Annual Report • Mar 31, 2015
Annual Report
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OUR VISIONTo be the most respected waste-to-product company p4
NEW DIVISIONAL STRUCTURE
A new divisional structure to accelerate growth p6
HazardousIndustrial cleaning and treatment of hazardous waste p18
CommercialCollection and treatment of commercial waste p20
infrastructure where advantaged p24
Using advantaged capabilities and productivity to drive operational performance p26
Continuing to actively manage the business portfolio to improve returns p27
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Certain statements in this Shanks Group plc Annual Report and Accounts 2015 constitute "forward-looking statements". Forward-looking statements may sometimes, but not always, be identifi ed by words such as "will", "may", "should", "continue", "believes", "expects", "intends" or similar expressions. These forward-looking statements are subject to risks, uncertainties and other factors which, as a result, could cause Shanks Group plc's actual future fi nancial 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 Report and, except to the extent legally required, Shanks Group plc undertakes no obligation to revise or update such forward-looking statements.
| REVENUE £m |
UNDERLYING PROFIT BEFORE TAX £m |
||
|---|---|---|---|
| 2015 | 601 | 2015 | 21.7 |
| 2014 | 633 | 2014 | 30.1 |
| 2013 | 612 | 2013 | 30.0 |
| 2012 | 672 | 2012 | 35.9 |
| 2011 | 633 | 2011 | 29.8 |
1 Accidents resulting in greater than three-day absence per 100,000 employees.
OVERVIEW
to benefi t from market recovery and deliver long-term earnings growth
Adrian Auer Group Chairman
Our core waste-to-product business model is increasingly well supported by long-term legislative and environmental drivers.
S hanks is a leading international waste-to-product business. During the course of the year the Group has continued to invest for sustainable growth from its core divisions and, despite the continuing diffi cult market conditions, to protect margins and reduce cost in its Solid Waste Division. The core waste-to-product business model is increasingly well supported by long-term legislative and environmental drivers, and we are uniquely positioned to deliver costeffective alternatives to environmentally harmful landfi ll sites or capital-intensive incineration plants.
The waste industry, in particular the solid waste market segment, has continued to experience very challenging market
conditions, especially in the fi rst half of the year. Volumes and prices remained under pressure and there has been further decline in the value of recyclate products. These factors led to a diffi cult fi rst half, but slight improvement in the markets combined with further benefi ts from our cost and investment programmes delivered a stronger underlying second half.
As a Board, we continue to balance the short-term demands of cost reduction and tight cash management, with a relentless focus on our strategy to deliver longer term sustainable growth opportunities. We have signifi cantly increased our investment in our Hazardous Waste Division, where we are increasing capacity in both soil and
water treatment. We have also made good progress with our UK Municipal portfolio, with major construction programmes nearing completion at Barnsley, Doncaster and Rotherham (BDR) and Wakefi eld and construction now underway following fi nancial close at Derby. We were also delighted to win an important long-term contract to process organic waste in the City of Surrey, Canada. At the year end we reorganised our divisional structure to exploit more effectively market opportunities, particularly in Canada.
In response to the structural overcapacity in certain waste markets, notably in Benelux Solid Waste, there are encouraging signs of increased M&A activity which may lead to a benefi cial reduction in market capacity. We remain alert to opportunities which will strengthen our market positions, but in current markets we will continue to exercise appropriate caution, consistent with our determination to improve our return on capital.
We have worked hard to build a reputation for capital discipline and for good management of our cash and we have delivered another year of well controlled underlying free cash fl ow (UFCF). UFCF was £23.4m (2014: £56.5m) and the UFCF% was 69% (2014: 137%). Core net debt at the year end was £155m, better than expectations. Net debt to EBITDA increased to 2.3 times, refl ecting our reduced EBITDA in the fi rst half.
Underlying basic earnings per share for the year reduced to 5.0 pence (2014: 5.7 pence). Based on the Board's confi dence in the Group's future earnings potential, I am pleased to confi rm that we will be recommending an unchanged fi nal dividend of 2.35 pence per share, payable on 31 July 2015 to shareholders on the register on 3 July 2015. The Board is committed to maintaining this level of dividend until earnings recover, such that the dividend is back within the range of 2.0 to 2.5 times cover, and a progressive dividend policy can then be resumed.
The Board is committed to the highest standards of corporate governance. Details of our processes and approach, including those relating to the role and effectiveness of the Board, and compliance with the Governance Code, are set out in the Governance section on pages 71 to 76.
At last year's AGM shareholders overwhelmingly approved our Directors' Remuneration policy. Our policy continues to be to recruit, retain and motivate high calibre senior management, and to provide a competitive remuneration package linked to performance and the interests of shareholders.
I am pleased to report that we have achieved the ambitious fi ve year targets we set ourselves in 2010 for carbon avoidance, health and safety, and recycling and recovery rates. We have therefore set ourselves a new series of equally challenging and broader targets for the next fi ve years, designed to support our vision of becoming the most respected waste-toproduct company. Further details are given on pages 32 and 33 of this report, and in our Corporate Responsibility Report which is available on our website. Our ongoing focus in these areas has once again been recognised by Shanks' inclusion in the independently assessed FTSE4Good Index.
Shanks continues to have one of the lowest reported accident fi gures in the waste industry. However, we will not be satisfi ed until we have zero accidents, and this remains our goal. Our Group-wide initiative over the past year has concerned the reduction of injuries on our sites arising from traffi c incidents. After ten such accidents in the previous two years, we were delighted to record none in the last year.
Following the serious fi re at the ELWA facility, we have undertaken programmes to further enhance our systems for the prevention, detection and fi ghting of fi res, in order to mitigate what is a critical risk factor in the waste industry.
Although we remain cautious in predicting favourable movements in volumes, gate fees and recyclate prices, some of our end markets have stabilised and are showing signs of improvement, consistent with a slow recovery in the Eurozone economies in which we operate. The fundamentals
of our industry remain attractive, and we are well positioned to benefi t from a cyclical recovery.
We will nevertheless continue to improve the underlying quality of our business through the commercial effectiveness and cost reduction programmes, and through selective investments in growth opportunities in our Commercial, Hazardous and Municipal Divisions, which are expected to deliver benefi ts ahead of any enduring market recovery.
On behalf of the Board, I would like once again to thank all the employees of Shanks for their continuing passion and commitment for what is a unique company.
Finally, to our shareholders, I would like to thank you for your continuing support.
Adrian Auer Group Chairman
We have achieved the ambitious fi ve year targets we set ourselves in 2010 for carbon avoidance, health and safety, and recycling and recovery rates.
We seek to be the most respected waste-to-product company by all our key stakeholders: customers, employees, communities and, of course, our shareholders.
OUR VISION
We focus on making valuable products from waste, rather than on its disposal through mass burn incineration or landfi ll. We believe our business meets the growing need to deal with waste sustainably and cost effectively.
There is a growing need for cost-effective and sustainable waste-to-product technologies, which Shanks is uniquely placed to meet.
We have leading positions in our target markets and a unique portfolio of businesses, capabilities and technologies.
ORGANICS
We have implemented a new divisional structure to align our businesses more closely with our customers, deliver synergies and accelerate growth. The Group will now be reorganised into the following three divisions: Hazardous, Commercial and Municipal.
STRATEGIC REPORT OVERVIEW
Our vision, strategy and divisional structure has been refi ned to accelerate growth, align more closely with our customers and harness our unique competitive position.
After a successful 2013/14, the 2014/15 fi nancial year proved more challenging. A further downturn in our core Benelux Solid Waste markets, coupled with one-off operational issues in Hazardous Waste resulted in a disappointing fi rst half performance. However, our business improvement programmes have resulted in a stronger underlying second half in line with our expectations as at September 2014, and have given us momentum going into 2015/16.
During the year we continued to execute our key strategic and operational plans. These included delivering targeted structural cost reductions, investing for growth where we are advantaged, building new infrastructure underpinned by long-term contracts, and maintaining capital discipline.
With the backdrop of solid waste markets that are beginning to improve, I am confi dent we are well positioned to deliver profi table growth and improving returns in the years ahead.
Despite challenging market conditions, our revenues from continuing businesses grew by 1% at constant currency to £601m, although they fell by 5% in reported currency (2014: £633m). Trading profi t before non-trading and exceptional items fell by 19% (25% at actual rates) to £34.3m and underlying earnings per share reduced by 7% at constant currency to 5.0p (2014: 5.7p). Exceptional items in this year of transformation amounted to £42.2m of which £7.8m was cash.
9
The core pillars of our strategy refl ect our new organisation and incorporate our three cross-divisional strategies. HAZARDOUS
Industrial cleaning and treatment of hazardous waste.
COMMERCIAL Collection and treatment of commercial waste.
Operating long-term municipal contracts.
MUNICIPAL
GROUP STRATEGIC PRIORITIES
Using advantaged capabilities and productivity to drive operational performance.
Expanding the footprint with investment in new infrastructure where advantaged.
Continuing to actively manage the business portfolio to improve returns.
PROFITABLE GROWTH
INCREASED RETURNS
Our Commercial Waste operations in the Netherlands
At a divisional level, our Solid Waste Benelux Division experienced a particularly challenging year as a result of a further deterioration in its end markets during the fi rst half. Revenues fell by 1% at constant currency to €379m, with trading profi t declining by 35% at constant currency to €15.2m. Hazardous Waste trading profi t fell by 11% at constant currency on broadly fl at revenue, due to a weaker mix and operational issues in the fi rst half. The Organics Division performed in line with our expectations, with revenue falling by 5% to €38.6m and trading profi t by 8% to €4.4m due to the anticipated lower pricing from long-term contracts renewals and by increased North American bidding costs. The UK Municipal Division again performed well, with a 5% increase in revenues to £145m and a 9% increase in trading profi t to £10.0m.
Strong cash management and capital discipline continued in 2014/15. Our net debt at 31 March 2015 was lower than expected at £155m, representing a multiple of 2.3 times EBITDA, comfortably within our covenant level. This strong cash position refl ects a strict control of capital expenditure as well as a positive currency effect.
Challenging but Recently Stabilised Underlying market conditions continued to worsen in the fi rst half of the fi nancial year before stabilising towards the end of the second half. During 2014, the Netherlands GDP grew by just 0.8%, while Belgium GDP increased by 1.0%.
Dutch construction, our largest single end market, remained broadly fl at in 2014, following a 12% fall in the previous two years. However, a particularly weak summer period impacted our fi rst half performance. Many of the leading Dutch construction companies have also continued to report weaker fi nancial results despite a small recovery in residential housing activity. In Belgium, we saw a contraction in the market for our Solid Recovered Fuel (SRF), which is mainly sold to local cement manufacturers. This was driven in part by the subdued economy, but also by the impact of strikes, extended maintenance shutdowns and a fi re at one major customer.
Against this backdrop, many of our competitors continued to struggle to maintain profi tability, which resulted in further price pressure on our incoming gate fees as waste operators competed aggressively to fi ll their processing capacity. Recyclate prices have also continued to fall, directly impacting our revenues by £2m year on year.
Notwithstanding this, certain key underlying market drivers began to improve in the second half. These indicators include better prospects for the Dutch construction market and increasing capacity utilisation at the Dutch incinerators. Increasing spot prices, and in some cases the incinerators being unable to take in additional waste, are expected to increase the demand and gate fees for recycling services such as those offered by Shanks. This trend has been reinforced by the introduction in the Netherlands of a new €13 per tonne tax on domestic waste taken to incineration effective from 1 January 2015.
Our response to the prevailing market conditions has been decisive, allowing us to deliver a stronger underlying second half. We have focused on improving core business performance and on the rapid progression of our investment plans to position ourselves for sustained future growth.
In our Solid Waste Benelux Division, we have been able to stabilise and then slightly increase profi ts in the second half as a result of delivery of a wide range of cost and margin improvement programmes.
In our Hazardous Waste Division, we commissioned important new equipment to improve operational performance and capacity in the second half, and made good progress with our longer term investment activities. Highlights included:
The Organics Division delivered a blend of performance improvement projects and investment for long-term growth, primarily through the winning of long-term municipal contracts in North America. In February 2015 we announced that we had been awarded a 25 year contract to design, build, own and operate a dry anaerobic digestion (AD) and composting site for the City of Surrey in British Columbia. This advanced facility, the fi rst of its kind in Canada, will produce bio-fuels to operate the City's fl eet of waste collection vehicles. Other important progress in the year included the renewal of key long-term contracts in the Netherlands, albeit at the lower prices expected, and cost reduction programmes amounting to annualised savings of over €1m.
Our UK Municipal Division performed well through the year by exceeding our customers' diversion targets, despite an increasingly challenging operating environment as a result of government austerity programmes. The Division was able to overcome the impact of a major fi re in August 2014 at the Frog Island facility (part of ELWA) and is on track for full reinstatement of the damage caused. We have also made signifi cant progress with our funnel of major PFI/ PPP investments to support long-term contracts for UK Municipal customers. Our Barnsley, Doncaster and Rotherham (BDR) facility completed its construction phase on schedule in February 2015 and is now in commissioning. We have also started supplying the fi rst fuel into the new Ferrybridge incinerator that will take all of the fuels that our BDR facility produces. Our Wakefi eld facility has largely completed construction and will enter into commissioning shortly. Both plants will enter full service over the next fi nancial year. Finally in August 2014, we were delighted to secure fi nancial close on the Derby PPP contract, with construction of the gasifi cation plant now underway.
As a result of these actions, we have delivered an underlying second half performance in line with that of the fi rst half, in a business that is seasonally fi rst half weighted. This has given us encouraging momentum as we enter 2015/16.
In February 2015 we announced that we had been awarded a 25 year contract to design, build and operate a dry anaerobic digestion and composting site for the City of Surrey in British Columbia.
We have continued to manage our portfolio of businesses. The last year has seen further minor portfolio management action, including the:
Ship degassing avoids potentially harmful emissions and is a growth market at our ATM facility in the Netherlands
Despite the market challenges, important legislative developments have continued in the last 12 months that support our longterm growth prospects. Governments have continued to promote and stimulate effi cient resource and energy management, including increased recycling and power generation from renewable sources such as waste.
The most important of these was the introduction in January 2015 of a €13 per tonne tax on incineration in the Netherlands. This tax on domestic incineration is expected to be extended to apply to exported waste from July 2015. This is intended to increase recycling rates by halving the amount of municipal waste going to landfi ll and mass burn incineration. It is too early to observe a material change in recycling volumes as a result of the new tax, but we believe that it will enhance recycling volumes and the demand for our services over the longer term.
In the UK, the Zero Waste Scotland initiative has also demonstrated the impact of government action in promoting waste diversion, with an increase in organic waste tonnages delivered to our joint venture Cumbernauld AD facility. In Canada, we are also now seeing an increase in municipal procurement activity as a result of national and regional policies to divert organic waste from landfi ll.
Shanks is uniquely placed to meet the increasing need for sustainable waste management solutions, so will benefi t from legislative and other long-term drivers that will phase out landfi ll and reduce incineration in the Benelux over time. Our sustainable solutions reduce greenhouse gas emissions, recycle natural resources and limit fossil fuel dependence. Critically they do this in a cost-effective and capital effi cient way in comparison to other waste management alternatives.
Sustainability is at our core which is refl ected by our inclusion in the FTSE4Good Index. Our business enables customers to meet their sustainability objectives in a way that makes good fi nancial sense. We do this by using our recycling and product technology to deliver value for customers and attractive returns to our
shareholders. We were pleased to achieve a recycling rate of 82% during the year.
We are increasingly focusing our efforts on target markets that have strong sustainable growth drivers and characteristics that enable Shanks to gain competitive advantage. This aspiration refl ects opportunities in our growth markets, such as European industrial waste water treatment and long-term UK and North American municipal contracts. This focus is also consistent with our commitment to be highly selective about where we deploy further capital in the future.
Shanks' over-arching purpose remains to 'make more from waste'. This social and environmental goal engages and resonates with our people throughout the business. It is also clear that this goal cannot succeed unless it delivers sustainable fi nancial value to all our stakeholders. Over the last year, we have refreshed our vision, strategy and organisational structure in order to ensure that they remain sharp, focused and relevant to our evolving markets.
STRATEGIC REPORT OVERVIEW
13
In September 2014 we announced our vision to be the most respected wasteto-product company. This emphasis on the term 'waste-to-product' highlights our unique business model and what differentiates us. We exclusively focus on extracting value from waste, rather than on its disposal through mass burn incineration or landfi ll. We believe that our unique focus not only addresses social and regulatory trends, but also offers the most capitaleffi cient solution to the effective recycling and management of waste.
We seek to be the most respected waste-to-product company by all our key stakeholders: customers, employees, communities and, of course, our shareholders. This broad based approach is refl ected in our wide ranging and ambitious new fi ve year corporate responsibility targets.
As announced on 31 March 2015, the Group has implemented a new divisional structure to align our businesses more closely with our customers, deliver synergies and accelerate growth. The Group has now been reorganised into the following three divisions: Commercial, Municipal and Hazardous.
The Organics Division will no longer be a standalone business and will be incorporated within the Commercial and Municipal divisions:
Our Hazardous Waste Division is unaffected by the new structure.
The new organisation will have a number of strategic and operational benefi ts:
The Group Executive Committee (Excom) has been amended to refl ect the new divisional structure. Michael van Hulst is Managing Director, Commercial Netherlands, and Patrick Laevers joins the Excom as Managing Director, Commercial Belgium. Peter Eglinton is Managing Director of Municipal Division, while Jonny Kappen remains Managing Director of Hazardous Waste. George Slade has also been appointed to the Excom as Group Information Director to drive the ongoing programmes to modernise the Group's processes and systems, while Toby Woolrych and Michelle Cummins have unchanged roles in fi nance and HR respectively. Henk Kaskens has stepped down from his executive role as Managing Director of Organics Division after eight years with Shanks. We thank him for his dedicated service to the business and are delighted that he will continue to work with us in an advisory role going forward.
We are reporting the results for the year ended 31 March 2015 under the previous organisational structure and will then report under the new structure going forward. The necessary historic fi nancial information will be made available in both formats to ensure both transparency and clarity.
The core pillars of our strategy have evolved in the light of the new organisation to incorporate three core divisional strategies
and three cross-divisional strategies. Our core divisional strategies are:
1. Improve the profi tability of Commercial Waste. Our Commercial Waste business is focused on the Benelux region where it is a clear market leader with the scale and position to win. Our strategy is focused on driving this business to attractive profi tability and asset return levels. We continue to improve effi ciency through the structural cost programme, increasing route density and plant productivity, and delivering new procurement and continuous improvement initiatives. We are investing in optimising our commercial effectiveness to take advantage of market opportunities and have also streamlined the portfolio to increase returns.
While we are clear about the actions needed to deliver growth in each division, we will continue to deliver value by leveraging our Group capabilities and scale.
THE FUTURE
Hazardous Waste will grow profi ts while maintaining attractive returns, primarily through investment in expanded capacity and capabilities in its core markets.
Commercial Waste will deliver improved profi tability and returns through implementation of commercial effectiveness and continuous improvement programmes.
Municipal will focus on
growth from new assets and further contract wins.
Our three divisional strategies therefore remain underpinned by three key Group strategies that span all our businesses.
portfolio. We are actively managing our portfolio to improve the quality of our earnings and to increase the return on capital employed. We have sold underperforming assets that we do not believe will be able to generate attractive returns. In parallel, we seek to deploy our capital to deliver growth in areas where we are confi dent of sustainable advantage, attractive returns and higher growth. We are increasingly active in reviewing the market for appropriate acquisition opportunities, particularly given potential market consolidation in the Benelux market.
Sustainability at our Core with Delivery of Corporate Responsibility Objectives In 2010 the Board set an ambitious range of Corporate Responsibility objectives which, once achieved, would position Shanks as a leader in the industry in terms of sustainability and safety. We have achieved all three of the main goals in this fi nancial year, with a recycling rate of 82%, carbon avoidance of 1.41 million tonnes and a reduction in serious accidents over the period of 39% against a target of 25%.
The Board has now approved a new and stretching fi ve year programme which is fully aligned with our vision of being the most respected waste-to-product company. The programme will comprise a range of targeted programmes to further improve safety performance and to increase recycling rates, community engagement and employee satisfaction. Our new goals are explained in this Annual Report and in our online Corporate Responsibility Report.
During 2015/16 the Group will be entering a period of increased investment in a number of value-enhancing infrastructure projects that are already well advanced and will generate future growth. The projects include:
¤ €6m net funding for the construction of a new solid waste depot in the Netherlands to relocate away from a site badly damaged by fi re in 2013.
This investment will result in a short-term increase in our net debt: EBITDA ratio which will be managed through continuing tight capital discipline, effi cient working capital and, where appropriate, the disposal of noncore assets in line with the Group's strategy. Our lending banks are fully supportive of our strategy and have amended our key fi nancial covenants to provide the Group with the appropriate headroom during this period.
The Board's expectations for 2015/16 remain unchanged excluding the impact of a fl uctuating Euro/Sterling exchange rate on our reported results. We expect our Hazardous Waste and Commercial Divisions to make progress in the coming year in constant currency. In our Municipal Division the early benefi ts of newly commissioned assets will be offset by contract changes with regard to diversion targets and the residual operational impact of the fi re at ELWA. We will also see a period of increased investment in our Municipal and Hazardous Waste divisions as we progress value-creating opportunities.
Longer term, the growth drivers in our business remain attractive. Our vision, strategy and organisation have been refi ned to accelerate growth, increase customer focus and improve operational performance. Market conditions for the Commercial Division have started to show signs of improvement and new infrastructure will come online in our Hazardous and Municipal Divisions. In addition, we will continue to actively manage our business portfolio, to take advantage of potential opportunities.
Peter Dilnot Group Chief Executive
Why it is different to 'waste management'
I n September 2014 we announced our vision to be the most respected wasteto-product company. This emphasis on the term 'waste-to-product' highlights our unique business model and what differentiates us. We exclusively focus on extracting value from waste, rather than on
its disposal through mass burn incineration or landfi ll. We believe that our unique focus not only addresses social and regulatory trends, but also offers the most capitaleffi cient solution to the effective recycling and management of waste.
LO RES 72dpi RGB
We are making contaminated soil fi t for construction and habitation again
Utilising brownfi eld sites for construction and housebuilding has become a popular planning policy, but it comes with complications. Brownfi eld sites are often contaminated by their industrial past, and cleaning up contaminated soil has proved a challenge.
At our fl agship ATM facility in the Netherlands, Shanks has Europe's largest thermal soil cleaner, which provides an advanced cleaning solution for even the most contaminated soil.
