Shanks Interim 2015/16 Results: An interview with Peter Dilnot

We've delivered revenue and profit growth in constant currency in the first half, despite some end markets that have been quite challenging. Our cash management has also been strong, delivering net debt lower than expectations. Within the division, commercial is particularly encouraging, with our Dutch division generating profits 78% higher than last year. The Hazardous Waste division has been somewhat impacted by pressures in the oil and gas segment but has still delivered 4% revenue growth and broadly flat profits. Municipal very much in line with expectations, profits actually down around 7% due to previously forecast contract changes. So overall in summary, I think this is a solid set of results, very much in line with the execution of our strategy.

Yes, I do believe it's sustainable and that furthermore we can build on it going forwards. Now, it's driven by two factors: firstly, market recovery, and secondly, our self-help initiatives. And those two things are clearly linked. On the market side, we've seen a long-awaited uptick in construction activities leading to an 8% increase in our own volumes in that segment. We've also seen an increase in the demand for our recycling services, partly driven by the incinerator tax and associated regulation. But I believe it's not just a market recovery that's driving the impact on our profits; it really is our self-help initiatives. We have got a clear set of initiatives through our value chain to drive margin expansion. It starts with commercial effectiveness at the front end of our business, securing the right mix and volume of price for our inbound materials. It then moves through into processing where we're driving continuous improvement, which is increasing the productivity and the throughput of our operational plants. And then at the back end, making sure we get good value for our products. We've got clear initiatives that are focused on this division at the moment and are reading through into improved profits. And I think the important piece is here that we're well positioned to benefit from further market recovery going forwards.

Well, our hazardous waste division serves the oil and gas segment amongst a number of others, and so clearly any sustained lower oil price, as we've seen, will have some read-through to our business. What we've observed in the first half is a lower demand for our industrial cleaning services as oil companies try to save operational costs, but we expect that to unwind over time, potentially as early as the second half. The other piece is that actually oil volumes and refining is broadly flat in the areas that we serve, and so that part of our business which is linked to shipping and associated activities is relatively unaffected. It's important to put that together and say that our hazardous waste division against that backdrop has delivered revenue growth 4% at constant currency and broadly flat profit. So the outlook for this division remains positive, and we believe we can drive good double-digit earnings growth from here.

We have a clear stated strategy to invest in infrastructure where we're advantaged and we can generate attractive returns. The program is very much on track, with returns actually in the first half at 17.9%, which is well within our target range. I think as importantly, some great progress in the first half. We have successfully commissioned on time our new Barnsley, Doncaster, and Rotherham PFI asset, a total of 80 million pounds worth of investment there. And in addition to that, opened and fully commissioned our new Rotterdam Total Care Center and capacity expansions at ATM in the Netherlands. So the program is very much on track, and our focus now is to make sure we deliver good earnings growth from the assets that have come online, and of course complete the build-out programs appropriately.

Look, our primary focus has to be on the delivery of our core strategies to deliver organic growth in profit and revenue terms in our divisions. And our real focus now is execution and operational grip to deliver that improvement. And in my mind, that is the currency and the foundation for anything else that the Shanks Group will do. In parallel with that, however, we of course are looking at opportunities to make acquisitions, and some opportunities may arise through market consolidation. But any moves we do make will be very carefully considered and with appropriate capital discipline to make sure that what results is an advantaged business overall and attractive returns for our shareholders.

Well, in the short term, our guidance for the full financial year is very much in line, and we will deliver profit and revenue growth at constant currency. Longer term, the growth drivers on our business remain attractive, and we've got a clear strategy around our three priorities: driving margin expansion, investing in infrastructure, and actively managing our portfolio. And that coupled with those underlying market growth drivers will read through into positive earnings and improved returns going forwards. And that's our focus now.

Thank you.