UK municipal £107m.

Dilnot is upbeat about the UK municipal market, despite the end of PFI: the company still has a number of contracts at various stages in the pipeline, he says.

And while there are fewer PFI contracts to be won, Shanks is looking to continue to invest in this market in an evolving landscape with shorter-term contracts and without specific infrastructure commitments.

He says there are still “a good 25% of local authorities yet to decide how to divert waste from landfill, and in that space Shanks can play a role”.

Dilnot says the firm is likely to use its existing infrastructure to treat waste under new local authority contracts.

Despite his conviction that the UK does not require as much new infrastructure as some in the industry suggest, Dilnot agrees there is a shortage that will have to be funded through some form of public-private-partnership. So the industry must establish business cases to build merchant facilities funded from the balance sheet.

It will be a challenge and there is a shortage of capital available, but he believes that Shanks can make a significant contribution with its approach of leveraging existing infrastructure and being “creative about how we deal with waste”.

So, after just seven months at Shanks, does Dilnot see himself remaining in the industry to see its recovery? “Absolutely,” he says. “I think the role the industry plays is incredibly important for society and the environment. And I am really enjoying being at the helm of Shanks.”

Peter Dilnot CV

Dilnot, at the age of 42, became the youngest chief executive in the FTSE 250 when he joined Shanks in February 2012. Previously he had been head of middle east business at the industrial manufacturing multinational Danaher.

Before that he was at the Boston Consulting Group for seven years, leading its global industrial and sales and marketing practices.

Dilnot gained a degree in mechanical engineering from Bristol University before training at the Royal Military Academy, Sandhurst. He served in the army for nine years, including service with Nato and the UN, as a helicopter pilot.

Update - 10 October 2012: After falling 15% in response to a profit warning on 26 September Shanks’ share price partially recovered to close down 9% at 82.45p. On 10 October 2012 the price was 78.5p.

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