ATM's giant rotary kiln treats approximately one million tonnes of soil a year. Around 99% of that soil emerges from the kiln clean and ready to be reused in the construction industry. This contrasts with the alternative soil-washing process, which is unsuitable for very contaminated sites and even in less severe cases results in more than a quarter of the soil still being sent to landfi ll.
Our soil customers are from across Europe, ranging from construction contractors to municipal projects. Old asphalt from road surfacing is another important material which the Dutch government requires to be treated once it is dug up, as it contains the carcinogen, tar.
"The business opportunity for the soil treatment facility over the coming years is signifi cant," says Fred Muller, Sales Director at ATM. "As construction activity in Europe recovers, many more contaminated sites will need clearing. There are thousands of brownfi eld sites around Europe still awaiting clean-up and we are well placed to serve this growing market."
The business opportunity for soil treatment over the coming years
STRATEGIC REPORT OVERVIEW
FINANCIAL STATEMENTS ADDITIONAL INFORMATION GOVERNANCE
T aking waste and turning it into valuable products is at the heart of our vision. Our new advanced sorting line in the Netherlands is an excellent example of how we can use technology to effi ciently and economically produce high quality product and benefi t the environment.
After a fi re damaged a sorting facility at our Vliko site in 2013, we decided to build a new, state of the art sorting line at our Van Vliet Contrans (VVC) facility in Wateringen. The new €4.5m line will process approximately 135,000 tonnes of construction and demolition (C&D) waste each year and replaces three old and ineffi cient sorting lines, including the destroyed line at Vliko. It began operations in March 2015.
The VVC sorting line is one of the most advanced C&D waste sorting lines in Europe. It is faster and more effi cient than
We can now extract far more value from the waste which we put in, while doing so more quickly and effi ciently than in the past.
its predecessors, enabling more material to be sorted at a lower cost. It is also able to achieve a far higher grade of separation, resulting in more valuable recycled material. For example, brick and stone is separated even more effectively, making each component more valuable for re-sale. Paper, instead of all being recycled and made into low value products, can be separated into different grades, enabling white paper to be recycled as more valuable offi ce stationery.
"In the Netherlands, where government standards on recycling are world-leading, the VVC sorting line gives us a real competitive advantage," says Marc van Buijtene, Region Director Shanks South-West. "We can now extract far more value from the waste which we put in, while doing so more quickly and effi ciently than in the past."
STRATEGIC REPORT OVERVIEW
FINANCIAL STATEMENTS ADDITIONAL INFORMATION GOVERNANCE
Household waste is now being used in the making of construction materials for large scale infrastructure projects such as the new Cross-rail railway for London and the South East of England.
Solid Recovered Fuel (SRF) is supplied as a fuel which can be used in energyhungry processes such as making cement. By using SRF, the cement manufacturers can reduce their use of fossil fuels and replace them with this more cost effective and greener alternative.
Our Mechanical Biological Treatment (MBT) facilities fi rstly extract the recyclable materials from the household waste. The residual mix of non-recyclable materials are then dried and shredded to produce a carbon-neutral fuel called SRF.
For local authorities and other refuse generators, the production of SRF provides another way to reduce the amount of waste that goes to landfi ll, helping to meet environmental targets. For our shareholders, SRF is another example of
how we create a valuable product from waste that would otherwise only constitute a cost to the business.
"SRF embodies our waste-to-product goal," says Peter Eglinton, Managing Director of Shanks' Municipal Division. "It brings economic benefi ts to our customers and our shareholders, and environmental benefi ts to the whole community."
For local authorities and other refuse generators, the production of SRF provides another way to reduce the amount of waste that goes into landfi ll.
STRATEGIC REPORT OVERVIEW
FINANCIAL STATEMENTS ADDITIONAL INFORMATION GOVERNANCE
S hanks has a clear and stated strategy to expand our footprint with investment in new infrastructure, where advantaged. In February 2015, we expanded this footprint by securing a 25 year contract to build an Organics Biofuel Processing Facility for the City of Surrey in Canada.
The new infrastructure consists of a facility which will process 115,000 tonnes of kitchen and garden waste from the City each year, creating a renewable natural gas which can then be used to power the City's waste collection trucks. The facility will also produce a compost product that can be used for gardening and agricultural use. Once operational, it will be the fi rst closed-loop fully-integrated organics waste management system in North America. It will have the capacity to process all of the City's organic waste along with commercial organic waste and will enable Metro Vancouver, the regional district of which the City of Surrey is a part, to achieve a regional 70% waste diversion target.
The contract fi ts well with our strategy of expanding our business in North America through long-term municipal contracts. More than that, though, it demonstrates our selective investments in new infrastructure.
Overseeing the Surrey bid was Lindert Verhagen, Finance Director for Shanks' Organics Division who explains: "We were delighted to win this high profi le contract with the City of Surrey: an example of investing
in large-scale infrastructure, underpinned by long-term contracts. We now look forward to continuing to work with the City of Surrey to begin construction of the fi rst closed-loop integrated organics waste management system in North America."
We were delighted to win this high profi le contract with the City of Surrey: investing in largescale infrastructure, underpinned by long-term contracts.
An artist's impression of the Organics Biofuel Processing Facility for the City of Surrey in Canada
At Icova, driving margin expansion was a key lever to improving performance. "We looked at both sides of the equation in seeking margin expansion," says Dieter Avonds, Director Shanks Region North. "How to increase our top line sales and how to reduce our costs."
Icova built a culture of continuous improvement by empowering the team, building capabilities and managing the key drivers that impact margin. The change was successfully embedded by using continuous improvement tools such as visual management.
To improve the effi ciency of Icova's sales force, a commercial effectiveness programme was implemented which enabled the sales force to segment its client base more accurately and focus on where we can deliver most value to customers and win with better margins. Improved training, assessment and the introduction of dashboards all contributed to enhanced performance.
At Icova's Icopower plant, which produces fuel pellets from commercial waste, the focus was on driving operational effi ciency. After an analysis of the production process, three main improvement projects were implemented. The fi rst reduced the cost of disposing of waste, the second reduced logistics costs and the third involved improving production effi ciency by eliminating process bottlenecks.
These measures increased the plant's run rate and reduced the cost of production per tonne. Cost savings will amount to approximately €300,000 a year on an
annualised basis.
The programme also focused on Icova's transport activities to strengthen the team's ability to run the business more cost effi ciently. A fuel effi ciency programme gives drivers a tool that enables them to measure the fuel effi ciency of their driving, while a route optimisation programme enables those drivers and their trucks to be deployed in the most effi cient way possible.
"Driving margin expansion must be part of the operating model and at the core of the organisation in order to create competitive advantages," says Dieter Avonds.
Our Icova operations in the Netherlands
A new facility in Farmsum creates a platform for growth
Acquisition that will deliver both short-term and long-term value.
After previously focusing our portfolio by disposing of businesses that did not fi t our investment criteria, in early 2015 Shanks took advantage
of an acquisition opportunity that will deliver both short-term and long-term value in the Hazardous Waste Division.
The facility in Farmsum, in the north of the Netherlands was a perfect fi t. It is close to the regional headquarters of our Reym industrial cleaning business in Veendam and to its satellite locations that serve the onshore industrial cleaning market. The plant occupies a six hectare site and has high quality operational assets, including water and waste storage tanks, a production hall and a distillation tower as well as all necessary permits for handling hazardous waste. It also has laboratories, offi ces, warehousing and railway access with indoor loading for trucks and trains along with a further three undeveloped hectares of land.
The desirable purchase price of €3.8m and the location of the plant means there are immediate opportunities for savings through cost reductions across the Group. Acquiring the Farmsum facility also gives us the opportunity to grow our business further as it mirrors the strategy for the new Shanks Total Care facility under construction at Theemsweg, Rotterdam, and will also be branded as a Shanks Total Care facility. Shanks Total Care is a service providing a complete range of industrial cleaning, transport and waste management expertise through a single contact.
"We already have a strong position in the north of the Netherlands," says Jonny Kappen, Managing Director of Shanks' Hazardous Division. "But the acquisition of this new Total Care facility will increase volumes, leverage our infrastructure and expand our market offering."
FINANCIAL STATEMENTS
CORPORATE SOCIAL RESPONSIBILITY
We make more from waste by creating valuable products from what is thrown away
S hanks' over-arching purpose remains to 'make more from waste'. This social and environmental necessity is a goal which engages and resonates with our people throughout the business. In September 2014 we announced our new vision to be the most respected waste-toproduct company. This emphasis on the term waste-to-product highlights the key differentiating feature of Shanks, particularly among its larger peers, in that our focus is on extracting value from the waste we receive, rather than on disposal through mass burn incineration or landfi ll. We believe that this unique positioning in the market not only fi ts with both social and regulatory trends, but also offers the most capitaleffi cient solution to the effective recycling and management of waste.
We seek to be the most respected waste-to-product company by all our key stakeholders: customers, employees, communities and of course our shareholders. This broad based approach is refl ected in our wide ranging and ambitious new fi ve year corporate responsibility agenda, the highlights of which are on page 33.
Recycling and recovery of waste reduces the use of non-renewable resources and provides more sustainable alternatives to waste disposal. It also avoids greenhouse gas emissions associated with landfi ll sites, reduces virgin raw material use and displaces non-renewable energy production. By achieving our vision, we not only improve our own environmental footprint, we allow our customers and society to improve theirs.
To achieve our sustainability strategy, we take waste that would have gone to landfi ll or mass burn incineration and convert it into usable products, using the latest technology across our facilities:
¤ Mechanical biological treatment (MBT) facilities remove recyclable material and process the remaining residual material to produce a wastederived fuel, such as solid recovered fuel (SRF) which can be used in power production and industrial processes.
¤ Anaerobic digestion (AD) and in-vessel composting (IVC) facilities take organic waste, such as food waste, and turn it into fertilisers. AD plants also generate green electricity from the resulting gases.
Our delivery of waste-to-product strategy and sustainability is demonstrated by our recycling and recovery rate. In 2014/15 82% of the waste received by our sites was recycled or recovered.
Our new Wakefi eld and BDR (Barnsley, Doncaster and Rotherham) facilities will come on line during 2015/16 and will boost our recycling and recovery rates. Our planned Surrey project in Canada will provide bio-gas from AD, which will be used directly as a fuel in waste collection vehicles. These are examples of our wasteto-product strategy in action.
RECYCLING AND RECOVERY RATE UP FROM 74% FIVE YEARS AGO 82%
MILLION TONNES OF CARBON AVOIDED: 91% UP FROM 0.74 MILLION FIVE YEARS AGO 1.41
| SOURCE | CO2 EQUIVALENT ('000 TONNES)1 2015 |
CO2 EQUIVALENT ('000 TONNES)1 2014 |
|---|---|---|
| PROCESS BASED EMISSIONS | ||
| Emissions from anaerobic digestion and composting | 79 | 64 |
| Emissions from hazardous waste treatment | 225 | 255 |
| Emissions from landfi ll2 | 73 | 115 |
| Emissions from mechanical biological treatment (MBT) | 17 | 22 |
| TRANSPORT BASED EMISSIONS | ||
| Fuel used by waste transport vehicles and business travel | 65 | 65 |
| ENERGY USE EMISSIONS | ||
| Electricity used on sites and in offi ces | 61 | 64 |
| Gas and other fuels used | 27 | 29 |
| Total emissions from signifi cant sources | 546 | 614 |
| CARBON AVOIDED AS A RESULT OF OUR ACTIVITIES | ||
| Renewable energy generated | 38 | 36 |
| Waste derived fuels produced and sold3 | 891 | 750 |
| Materials separated for re-use/recycling (some re-used directly, others undergo re-processing by 3rd parties) |
482 | 474 |
| Total potential avoided emissions | 1,411 | 1,260 |
1 Figures rounded to nearest 1,000 tonnes. Figures may not total as a result of rounding.
2 Reduction in landfi ll emissions largely the result of sale of Peckfi eld Landfi ll in the UK and engineering works.
3 Increase largely the result of improved sales of waste derived fuels.
CARBON AVOIDED (MILLION TONNES)
1 Data is carbon emissions or avoidance (expressed as CO2 equivalent) '000 tonnes / revenue expressed in £ millions
31
More than 260 safety leadership visits were carried out by Shanks' senior leaders and executives in 2014/15.
DOWNLOAD OUR FULL CORPORATE RESPONSIBILITY REPORT AT SHANKSPLC.COM/ CR_REPORT
Our commitment to sustainability is also confi rmed by external and independent measures. We are listed in the FTSE4Good Index and take part in high-profi le sustainability assessments such as the Carbon Disclosure Project.
By being a waste-to-product company we deliver sustainability for our customers, partners and for the wider community. Our unique range of technologies and high recycling and recovery rates allow our customers to achieve their sustainability goals. Through a combination of sustainable waste management and green electricity production, Shanks is committed to helping reduce society's carbon emissions.
Our recycling facilities produce recyclate products, lifting the carbon burden associated with virgin raw materials. The waste-derived fuels we produce and the green electricity we generate displace fossil fuels, providing a carbon benefi t. We measure how much carbon is avoided as a result of the recyclate materials we produce, the green electricity we generate and the waste-derived fuels we supply. In addition, we are also fi nding ways to become more energy effi cient. Our Group carbon footprint and carbon intensity ratios clearly show the positive impact our activities have had.
We have been reporting publicly on our environmental and health and safety performance for more than 25 years. In 2010 the Board adopted an ambitious range of corporate responsibility objectives which, once achieved, would position us as a leader in the industry in terms of sustainability and safety. We are delighted to report that we have achieved all three of the main goals.
Health and safety is at the top of our agenda. We work in a high risk industry, but we are minimising the risk of accidents by giving our people the support, training and equipment they need to work safely. In 2010 we set ourselves the target of reducing our employee more serious accident rate by 25% over a fi ve-year period. We have more than achieved this objective, and between 2010 and 2015, our accident rate reduced by 39%.
Our recycling and recovery rate is a critical measure of how successful we are as a waste-to-product company. We have consistently invested in sustainable waste management technologies, while reducing our reliance on landfi ll and other less sustainable methods. In 2010 we set ourselves the target of increasing our recycling and recovery rate over a fi ve-year period to at least 80%. We have more than achieved this objective, and in 2014/15 82% of the waste accepted by our sites was recycled or recovered.
The carbon benefi t of our waste-toproduct activities is demonstrated by our carbon footprint and the amount of carbon avoidance we achieve through our operations. In 2010 we set ourselves the target of increasing our carbon avoidance benefi t over a fi ve-year period to at least 1.3 million tonnes a year. We have more than achieved our target. In 2014/15 our activities provided more than 1.4 million tonnes of carbon avoidance.
We will continue to report on our sustainability and corporate responsibility performance. We will also continue to set ourselves challenging targets in key areas to ensure we deliver on our vision and our corporate responsibility ambitions.
Our new multi-technology waste treatment facility in Wakefi eld
Our new Wakefi eld facility in the UK will use fi ve distinct waste-to-product technologies to provide sustainability benefi ts to the area's local residents. This makes Wakefi eld one of our most advanced projects to date, both in terms of its build and operation.
Waste from local domestic recycling collections will be sorted in a high-technology recycling plant, green waste from gardens will go to an in-vessel composting facility, and residual domestic waste will be treated through an automated recycling system, then passed via an autoclave pre-treatment process to a wet anaerobic digestion plant. All of these various systems will be on one single site, saving waste collection lorries the need to travel to multiple facilities.
When the plant is fully operational it is estimated that our new Wakefi eld facility will produce nearly 60,000 tonnes of recycled materials, 14,000 tonnes of compost and 47,000 tonnes of waste-derived fuels a year. Plus, it will generate nearly three million kilo-watt hours of green electricity annually. In total it is predicted that our Wakefi eld venture will provide an annual carbon avoidance benefi t to society of more than 100,000 tonnes carbon equivalent.
Local communities and authorities are an important client stakeholder group for us. The long-term contracts we share with our local authority clients provide the capital and stability to maximise the sustainability benefi ts of complex operations such as Wakefi eld.
Our achievements over the past fi ve years do not mean an end to our corporate responsibility ambitions. The Board has now approved a new and stretching fi ve year programme which is intended to support our vision of being the most respected waste-to-product company through targeted programmes to further improve safety performance and to increase recycling rates, community engagement and employee satisfaction.
Our new fi ve-year objectives are wider in scope and more sophisticated than our older targets. Their development has involved our Corporate Responsibility and Health and Safety Committees, our Group Executive Committee and the Board. An extensive assessment of what issues are important to our stakeholders helped to create these objectives.
We have chosen four overarching areas for our key corporate responsibility business objectives:
For each of these four key areas we have also developed a series of supporting corporate responsibility measures. These underpin our objectives. We will measure ourselves against both our key objectives and supporting measures, and will report publicly each year on our progress.
* New – measures and objectives to be developed and set during 2015
Key: In the graphic above the capitals in smaller hexagons indicate internal reporting cycles:
A Annual Q Quarterly M Monthly
Further details of our corporate responsibility (CR) performance and our objectives can be found in our annual CR Reports available at www.shanksplc.com/our-responsibilities
Our programmes to drive long-term margin expansion have made good progress, and our strong cash management has supported our ongoing investment programme for future growth.
Constant currency revenue in 2014/15 from continuing activities increased by 1% to £601.4m (5% reduction at actual rates), with growth primarily from UK Municipal.
Trading profi t on continuing businesses, before non-trading and exceptional items, decreased by 19% at constant currency to £34.3m (25% decrease at actual rates). The biggest reduction was in Solid Waste Benelux, with a smaller reduction in Hazardous Waste and Organics, offset by growth in UK Municipal. Group central services, which comprise the Group's head offi ce functions, remained broadly fl at on prior year.
| % | ||
|---|---|---|
| 2015 | 5.7 | |
| 2014 | 7.2 | |
| 2013 | 6.2 | |
| 2012 | 7.1 | |
| 2011 | 6.9 |
| % | ||
|---|---|---|
| 2015 | 12.2 |
|---|---|
| 2014 | 15.1 |
| 2013 | 11.4 |
| 2012 | 15.2 |
| 2011 | 14.3 |
1 Early year numbers are as previously reported and include discontinued operations.
To enable a better understanding of underlying performance, certain items are excluded from trading profi t and underlying profi t due to their size, nature or incidence.
The challenging macroeconomic and industry conditions continued to result in signifi cant non-trading and exceptional items. The specifi c market challenges in Benelux solid waste markets and the UK merchant anaerobic digestion market have resulted in non-cash impairments to historic goodwill balances and to some operating assets. Likewise, the sharp fall in European bond yields has resulted in lower discount rates for certain long-term provisions and hence an increase in the book values of these provisions as at 31 March 2015: this has no impact on short to medium term cash fl ows. Finally, our own restructuring actions have resulted in associated costs.
Total non-trading and exceptional items from continuing operations amounted to £42.2m, as previously disclosed in our pre-close trading update in March (2014: £22.5m). Cash costs are £7.8m (2014: £4.5m). These items are further explained in note 4 to the fi nancial statements and include:
¤ Onerous contract provisions charge of £2.1m (2014: credit of £5.5m) following the reassessment of our best estimate of the required provisions;
¤ Amortisation of intangible assets acquired in business combinations of £1.9m (2014: £2.3m);
| REVENUE | TRADING PROFIT | |||||||
|---|---|---|---|---|---|---|---|---|
| CONTINUING | YEAR ENDED | YEAR ENDED | ||||||
| OPERATIONS | MARCH 15 £m |
MARCH 14 £m |
CHANGE REPORTED % |
CHANGE CER % |
MARCH 15 £m |
MARCH 14 £m |
CHANGE REPORTED % |
CHANGE CER % |
| Solid Waste Benelux | 297.2 | 323.2 | -8% | -1% | 11.9 | 19.7 | -40% | -35% |
| Hazardous Waste | 138.0 | 148.2 | -7% | 0% | 16.4 | 19.9 | -18% | -11% |
| Organics | 30.0 | 34.2 | -12% | -5% | 3.4 | 4.1 | -17% | -8% |
| UK Municipal | 144.6 | 137.5 | 5% | 5% | 10.0 | 9.2 | 9% | 9% |
| Group central services | – | – | (7.4) | (7.3) | -1% | -1% | ||
| Inter-segment revenue | (8.4) | (9.7) | – | – | ||||
| Total | 601.4 | 633.4 | -5% | 1% | 34.3 | 45.6 | -25% | -19% |
CER = at constant exchange rate. Comparatives for 2014 have been restated following the adoption of IFRS 11 and the associated requirement to equity account for joint ventures.
Our Klok Commercial Waste operation in the Netherlands
The operating loss on a statutory basis, after taking account of all non-trading and exceptional items, was £12.4m (2014: profi t of £23.1m).
Looking forward, the structural cost programme will complete in the fi rst six months of 2015/16 and no further restructuring costs will be taken to nontrading items thereafter unless announced as part of a new and material change programme. We further anticipate a signifi cant reduction in other non-trading and exceptional items assuming that the economy and our core markets are now stabilised.
Net fi nance costs, excluding the change in the fair value of derivatives, decreased by £2.4m in the year. On core borrowings there were decreases in interest rates with the full impact of the second Belgian retail bond, lower loan amortisation costs and lower discount unwind charges. The higher level of fi nance income is due to an increase in interest receivable on fi nancial assets relating to PFI/PPP contracts as the build programme for the BDR and Wakefi eld
contracts progresses and this is mirrored by an increase in interest payable on non-recourse PFI/PPP debt.
Profi t before tax from continuing operations on a statutory basis including the impact of non-trading and exceptional items was a loss of £20.5m compared to a profi t of £7.6m last year.
The taxation charge for the year on continuing operations was a credit of £2.3m (2014: charge of £5.8m). The underlying tax charge of £1.7m includes a £3.0m credit from additional recognition of tax losses in the UK business as a result of greater visibility of future profi ts under the long-term UK Municipal contracts. Excluding this additional deferred tax credit, the underlying effective rate was 21.7%, down from 24.2% last year. There is a tax credit of £4.0m on the non-trading and exceptional items of £42.2m as a signifi cant proportion of these are non-taxable.
The Group statutory loss after tax and including all discontinued and exceptional items was therefore £16.9m (2014: £28.2m).
Underlying EPS from continuing operations, which excludes the effect of non-trading and exceptional items, decreased by 7% at constant currency (12% at actual rates) to 5.0p per share (2014: 5.7p). Basic EPS from continuing operations decreased from a profi t of 0.4p per share to a loss of 4.6p per share.
The Board is recommending an unchanged fi nal dividend per share of 2.35p. The fi nal dividend will be paid on 31 July 2015 to shareholders on the register on 3 July 2015. Total dividend cover, based on earnings before non-trading and exceptional items from continuing operations, is 1.4 times (2014: 1.7 times).
