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Shanks announces £75m UK investment, following high profits

Shanks Group announced plans to invest £75m in its UK division this morning (26 May) as it reported profits 7% higher than market expectations for the year ended 31 March 2011.

The waste management company announced a £35.2m profit before tax in its preliminary results, 10% up on the previous year. Revenue was also reported to be up by 8%, despite the company experiencing the “most challenging market conditions for many years”.

In response to the results, asset manager Investec raised its target share price from 140p to 150p, while the Royal Bank of Scotland reiterated its ‘buy’ recommendations.

Shanks reported that the UK is expected to be a much larger contributor to group profits because of policy drivers as a result of the waste review. From this, it has set aside £150m for investment in the company during the next three years, with half focused on recycling and organic operations as well as PFI projects in the UK.

Speaking to MRW, group chief executive Tom Drury said: “The strategy we have is that the £75m investment will be aligned with our focus on recycling and organic operations through more MRFs and anaerobic digestion facilities. We are a big believer in sustainable waste treatment and all the stimulus is there for waste to come out of landfill.

“We feel that, with the right policy, like that in Scotland, more recyclates and organics will come out of landfill for processing, with moves such as banning recyclates from landfill. We feel, in time, the UK waste plan will align with the Scottish waste management proposals.”

Shanks believes that part of its success has been a result of delivering sustainable alternatives to landfill and incineration. The group achieved its municipal waste target of 1.5 million tonnes through UK waste PFI contracts, it has invested where it feels the returns are greatest and will continue to do so, increased its focus on research and development and emerging technologies, and used acquisitions to re-orient the group towards high-growth markets.

Drury said he expects the strength of PFI projects to continue: “The withdrawal of waste PFI credits hasn’t stopped those projects coming to market [in the comprehensive spending review]. The projects were not necessarily reliant on credits because they still have a business case, and there are financial drivers for local authorities to continue with them.

“The issue with merchant facilities is that they are difficult to get funding behind them without a long-term contract, so only the largest companies will be able to offer them. If the Green Investment Bank has a role to play, it won’t be any time soon.”

Commenting on what he expects to see in the waste review, which is scheduled to be published next month, Drury highlighted food waste collections and planning: “I would like to see legislation, like that in Scotland, over separate food waste collections or for the Government to provide strong support for local authorities to do it.

“The Government also faces an inward dilemma on planning because it recognises that there is a problem but it also has a strong localist agenda. It needs to clarify exactly how the planning process will work.”

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