FINANCIAL STATEMENTS ADDITIONAL INFORMATION GOVERNANCE
A summary of the total cash fl ows in relation to core funding is shown in the table below.
The free cash fl ow conversion has reduced year on year, principally as a result of the higher level of replacement capital spend. The ratio of replacement capital spend to depreciation increased from 48% last year to 75% this year in line with previous guidance. There have been a number of investments across the Divisions including a truck replacement programme in Benelux Solid Waste and operational improvements at ATM, including the replacement of the ESP fl ue gas cleaner. The working capital movement in the prior year was boosted by a favourable unwind following the exit from UK Solid Waste. The increase in cash interest and tax spend in the year was due to higher tax payments as a result of timing in the Netherlands. Interest payments are slightly lower this year as the fi rst annual payment for the 2013 retail bond is compensated by non-repeat of £2.4m of arrangement and adviser fees as a result of the 2014 refi nancing activity.
Growth capital spend of £12.8m was principally in Hazardous Waste Division and included a proportion of the ESP fl ue gas cleaner and the initial spend on the Theemsweg Total Care centre and additional storage tanks at ATM. In the current year the acquisitions and disposal spend included the Hazardous Waste purchase in Farmsum in the north of the Netherlands and a small tuck-in acquisition in Solid Waste Netherlands net of proceeds from other portfolio activities. The value in the prior year included the proceeds net of costs from the sale and closure of UK Solid Waste activities and other disposals in Solid Waste Benelux. In the prior year PFI funding included the subordinated debt investment made in April 2013 in relation to the Cumbria PPP contract following full service delivery. Similar injections into the BDR and Wakefi eld contracts are due to be paid by September 2015. The other category includes the defi cit funding on the closed UK defi ned benefi t pension scheme along with other non-trading cash fl ows.
The Group has had a stated strategy of investing in sustainable waste management infrastructure, with a target pre-tax return of 15-20% on fully operational assets (post-tax return of 12-15%). As at 31 March 2015, £182m has been invested and allocated. The divisional split of the investment and allocated to date has been: Organics £112m (61%), Hazardous Waste £36m (20%) and Solid Waste Benelux £34m (19%).
At 31 March 2015, £93m (2014: £90m) of the investment portfolio was considered fully operational and it delivered a pre-tax return of 18.1% (2014: 18.6%). The portfolio as a whole delivered a pre-tax return of 14.9% (2014: 15.2%). As previously identifi ed, the pre-tax return has varied according to division, with strong returns from the Hazardous Waste investments and lower returns from the Organics portfolio as assets ramp up and are affected by market volatility.
| CASH FLOW | MARCH 15 £m |
MARCH 14 £m |
|---|---|---|
| EBITDA | 72.8 | 82.9 |
| Working capital movement and other | (1.7) | 9.3 |
| Net replacement capital expenditure | (29.3) | (20.9) |
| Interest and tax | (18.4) | (14.8) |
| Underlying free cash fl ow | 23.4 | 56.5 |
| Growth capital expenditure | (12.8) | (18.6) |
| Acquisitions and disposals | (1.5) | 12.1 |
| Restructuring spend | (7.6) | (9.3) |
| Dividend paid | (13.7) | (13.7) |
| PFI funding | (7.3) | (19.3) |
| Other | (5.2) | 2.5 |
| NET CORE CASH FLOW | (24.7) | 10.2 |
| Free cash fl ow conversion | 69% | 137% |
To support growth of the UK Municipal division's PFI and PPP contracts, the Group is currently undertaking a large investment programme. In the year ended 31 March 2015 our PFI fi nancial assets increased by £82.6m to £278.2m as a result of construction at BDR and Wakefi eld. The asset increases are broadly matched by increases in non-recourse debt that is lent directly to the PFI funding entities with no recourse to the Group as a whole. We expect our PFI fi nancial assets to increase by a further £15m and peak as the construction on these projects is fi nalised ready to enter full service delivery. The asset value will then start to fall as principle is repaid in full service. The build on the Derby contract will not be refl ected in fi nancial assets as we hold our interest in this contract in a joint venture.
The Group return on operating assets (excluding debt, tax and goodwill) from continuing operations has decreased from 15.1% at 31 March 2014 to 12.2% at 31 March 2015 in line with the downturn in Benelux Solid Waste and the lower performance in Hazardous Waste in the fi rst half. The total Group post-tax return on capital employed remained unchanged at 6.0%.
The net core cash outfl ow of £24.7m has been reduced by a positive exchange effect of £23.5m on the translation into Sterling of the Group's Euro and Canadian Dollar denominated debt which resulted in core debt at £155.0m compared with £152.9m at 31 March 2014. This represents a covenant ratio of 2.3 times EBITDA which is well within the amended banking limits of 3.5 times. The value of non-recourse debt lent directly to the PFI funding entities was £222.6m (2014: £151.2m).
Core borrowings, excluding PFI/PPP nonrecourse borrowings, are almost all long term with the exception of the 2010 Retail Bond which is due for repayment in October 2015. At 31 March 2015, the Group's bank fi nancing comprised a €180m multicurrency revolving credit facility with seven major banks entered into on 31 January 2014 and expiring in January 2019. At 31 March 2015, €51m equivalent of the facility was drawn. The margin varies on a ratchet fi xed by the Net Debt:EBITDA ratio. The fi nancial covenants of this facility were amended in March 2015 to de-risk the impact on leverage and total net worth of rapidly moving exchange rates in a period of higher than usual investment. The principal covenants are the ratio of Net Debt:EBITDA of less than 3.5:1, interest cover of not less than 3.0:1 and a minimum net worth of £200m. The fi ve year retail bonds of €100m, issued in October 2010 to investors in Belgium and Luxembourg have an annual coupon of 5.0%, are quoted on the London Stock Exchange and are due for repayment in October. The further €100m six year retail bonds issued in July 2013 have an annual coupon of 4.23%. The senior notes issued under the Group's Pricoa private placement were €40m of seven year senior notes issued in April 2011 at a fi xed interest rate of 5.025%.
The Group also has access to £26.8m of undrawn uncommitted working capital facilities with various banks. Cash fl ows are pooled at a country level and each operation is tasked with operating within the limits of the locally available working capital facilities.
Each of the Group's PFI/PPP projects has separate senior debt facilities which contribute approximately 85% of the capital funding required. These facilities are secured on the future cash fl ows of the PFI/PPP companies with no recourse to the Group as a whole. Repayment of these facilities, and any equity bridge facility in respect of the remaining capital funding, commences when construction is complete and concludes one to two years prior to the expiry of the PFI/PPP contract period. The maximum which could be drawn down under these facilities at 31 March 2015 was £30.4m. Interest rates are fi xed by means of interest rate swaps at the time of contract inception. While PFI assets are under construction, there are periods when the timing of draw downs from the non-recourse debt differs from the outfl ows required and the Group may temporarily fund any difference.
The Directors' valuation of the PFI portfolio is based on the net present value of the future cash fl ows of the PFI contracts and has remained constant at £110m. The Directors' valuation is not recorded in the Group's balance sheet.
The Group operates a defi ned benefi t pension scheme for certain UK employees which is closed to new entrants. At 31 March 2015, the net retirement benefi t defi cit relating to the UK scheme was £13.1m compared with £10.5m at 31 March 2014. The increase in the defi cit was due primarily to a decrease in the discount rate being used to value the liabilities. The last actuarial valuation of the scheme was at 5 April 2012 and a funding plan of £3.1m per annum over seven years was agreed with the trustees. This payment profi le will be reconsidered following the next actuarial valuation that will be assessed on the position as at 5 April 2015.
Toby Woolrych Group Finance Director
4.0 6.1 4.9 6.8 39
SOLID WASTE Improve the profi tability of our Solid Waste business
Broaden the scope of Hazardous Waste
ORGANICS Expand the Organics footprint
| £m | |
|---|---|
| 2015 | 1.5 1.3 |
| 2014 | 3.7 2.8 |
| 2013 | 3.2 5.9 |
| 2012 | 4.4 |
| 2011 | 11.6 |
Operational cost savings
Structural cost savings
| HOURS M | |
|---|---|
| 2015 | 1.6 |
| 2014 | 1.6 |
| 2013 | 1.5 |
| 2012 | 1.4 |
| 2011 | 1.3 |
| MWh | £m |
|---|---|
| 2015 | 2015 |
| 2014 | 2014 |
| 2013 | 2013 |
| 2012 | 2012 |
| 2011 | 2011 |
* Including energy from our joint venture in Cumbernauld. * Including results from our joint venture in Cumbernauld.
| £m | |
|---|---|
| 2015 | 144.6 |
| 2014 | 137.5 |
| 2013 | 115.3 |
| 2012 | 110.7 |
| 2011 | 90.6 |
SOLID WASTE TRADING MARGIN
%
2013 2014 2015
| 2015 | 1.8 |
|---|---|
| 2014 | 1.7 |
| 2013 | 1.5 |
| 2012 | 1.7 |
| 2011 | 1.7 |
2011 7.8
| £m | ||
|---|---|---|
| 72.9 | 4.1 | |
| 69.9 | 4.4 | |
| 66.7 | 5.3 | |
| 59.4 | 5.2 | |
| 34.1 | 3.2 |
| MARGIN % |
|
|---|---|
| 2015 | 6.9 |
| 2014 | 6.7 |
| 2013 | 8.3 |
| 2012 | 5.1 |
| 2011 | -0.7 |
Grow UK Municipal long-term contracts
SOLID WASTE BENELUX
Solid Waste Benelux is a market leader in the collection and treatment of solid waste across Belgium and the Netherlands. We have particular strength in the Randstad in the Netherlands, and in the Construction and Demolition waste sectors.
The solid waste market covers the collection, sorting, treatment and ultimate disposal of solid waste materials from a range of sources. The market can be divided into three main sources of waste: Construction and Demolition (C&D), Industrial and Commercial (I&C), and Municipal (where the latter has not been tied up in a longterm PFI-type contract).
Shanks' unique business model in this market is to focus primarily on the sorting and treatment phases of the cycle. We generally collect where necessary to secure waste volumes, and we dispose only of the residues that we are unable to convert into a reusable product or recyclate. In this way, we 'make more from waste' both environmentally and economically. Our general business model is set out in the graphic opposite.
We operate Solid Waste businesses in the Netherlands and Belgium. Each has a different profi le in terms of the source of waste, which affects its current fi nancial performance and competitive strategy as outlined in the following sections.
After a successful 2013/14, the 2014/15 fi nancial year proved more challenging with a further downturn in our core Benelux Solid Waste markets, as covered in our Chief Executive's review. The long-term market drivers for companies like Shanks that
can deliver market leading recycling rates remain good. Legislation and regulation continue to promote increased recycling rates and to support our 'waste-to-product' model. In particular, a new €13 per tonne incineration tax in the Netherlands was introduced on 1 January 2015. It is too early to observe a material change in recycling volumes as a result of the new tax, but we believe that it will enhance recycling volumes and the demand for our services over the longer term. The short-term market conditions remain affected by continuing overcapacity, low recyclate prices and competition from both public and private waste management operations. The stabilisation of the Benelux economies and the return of some activity to the Dutch housing market are encouraging indicators of a future improvement in the market, but we do not expect a surge in waste volumes arising.
The Benelux Solid Waste Division operates a number of technologies in order to recycle the waste it sources into usable products. Waste may be delivered to a transfer station, where it is collected and subjected to a rough sort before being sent on for further treatment. The core technology is the material recycling facility (MRF) which combines automated sorting technologies (such as magnets, eddy current separators and optical sorters to remove recyclates)
Michael van Hulst, Managing Director, Solid Waste Benelux
along with manual sorting lines. In Gent, solid recovered fuel (SRF) is being produced to create a clean fuel for incinerators or cement kilns. C&D waste passes through heavier duty processes, including stone crushers to produce rubble. Our Icova site further processes specifi cally collected (dry) commercial waste into high calorifi c Icopower pellets which can be used in power stations or cement plants. Shanks also operates businesses that focus on mono-streams, such as glass (Van Tuijl), wood (Shanks Wood Products) and paper, or cardboard (Kluivers). The Hook of Holland facility serves the local horticultural market with composting of green waste and the treatment of rockwool, in which fl owers and vegetables are grown. The division also operates a small Hazardous Waste business in Belgium, one landfi ll in each country and a sand quarry in Belgium. The key products are as follows:
Recycling rates for the division are over 75% and over 95% for the C&D businesses. The Benelux Division also has a minority share, along with other leading waste companies, in an incinerator in Wallonia.
The core strategy of the Benelux Solid Waste Division was to:
¤ Return the division to attractive profi tability levels;
These aims will continue under the new organisation structure and will be enhanced by the addition of our organics assets in the Netherlands to create the new Commercial Division.
Our businesses will be managed separately in Belgium and the Netherlands, but will work together closely to preserve synergies. The new organisation will also provide a fuller range of products to its customers at lower cost.
Following the successful return to growth in trading profi t in 2013/14 due to our structural cost programme, a further deterioration in trading conditions in the fi rst half of 2014/15 impacted profi tability. Revenues were broadly fl at at constant currency at €379m (down by 8% at actual rates), driven by a competitive retention of volumes where possible and the impact in the last quarter of the passing through of the new Dutch incinerator tax. Trading profi t fell by 35% at constant currency to €15.2m, with margins falling across the Division to 4.0%.
Total Dutch Solid Waste volumes were fl at on prior year, but there was an adverse mix of products processed. Underlying pricing fell across most segments in the fi rst half, but stabilised in the second half partly as a result of the incinerator tax-related increases. Recyclate revenues fell by €2.5m, with reduced volumes and prices, particularly in glass. Solid waste volumes in Belgium were stable except at Gent
where they reduced due to lack of SRF outlets and weak soil markets. Pricing on commercial waste streams was impacted by ongoing price erosion due to the competitive environment and the renewal of contracts at lower prevailing market prices. Profi tability of the Cetem landfi ll in Belgium declined as expected, as intake of certain waste streams ceased in anticipation of closure in 2016. Costs of central services increased as costs were transferred from the operating units to the new Shared Service Centres and as a result of lower inter-company recharges.
The focus of the Solid Waste Benelux Division in 2014/15 continued to be to restore profi tability in the face of an increasingly challenging market, especially in the fi rst half of the year. Our focus on margins involved both commercial effectiveness programmes and an intensifi cation of our cost reduction activities.
| FINANCIAL | REVENUE | TRADING PROFIT YEAR ENDED |
||||||
|---|---|---|---|---|---|---|---|---|
| PERFORMANCE | YEAR ENDED | |||||||
| MARCH 15 €m |
MARCH 14 €m |
CHANGE €m |
CHANGE % |
MARCH 15 €m |
MARCH 14 €m |
CHANGE €m |
CHANGE % |
|
| Netherlands Solid Waste | 224.8 | 223.3 | 1.5 | 1% | 12.0 | 14.2 | (2.2) | -15% |
| Belgium Solid Waste | 105.6 | 108.7 | (3.1) | -3% | 5.0 | 6.7 | (1.7) | -25% |
| Belgium Others | 64.9 | 69.7 | (4.8) | -7% | 9.9 | 11.5 | (1.6) | -14% |
| Divisional central services | – | – | – | (11.7) | (9.1) | (2.6) | ||
| Intra-segment revenue | (16.0) | (18.3) | 2.3 | – | – | – | ||
| Total €m | 379.3 | 383.4 | (4.1) | -1% | 15.2 | 23.3 | (8.1) | -35% |
| Total £m (at average rate) | 297.2 | 323.2 | (26.0) | -8% | 11.9 | 19.7 | (7.8) | -40% |
| TRADING MARGIN | RETURN ON OPERATING ASSETS | |||||||
| Netherlands Solid Waste | 5.3% | 6.4% | 5.0% | 6.5% |
| Netherlands Solid Waste | 5.3% | 6.4% |
|---|---|---|
| Belgium Solid Waste | 4.7% | 6.2% |
| Belgium Other | 15.3% | 16.5% |
| Total | 4.0% | 6.1% |
Comparatives for 2014 have been restated following the adoption of IFRS 11 and the associated requirement to equity account for joint ventures.
The goal of the commercial effectiveness programme is to focus on the most profi table market segments where we have a sustainable and strong competitive position. The programme additionally used in depth data analysis tools to identify pricing anomalies and to refi ne our product costing and pricing methodologies. The benefi ts of the programme were particularly felt as we managed the pass through of the new incinerator tax in the Netherlands from 1 January 2015, ensuring that the full additional costs were passed on to waste producers without a material loss of business to date. In the Netherlands we renewed our national contract with Unilever, won a three year contract with ZorgService XL and were selected as the preferred supplier by Koninklijke Horeca Nederland (KHN), the largest hospitality industry organisation in the Netherlands.
On the offtake side, we were pleased in January 2015 to sign a new fi ve year contract with Heidelberg Cement Group in Sweden for our Icopellet fuel. In Belgium, we renewed our strategic long-term
municipal collection contract with the City of Liege, albeit on materially lower terms. We also won sorting and waste treatment contracts with the municipalities of Anderlecht and Molenbeek, and renewed total waste management contracts with Caterpillar and Exxon.
Overall, our structural cost programme approached its fi nal phases on track. The two new shared service centres are performing well and are both reducing cost and improving fi nancial controls. We delivered procurement savings totalling around €1m and reduced headcount in Icova, Vliko, Kortemark and Gent with an annual benefi t of €1.6m. As previously announced, we have also begun to introduce continuous improvement as a core tool to the business. In 2014/15 we completed specifi c projects at the sorting line in Van Vliet Groep and also in logistics and Icopellet manufacture at Icova. Going into the new fi nancial year we are initiating our fi rst complete conversion to lean manufacturing processes of two sites: Van Vliet Groep and Gent.
The focus of the Division remains primarily on improving profi tability and returns and we have deployed capital where it will drive improved margins or lower costs. In February 2015 we commissioned a new high volume sorting line for construction and demolition (C&D) waste at our Wateringen plant in the Netherlands. This €5m facility can process 135,000 tonnes of waste per annum, replacing three smaller and older lines (one of which was destroyed by fi re in 2013 at Vliko). The new line will improve the quality of the products we sort and will reduce costs signifi cantly.
In Belgium, we have also made good progress in refi ning the portfolio. We successfully exited our municipal contract with Hygea in December 2014, releasing the related onerous contract provision. We sold a non-core environmental advisory services business, Enviro+. We were also able to deliver increased green bio-gas production at our Cetem landfi ll as a result of a technology collaboration with local Universities, called Project Minerve.
Our Commercial Waste operations in Rotterdam, the Netherlands
HAZARDOUS WASTE
The Hazardous Waste Division is made up of two businesses: Reym and ATM. Reym is a leading industrial cleaning company in the Netherlands, also taking the leading role in promoting the Shanks Total Care solution (cleaning, transport and waste management) for heavy industry, petrochemical sites, oil and gas production (both on and offshore) and the food industry. ATM is one of Europe's largest sites for the treatment of contaminated soil and water, as well as for the disposal of a broad range of hazardous waste such as waste paints and solvents. The business model is shown in the graphic opposite.
Reym's highly experienced and trained cleaning teams use specialist equipment to deliver a reliable and safe cleaning process in a market where the cost of safety and quality is of paramount importance. ATM is a leader in water and soil treatment because of: the cost advantages provided by its fully integrated plant processes; its waterside location for the cleaning of ships; and its excellent record of compliance with the many environmental controls and permits required in the hazardous waste market.
The core market drivers for the Hazardous Waste Division are industrial activity in the Benelux, particularly in the Rotterdam region, coupled with construction and site remediation activity across Europe.
Industrial activity in the Benelux has stabilised in the last year, and we have seen continuing robust activity in Rotterdam, which we believe is set for steady growth in the future. This has resulted in good demand for industrial cleaning services and growth in waterside waste volumes arising. However, this is somewhat offset by margin pressure as the falling oil price has put pressure on our customers in the oil and petrochemical sectors. A sustained slump in oil price is likely to impact volumes and prices going forward. New legislation coming into force in 2015 to forbid the degassing of fumes from ships' tanks to air has driven volume growth through our newly commissioned degassing unit at ATM.
The volume of contaminated soil available for treatment in Europe has been affected by the budgetary constraints of governments. This results in a continued downward pressure on pricing. However, the long-term pipeline remains sound, with many sites earmarked for brownfi eld redevelopment. Short-term decreases in the volume of soil available are offset by increased volumes of tar containing asphalt grit as a result of a successful industry lobbying campaign to have this material, produced during road surface replacement, treated within the Netherlands, albeit at lower pricing. We have also opened up new market opportunities and technologies, such as the use of ultrasonic cleaning.
Jonny Kappen, Managing Director, Hazardous Waste
The Reym business operates bespoke and specialised cleaning equipment in order to serve its clients. These include trucks for onshore work and specialist transportable units for offshore work. Our solutions use ultrasonic cleaning, high pressure cleaning, vacuum cleaning, chemical cleaning and decontamination. Liquid waste streams (including those created by the cleaning process) can be collected and transported to one of our waste treatment facilities. Reym operates a fl eet of around 250 vehicles and units from sites across the Netherlands. Most of these sites are also equipped and licensed for treating hazardous waste.
Contaminated soil can be cleaned by washing or treated thermally (depending
Heavy industry (Petrochemical) Industry & Shipping Industry & Government Construction & Government
on contamination levels). We operate a principal thermal treatment facility with one million tonnes of capacity. The ATM unit passes contaminated soil through a kiln in order to produce clean and reusable soil, with the effl uent gases being carefully scrubbed of all contaminants.
Contaminated water is removed from ships at our jetty at ATM or received from trucks, which can themselves then be cleaned on site. The water is put through a decanter to remove solids and oils; it is then treated in fi ve biological treatment tanks in which bacteria cleans the contaminants and produces clean water.
Paint and solvent waste, along with sludges removed from the contaminated water, is treated in a gasifi cation process to produce largely inert ash.
Contaminated water
REYM Cleaning generates contaminated water
GROWING REGULATION
soil
Clean soil
The strategy of the Hazardous Waste Division is to continue to grow in target markets through capacity expansion, particularly in water treatment. Specifi cally, the strategy is to:
Hazardous Waste experienced a more challenging year in 2014/15 after several years of underlying growth. This was caused by operational challenges at ATM in the fi rst half, and market pressures at Reym in the second half due to the lower oil price. Revenues were broadly fl at at constant
currency at €176m. Growth in volumes at Reym and in soil processing at ATM was offset by lower pricing across the Division and increased costs in the fi rst half due to the operational challenges associated with the commissioning of new equipment. Trading profi t fell by 11% to €21.0m.
As forecast, ATM recovered strongly in the second half of the year following its operational challenges. Record soil volumes were processed along with broadly similar levels of waste water, although lower prices were experienced across all product lines in competitive market conditions.
Reym delivered a competitive response to challenging markets where our customers in the oil and petrochemical markets are reducing activity or seeking to lower the cost of their cleaning and waste management as a result of the collapse in oil price. Despite ongoing and intense price pressure, Reym increased revenues and in 2014/15 revenues exceeded €100m for the fi rst time.
Record soil volumes were processed along with broadly similar levels of waste water.
| FINANCIAL PERFORMANCE |
REVENUE YEAR ENDED |
TRADING PROFIT YEAR ENDED |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| MARCH 15 €m |
MARCH 14 €m |
CHANGE €m |
CHANGE % |
MARCH 15 €m |
MARCH 14 €m |
CHANGE €m |
CHANGE % |
||
| Hazardous Waste | 176.2 | 175.8 | 0.4 | 0% | 22.6 | 25.7 | (3.1) | -12% | |
| Divisional central services | – | – | – | (1.6) | (2.2) | 0.6 | |||
| Total €m | 176.2 | 175.8 | 0.4 | 0% | 21.0 | 23.5 | (2.5) | -11% | |
| Total £m (at average rate) | 138.0 | 148.2 | (10.2) | -7% | 16.4 | 19.9 | (3.5) | -18% | |
| TRADING MARGIN | RETURN ON OPERATING ASSETS | ||||||||
| Total | 11.9% | 13.4% | 25.7% | 34.7% |
ATM, our hazardous waste treatment site, has an advantaged location and cost position with regard to its soil and water treatment processes, which are therefore the focus of investment to increase capacity and capability. End markets were competitive throughout the year, with ongoing price pressure in both soil and water treatment segments. However, our advantaged position allowed us to continue to secure good quantities of contaminated soil for treatment.
During the year we commissioned new equipment on the soil line to reduce emissions signifi cantly and thereby increase potential capacity. As a result, we processed record quantities of contaminated soil in the fi nal quarter of the year, after reduced throughput in the fi rst half due to operational issues. We will also complete, in May 2015, the construction of three 10,000m3 water storage tanks, which will double storage capacity and thereby increase potential output and operational effi ciency. In March, we reduced processing of packed chemical waste through our pyrolysis line in order to mitigate potential uncontrolled contamination from the waste, at a cost of around €0.4m: we will reintroduce packed chemical waste processing in a planned way through the fi rst half of 2015/16.
Other investments have included installing a new boiler for ship cleaning and a fi rst ship degassing line in anticipation of new regulations to limit ship degassing to air that will come into effect in January 2016. We are also investing in our people and organisation to meet Seveso III criteria.
Reym, our high end industrial cleaning business, continued to focus on expanding its range of services in order to offset price and volume declines in industrial cleaning activities. This has included further roll-out of the Shanks Total Care solution in which industrial cleaning and the transport and treatment of both hazardous and nonhazardous waste can be managed under a single contract. We are investing €10m to support this initiative in Rotterdam, with the development of our new Theemsweg site on time and on budget. At year-end, the new depot was complete and being occupied, with the waste reception and storage facility on track for commissioning in the fi rst half of 2015/16. We additionally purchased an operational site in Farmsum, in the northern Netherlands, for €3.8m in January 2015. This site already has permits to allow a number of storage and treatment processes to take place. Our Reym technology centre, located nearby at Veendam, has developed and launched a new ultrasonic cleaning unit which will be initially installed at Farmsum.
Recently installed equipment on the thermal soil treatment line at ATM, which operates with reduced emissions and increased capacity
The Organics Division renewed key contacts in the Netherlands, won a major 25-year contract in Canada and saw signifi cant performance improvements in Belgium and Scotland.
Organic waste is the most environmentally damaging form of waste to be sent to landfi ll, because it decomposes to create methane which is a harmful greenhouse gas (21 times worse than carbon dioxide). The Organics Division offers a sustainable alternative by treating organic waste, turning it into green energy, compost and fertiliser.
The division receives green waste (for example, garden waste) and food waste from both municipalities and commercial businesses. It receives a gate fee for treating the waste, and income from the electricity and heat produced and associated subsidies in some territories. The remaining output is used as fertiliser and generates a nominal income or cost on disposal, depending upon quality and territory. The business model is shown in the graphic opposite.
Our principal organic technologies and assets were purchased in 2007 with the acquisition of Orgaworld, a leading Dutch organic waste treatment company. Orgaworld employs a design, build, own and operate model, unusual in the sector, which we believe offers a signifi cant competitive advantage. This business model enables us to design facilities based on our deep operational experience and this tight linkage
leads to continuous improvement in facility productivity and gas yields. Each project is different, depending upon its feedstock. Orgaworld's technology is secondary to its adaptability: it provides bespoke customer solutions based on accumulated operational expertise and design capability.
The increased diversion of organic waste from landfi ll is a key regulatory target for governments across the world, with volume increases forecast over the medium to long-term in order to meet these goals.
The response of providers to these needs can create overcapacity in certain regions, leading to local challenges with securing of volumes or appropriate pricing. This is the primary reason we increasingly seek long-term municipal contracts to support the decision to build any new facilities and why part of our Organics Division has been incorporated within our new Municipal Division going forward.
In the Netherlands, we expect steady growth in composting volumes available. However, some overcapacity means that contract renewals are generally at lower prices than previously, especially when the expiring contract was entered into a long
Henk Kaskens, Managing Director, Organics
We are supporting the successful implementation of the Zero Waste Scotland initiative.
time ago. The wet AD market is more challenged, with strong competition for those waste streams that create the largest quantities of gas resulting in negative gate fees for the waste. Growth opportunities remain for innovative partnerships with major A-brand customers such as those that we have entered into with Albert Heijn and Friesland Campina.
In Canada, we are seeing accelerated progress in a number of municipal opportunities across all major provinces. With relatively low current diversion rates, there is a good prospect of strong growth in this market segment in the coming decade. In the UK, the Zero Waste Scotland initiative has demonstrated the impact of government action in promoting waste diversion, with an increase in organic waste tonnages delivered to our joint venture Cumbernauld AD facility.
We operate two main technologies for the treatment of organic waste: AD and tunnel composting.
AD can be performed in a wet or dry process. In the wet AD process, AD operates in a similar process to a digestive tract. Depackaged food slurry is fed into large steel digester tanks full of bacteria, which break down the organic waste to produce methane and digestate. The methane is used as fuel in engines that produce electricity (and heat, where the latter has an economic use). The digestate is dewatered where possible and treated to become a fertiliser, while the water is cleaned and discharged. Dry AD likewise produces green electricity from the same biological process but in a dry state and without the subsequent need to dewater.
Tunnel composting is an accelerated composting technology which uses forced aeration to process food, garden waste and other types of waste into compost.
The core strategy of the Organics Division was to:
These aims will continue under the new organisation structure, with enhanced North American bidding capabilities from the new Municipal Division and better customer support from the integrated Commercial Division in the Netherlands.
Revenues fell by 5% to €38.6m and trading profi t by 8% to €4.4m in line with expectations. The Netherlands delivered broadly fl at revenues with increased waste water treatment and record performance from the CHP engines at Amsterdam offsetting the impact of material price reductions with the renewal of the Flevoland contract in June. However, the price impact with the latter, combined with technical support for the bids in Canada, resulted in a €1.3m fall in profi t. In Canada, volumes were broadly fl at, with some weakness in municipal intake, but strong cost action drove a 12% increase in trading profi t. Other Organics showed strong profi t growth of €0.9m primarily as a result of improved performance in Belgium. We also saw good revenue and profi t growth from our joint venture Cumbernauld plant in Scotland, which is now equity reported following the adoption of IFRS11.
The long-term extension to the Flevoland contract has enabled a project to upgrade the Biocel facility.
| FINANCIAL | REVENUE | TRADING PROFIT | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| PERFORMANCE | YEAR ENDED | YEAR ENDED | ||||||||
| MARCH 15 €m |
MARCH 14 €m |
CHANGE €m |
CHANGE % |
MARCH 15 €m |
MARCH 14 €m |
CHANGE €m |
CHANGE % |
|||
| Netherlands | 18.7 | 18.9 | (0.2) | -1% | 1.6 | 2.9 | (1.3) | -45% | ||
| Canada | 15.6 | 16.0 | (0.4) | -3% | 3.7 | 3.3 | 0.4 | 12% | ||
| Other Organics | 4.3 | 5.7 | (1.4) | -25% | 0.8 | (0.1) | 0.9 | n/a | ||
| Divisional central services | – | – | – | (1.7) | (1.2) | (0.5) | ||||
| Total €m | 38.6 | 40.6 | (2.0) | -5% | 4.4 | 4.9 | (0.5) | -8% | ||
| Total £m (at average rate) | 30.0 | 34.2 | (4.2) | -12% | 3.4 | 4.1 | (0.7) | -17% | ||
| UK Joint Venture (£m) | 2.6 | 2.0 | 0.6 | 30% | 0.7 | 0.3 | 0.4 | 124% | ||
| TRADING MARGIN | RETURN ON OPERATING ASSETS | |||||||||
| Netherlands | 8.6% | 15.3% | -0.1% | 5.1% | ||||||
| Canada | 23.7% | 20.6% | 10.1% | 8.3% | ||||||
| Other Organics | 18.6% | -1.8% | 2.2% | -0.3% | ||||||
Results for Canada shown at constant currency. Comparatives for 2014 have been restated following the adoption of IFRS 11 and the associated requirement to equity account for joint ventures.
Total 11.4% 12.1% 4.2% 5.0%
51
The Organics Division delivered a robust performance with key contracts being renewed, albeit at lower pricing, and the securing of a 25 year PPP contract with the City of Surrey in Canada.
In the Netherlands, the business performed well operationally, but profi ts were adversely affected as expected by the renewal of two long-term contracts at materially lower prices. The successful long-term extension to the 25,000 tonne per annum Flevoland contract has underpinned a project to refurbish and upgrade the associated Biocel facility in Lelystad, with a new depackaging line and new CHP engines being ordered for commissioning over the summer of 2015. We were also pleased to win contracts during the year with the municipality of Noordenveld and Beneluxvet.
In Canada, the two current municipal sites delivered an ongoing solid performance. In Ottawa, we were very disappointed in July when a long-running arbitration with the client was awarded against us and also failed to give clarity on key contractual issues under debate. We have appealed the arbitration but have meanwhile initiated constructive discussions with the client in order to continue to deliver a high quality of service going forward. Our London plant performed well, although volumes from the City of Toronto were weak in the second half, impacting profi tability. The losses in revenues arising from our market challenges were more than offset by a successful series of continuous improvement and cost reduction initiatives.
The highlight of the year was in February 2015 when we secured a 25 year PPP contract to design, build, own and operate a 115,000 tonne composting and dry AD facility for the City of Surrey in British Columbia. This facility, the fi rst of its kind in Canada, will use the City's organic waste to generate green biogas to fuel its waste collection fl eet as well as producing high grade compost. Construction of the CAD\$ 50m facility
will start this summer for commissioning at the end of 2016. We continue to work actively to identify other appropriate expansion opportunities on which to bid in North America that will leverage our unique capabilities both in organic waste treatment technologies and in the management and delivery of long-term municipal contracts.
Our other Organics assets performed very well during the year. Our Belgian AD facility delivered a strongly improved performance in the year, increasing trading profi t by €1m, as a result of an operational and commercial improvement plan. Our Scottish AD Joint Venture, Energen BioGas, is now equity reported following our adoption of IFRS11 this year. Improving local market conditions have caused a strong increase in both demand and pricing, with a corresponding improvement in profi tability. We therefore announced in February that we were investing a further £5m to double capacity, which will be on stream in late summer 2015.
Our Greenmills AD facility in the Netherlands
UK MUNICIPAL
UK Municipal takes municipal waste and diverts as much as possible from landfi ll, extracting recyclates, making products and creating clean fuel and electricity from bio-gas.
The UK Municipal Division operates waste treatment facilities for UK city and county councils under long-term contracts, typically 25 years. Such contracts are established primarily to divert waste from landfi ll in a cost effective and sustainable way. The capital cost of the associated infrastructure is fi nanced with non-recourse bank debt and in the case of PFI, is supported by central government funding. Both PFI and PPP contracts benefi t from guaranteed revenues and tonnages from the associated council. The business model is shown in the graphic opposite.
In a typical PFI or PPP solution, a special purpose vehicle (SPV) is created to fi nance the construction of the treatment assets and Shanks arranges for a club of banks to provide funding. Securing this funding is called 'Financial Close', at which point all the long-term contracts are signed between Shanks, the councils, the suppliers and the banks. This signals the start of the build phase, in which Shanks may or may not be the main contractor. On completion and commissioning of the assets, Shanks will generally inject up to 20% of the invested capital of the SPV in the form of subordinated debt, which should earn a return of around 12% pre-tax.
Once operational, there are two potential income streams from the PFI or PPP contract. The fi rst is the income for treatment of the waste under the operating contract, which is signed with Shanks Waste Management Limited as the supplier. Success relies not only on excellent management of the contract and the meeting of strict diversion targets, but also on working closely with the customer to identify improved ways of managing the waste, to a shared benefi t. It is this latter focus on continuously improving how we do things that has driven a sustained increase in the Group margin and, importantly, a signifi cant saving for the councils. The operating contract offers the Group protection from waste volumes and similar items that have caused challenges within our Solid Waste Division.
The second cash stream is the interest from the subordinated debt and ultimately a dividend stream from the SPV. Shanks has historically sold the majority of its interest in its SPVs, following commissioning, to a third party; so this is currently a minor part of our income. However, we maintain an open stance on our ownership of current and future SPV stakes.
Peter Eglinton, Managing Director, UK Municipal
The bidding process for major PFI/PPP opportunities in the UK is largely complete. Shanks has projects at Barnsley, Doncaster and Rotherham (BDR) and Wakefi eld which are nearing completion of the build phase. Additionally, our Derby project began construction in the period.
Some councils are still seeking a solution to their waste diversion needs, quite possibly through contracting spare capacity in existing assets. Our UK Municipal Division, having therefore secured its input waste, then competes in a number of downstream markets, in particular with regard to the provision of solid recovered fuels to cement manufacturers and refuse derived fuels to energy from waste companies. A proportion of these disposal routes are secured under long-term agreements.
The overall goal of all PFI or PPP contracts is to maximise recycling and diversion from landfi ll. Each contract will involve a bespoke solution to meet the needs and preferences of the customer. This will generally include the operation of household waste recycling centres (HWRCs) and MRFs to sort incoming waste streams into recyclates. Shanks has an exclusive contract with A2A (formerly Ecodeco), a leading European waste engineering company, to operate mechanical biological treatment (MBT) facilities in the UK. These treat the residual waste, shredding and drying it to produce a high calorifi c fuel called solid recovered fuel (SRF), which can be burned as a fossil fuel substitute in cement kilns, or refuse derived fuel (RDF) which can be incinerated to produce electricity. Remaining organic elements can be composted to secure further diversion from landfi ll or processed by anaerobic digestion (AD) to produce electricity.
STRATEGIC REPORT OVERVIEW
The core strategy of the UK Municipal Division was to:
These aims will continue with the formation of the new Municipal Division which brings together the UK and Canadian businesses. The combination of these businesses has enhanced capabilities and better growth prospects.
UK Municipal revenues grew strongly during the year, increasing by 5% to £145m, primarily from Derby and Cumbria. Trading profi t increased by 9% in the year to £10m, with growth primarily as a result of increased diversion rates.
UK Municipal had a good year, achieving its operational targets while making excellent progress on its construction programme.
There was a good underlying performance in core operating contracts. The Division delivered record diversion during the year and in Cumbria the two Mechanical Biological Treatment (MBT) facilities were able to divert nearly all outputs from landfi ll. Losses continued to reduce in the Dumfries and Galloway contract. Off-take markets for our residual fuels remain dynamic and at times challenging: increases in Dutch incinerator prices being somewhat offset by the weakening Euro. Central costs increased over prior year as a result of the increased cost of insurance, growth in maintenance capability and restoration of incentives.
| FINANCIAL PERFORMANCE |
REVENUE | TRADING PROFIT YEAR ENDED |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| MARCH 15 £m |
YEAR ENDED MARCH 14 £m |
CHANGE £m |
CHANGE % |
MARCH 15 £m |
MARCH 14 £m |
CHANGE £m |
CHANGE % |
|||
| UK Municipal | 144.6 | 137.5 | 7.1 | 5% | 15.0 | 13.1 | 1.9 | 15% | ||
| Divisional central services | – | – | – | (5.0) | (3.9) | (1.1) | ||||
| Total | 144.6 | 137.5 | 7.1 | 5% | 10.0 | 9.2 | 0.8 | 9% | ||
| TRADING MARGIN | ||||||||||
| Total | 6.9% | 6.7% |
Our new BDR facility in Rotherham, UK
In August 2014 a major fi re took place at the Frog Island facility, part of our ELWA contract. The fi re badly damaged one of the three drying halls and the refi nement section which serves all three halls. The site was partially back in action within three months and will be fully reinstated by January 2016. The fi nancial impact was to a large extent mitigated by insurance cover.
Our customers in UK Municipal are local councils, who are increasingly impacted by government austerity programmes. As a result, they are under increasing pressure to maximise the value of their PFI contracts. We are working hard with them on identifying where costs can be reduced and extra diversion can be achieved. We have therefore initiated programmes in continuous improvement and procurement that are expected to protect against customer pressures and are implementing systems and processes to ensure that we continue to be compliant with our customers' requirements.
The £200m build programmes at Barnsley, Doncaster and Rotherham (BDR) and Wakefi eld have made very good progress and are close to completion. At BDR the bio-drying hall has started the commissioning process on schedule, taking in its fi rst waste in February 2015 and the following month providing the fi rst RDF fuel to the new multi-fuel energy plant at Ferrybridge for its commissioning programme. Full service commencement is expected on schedule in July 2015. The construction of the new waste facilities at Wakefi eld is also progressing well.
We also secured fi nancial close on the £145m Derby PPP contract. As disclosed last year, we have extended our interim contract to provide services to Derby City and Derbyshire County Councils until 31 March 2017. The income for the next two years will be at a lower rate, to refl ect changing circumstances, and this will reduce the annual profi t on the interim contract from April 2015.
PEOPLE
We are committed to building our highly-skilled people capability across the Group to enhance our operations and accelerate our path to growth
Michelle Cummins Group HR Director
The restructuring of our organisation has created exciting opportunities for our people to grow in their roles.
Our people are right at the heart of our business. Through their unique skill-sets, knowledge and commitment to our business, they form the foundation for what we do and the way that we do it. Having the right people in place and ensuring that they are supported, developed and motivated is crucial to our success. We aim for our team to accelerate growth by delivering value to our customers, engaging with our local communities and generating returns for our shareholders.
In our new structure, we have approximately 3,500 employees working in three divisions across the Group. Our teams work together at a local, divisional and Group level to ensure that we share our knowledge, skill and technical know-how to benefi t us all. We provide our people with a safe and inspiring workplace, along with
the tools and training required to support them in achieving their maximum potential. We are constantly monitoring and acting on feedback to improve our communication channels and working to engage with our people through a variety of means. We have also recently dedicated signifi cant effort towards supporting our people through the divisional restructuring changes, as the shape of our business has evolved to align with our customers and markets.
Our team at Shanks is a unique mix of industry experts and fresh talent from other sectors. This combination makes us stronger as a team, where new starters share fresh perspectives and bring best practice from other sectors to supplement the knowledge of our existing longserving and dedicated teams. As we have restructured our organisation to be more focused on our customers and markets,
this has brought exciting new opportunities for our people to grow in their roles. Our recent divisional restructure involved seven internal promotions and 24 role changes, demonstrating our commitment towards developing our people.
We believe key differentiators in today's highly competitive market are our people's passion, their unique skills, their teamwork and their resilience. Our people take real personal accountability for their work and are driven by our vision to be 'the most respected waste-to-product company'. It is therefore vital that we continue to invest in, support, develop and engage our people now and in the years ahead.
The Board and Group Executive Committee are determined to achieve Shanks' goals at pace and to outperform in our markets. To do this, we have identifi ed four levers where we will focus organisational and leadership effort:
We want to grow our businesses and work successfully together along the way. To do this it is important for us to have a shared view of where Shanks is going and on how we will get there. We therefore launched a new purpose, vision, approach and new values under the banner of the 'Shanks Journey'.
Over the last year, we have been working with the Group Executive Committee and Senior Leadership Team to shape the Shanks Journey and to launch it within the business. The Shanks Journey was launched alongside our 'Pulse' employee engagement survey which gave our teams tangible results to help them create practical action plans for improvement. The survey results showed that Shanks as a whole outperformed the peer group benchmark in terms of employee engagement. The three main themes for improvement were communication, development and recognition. The Group Executive Committee gave a personal undertaking to focus on improving communication within the business and have taken a range of steps to do this. This has included initiating breakfast meetings, increasing the use of video, launching listening forums and blogs. These improvements have allowed us to get closer to achieving our vision to be 'the most respected waste-to-product company' by ensuring our people are fully engaged with our purpose, vision and approach.
We do all we can to ensure our people work in a safe environment
GENDER DIVERSITY 12% 11% 14% OF OUR WORKFORCE ARE FEMALE OF SENIOR MANAGEMENT ARE FEMALE OF THE BOARD MEMBERS ARE FEMALE
The foundation for everything we do is our common values. They are the basis for the way that we behave and the way that we make decisions. Our values outline what is important to us, how we operate and what differentiates us from our competition.
They demonstrate that 'how' we do things is just as important as 'what' we do. Embedding these values into our daily working lives allows us to create a unique identity which meets the expectations of our people and our stakeholders.
We have six core values, and to ensure that they are easily remembered we created the mnemonic, IMPACT. This mnemonic also refl ects the fact that our values have an impact on all aspects of our business.
At the beginning of the new 2015/16 fi nancial year we implemented a new Shanks divisional structure to align with our customers, share capabilities and accelerate growth. In addition to the new structure, we have taken a number of decisive actions to realign our business with the opportunities for growth. These changes have included:
The way that our people live these values is measured through our performance and development review (PDR) system. This ensures that we give direct and regular feedback on how individuals perform relative to our values and shared vision.
more information at www.shanksplc.com/people
Members of the municipal team take a break during voluntary work at one of Shanks' Argyll and Bute sites
Our business is constantly evolving as we adapt to market conditions and our customers' needs. In response to these developments we continue to implement appropriate organisational changes across the Group. During such periods of change we have strengthened our ability to engage with our people. To facilitate this we launched our annual Group-wide employee engagement survey entitled 'Pulse'. This survey allows us to gain an accurate picture of our employees' perspectives on many aspects of our business. It also identifi es specifi c areas where we can work together to improve performance and engagement at all levels of the organisation. The fi rst survey was well received with a higher than anticipated response rate and has culminated in over 300 team actions being created across the Group.
Our PDR system continues to engage and support individual and team development. We have introduced improved communication channels to ensure that our people are knowledgeable about our business and industry, and also feel informed and supported in what they do. These channels include:
¤ Our Group-wide internal magazine, Shanks Matters, which is published fi ve times per year and includes news, features and interviews on everything related to our business;
APPROXIMATELY 3,500 EMPLOYEES ACROSS THREE DIVISIONS
¤ The annual Shanks Leadership Conference which enables managers from across the Group to come together to align on priorities and share best practices;
¤ Informal, as well as formal, communication channels for our employees through local toolbox talks and various works councils; and
In addition, we continue to do all we can to ensure that our people are able to work in a safe environment by dedicating signifi cant effort to even further reducing our low accident rate. This includes continually investing in training and safety summits to ensure compliance with both regulatory and internal standards, while reinforcing the importance of safety awareness. Shanks leaders, at all levels and across all functions, conduct site safety visits – both to drive concrete safety improvements and to engage our people on the importance of maintaining a safe working environment.
The Group Health & Safety Committee was set up in 2012 to further improve our safety performance and spread our safety culture. The Committee meets six times each year to discuss health and safety best practice and to put procedures in place to ensure that all of our people are correctly trained and able to work in a safe environment. The launch of our Group Health & Safety Award in February 2013 continued its success in 2014.
The focus on health and safety across the Group has highlighted many useful cross-divisional initiatives which have been implemented; such as the use of automated external defi brillators.
We are committed to attracting, growing and retaining people who have excellent skills and live our values.
Every employee, new or experienced, has the chance to progress their career and to develop new skills at Shanks. Over the year we have hired a range of high-quality talent and have also developed high-potential managers into broader new roles. This has resulted in tangible progress at all levels of the Group. For example, we have invested in apprenticeships, graduate trainee and mentoring programmes across the business. We have also demonstrated our commitment to diversity and the development of emerging talent.
Our Group-wide PDR system empowers our people to manage their own performance and development. The system supports our people with coaching from their line managers to set objectives, create development opportunities and review performance through on-the-job coaching and formal training plans.
The Group is an equal opportunities employer and full and fair consideration is given to applications from, the continuing employment of, and career development and training of disabled people. Two-way communication is actively promoted and trade unions, works councils and other employee groups are involved wherever appropriate. This report does not contain information about any policies of the business in relation to human rights, since it is not considered necessary for an understanding of the development, performance or position of the Group's business activities.
We benefi t enormously from our diverse workforce. Our people come with different backgrounds and from a wide range of cultures, creating a vibrant workforce where we can all learn from one another. The importance of diversity, equality and nondiscrimination is highlighted in our Code of Conduct and is underpinned by our values, guiding the respectful way we behave towards one another. Around 12% of our workforce is female, with approximately 435 women employed. At a senior leadership level, seven managers and one Board member are female.
Given the market headwinds we have faced it has been a key imperative to ensure that we motivate and engage with our people through these challenging times and grow our business for the future. To support this we carried out our fi rst ever Group-wide employee engagement survey called 'Pulse'.
This initiative aimed to test the Pulse of the organisation by gaining anonymous feedback in a number of key areas including how our people feel about their work, their manager and how we communicate effectively throughout the organisation. The survey aimed to discover what we are doing well and to identify the areas for improvement.
We achieved a 65% response rate and generated 254 team reports from the survey. The rich data and verbatim received helped to shape team-managed action plans for future improvement. We ensured our managers were well equipped to execute the action planning
process by providing training on how to create meaningful action plans. By encouraging our teams to own and manage these plans gives a sense of empowerment to our people across the Group.
The survey showed that overall in general, employees are proud of their work and the organisation; they like being challenged and having a variety of work and they value the fl exibility and freedom that Shanks provides.
In addition to the positive feedback, a number of areas for improvement were identifi ed. Employees expressed a need for more communication and a greater opportunity to share thoughts and ideas.
In addition to the team-managed action plans, the Group Executive Committee has implemented a number of improvement measures to address this feedback and they look forward to seeing the positive differences the action plans bring in the results of the next Pulse survey.
We are committed to attracting, growing and retaining people who have excellent skills and live our values
Shanks has well developed and established frameworks for risk management in place. However, risk management must evolve if it is to remain effective and relevant. The effective management of risk is a core function of the Board and executive management, and we regularly review and enhance this management to ensure the adequate control of risks.
During 2014/15 we conducted, with advisers, a thorough revision of our divisional risk management and risk register processes. Key aspects included an assessment of the maturity of our risk management approaches in critical areas and a redevelopment of our divisional risk registers and processes.
This project was coordinated by our Group Risk Committee. The tools used included online surveys, training and discussion seminars for our divisional management teams and direct engagement across our workforce on risk management issues. In total more than 150 employees from senior management and executives to operational staff were involved, nearly 5% of our total workforce.
Some of the outputs are included in the key risks table overleaf. Others have become projects and actions in their own right, such as project risk management knowledge sharing through our Risk Committee. One key output was the importance of continued involvement and engagement of a wide audience in our risk management processes, to embed risk management through all levels of our business.
We continue to operate in challenging markets. How we manage the risks associated with these challenges is important to our success. Our ongoing portfolio management is an example of how we assess and predict risk and then take decisive action where required to mitigate impacts on our business.
One of our key risks is that the volume of waste received by our operations falls. As a waste-to-product company the waste we receive is our raw material, from which we provide recycled and recovered products for the market place. Over the past fi ve years our underlying waste volumes have either remained steady or have increased in a shrinking market. This is a demonstration of how we have identifi ed risk, ranked its importance and taken effective mitigating action.
61
Insurance is a key risk transfer mechanism. Over the past fi ve years we have reduced our premium spend by more than £0.5m, while maintaining cover levels. However, for the waste sector the insurance market for property and business interruption cover has become increasingly challenging, in particular relating to fi re risks. We have identifi ed this risk and mitigated its effects by improving our site fi re management systems and by restructuring our property insurance programme to spread our risk while maintaining common and high value policy conditions.
We will continue to identify our key risks, assess their importance to us and put in place mitigations to reduce our exposures. We will also continue to review and revise our risk management systems and processes so that they remain effective and fi t for purpose against the challenges we face.
The core elements of our risk management process include:
management and the Board to ensure the appropriateness of the risks identifi ed and the controls and action plans reported.
We have made good progress in further development of our risk management systems. We have:
Over the next 12 months, we will continue to improve our risk management systems. This will include:
Our key risks, mitigation process and risk direction are outlined in the heat diagram below and on the following pages.
As a result of our extensive review of divisional risk registers two new key risks have been added, one existing risk has been split into two and a further two previous risks have been combined. These changes are refl ected in both the heat diagram below and risk tables on the following pages.
All risk ratings shown in the heat diagram are with the current level of mitigation. Direction of risk is shown by arrows. Where no arrow is displayed risk rating has remained static.
Note: Where no direction arrow is shown risk rating remains static. Risks 13 and 14 are new or split from older risks, so no prior year direction is shown.
| (number allocated relates to heat diagram) 6 INVESTMENT AND GROWTH. FINANCING RISK: that funding is not available |
¤ Good quality external advice ¤ Diverse range of fi nancing options and timings ¤ Strong relations with investors |
¤ Successful investors days and events ¤ Diverse range of funding options of medium to long-term maturity |
|---|---|---|
| ¤ Good management reputation and planning | Risk direction: reduced likelihood as the result of good reputation and available fi nancing options |
|
| 7 HEALTH AND SAFETY RISK: that we incur reputational loss, or civil and criminal costs |
¤ Group Health and Safety Manager and Health and Safety Committee in place ¤ Defined and tracked health and safety improvement plan in place ¤ Active engagement with regulators ¤ Safety leadership programme in place ¤ Top agenda item on all management meetings ¤ Significant progress made – accident rate improved by nearly 40% over past fi ve years |
¤ New occupational road risk programme being developed and enacted ¤ Targeted strategy at Belgium operational performance ¤ Coherent targets developed for near-miss reporting and leadership performance Risk direction: likelihood reduced as the result of progress made and improvement programme development |
| 8 RECYCLATE PRICING: that the value we received for recycled and recovered product falls |
¤ Focus on improving product quality ¤ Group collaboration to maximise pricing leverage, where appropriate ¤ Cost control actions to offset impact of lost revenue ¤ Optimise commercial effectiveness to improve quality of incoming waste and raise gate fees ¤ Sustainable technologies used align with market needs |
¤ Development of new technologies to ensure continuing fi t with market needs ¤ Renegotiation of off-take contracts where appropriate ¤ Continued development of quality schemes to maximise value ¤ Long-term fixed price contracts for off-take where appropriate Risk direction: while enhanced risk management is in place, macro-economic pressures result in risk rating remaining static |
| 9 | ¤ Active monitoring and enforcement of maintenance, environmental, safety and training standards ¤ Effective insurance programmes supported by experienced brokers ¤ Improvements in fire control through common |
¤ Group-wide business continuity planning framework produced and being spread across operations ¤ Dedicated fire audits conducted at all sites and actions being progressed ¤ Strategy for retained risk funding being |
| FIRE AND BUSINESS CONTINUITY PLANNING: business interruption and other costs as the result of a disaster such as fi re |
fi re control standards ¤ Effective disaster planning processes at key sites ¤ Common risk survey process in place including engagement with insurers |
developed ¤ Improvements at ATM site in line with Seveso III requirements Risk direction: improvements in risk management in place and being developed, but pressures in |
The Group takes action to insure or hedge against the most material fi nancial risks. Details of our key policies for control of fi nancial risks are:
The Group has continued to limit its exposure to interest rate risk by entering into fi xed rate retail bonds, fi xed rate senior notes and interest rate swaps that fi x a substantial proportion of fl oating rate debt. At the end of March 2015, circa 85% of core borrowings were on fi xed terms. For all long-term PFI contracts, interest rate swaps for the duration of the contracts are entered into as part of fi nancial close of the project.
The Group is exposed to foreign exchange risk for movements between the Euro, Canadian Dollar and Sterling. The majority of the Group's subsidiaries conduct their business in their respective functional currencies. Hedging agreements, such as forward exchange contracts, are in place to minimise known currency transactional exposures. The Group does not hedge its foreign currency exposures on the translation of profi ts into Sterling. Assets denominated in Euros and Canadian Dollars are hedged by borrowings in the same currency to manage translational exposure.
Trade credit risk is the risk of fi nancial loss where counterparties are not able to meet their obligations. The Group has implemented the setting and monitoring of appropriate customer credit limits. Credit limits and outstanding receivables are reviewed monthly. The Group has a policy to ensure that any surplus cash balances are held by fi nancial institutions, meeting minimum acceptable credit ratings.
To mitigate the exposure to losses arising from fraud committed on the Group or by Group employees, robust internal controls and fi nancial procedures are reviewed and tested regularly.
Bales of plastic recyclate awaiting shipment for re-use
The non-executive directors, all of whom the Company regard as independent, bring considerable international experience to the Board across a number of sectors. They play a full role in constructively challenging and developing strategic proposals, as well as chairing and being
members of Board committees. The executive directors implement Board strategy, most recently having reorganised the Group divisional structure to align operating businesses more closely with customers, to deliver synergies and accelerate growth.
Appointed: May 2005 and appointed Chairman in July 2006. Chairman of the Nomination Committee and member of the Remuneration Committee.
Skills and Experience: Adrian has held the position of Finance Director in a number of major companies, notably in the building materials and construction sectors, as well as senior fi nance positions with BP and ICI. He is Chairman of Addaction, Britain's largest specialist drug and alcohol treatment charity.
Adrian is considered by the Board to be independent.
Appointed: February 2012.
Skills and Experience: Prior to joining Shanks, Peter was a senior executive at Danaher Corporation, a leading global industrial business listed on the NYSE. He held a number of progressive general management roles including President Danaher Middle East, Group President Emerging Markets, and President EMEA and Asia of its Gilbarco Veeder-Root subsidiary. Before Danaher, Peter spent seven years at the Boston Consulting Group (BCG) in London and Chicago, working with industrial and pharmaceutical clients and was a leader in BCG's global Sales & Marketing Practice. Peter's earlier career, after graduating from RMA Sandhurst, was spent as an offi cer in the British Armed Forces. He originally trained as an Army helicopter pilot and saw active service with both NATO and the UN.
Appointed: August 2012.
Skills and Experience: Toby began his career at Arthur Andersen where he qualifi ed as a chartered accountant before becoming Finance Director of Medicom International Ltd, a medical publishing company, in 1992. He joined Johnson Matthey plc as Corporate Development Manager in 1997, going on to become Divisional Finance Director and then Managing Director of
one of Johnson Matthey's global speciality chemicals business units. From 2005 to 2008, he was the Chief Financial Offi cer and Chief Operating Offi cer at Acta SpA, a renewable energy company, before joining Consort Medical plc as Group Finance Director.
Appointed: February 2007 and appointed as Senior Independent Director in July 2007. Chairman of the Remuneration Committee and member of the Audit and Nomination Committees.
Skills and Experience: Eric has wideranging European business experience including the telecoms, defence and publishing sectors. He holds a number of non-executive and advisory positions. Until January 2008, Eric was a nonexecutive director of Corus Group plc, a position he held for seven years.
Eric is considered by the Board to be independent.
Other Appointments: Vice Chairman of the Supervisory Boards of BT Nederland BV and Thales Nederlands BV, and also Supervisory Board Member of ANWB BV, Royal Wegener NV and Essent NV.
Appointed: March 2007. Member of the Audit, Remuneration and Nomination Committees.
Skills and Experience: Stephen is currently the CEO and President, GDF SUEZ Energy UK-Turkey. He has responsibility for European plant operations, fi nance, energy trading and business development. He is a chartered engineer and joined International Power in 1985, holding senior positions in two UK power stations before being appointed Managing Director of their Australian operations in 2000. From January 2004 to February 2011, he was a director of International Power plc, resigning from that Board following the amalgamation of International Power and GDF SUEZ Energy International.
Stephen is considered by the Board to be independent.
Appointed: September 2010. Member of the Audit, Remuneration and Nomination Committees.
Skills and Experience: Jacques is currently Chairman and CEO of energy provider Albioma. He was Chairman and Chief Executive of SITA and its parent company Suez Environnement. In 2005, he was appointed Chief Executive of Sodexo Continental Europe and South America. Since 2007, he has advised corporate and fi nancial sponsors, specialising in Infrastructure and Environmental Services investments worldwide. He has extensive international non-executive and executive experience.
Jacques is considered by the Board to be independent.
Appointed: April 2013. Chairman of the Audit Committee and member of the Remuneration and Nomination Committees.
Skills and Experience: Marina is a Fellow of the Institute of Chartered Accountants and is currently the Chief Financial Offi cer and a member of the Management Board at TomTom NV. Following nine years with Arthur Andersen in London and the US, she then joined Psion Plc as its Group Controller and became Group Finance Director in 1996. In 2002 she was appointed Chief Financial Offi cer of Colt Telecom Plc and joined TomTom as its Chief Financial Offi cer in 2005. Marina will be leaving TomTom at the end of July 2015 to take up the position of Chief Financial Offi cer and Executive Director of UBM Plc, a global events and communications company, in September 2015.
Marina is considered by the Board to be independent.
Other Appointments: Supervisory Board member of Lucas Bols NV.
OVERVIEW
CHAIRMAN'S INTRODUCTION
On behalf of the Board, I am pleased to present our Corporate Governance Report and confi rm our compliance with the UK Corporate Governance Code for the year to 31 March 2015. We believe that both the Board collectively and directors individually have a responsibility to set and demonstrate high standards of corporate governance. The following pages outline the structures, processes and procedures by which the Board ensures that these high standards are maintained throughout the Group.
During the year, our Audit Committee, supported by the Risk Committee has continued to seek further improvement and enhancements to our internal controls, risk management and reporting framework. For example, in response to the risk of fi re at our operating plants we have undertaken programmes to enhance our systems for the prevention, detection and fi ghting of fi res in order to mitigate against this critical risk factor.
The Board is required to confi rm that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy. The Audit Committee has assisted the Board in this regard through the adoption of a formalised internal review process and approach.
Following on from the overwhelming shareholder approval at last year's AGM, our Directors' Remuneration policy must next be submitted for approval at the AGM to be held in 2017, unless amendments are sought before that date. An advisory resolution to approve the Annual Report on Directors' Remuneration, which details payments and awards made to directors during the year to 31 March 2015, will as usual be submitted to the forthcoming AGM.
Finally, whilst our internal procedures are essential to the effi cient running of the Group, it is also my responsibility to ensure that we maintain clear and effective communications
with our shareholders and other stakeholders. I was therefore delighted to meet with some of our largest shareholders and also market analysts, at our two Capital Markets events held in the year.
Adrian Auer Group Chairman
71
OVERVIEW
The Board is committed to maintaining a sound governance framework through which the strategy and objectives of the Group are set, and the means of attaining these objectives, and monitoring performance is determined.
The Board fully supports the principles of good corporate governance. This report, together with the Directors' Remuneration Report on pages 77 to 91, explains how the Group has applied and complied fully with the provisions of the UK Corporate Governance Code in force for the year to 31 March 2015.
The Board comprises the Chairman, a further four independent non-executive directors, the Group Chief Executive and Group Finance Director.
The Chairman, who has been independent since his original appointment, has primary responsibility for running the Board. The Group Chief Executive is responsible for the operations of the Group and for the development of strategic plans and
initiatives for consideration by the Board. The formal division of responsibilities between the Chairman and the Group Chief Executive has been agreed by the Board and documented, a copy of which is available on the Group's website.
The non-executive directors bring a wide range of experience to the Group and are considered by the Board to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. The non-executive directors make a signifi cant contribution to the functioning of the Board, thereby ensuring that no individual or group dominates the decisionmaking process. Non-executive directors are not eligible to participate in any of the Company's share option or pension schemes. The Chairman also meets and communicates regularly with the nonexecutive directors without the presence of the executive directors.
Eric van Amerongen continues to hold the position of Senior Independent Director, being available to shareholders should
they have concerns which contact through the normal channels of Chairman, Group Chief Executive or Group Finance Director has failed to resolve or where such contact is inappropriate.
The table below details the number of formal Board meetings held in the year and the attendance record of each director.
| BOARD MEETINGS | ||||
|---|---|---|---|---|
| 12 (12) | ||||
| 12 (12) | ||||
| 12 (12) | ||||
| 12 (12) | ||||
| 10 (12) | ||||
| 12 (12) | ||||
| 11 (12) | ||||
Bracketed fi gures indicate maximum potential attendance of each director.
The calendar of meetings of the Board and its committees for 2014/15 is shown below.
| THE CALENDAR OF MEETINGS OF THE BOARD AND ITS COMMITTEES FOR 2014/15 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| APRIL | MAY | JUNE | JULY | AUG | SEPT | OCT | NOV | DEC | JAN | FEB | MARCH | ||
| Board (main meeting) | • | • | •• | •• | • | • | •• | • | • | ||||
| Audit Committee | • | • | • | ||||||||||
| Remuneration Committee | • | • | |||||||||||
| Nomination Committee | • | • | |||||||||||
| Shareholder (AGM) | • |
In addition, 32 duly authorised Board Committee meetings, comprising at least two directors, were held. These were primarily in connection with the allotment of shares under employee share schemes and transaction completion formalities.
BALANCE OF NON-EXECUTIVE AND EXECUTIVE DIRECTORS
Executive directors
There is a formal schedule of matters reserved specifi cally for the Board's decision. These include approval of fi nancial statements, strategic policy, acquisitions and disposals, capital projects over defi ned limits, annual budgets and new borrowing facilities. The Board meets regularly, having met twelve times during the year. Specifi cally during the year under review, fi nancial close was reached on a 27 year municipal contract with Derby City and Derbyshire County Council in August 2014. In December 2014 the Group was selected as the preferred bidder for an Organics Biofuels processing facility project in the city of Surrey in British Columbia, Canada which reached fi nancial close in February 2015.
The Board is provided with appropriate information in a timely manner to enable it to discharge its duties effectively. All directors have access to the Company Secretary, whose role includes ensuring that Board procedures and regulations are followed. In addition, directors are entitled, if necessary, to seek independent professional advice in connection with their duties at the Company's expense.
In recognition of the importance of their stewardship responsibilities, the fi rst standing item of business at every scheduled Board meeting is the consideration of the Safety, Health and Environmental report. Other regular reports include those from the Group Chief Executive and Group Finance Director covering business performance, markets and competition, investor and analyst updates as well as progress against strategic objectives and capital expenditure projects.
All directors are required to notify the Company on an ongoing basis of any other commitments and, through the Company Secretary, there are procedures for ensuring that the Board's powers for authorising directors' confl icts of interest are operated effectively.
The work of the Board is further supported by three formal Committees (Audit, Remuneration and Nomination), detailed on the following pages. In addition, whilst not a Committee with specifi c powers of its own delegated by the Board, the Group Chief Executive is assisted in the performance of his duties by the Group Executive Committee. This Committee meets monthly and comprises the Group Chief Executive and Group Finance Director, the Divisional Managing Directors, Group Human Resources Director and Group Information Director. In addition there are three specialist committees reporting through to the Group Executive Committee: Risk, Corporate Responsibility and Health and Safety.
In reviewing the Group's overall corporate governance arrangements, the Board continues to give due consideration to balancing the interests of customers, shareholders, employees and the wider communities in which the Group operates.
On appointment, directors are given an introduction to the Group's operations, including visits to principal sites and meetings with operational management.
Specifi c training requirements of directors are met either directly or by the Company through legal/regulatory updates. Nonexecutive directors also have access to PricewaterhouseCoopers' non-executive database and course programme. There is a rolling programme of holding Board meetings at different Group locations in order to review local operations, with a focus on health and safety during site visits.
Performance evaluation of the Board, its Committees and directors during the year was based upon formalised selfassessment questionnaires supplemented by structured interviews conducted by the Chairman with individual directors. The evaluation of the Chairman was undertaken by the non-executive directors, led by the Senior Independent Director. The process was designed to cover the key aspects of Board and Board Committee effectiveness and directors' performance. The results, all of which were positive and constructive, identifi ed a small number of areas for improvement. In conclusion, it was determined that the Board and its Committees continued to operate effectively during the year and that each director continued to demonstrate commitment to their role and perform effectively. The Board was therefore able to recommend the reelection of the directors standing at the forthcoming AGM.
The Nomination Committee is chaired by Adrian Auer and is solely comprised of non-executive directors: Eric van Amerongen, Stephen Riley, Jacques Petry and Marina Wyatt. The Committee is formally constituted with written terms of reference which are available on the Group's website. It met twice during the year and is responsible for making recommendations to the Board on the appointment of directors and succession planning. It also reviews organisation and resourcing plans for the purpose of providing assurance that appropriate processes are in place to ensure a suffi cient supply of competent executive and senior management.
During the year, the Committee reviewed high level talent management and succession plans for the Board and Group Executive Committee.
Any new director appointed to the Board is subject to election by shareholders at the fi rst opportunity after their appointment. All non-executive directors are required under the Company's Articles of Association to stand for re-election at each AGM. In accordance with best corporate governance practice, the executive directors also stand for re-election at each AGM.
The Committee at the current time has not determined to set a specifi c female Board member quota. Appointments to the Board and throughout the Group continue to be based on the diversity of contribution and required competencies, irrespective of gender, age, nationality or any other personal characteristic. Summarised statistical employment data for the Group can be found in the Corporate Responsibility Report available on the Group website.
| NOMINATION COMMITTEE MEETINGS |
|---|
| 2 (2) |
| 2 (2) |
| 2 (2) |
| 1 (2) |
| 2 (2) |
Bracketed fi gures indicate maximum potential attendance of each director.
The Remuneration Committee met twice in the year and is formally constituted with written terms of reference which are available on the Group's website. The Committee is solely comprised of nonexecutive directors: Eric van Amerongen, Adrian Auer, Stephen Riley, Jacques Petry and Marina Wyatt. The Committee, which is chaired by Eric van Amerongen, formulates the Company's remuneration policy and the individual remuneration packages for executive directors.
The Committee also determines the remuneration of the Group's senior management and that of the Chairman. It recommends the remuneration of the non-executive directors for determination by the Board. In exercising its responsibilities, the Committee has access to professional advice, both internally and externally, and may consult the Group Chief Executive about its proposals. The Directors' Remuneration Report on pages 77 to 91 contains particulars of directors' remuneration and their interests in the Company's shares.
| DIRECTOR | REMUNERATION COMMITTEE MEETINGS |
|---|---|
| Eric van Amerongen (Chairman) | 2 (2) |
| Adrian Auer | 2 (2) |
| Jacques Petry | 1 (2) |
| Stephen Riley | 2 (2) |
| Marina Wyatt | 2 (2) |
Bracketed fi gures indicate maximum potential attendance of each director.
The Audit Committee met three times in the year and is formally constituted with written terms of reference which are available on the Group's website. The Committee is solely comprised of non-executive directors: Stephen Riley, Jacques Petry, Eric van Amerongen and Marina Wyatt who chairs the Committee. As required under the UK Corporate Governance Code, Marina Wyatt has current and relevant fi nancial experience. She is a chartered accountant and currently holds the position of Chief Financial Offi cer at TomTom NV.
The Chairman, the executive directors and representatives from the external auditors PricewaterhouseCoopers LLP (PwC) are regularly invited to attend meetings. The Committee also has access to the external auditors' advice without the presence of the executive directors.
The Audit Committee has the authority to examine any matters relating to the fi nancial affairs of the Group. This includes the appointment, terms of engagement, objectivity and independence of the external auditors, the nature and scope of the audit, reviews of the interim and annual fi nancial statements, internal control procedures, accounting policies, adherence with accounting standards and such other related functions as the Board may require. The Committee also considers and regularly reviews other risk management and control documentation, including the Group's policy on whistle-blowing and security reporting procedures.
At their May 2014 meeting, the Committee considered Corporate Governance compliance, taxation and the 2014 fi nancial statements whilst the October 2014 meeting was concerned primarily with the interim results and a review of authority levels and the treasury policy. The February 2015 meeting considered year end accounting matters and treatments, PwC's audit plan and preparation of the 2015 fi nancial statements and reviewed risk systems and internal control improvements.
| DIRECTOR | AUDIT COMMITTEE MEETINGS |
|---|---|
| Marina Wyatt (Chair) | 3 (3) |
| Jacques Petry | 3 (3) |
| Stephen Riley | 3 (3) |
| Eric van Amerongen | 3 (3) |
Bracketed fi gures indicate maximum potential attendance of each director.
In carrying out its duties, the Committee is required to assess whether suitable accounting policies have been adopted and to challenge the robustness of signifi cant management judgements refl ected in the fi nancial statements. The signifi cant accounting issues considered by the Committee during the year were:
¤ Presentation of non-trading and exceptional items. Non-trading and exceptional items have been separately disclosed within the Group's consolidated fi nancial statements. The Committee has reviewed papers prepared by management showing how these costs have been identifi ed and calculated. In the light of recent pronouncements from the Financial Reporting Council (FRC), the Committee has considered both the quantum and the presentation and is satisfi ed that these amounts have been treated appropriately.
¤ Landfi ll and other liability provisioning. Landfi ll provisions due to their nature are judgemental and may be affected by a number of factors including changes in legislation with uncertainty over timing of payments in particular for aftercare provisions. The Committee received reports from management outlining the annual reassessment of the provisions and determined that the closing balances were appropriate. In addition, the Committee considered the appropriateness of the discount rate applied to all such long-term provisions following the recent decline in government bond yields and concluded that it was appropriate to take a one-off charge of £7.1m in the current year.
In addition, the Committee has considered the impact of the change in accounting for joint ventures and associates following the adoption of the new standard and the requirement
to account for interest in joint ventures and associates using the equity method which has resulted in a restatement of the comparative fi nancial information operations.
In addition, in light of the recent pronouncement from the FRC on complex supplier arrangements the Committee has considered the nature of the contract agreements across the Group and has concluded that no such material complex arrangements exist.
The Audit Committee has assisted the Board in their consideration as to whether the Annual Report and Accounts are fair, balanced and understandable, such that shareholders are provided with the necessary information to assess the Group's performance, business model and strategy. Having reviewed the year end internal verifi cation and approval processes at their meeting in May 2015, the Committee was able to confi rm this to be the case.
PwC were appointed as the Company's external auditors by shareholders at the AGM in 1994, following a competitive tender process. The Audit Committee expects to schedule an external audit tender process by no later than 2020.
The Audit Committee continues to review the performance and independence of the auditors on an annual basis.
PwC rotate their lead audit engagement partner as a minimum at least every fi ve years, as required by their own rules and by regulatory bodies. The current audit partner will perform his last audit in 2014/15. Rotation ensures a fresh look without sacrifi cing institutional knowledge. The rotation of lead audit partners, other partners including specialist partners and senior engagement personnel is reviewed on a regular basis by the lead audit engagement partner in consultation with the Audit Committee. As well as the lead audit partner being required to rotate every fi ve years, key
OVERVIEW
partners involved in the audit are required to do so every seven years and other partners and senior staff members every ten years.
The Committee's responsibility to monitor and review the objectivity and independence of the external auditor is supported by a non-audit services policy. Specifi ed non-audit services may be provided by the external auditor subject to a competitive bid process other than in situations where it is determined by the Group Finance Director that the work is closely related to the audit or when a signifi cant benefi t can be obtained from work previously conducted by the external auditor. Whilst the Group Finance Director may approve any new engagement up to the value of £25,000, anything in excess requires Audit Committee approval up to an agreed annual aggregate limit of 50% of the prior year's audit fee. In exceptional circumstances, this limit may be exceeded with the approval of the Board. In determining whether or not to engage the external auditor to provide any nonaudit services, consideration will be given to whether this would create a threat to their independence. Similarly, the external auditor will not be permitted to undertake any advocacy role for the Group such that their objectivity may be compromised. The external auditor may not provide services involving the preparation of accounting records or fi nancial statements, the design, implementation and operation of fi nancial information systems, actuarial and internal control functions or the management of internal audits. During the year, less than £0.1m of non-audit services were provided by PwC, whilst their total audit fees, as disclosed in note 5 of the fi nancial statements, amounted to £0.6m.
A resolution will be put to shareholders at the forthcoming AGM proposing PwC's re-appointment as Group auditors.
As part of the external audit process, the Committee discusses and agrees the scope of the audit which is based around a structured methodology to help ensure quality and rigour as well as regulatory compliance. The 2014/15 audit was
conducted via a six step audit process based on PwC's acceptance and independence procedures refl ecting their understanding of the business and focusing on scoped areas determined to be of highest risk.
Tax and other professional services have also been provided to the Group by audit fi rms KPMG, Deloitte and EY during the year.
The Audit Committee annually considers the need for a separate dedicated internal audit function and this year the internal audit capability has been enhanced and resourced by the appointment to the Group fi nance function of a Group Internal Audit and Reporting executive. This role supplements the existing programme of internal cross-divisional peer reviews designed to bring the benefi ts of:
The Group fi nance function co-ordinates the process to ensure consistency, quality of reporting and close-out of improvement actions and reports up to the Audit Committee. Internal audit services from suitably qualifi ed external providers were also engaged during the year. KPMG performed two control reviews which covered UK accounts processing and the order to cash cycle in Wallonia in Belgium. The detailed fi ndings from all reviews were presented to and considered by the Audit Committee. Any necessary improvements from both the internal and external reviews are acted upon by local divisional teams.
The responsibilities of the directors and the auditors in relation to the fi nancial statements are set out on pages 94 to 101.
The Group risk management framework, major risks and the steps taken to manage these risks are outlined on pages 61 to 67.
The system of internal control is based on a continuous process of identifying, evaluating and managing risks including the risk management processes outlined on pages 61 to 67. The Board of directors has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. The Board recognises that internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can therefore only provide reasonable and not absolute assurance against material misstatements, losses and the breach of laws and regulations.
In addition to the Board's ongoing internal control monitoring process, it has also conducted an annual review of the effectiveness of the Group's risk management and internal control systems in compliance with Provision C.2.1 of the UK Corporate Governance Code and Turnbull guidance. This review covered all material controls including fi nancial, operational and compliance controls and risk management systems.
Specifi cally, the Board's review consisted of the following elements:
The main elements of the internal control framework which contribute towards its continuous monitoring are as follows:
¤ a range of quality assurance, safety and environmental management systems in use across the Group. Where appropriate these are independently certifi ed to internationally recognised standards including ISO9001, ISO14001 and OHSAS18001 and subject to regular independent auditing;
¤ a minimum of three scheduled Audit Committee meetings each year, comprising non-executive directors, to consider all key aspects of the risk management and internal control systems; and
Where weaknesses in the internal control system have been identifi ed through the monitoring processes outlined above, plans for strengthening them are put in place and action plans regularly monitored until complete. The Board confi rms that no material weaknesses were identifi ed during the year and therefore no remedial action is required in relation to them.
In addition to the general risk management and internal control processes described above, the Group has also implemented internal controls specifi c to the fi nancial reporting process and the preparation of the annual consolidated fi nancial statements. The main control aspects are as follows:
The Committee also receives regular reports from the Group Tax Manager on the Group's tax policy, tax management and compliance.
An anti-bribery policy is in place which is applicable to all business units throughout the Group. A 24-hour/seven-days-a-week confi dential reporting, 'whistle-blowing', service for employees has also been in operation throughout the year, with all notifi cations being reported to and considered by the Audit Committee.
The Company has an active investor relations programme, regularly meeting with institutional investors, analysts, press and other parties. The Board obtains feedback from its brokers, Investec, on the views of institutional shareholders and the Chairman attends meetings with major shareholders whose views are communicated to the Board as a whole. Detailed shareholder and market comment in particular is reported to the Board after results announcements. During the year the Company hosted two successful Capital Markets events for institutional investors and analysts. The fi rst was held in September 2014 at the Group's ATM and Klok facilities in the Netherlands and the second in January 2015 at Wakefi eld, showcasing our new £100m UK Municipal facility at South Kirkby. The Company also communicates with private and institutional investors through the AGM and the Group website.
Other information, necessary to fulfi l the requirements of the Corporate Governance Statement, relating to the Company's share capital structure and the appointment and powers of the directors, can be found in the Other Disclosures section on pages 92 to 95.
On behalf of the Board, I am pleased to present the Directors' Remuneration Report for the year ended 31 March 2015. The remuneration policy remains consistent with that approved by shareholders at the 2014 AGM with a 97.9% vote in favour. This policy is reproduced in full on pages 78 to 83 for both ease of reference and to help provide context to the decisions made by the Committee during the year.
Similar to last year, and in line with the new regulations, this Report is divided into three sections:
The underlying performance of our three growth divisions remains robust although market conditions for our Benelux Solid Waste business in 2014/15 were very challenging and this impacted performance. As a result, the Group's profi ts were below target and this element of the 2014/15 bonus did not pay out. Despite this, cashfl ow performance was strong and cashfl ow targets were achieved in full. Personal objectives vested at 88% of maximum for both Executive Directors. Performance targets for the 2012-2015
Long Term Incentive Plan (LTIP) award were not met and therefore these awards lapsed.
Following approval at last year's AGM, and as disclosed in last year's report, a new LTIP structure was introduced during the year to improve alignment to Group strategy and to help retain and motivate critical talent.
Between 1 June 2014 and 31 March 2015, our Group Finance Director Toby Woolrych took on additional responsibilities as interim Managing Director for our Belgium Solid Waste business. To recognise the material increase in his responsibilities, the Committee agreed to award him a temporary salary supplement of £4,160 per month for the 10-month period. This temporary salary supplement does not affect his annual bonus, LTIP award or pension.
During the year, the Committee reviewed the remuneration policy and concluded that the current structure continued to be appropriate. For 2015/16, salaries for the Group Chief Executive and Group Finance Director have been increased by 2% (in line with increases for the general employee population). The annual bonus will operate on the same basis as last year with 75% based on fi nancial performance and 25% on personal objectives, with one third of any bonus deferred into shares over three to fi ve years. From 2015/16, the Committee intends to disclose annual bonus targets in the annual report immediately following the end of the performance year. No changes are proposed to the LTIP for 2015 which will continue to be based on three year performance: 50% on EPS growth, 25% on share price growth and 25% on improvement in ROCE. LTIP shares vest over three to fi ve years.
The Committee concluded that no changes to the Remuneration Policy
Eric van Amerongen Chairman of the Remuneration Committee
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION GOVERNANCE STRATEGIC REPORT
were required at this time. However, the Committee notes the requirement for malus and clawback in the updated UK Corporate Governance Code and is taking steps to implement the changes. Our current Policy includes provisions for malus on deferred bonus and unvested LTIP awards. Clawback is being introduced to the annual bonus for the performance year ending 31 March 2016 and for LTIP awards being made in 2015.
The Remuneration Committee believes that the current remuneration policy is proving effective and is aligned with the interests of shareholders. It incentivises management to deliver the Group's strategy and to maximise value, and will help retain and motivate critical talent.
Resolutions seeking approval of the Annual Report on Remuneration and renewal of our Sharesave Scheme will be put to shareholders at the 2015 AGM.
Eric van Amerongen Chairman of the Remuneration Committee 21 May 2015
OVERVIEW
This report, prepared by the Committee on behalf of the Board, takes full account of the UK Corporate Governance Code and the latest Investment Association (IA) and National Association of Pension Funds (NAPF) guidelines, and has been prepared in accordance with the provisions of the Companies Act 2006, the Listing Rules of the Financial Conduct Authority and the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Act requires the Auditor to report to the Group's shareholders on the audited information within this report and to state whether in their opinion those parts of the report have been prepared in accordance with the Act. The Auditor's opinion is set out on pages 96 to 101 and those aspects of the report which have been subject to audit are clearly marked.
The principal objectives of the Remuneration Committee, which is chaired by Eric van Amerongen and comprises all the nonexecutive directors, are to help attract, retain and motivate high calibre senior management and to provide a competitive remuneration package linked to performance and the interests of shareholders.
The Committee seeks to ensure that the senior executives are fairly rewarded in light of the Group's performance, taking into account all elements of their remuneration package. A signifi cant proportion of executive remuneration is performance related. This comprises an annual bonus and a Long Term
Incentive Plan (LTIP). The fi xed portion of remuneration comprises basic salary, benefi ts and a payment in lieu of pension.
This section of the report sets out the remuneration policy for executive directors. This Policy was approved and formally came into effect at the AGM held on 25 July 2014. In formulating and reviewing the Policy, the Committee takes full account of the UK Corporate Governance Code and the latest IA and NAPF guidelines. Remuneration paid to executive directors in 2014/15 and remuneration arrangements proposed for 2015/16 are set out later in this report.
| Base salary: To pay a competitive basic salary to attract, retain and motivate the talent required to operate and develop the Group's businesses |
|||||
|---|---|---|---|---|---|
| OPERATION | OPPORTUNITY | PERFORMANCE METRICS | |||
| Base salaries are generally reviewed on an annual basis or following a signifi cant change in responsibilities. |
Any basic salary increases are applied in line with the outcome of the review. |
None. | |||
| Salary levels are reviewed by reference to FTSE-listed companies of similar size and complexity. The Committee also has regard to individual and Group performance and changes to pay levels across the Group. |
For executive directors, it is anticipated that salary increases will normally be in line with those of salaried employees as a whole. In exceptional circumstances (including, but not limited to, a material increase in job size or complexity or a material market misalignment), the Committee has discretion to make appropriate adjustments to salary levels to ensure they remain market competitive. |
||||
| Pension: To provide an opportunity for executives to build up a provision for income on retirement | |||||
| OPERATION | OPPORTUNITY | PERFORMANCE METRICS | |||
| Executive directors receive a cash pension allowance in lieu of pension scheme contributions. |
Executive directors may receive a cash allowance of up to 25% of salary. | None. | |||
| Benefi ts: To provide market-competitive benefi ts | |||||
| OPERATION | OPPORTUNITY | PERFORMANCE METRICS | |||
| Benefi ts include life assurance, medical insurance, income protection and car/travel allowances. |
Benefi ts may vary by role. However, the total cost of taxable benefi ts will not normally exceed 10% of salary. |
None. | |||
| The Committee retains discretion to approve a higher cost in exceptional circumstances (e.g. relocation or ex-patriation) or in circumstances where factors outside the Group's control have changed (e.g. increases in market insurance premia). |
|||||
| Savings Related Share Option Scheme (SRSOS): To encourage share ownership among UK employees |
| and use the benefi ts available under an HMRC approved scheme | |||||
|---|---|---|---|---|---|
| OPERATION | OPPORTUNITY | PERFORMANCE METRICS | |||
| In line with HMRC's requirements for such schemes, Sharesave options may be granted to all UK employees. The options are granted at the higher of the nominal value of an ordinary share and an amount determined by the Committee being not less than 80% of the market value. UK executive directors participate on the same terms as other UK employees. |
The maximum opportunity will not exceed the relevant HMRC limits. |
None. |
| Annual bonus: To motivate senior executives to maximise short-term performance and help drive initiatives which support long-term value creation |
|||||
|---|---|---|---|---|---|
| OPERATION | OPPORTUNITY | PERFORMANCE METRICS | |||
| Performance measures, targets and weightings are set at the start of the year. The maximum bonus is payable only if all performance targets are met in full. One third of any annual bonus award is deferred into shares for at least |
For executive directors, the maximum annual bonus opportunity is 150% of salary. For threshold performance, the bonus earned is generally 25% of maximum and for on-target performance 80% of maximum. |
Executive director performance is assessed by the Committee on an annual basis by reference to Group fi nancial performance (75% weighting) and the achievement of personal or strategic objectives (25% weighting). |
|||
| three years, subject to continued employment. The Group's current policy is for 50% of the bonus to vest after three years, 25% to vest after four years, and 25% to vest after fi ve years. Malus provisions exist which entitle the Committee, at its discretion, to reduce the fi nal award or deem it to have lapsed (to the extent it has not yet vested) in exceptional circumstances, e.g. material fi nancial misstatement or gross misconduct. |
When assessing fi nancial performance, the primary measures are underlying profi t before tax and underlying free cash fl ow, but may include other indicators of performance defi ned at the start of the year. The Committee retains discretion to vary the weightings of measures +/- 25%, to help ensure alignment with the business priorities for the year. Bonus targets are generally calibrated with reference to the Group's budget for the year. |
||||
| Effective from the 2015/16 performance year (i.e. payments from 1 April 2016) the bonus will also be subject to clawback, i.e. recovery of paid amounts for material fi nancial misstatement or conduct justifying summary dismissal. |
The Committee has the discretion to adjust the formulaic bonus outcomes both upwards (within the plan limits) and downwards, to ensure that payments are a true refl ection of performance over the performance period, e.g. in the event of unforeseen circumstances outside management control. |
||||
| Details of the measures, weightings and targets applicable for the fi nancial year under review are provided in the Annual Report on Remuneration. |
| Long-term Incentive Plan (LTIP): To motivate and retain executives and senior managers to deliver the Group's | |
|---|---|
| strategy and long-term goals and to help align executive and shareholder interests |
| OPERATION | OPPORTUNITY | PERFORMANCE METRICS |
|---|---|---|
| Executive directors and senior employees may be granted awards annually, as determined by the Committee. The vesting of these awards is subject to the attainment of performance conditions. Awards are in the form of Group shares. Dividends accrue over the vesting period but would be paid only on shares that vest. Awards made under the LTIP have a performance and vesting period of at least three years. If no entitlement has been earned at the end of the relevant performance period, then the awards will lapse. Once vested awards may, at the discretion of the Committee, be subject to further holding in whole, or in part, for a period of up to two years following the end of the performance period. The Group's current policy is for 50% to be released immediately (subject to continued employment), 25% after a further year and 25% after two more years. Malus provisions exist which entitle the Committee to reduce the fi nal award or deem it to have lapsed during the period between the granting and end of the later of the vesting or holding period, if there has been material misstatement, gross misconduct or something which causes signifi cant reputational damage to the Group. From 2015, LTIP awards will also be subject to clawback, i.e. recovery of vested awards for material fi nancial misstatement or conduct justifying summary dismissal. |
The maximum award limit in normal circumstances under the 2011 Long Term Incentive Plan will be 150% of salary (up to 200% in exceptional circumstances). The Committee's current intention is to grant awards of 150% of salary to the Group Chief Executive and 120% of salary to the Group Finance Director. Threshold performance will result in vesting of 25% of maximum under each element. |
Vesting of LTIP awards will be subject to continued employment and performance over a period of at least three years. The performance measures for 2014 onwards are EPS, share price and ROCE, weighted 50%, 25% and 25% respectively. The Committee has the discretion to adjust the performance measures and weightings up to +/- 25% to ensure they continue to be linked to the delivery of Group strategy. In addition to the Group achieving its EPS, share price and ROCE targets, the Committee must satisfy itself that the recorded outcome is a fair refl ection of the underlying performance of the Group. The Committee has discretion (within the limits of the scheme) to adjust the formulaic performance outcomes to ensure that payments fairly refl ect underlying performance over the period. Adjustments may be upwards or downwards. Details of LTIP targets are included in the Annual Report on Remuneration. |
OVERVIEW
The Group will honour any commitment entered into, and executive directors will be eligible to receive payment from any award made, prior to the approval and implementation of the remuneration policy detailed in this report, including previous awards under the LTIP. Details of any such awards are disclosed in the Annual Report on Remuneration.
The Committee may apply discretion as detailed below. Under each element of remuneration, a full description of how discretion can be applied is set out in line with the UK reporting requirements:
¤ To ensure fairness and align executive remuneration with individual and underlying company performance the Committee may adjust up or down the outcome of the annual bonus and LTIP. Any adjustments in light of 'non-regular events' (including, but not limited to, corporate events, changes in the Group's accounting policies, minor or administrative matters, internal promotions, external recruitment and terminations of employment) are expected to be made on a 'neutral' basis – i.e. adjustments will be designed so that the event is not expected to be to the benefi t or the detriment of participants. Adjustments to incentives to ensure that outcomes refl ect underlying performance may be made in exceptional circumstances to help ensure outcomes are fair to shareholders and participants.
The measures used in the annual bonus are selected annually to refl ect the Group's main business priorities for the year, and capture both fi nancial and non-fi nancial objectives. Group fi nancial performance targets relating to the annual bonus plan are based around the Group's annual budget, which is reviewed and approved by the Board prior to the start of each fi nancial year. Underlying profi t before tax and underlying free cash fl ow are typically used as the key fi nancial performance measures in the annual bonus plan because they are clear and well-understood measures of Group performance.
Performance targets are reviewed annually and set to be stretching and achievable, taking into account the Group's resources, strategic priorities and the economic environment in which the Group operates. Targets are set taking into account a range of internal and external reference points, including the Group's strategic plan and broker forecasts for both the Group and sector peers. The Committee believes that the performance targets are stretching, and that to achieve maximum outcomes requires truly outstanding performance.
The Committee considers the combination of three-year EPS growth, ROCE improvement and share price growth in the LTIP to be key indicators of success for the Group. These measures are transparent, visible and motivational to participants, balance growth and returns, and provide good line-of-sight for executives and alignment with shareholders.
The Group's approach to annual salary reviews is broadly consistent across the Group, with consideration given to the scope of the role, level of experience, responsibility, individual performance and pay levels for comparable roles in comparable companies. The broader Remuneration Policy across the Group is also consistent with that set out in this report for the executive directors. For example, remuneration is linked to Group and individual performance in a way that is ultimately aimed at reinforcing the delivery of shareholder value.
Senior employees generally participate in an annual bonus scheme with a similar structure to that described for the executive directors. Opportunities and specifi c performance conditions vary by organisational level, with business area-specifi c metrics incorporated where appropriate.
Members of the Group Executive Committee and other senior managers participate in the LTIP on a similar basis to, but at lower levels than, executive directors.
All UK employees are eligible to participate in the Sharesave Scheme on the same terms.
The Committee recognises the importance of executive directors aligning their interests with shareholders through building up signifi cant shareholdings in the Group. Share ownership guidelines are in place that require executive directors to acquire a holding equivalent to 100% of their salaries over fi ve years. Executive directors are required to retain 50% of any LTIP and deferred bonus shares acquired on vesting (net of tax) until they reach their ownership guideline.
In the cases of hiring or appointing a new executive director, the Committee may make use of any of the existing components of remuneration, as described in the Policy Table on pages 78 and 79. The maximum limits for variable pay (excluding buy-outs) will be as for existing executive directors.
In determining the appropriate remuneration for a new executive director, the Committee will take into consideration all relevant factors (including the overall quantum and nature of remuneration, and the jurisdiction from which the candidate is being recruited) to ensure that all such arrangements are in the best interests of Shanks Group and its shareholders.
The Committee may also make an award in respect of a new appointment to buy-out incentive arrangements forgone on leaving a previous employer on a like-for-like basis, in addition to providing the normal remuneration elements.
In constructing a buy-out, the Committee will consider all relevant factors including time to vesting, any performance conditions attached to awards, and the likelihood of those conditions being met.
Any such buy-out awards will typically be made under the existing annual bonus and LTIP schemes, although in exceptional circumstances the Committee may exercise the discretion available under the FCA Listing Rule 9.4.2 R to make awards using a different structure. Any buy-out awards would have a fair value no higher than that of the awards forgone.
In cases of appointing a new executive director by way of internal promotion, the Committee will determine remuneration in line with the policy for external appointees. Where an individual has contractual commitments made prior to promotion to the Board, the Group will continue to honour these. Incentive opportunities for below Board employees are typically no higher than for executive directors, but measures may vary to ensure they are relevant to the role.
In recruiting a new non-executive director, the Committee will use the policy as set out in the table on page 83. A base fee in line with the prevailing rate for Board membership would be payable, with additional fees payable for acting as Senior Independent Director or Chairman of a Committee, as appropriate.
The charts on the right provide an estimate of the potential future reward opportunities for the executive directors, and the potential split between the different elements of remuneration under three different performance scenarios: 'Minimum', 'On-target' and 'Maximum'.
Service contracts and exit payment policy
MAXIMUM
ON-TARGET
MINIMUM
KEY
the relevant period.
policy with regard to the notice period for executive directors is one year's written notice from the Group and from the individual. The contracts provide for an obligation to pay salary plus contractual benefi ts for any portion of the notice period waived by the Group. The Group has the ability to pay such sums in instalments, requiring the director to mitigate loss (for example, by gaining new employment) over
Salary, pension and benefi ts
38%
43%
Annual bonus Long-term incentives
32%
46%
100%
EXECUTIVE DIRECTOR DATE OF SERVICE
Peter Dilnot 1 February 2012 Toby Woolrych 27 August 2012
If employment is terminated by the Group, the departing executive director may have a legal entitlement (under statute or otherwise) to certain payments, which would be met.
CONTRACT
Potential reward opportunities are based on our Remuneration Policy, applied to basic salaries as at 1 April 2015. Note that the projected values exclude the impact of any share price movements and dividends.
The 'Minimum' scenario shows basic salary, pension and benefi ts (i.e. fi xed remuneration). These are the only elements of the executive directors' remuneration packages which are not at risk.
The 'on-target' scenario refl ects fi xed remuneration as above, plus a target bonus of 80% of maximum and threshold LTIP vesting of 25%.
The 'Maximum' scenario refl ects fi xed remuneration plus full pay out of all incentives, excluding any share price appreciation and dividends (as per the regulations).
30%
11%
£1,176
£821
£376
director in connection with the termination of employment, where the Group wishes to enter into a settlement agreement (as provided for below), and the individual must seek independent legal advice.
In certain circumstances, the Committee may approve new contractual arrangements with departing executive directors including (but not limited to) settlement, confi dentiality, restrictive covenants and/or consultancy arrangements. These will be used sparingly and only entered into where the Committee believes that it is in the best interests of the Group and its shareholders to do so.
When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders and participants. The table on page 82 summarises how the awards under the annual bonus and LTIP are typically treated in different circumstances, with the fi nal treatment remaining subject to the Committee's discretion:
81
OVERVIEW
| SCENARIO | TIMING OF VESTING | TREATMENT OF AWARDS |
|---|---|---|
| ANNUAL CASH BONUS | ||
| Ill-health, disability, death, retirement (with Group consent) or any other reasons the Committee may determine in its absolute discretion. |
Normal payment date, although the Committee has discretion to accelerate. |
Cash bonuses will only be paid to the extent that Group and personal objectives set at the beginning of the year have been achieved. Any resulting bonus will generally be pro-rated for time served during the year. |
| Change of control. | Immediately. | Performance against targets will be assessed at the point of change of control and any resulting bonus will generally be pro-rated for time. |
| Any other reason. | Not applicable. | No bonus is paid. |
| DEFERRED ANNUAL BONUS (DAB) | ||
| Ill-health, disability, death, retirement (with Group consent) or any other reasons the Committee may determine in its absolute discretion. |
Normal payment date, although the Committee has discretion to accelerate. |
Any outstanding DAB awards will generally be pro-rated for time. |
| Change of control. | Immediately. | Any outstanding DAB awards will generally be pro-rated for time. |
| Any other reason. | Not applicable. | Awards lapse. |
| LONG TERM INCENTIVE PLAN (LTIP) | ||
| Ill-health, disability, death, retirement (with Group consent) or any other reasons the Committee may determine in its absolute discretion. |
Normal vesting date, although the Committee has discretion to accelerate. |
Any outstanding LTIP awards will generally be pro-rated for time and performance. |
| Change of control. | Immediately. | Any outstanding LTIP awards will generally be pro-rated for time and performance, subject to the Committee's discretion. |
| In the event of a change of control, awards may alternatively be exchanged for new equivalent awards in the acquirer where appropriate. |
||
| Any other reason. | Not applicable. | Awards lapse. |
The non-executive directors do not have service contracts as their terms of engagement are governed by letters of appointment. These letters and the Company's Articles of Association make provision for annual renewal at each AGM. Details of the non-executive directors' terms of appointment are shown in the table on the right. The appointment and reappointment and the remuneration of nonexecutive directors are matters reserved for the full Board.
The non-executive directors are not eligible to participate in the Group's performancerelated incentive plans and do not receive any pension contributions.
| NON-EXECUTIVE DIRECTOR | INITIAL AGREEMENT DATE | RENEWAL DATE |
|---|---|---|
| Adrian Auer | 16 May 2005 | 31 July 2015 |
| Jacques Petry | 30 September 2010 | 31 July 2015 |
| Stephen Riley | 29 March 2007 | 31 July 2015 |
| Eric van Amerongen | 9 February 2007 | 31 July 2015 |
| Marina Wyatt | 2 April 2013 | 31 July 2015 |
Details of policy on fees paid to non-executive directors are set out in the table below:
Chairman of the Board's Committees (Audit and Remuneration). Fee levels are reviewed by reference to FTSE-listed companies of similar size and complexity. The required time commitment and responsibilities are taken
into account when reviewing fee levels.
| OBJECTIVE | OPERATION | OPPORTUNITY | PERFORMANCE MEASURES |
|---|---|---|---|
| To attract and retain non-executive directors of the highest calibre with broad commercial and other |
Fee levels are reviewed annually, with any adjustments effective 1 April each year. The fee paid to the Chairman is determined by the Committee, and fees to |
Non-executive director fee increases are applied in line with the outcome of the review. Fees in respect of the year under review, and for the following year, are disclosed in the Annual Report on Remuneration. |
None. |
| experience relevant to the Group. | non-executive directors are determined by the Board. Additional fees are payable for acting as Senior Independent Director and as |
It is expected that any increases to non-executive director fees will normally be in line with those for salaried employees. However, in the event that there |
| OPPORTUNITY | |||
|---|---|---|---|
It is expected that any increases to non-executive director fees will normally be in line with those for salaried employees. However, in the event that there is a material misalignment with the market or a change in the complexity, responsibility or time commitment required to fulfi l a non-executive director role, the Board has discretion to make an appropriate adjustment to the fee level.
The Committee acknowledges that executive directors may be invited to become non-executive directors of other quoted companies which have no business relationship with the Group and that these duties can broaden their experience and knowledge to the benefi t of the Group. Executive directors are limited to holding one such position, and the policy is that fees may be retained by the director, refl ecting the personal risk assumed in such appointments. No external appointments were held by the executive directors during the year.
Although the Committee does not consult directly with employees on executive Remuneration Policy, the Committee does consider general basic salary increases across the Group, remuneration arrangements and employment conditions for the broader employee population when determining Remuneration Policy for the executive directors.
When determining executives' remuneration, the Committee takes into account views of shareholders and best practice guidelines issued by institutional shareholder bodies. The Committee is always open to feedback from shareholders on Remuneration Policy and arrangements, and commits to undergoing shareholder consultation in advance of any signifi cant changes to Remuneration Policy.
The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure the structure of the executive remuneration remains appropriate.
Further detail of the votes received in relation to the Policy Report and the Annual Report on Remuneration at the 2014 AGM is provided in the Annual Report on Remuneration on page 84.
OVERVIEW
The following section provides details of how our Remuneration Policy was implemented during the fi nancial year ended 31 March 2015.
The role of the Committee is to:
The Committee's full terms of reference are set out on the Group's website.
As of 31 March 2015, the Committee comprised fi ve independent non-executive directors:
Only members of the Committee have the right to attend Committee meetings. Other individuals, such as the Group Chief Executive, Group HR Director and external consultants, advise the Committee and may attend from time to time by invitation. The Company Secretary acts as secretary to the Committee. No individuals are involved in decisions relating to their own remuneration.
The Remuneration Committee met twice during the year and details of members' attendance at meetings are provided in the Corporate Governance section on page 73.
Kepler Associates Partnership LLP (Kepler) provided independent advice to the Committee relating to executive remuneration and benefi ts during the year. Kepler is a member of the Remuneration Consultants Group and is a signatory to the Code of Conduct for consultants to Remuneration Committees of UK-listed companies, details of which can be found at www.remunerationconsultantsgroup.com. Kepler adheres to this Code of Conduct.
In 2014/15 Kepler provided independent advice on remuneration for executives, remuneration benchmarking data and regular market and best practice updates. Kepler reports directly to the Chairman of the Committee and provides no other services to the Group. Their total fees for the provision of remuneration services to the Committee in 2014/15 were £49,000 plus VAT on the basis of time and materials
The Committee undertakes due diligence periodically to ensure that Kepler remains independent of the Group and that the advice provided is impartial and objective. The Committee is satisfi ed that the advice provided by Kepler is independent.
| REMUNERATION POLICY | TOTAL NUMBER OF VOTES | % OF VOTES CAST |
|---|---|---|
| For (including discretionary) | 280,656,244 | 97.9% |
| Against | 6,030,596 | 2.1% |
| Total votes cast (excluding withheld votes) | 286,686,840 | 100% |
| Votes withheld | 10,225,806 |
| ANNUAL REPORT ON REMUNERATION | TOTAL NUMBER OF VOTES | % OF VOTES CAST |
|---|---|---|
| For (including discretionary) | 284,704,516 | 97.9% |
| Against | 6,232,406 | 2.1% |
| Total votes cast (excluding withheld votes) | 290,936,922 | 100% |
| Votes withheld | 5,975,724 |
The table below sets out a single fi gure for the total remuneration received by each executive director for the year ended 31 March 2015 and the prior year.
| PETER DILNOT | TOBY WOOLRYCH | |||
|---|---|---|---|---|
| 2013/14 £000 |
2014/15 £000 |
2013/14 £000 |
2014/15 £000 |
|
| Basic salary | 433 | 443 | 283 | 290 |
| Taxable benefi ts1 | 27 | 27 | 21 | 21 |
| Pension2 | 108 | 111 | 57 | 58 |
| Single-year variable3 | 285 | 313 | 186 | 205 |
| Multiple-year variable4 | – | – | – | – |
| Other5 | 7 | 8 | 5 | 46 |
| TOTAL | 860 | 902 | 552 | 620 |
1 Taxable benefi ts comprise car allowance and medical insurance.
2 During the year, Peter Dilnot and Toby Woolrych received cash supplements in lieu of pension contribution of 25% and 20% of salary respectively.
3 Payment for performance during the year under the annual bonus, and includes any deferred annual bonus. (See following sections for further details.)
4 Includes any LTIP awards based on the value at vesting of shares vesting on performance over the three-year period ending 31 March 2015 for 2014/15, and for shares vesting on performance over the three-year period ending 31 March 2014 for 2013/14.
5 Includes Sharesave awards, valued based on embedded gain at grant, life assurance and income protection. For Toby Woolrych, this also includes a temporary salary supplement of £4,160 per month between 1 June 2014 and 31 March 2015 for taking on additional responsibilities as interim Managing Director for the Belgium Solid Waste business, in addition to his current role as Group Finance Director.
The table below sets out a single fi gure for the total remuneration received by each non-executive director for the year ended 31 March 2015 and the prior year.
| BASE FEE | ADDITIONAL FEES | TOTAL | ||||
|---|---|---|---|---|---|---|
| 2013/14 £000 |
2014/15 £000 |
2013/14 £000 |
2014/15 £000 |
2013/14 £000 |
2014/15 £000 |
|
| Adrian Auer (Chairman) | 113 | 116 | – | – | 113 | 116 |
| Jacques Petry | 38 | 39 | – | – | 38 | 39 |
| Stephen Riley | 38 | 39 | – | – | 38 | 39 |
| Eric van Amerongen1 | 52 | 39 | – | 12 | 52 | 51 |
| Marina Wyatt2 | 38 | 39 | 7 | 7 | 45 | 46 |
1 Eric van Amerongen's additional fees comprise £5,000 for his role as the Senior Independent Director and £7,000 for his Chairmanship of the Remuneration Committee. His fees in 2013/2014 were paid in euros but stated above in sterling at an exchange rate of £1:€1.1839. His fees are now set in sterling and paid in euros each month at the prevailing monthly exchange rate. 2 Marina Wyatt's additional fee comprises £7,000 for her chairmanship of the Audit Committee.
OVERVIEW
For the year to 31 March 2015, the maximum bonus potential for executive directors was 150% of basic salary. 75% of the bonus was based on fi nancial performance and 25% on the achievement of personal objectives.
Based on the fi nancial performance of the Group during the year, a bonus of 37.5% of salary was payable for the fi nancial element. Based on the achievement of personal objectives, the Committee determined that overall bonuses of 70.5% of salary be awarded to both Peter Dilnot and
Toby Woolrych, representing £312,608 for Peter Dilnot and £204,697 for Toby Woolrych.
Further details of the bonuses paid for 2014/15, including performance against each of the metrics, are provided in the table below.
The specifi c targets for the year are deemed to be commercially sensitive and are not disclosed in this report but will be disclosed retrospectively in the next annual report.
| MEASURE | WEIGHTING | ACTUAL PERFORMANCE | BONUS PAYOUT (% OF MAX) |
|---|---|---|---|
| Underlying Profi t before tax | 50% | Below threshold and target | 0% |
| Underlying free cash fl ow | 25% | Target has been achieved | 100% |
The personal performance measures were based on individual objectives, as detailed below:
| EXECUTIVE DIRECTOR | PERSONAL OBJECTIVES DURING THE YEAR | BONUS PAYOUT (% OF MAX) |
|---|---|---|
| Peter Dilnot | Develop and communicate refreshed Group strategy; defi ne portfolio management plan; deliver commercial effectiveness programme and cost savings; talent management and succession planning; investor relations; drive health and safety improvements |
88% |
| Toby Woolrych | Defi ne portfolio management plan; deliver commercial effectiveness gains and cost savings; investor relations; improve Group controls processes; develop Shanks' Belgium organisation; drive health and safety improvements |
88% |
| EXECUTIVE DIRECTOR | FINANCIAL ELEMENT BONUS OUTCOME (% OF SALARY) |
PERSONAL ELEMENT BONUS OUTCOME (% OF SALARY) |
OVERALL BONUS OUTCOME (% OF SALARY) |
|---|---|---|---|
| Peter Dilnot | 37.5% | 33% | 70.5% |
| Toby Woolrych | 37.5% | 33% | 70.5% |
One third of the bonus was awarded in shares, which will vest 50%, 25% and 25% in 2018, 2019 and 2020 respectively.
Peter Dilnot and Toby Woolrych were granted awards under the 2012-2015 LTIP cycle of circa 200% and 150% of salary respectively. Vesting was dependent on three year adjusted underlying EPS and share price performance. Further details, including vesting schedules and performance against targets, are provided in the table below:
| PERFORMANCE MEASURE |
PERFORMANCE TARGETS |
ACTUAL PERFORMANCE |
VESTING OUTCOME (% OF MAXIMUM) |
|---|---|---|---|
| EPS growth | 0% vesting for EPS growth below 7% p.a. 5% vesting for EPS growth of 7% p.a. 50% vesting for EPS growth of 25% p.a. or more Straight line vesting between these points |
<7% | 0% |
| Share price growth | 1x multiplier for share price growth at or below 15% p.a. 2x multiplier for share price growth of 25% p.a. or more Straight line vesting between these points |
<15% | 0% |
| TOTAL LTIP VESTING | 0% |
Share price growth was calculated using three-month average share prices immediately prior to the start and end of the performance period. The three-year period over which performance was measured ended on 31 March 2015. Having failed to achieve the performance targets, the award has not vested and therefore has been deemed to have lapsed.
In May 2014, Peter Dilnot and Toby Woolrych were granted awards under the 2011 LTIP with a face value of circa 150% and circa 120% of their respective 2014/15 salaries. The three-year period over which performance will be measured began on 1 April 2014 and will end on 31 March 2017. Performance will be assessed 50% on EPS, 25% on share price and 25% on ROCE over the three-year performance period. 25% of maximum is payable for threshold performance. Detail on performance targets is provided in the table opposite. For any shares to vest, the Committee will also need to satisfy itself that the recorded outcome is a fair refl ection of the overall performance of the Group over the period.
50% of vested awards will be released immediately (subject to continued employment), 25% after a further year and 25% after two years.
| MEASURE | WEIGHTING | TARGETS |
|---|---|---|
| EPS CAGR | 50% | 0% vesting below 5% p.a. 25% vesting for 5% p.a. 50% vesting for 10% p.a. 100% vesting for 15% p.a. Straight-line vesting between these points |
| Share price CAGR | 25% | 0% vesting below 9% p.a. 25% vesting for 9% p.a. 50% vesting for 13% p.a. 100% vesting for 17% p.a. Straight-line vesting between these points |
| Improvement in ROCE 25% |
0% vesting below +0.5% 25% vesting for +0.5% 100% vesting for +2.0% Straight-line vesting between these points |
|
| EXECUTIVE DIRECTOR |
DATE OF GRANT | AWARDS MADE MARKET PRICE AS GRANT DURING THE PER PLAN RULES VALUE YEAR (SHARES) |
Peter Dilnot 29 May 2014 652,000 102p £665,040 Toby Woolrych 29 May 2014 341,000 102p £347,820
No exit payments or payments to past directors were made in the year.
OVERVIEW
Market positioning of basic salary is reviewed on an individual basis, taking account of the individual performance and experience of each executive director and advice received from the Committee's independent advisers on remuneration levels for similar roles in comparable companies.
The Committee approved the following basic salary increases with effect from 1 April 2015:
| EXECUTIVE DIRECTOR |
BASIC SALARY AT 1 APRIL 2014 |
BASIC SALARY FROM 1 APRIL 2015 |
PERCENTAGE INCREASE |
|---|---|---|---|
| Peter Dilnot | £443,415 | £452,285 | 2% |
| Toby Woolrych | £290,350 | £296,160 | 2% |
The Group Chief Executive and Group Finance Director receive a cash supplement in lieu of pension of 25% and 20% of salary, respectively, or an equivalent pension contribution.
The maximum annual bonus opportunity for executive directors in 2015/16 will be 150% of salary, with one third of any bonus pay out deferred into shares vesting 50% after three years, 25% after four years and 25% after fi ve years. Pay out for achievement of target performance will be 80% of maximum.
Bonuses will be based 50% on underlying profi t before tax, 25% on underlying free cash fl ow and 25% on personal objectives. Proposed target levels have been set to be challenging relative to the 2015/16 business plan, although specifi c targets are deemed to be commercially sensitive and will be disclosed retrospectively in the 2015/16 annual report.
The Committee intends that LTIP awards granted in 2015 will have the same performance conditions as those granted in 2014. Vesting is based on achievement of EPS, share price and ROCE targets (combined additively), as detailed on page 87. The EPS measure used is adjusted underlying EPS. The same basis for adjustments is used for both vesting and base year EPS numbers for LTIP awards to ensure consistency. LTIP opportunities are 150% of salary for the Group Chief Executive and 120% of salary for the Group Finance Director.
The proportion vesting for threshold performance for these awards is 25% of maximum. Vested shares will be subject to an additional two-year holding period post-vesting.
For any shares to vest, the Committee will also need to satisfy itself that the recorded outcome is a fair refl ection of the overall performance of Shanks over the period.
As mentioned in the Chairman's annual statement, clawback is being introduced to the annual bonus for the performance year ending 31 March 2016 and for LTIP awards being made in 2015.
| 2014/15 | 2015/16 | ||
|---|---|---|---|
| Base fees | |||
| Chairman | £116,000 | £118,320 | |
| Non-executive director | £39,000 | £39,780 | |
| Additional fees | |||
| Audit Committee Chair | £7,000 | £7,140 | |
| Remuneration Committee Chair | £7,000 | £7,140 | |
| Senior Independent Director | £5,000 | £5,100 |
Following a review of Board fees, and taking into account salary increases across the Group, the Board determined to apply a 2% increase to the fees payable to the non-executive directors. The Committee, in considering similar factors, determined that the fee payable to the Chairman of the Board also be increased by 2%. A summary of the fee increases, which are effective from 1 April 2015, is set out in the table on the right:
The table below shows the percentage change in the Group Chief Executive's remuneration from the prior year compared to the average percentage change in remuneration for all UK-based employees. This group was selected because
the Committee believes it provides a suffi ciently large comparator group to give a reasonable understanding of underlying increases that are based on similar incentive structures, whilst on the other hand reducing any distortion arising from including all of the geographies in which the Group operates, with their different economic conditions. To provide a meaningful comparison, the analysis includes all UK based employees and is based on a consistent set of employees.
| GROUP CHIEF EXECUTIVE | OTHER EMPLOYEES | |||
|---|---|---|---|---|
| 2013/14 £000 |
2014/15 £000 |
% CHANGE |
% CHANGE |
|
| Salary | 433 | 443 | 2% | 2% |
| Taxable benefi ts | 27 | 27 | 0% | 0% |
| Single-year variable | 285 | 313 | 10% | 40% |
| Total | 745 | 783 | 5% | 4% |
The table shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends and share buy-backs) from the fi nancial year ended 31 March 2014 to the fi nancial year ended 31 March 2015.
The Directors are proposing a fi nal dividend for the year ended 31 March 2015 of 2.35 pence per share (2014: 2.35 pence).
The graph to the right shows the Total Shareholder Return (TSR) of the Group over the six-year period to 31 March 2015. Whilst there is no comparator index or group of companies that truly refl ects the activities of the Group, the FTSE Support Services Sector has been selected as a comparator index as it is the sector in which Shanks is classifi ed and tends to be the index against which analysts judge the performance of the Group. The Group is also a member of the FTSE All-Share Index. The table on page 90 details the Group Chief Executive's single fi gure remuneration and actual variable pay outcomes over the same period.
Growth in the value of a hypothetical £100 holding over the six years to 31 March 2015
OVERVIEW
LTIP vesting outcome (% of maximum) 0% 0% 0%
| 2009/10 | 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | |
|---|---|---|---|---|---|---|
| PETER DILNOT1 | ||||||
| Group Chief Executive single fi gure of remuneration (£000) | 157 | 657 | 860 | 902 | ||
| Annual bonus outcome (% of maximum) | 87% | 19% | 66% | 70.5% | ||
| LTIP vesting outcome (% of maximum) | – | 0% | 0% | 0% | ||
| TOM DRURY2 | ||||||
| Group Chief Executive single fi gure of remuneration (£000) | 663 | 840 | 284 | |||
| Annual bonus outcome (% of maximum) | 38% | 69% | 0% |
Peter Dilnot was appointed as Group Chief Executive on 1 February 2012.
Tom Drury resigned as Group Chief Executive on 30 September 2011.
The interests of the directors and their families in the ordinary shares of the Group during the year and as at 21 May 2015 were as shown on the right.
Details of directors' interests in shares and options under the long-term incentive schemes are set out in the sections below.
| ORDINARY SHARES AT 1 APRIL 2014 |
ORDINARY SHARES AT 31 MARCH 2015 AND 21 MAY 2015 |
|
|---|---|---|
| Peter Dilnot | 72,191 | 83,210 |
| Toby Woolrych | 14,757 | 27,493 |
| Adrian Auer | 103,333 | 123,333 |
| Jacques Petry | – | – |
| Stephen Riley | 20,000 | 20,000 |
| Eric van Amerongen | – | – |
| Marina Wyatt | – | – |
The table below shows the shareholding of each executive director, against their respective shareholding requirement as at 31 March 2015:
| SHARES HELD | OPTIONS HELD | |||||||
|---|---|---|---|---|---|---|---|---|
| OWNED OUTRIGHT OR VESTED |
VESTED BUT SUBJECT TO HOLDING PERIOD |
UNVESTED AND SUBJECT TO PERFORMANCE CONDITIONS |
VESTED BUT NOT EXERCISED |
UNVESTED AND SUBJECT TO CONTINUOUS EMPLOYMENT |
SHAREHOLDING REQUIREMENT (% SALARY) |
CURRENT SHAREHOLDING (% SALARY) |
REQUIREMENT MET? |
|
| Peter Dilnot | 83,210 | – | 1,689,000 | – | 23,042 | 100% | 19% | No |
| Toby Woolrych | 27,493 | – | 850,000 | – | 23,042 | 100% | 10% | No |
Shareholdings were calculated using the mid-market price at 31 March 2015 of 105.75 pence.
1 Share ownership guidelines of 100% of salary to be achieved over fi ve years were introduced for executive directors last year to further align their interests with those of shareholders.
The executive directors are currently working towards meeting these guidelines.
The executive directors have been made notional allocations of shares under the Group's Long Term Incentive Plan:
| OUTSTANDING AWARDS AT 31 MARCH 2014 |
AWARDS MADE DURING THE YEAR |
AWARDS LAPSED DURING THE YEAR1 |
AWARDS EXERCISED DURING THE YEAR |
OUTSTANDING AWARDS AT 31 MARCH 20152 |
DATE OF AWARD |
SHARE PRICE ON DATE OF AWARD (PENCE) |
PERFORMANCE PERIOD END |
RESTRICTED PERIOD END |
|
|---|---|---|---|---|---|---|---|---|---|
| 1,091,000 | – | 1,091,000 | – | – | 01.08.12 | 79.27 | 31.03.15 | 01.08.15 | |
| Peter Dilnot | 1,037,000 | – | – | – | 1,037,000 | 07.06.13 | 83.42 | 31.03.16 | 07.06.16 |
| – | 652,000 | – | – | 652,000 | 29.05.14 | 102 | 31.03.17 | 31.03.19 | |
| 470,000 | – | 470,000 | – | – | 28.08.12 | 90.33 | 31.03.15 | 28.08.15 | |
| Toby Woolrych | 509,000 | – | – | – | 509,000 | 07.06.13 | 83.42 | 31.03.16 | 07.06.16 |
| – | 341,000 | – | – | 341,000 | 29.05.14 | 102 | 31.03.17 | 31.03.19 |
1 Performance conditions not met 31 March 2015.
2 The performance conditions relating to the vesting of outstanding awards are shown on page 87.
3 One third of the annual bonus for the year ended 31 March 2015 is awarded in deferred shares under the Deferred Annual Bonus Scheme.
These were not awarded at the time of publication and will be included in next year's report.
The executive directors held options to subscribe for ordinary shares under the Shanks Group plc Savings Related Share Option Scheme:
| DATE OF GRANT |
NORMAL EXERCISE DATES FROM |
NORMAL EXERCISE DATES TO |
OPTION PRICE (PENCE)1 |
NUMBER AT 1 APRIL 2014 |
GRANTED IN YEAR |
LAPSED IN YEAR |
EXERCISED IN YEAR |
NUMBER AT 31 MARCH 2015 |
|
|---|---|---|---|---|---|---|---|---|---|
| 20.09.12 | 01.11.15 | 30.04.16 | 73.0 | 12,328 | – | – | – | 12,328 | |
| Peter Dilnot | 25.09.14 | 01.11.17 | 30.04.18 | 84.0 | – | 10,714 | – | – | 10,714 |
| 20.09.12 | 01.11.15 | 30.04.16 | 73.0 | 12,328 | – | – | – | 12,328 | |
| Toby Woolrych | 25.09.14 | 01.11.17 | 30.04.18 | 84.0 | – | 10,714 | – | – | 10,714 |
1 The option price is the price at which the option was granted. The price is set by the Remuneration Committee but is not less than 80% of the average market price of the shares over the last three dealing days immediately preceding the date of the invitation to subscribe.
The highest closing mid-market price of the ordinary shares of the Group during the year was 112 pence and the lowest closing mid-market price during the year was 86.25 pence. The mid-market price at the close of business on 31 March 2015 was 105.75 pence.
None of the directors had an interest in the shares of any subsidiary undertaking of the Group or in any signifi cant contracts of the Group.
By order of the Board
Eric van Amerongen Chairman of the Remuneration Committee 21 May 2015
OVERVIEW
Many of the matters described below are governed by the Company's Articles of Association (Articles) as well as by current legislation and regulations. The Articles can be found on the website at www.shanksplc. com/investor-centre/shareholder-information. Unless expressly specifi ed to the contrary in the Articles they may be amended by special resolution passed at a general meeting.
The Strategic Report set out on pages 2 to 67 provides a fair review of the Group's business for the year ended 31 March 2015. It also explains the objectives and strategy of the Group, its competition and the markets in which it operates, the principal risks and uncertainties it faces, the Group's fi nancial position, key performance indicators and likely future developments of the business. The Strategic Report was approved by a duly authorised committee of the Board on 21 May 2015 and signed on its behalf by the Company Secretary.
The Directors' Report comprises pages 68 to 95. The Directors' Report was approved by a duly authorised committee of the Board on 21 May 2015 and signed on its behalf by the Company Secretary.
Apart from the details of the Company's long term incentive plans, as set out in the Directors' Remuneration Report on pages 77 to 91, no further information requires disclosure for the purposes of complying with the Financial Conduct Authority's Listing Rule 9.8.4C.
The composition of the Board at the date of this Report, together with directors' biographical details, is shown on pages 68 and 69. All served on the Board throughout the fi nancial year under review and all will be offering themselves for reelection at the Company's AGM.
The Company shall appoint not less than two directors (disregarding alternate directors). The appointment and replacement of directors may be made as follows:
The business of the Company is managed by the Board which may exercise all the powers of the Company, whether relating to the management of the business of the Company or not. This power is subject to any limitations imposed on the Company by legislation. It is also limited by the provisions of the Articles and by any directions given by special resolution of the members of the Company. Specifi c provisions relevant to the exercise of powers by the directors include the following:
and the Listing Rules. Any shares which have been bought back may be held as treasury shares or, if not so held, must be cancelled immediately upon completion of the purchase, thereby reducing the amount of the Company's issued share capital. The Company received authority at the last AGM to purchase up to 39,772,397 ordinary shares. This authority lasts until the earlier of the AGM in 2015 or 30 September 2015; and
¤ borrowing powers – the directors are empowered to exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the Company's assets, provided that the aggregate amount of borrowings of the Group outstanding at any time does not exceed the limit set out in the Articles, unless sanctioned by an ordinary resolution of the Company's shareholders.
As at the date of this Report, the Company has granted indemnities to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out the role of a director of the Company. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006. In respect of those liabilities for which the directors may not be indemnifi ed, the Company maintained a Directors' and Offi cers' liability insurance policy throughout the fi nancial year and has renewed that policy.
The Board is fully committed to high standards of corporate governance. Details relating to the Company's compliance with the UK Corporate Governance Code for the fi nancial year are given in the Corporate Governance and Directors' Remuneration Reports on pages 70 to 91.
Shanks Group plc is a leading international waste-to-product company. Information on Corporate Responsibility (CR) matters including those on environment, social, community and employment policies and health and safety are set out in the Corporate Social Responsibility section on pages 29 to 33, and in the People section on pages 56 to 60 of the Strategic Report. These include disclosures on greenhouse gas emissions reporting as well as human
rights and gender diversity policies. Further details on the Company's approach to carbon avoidance and the benefi ts of sustainable waste management can also be found in the Group CR Report and CR Policy both of which are available on the Group website.
The Group's Consolidated Income Statement appears on page 102 and note 3 to the fi nancial statements shows the contribution to revenue and profi ts made by the different segments of the Group's business. The Group's loss for the year was £16.9m (2014: loss of £28.2m).
The directors recommend a fi nal dividend of 2.35 pence (2014: 2.35 pence) per share be paid on 31 July 2015 to ordinary shareholders on the register of members at the close of business on 3 July 2015. This dividend, if approved by shareholders, together with the interim dividend of 1.1 pence (2014: 1.1 pence) per share already paid on 9 January 2015, will make a total dividend for the year 3.45 pence per share (2014: 3.45 pence).
After making enquiries, the directors have formed the view, at the time of approving the fi nancial statements, that the Company and Group have adequate resources to continue in operational existence for the foreseeable future and that the Group's business is a going concern. For this reason the directors continue to adopt the going concern basis in preparing the fi nancial statements.
The Company's share capital comprises ordinary shares of 10 pence each par value. As at 31 March 2015 and as at the date of this Report there were 397,850,417 and 397,859,415 ordinary shares in issue respectively. During the year ended 31 March 2015 no ordinary shares were issued other than in respect of the exercise of options or awards under the Company's share schemes, details of which are given in note 7 to the fi nancial statements.
¤ Dividend rights – the Company may, by ordinary resolution, declare dividends but may not declare dividends in excess of the amount recommended by the directors. The directors may also pay interim dividends. No dividend may be paid other than out of profi ts available for distribution. Payment or satisfaction of a dividend may be made wholly or partly by distribution of assets, including fully paid shares or debentures of any other company. The directors may deduct from any dividend payable to a member all sums of money (if any) payable by such member to the Company in respect of their ordinary shares.
There are no limitations under the Company's Articles of Association that restrict the rights of members to hold the Company's shares. Certain restrictions may from time to time be imposed on the 93
OVERVIEW
transfer of the Company's shares by laws and regulations such as insider trading laws. In limited situations, as permitted by the Articles, the Board may also decline to register a transfer. The Company is not aware of any agreements between holders of its shares that may result in restrictions on the transfer of securities.
The Company operates a number of employee share schemes. Under one of those schemes, ordinary shares may be held by trustees on behalf of employees. Employees are not entitled to exercise directly any voting or other control rights in respect of any shares held by such trustees. The trustees have full discretion to vote or abstain from voting at general meetings of the Company in respect of such shares.
The Company has been notifi ed of direct and indirect interests in voting rights equal to or exceeding 3% of the ordinary share capital of the Company as set out in the table on page 95.
As at 31 March 2015 the Company had in issue two Retail Bonds: the fi rst, comprising €100m 5% guaranteed notes due 22 October 2015; and the second, comprising €100m 4.23% guaranteed notes due 30 July 2019. There are no restrictions under the instruments governing these notes that restrict the rights of investors to hold or transfer them. The Company is not aware of any agreements between the holders of the notes that may result in restrictions on their transfer.
The Group's principal fi nancing instrument at 31 March 2015, a €180m multicurrency revolving credit facility with seven major banks, contains an option for those banks to declare by notice that all sums outstanding under that agreement are repayable immediately in the event of a change of control of the Company. Any such notice may take effect no earlier
than 30 days from the change of control and, if exercised at 31 March 2015, would have required the repayment of £32.6m (2014: £51.9m) in principal and interest.
The Group's Retail Bonds issued in October 2010 and July 2013 require notice to be given to bondholders within seven business days of a change of control following which the holders have an option to seek repayment at a 1% premium, within 60 days of that notice. Such repayment must be made within 10 business days of the expiry of the option period. If exercised at 31 March 2015, repayment of £146.2m (2014: £171.2m) in principal and interest would have been required.
The notes issued under the Group's 24 March 2011 private placement contain an option for the noteholders to enforce prepayment between 30 and 60 days from a change of control of outstanding principal and interest which would have amounted in total at 31 March 2015 to £28.9m (2014: £33.9m). In addition, a make-whole payment amounting to £4.8m (2014: £4.1m) which is not provided for in these fi nancial statements would be payable to private placement noteholders based on treasury yields at 31 March 2015.
The rules of the Company's employee share plans provide that awards and options may vest and become exercisable on a change of control of the Company.
The Group spent £206,000 (2014: £180,000) on research and development during the year. This related to the development of technologies for mapping landfi ll sites, optimising waste decomposition processes and the recovery of energy and materials through excavation techniques and waste pre-treatment.
No donations were made by the Group for political purposes during the fi nancial year (2014: £nil).
Notice of the AGM of the Company to be
held at the offi ces of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA on Thursday, 23 July 2015 at 11.00am will be made available to shareholders, together with a form of proxy, and will also be available on the Group website at www.shanksplc.com. The directors consider that all the AGM resolutions are in the best interests of the Company and they recommend unanimously that all shareholders vote in favour, as they intend to do in respect of their own shareholdings.
The directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the fi nancial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare fi nancial statements for each fi nancial year. Under that law the directors have prepared the Group and Parent Company fi nancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU).
Under company law, the directors must not approve the fi nancial statements unless they are satisfi ed that they give a true and fair view of the state of affairs of the Group and the Company and of the profi t or loss of the Group for that period. In preparing these fi nancial statements, the directors are required to:
| NOTIFIABLE INTERESTS | NOTIFICATIONS RECEIVED UP TO 31 MARCH 2015 |
|
|---|---|---|
| NUMBER OF SHARES |
PERCENTAGE | |
| Sterling Strategic Value Ltd | 24,025,000 | 6.04 |
| FIL Limited | 21,058,450 | 5.29 |
| Aberforth Partners LLP | 20,482,329 | 5.15 |
| Kabouter Management LLC | 20,136,840 | 5.06 |
| Schroders plc | 19,398,311 | 4.88 |
| Royal London Asset Management | 15,952,727 | 4.01 |
No further notifi cations were received between 31 March 2015 and 21 May 2015
The directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the fi nancial position of the Company and the Group and enable them to ensure that the fi nancial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group fi nancial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the UK governing the preparation and dissemination of fi nancial statements may differ from legislation in other jurisdictions.
The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.
Each of the directors, whose names and functions are listed on page 69 of the Annual Report confi rms that, to the best of their knowledge:
Philip Griffi n-Smith Company Secretary 21 May 2015
Shanks Group plc Registered in Scotland no. SC077438 OVERVIEW
95
In our opinion, Shanks Group plc's Group and Company fi nancial statements (the "fi nancial statements"):
Shanks Group plc's fi nancial statements comprise:
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the fi nancial statements. These are cross-referenced from the fi nancial statements and are identifi ed as audited.
The fi nancial reporting framework that has been applied in the preparation of the fi nancial statements is applicable law and IFRSs as adopted by the European Union.
¤ Overall Group materiality: £1.1million which represents 5% of the Group's adjusted profi t before tax.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)").
We designed our audit by determining materiality and assessing the risks of material misstatement in the fi nancial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of
signifi cant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including
the allocation of our resources and effort, are identifi ed as "areas of focus" in the table below. We have also set out how we tailored our audit to address these specifi c areas in order to provide an opinion on the fi nancial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identifi ed by our audit.
presentation of non-trading and exceptional items in the fi nancial statements for the year ended 31 March
OVERVIEW
2015 is appropriate.
| Area of focus | How our audit addressed the area of focus |
|---|---|
| ACCOUNTING FOR PROVISIONS | |
| The Group operates in different jurisdictions and in an industry that is heavily regulated and subject to change. | Our audit work on provisions as a whole comprised: |
| Non-compliance with laws and regulations has the potential to lead to litigation, penalties or fi nes and associated fi nancial or reputational damage. |
¤ Meeting with in-house legal counsel to determine the status of known claims against the Group and assess the appropriateness of the associated provisions held; |
| The Group has recognised long term landfi ll provisions for site restoration and aftercare of £32.9m at 31 March 2015. |
¤ Understanding the processes and controls in place to ensure compliance and a discussion of any instances of non-compliance in the year with management; |
| Separately the Group has other provisions of £14.6m principally comprising onerous contracts, warranties and indemnities. Due to their nature, all of these provisions are judgemental. Changes to the environment in which the Group operates can impact both the amounts required to settle the provision and the period over which the |
¤ Reading signifi cant contracts entered into by the Group to determine whether any other contracts, other than those identifi ed by management, are onerous; |
| provision is recognised. | ¤ Reading board minutes to identify any relevant matters reported to the board. |
| Certain onerous contract provisions have been reassessed in the year and the changes in these provisions | For the Group's long term provisions we: |
| recorded as exceptional items. | ¤ Discussed the basis of the calculation of the provision with management; ¤ Considered the appropriateness of the discount rates applied to the forecast future cash fl ows in |
| In addition, due to signifi cant declines in market risk free interest rates, the Group has reduced the discount rates applied to long term provisions. The effect of the change in discount rates has been accounted for as an |
light of market risk free rates and the nature of the risks in the future cash fl ows; and |
| exceptional charge of £7.1m. | ¤ Considered the estimation accuracy of the forecast spend on which the provision is based on our knowledge of the industry, the sites and contracts involved. |
| Having performed the procedures above we found that appropriate premia for the risks inherent in the cash fl ows had been included in the discount rates applied to each provision, which differed depending on the nature of the provision. |
|
| We also found that management had appropriately taken account of new information or changes in the year in calculating the closing provisions at the balance sheet date. |
|
| ACCOUNTING FOR TAXATION | |
| The Group has recognised £21.7m of a total potential deferred tax asset of £42.2m as at 31 March 2015. The amount of deferred tax asset recognised is judgemental and is determined by reference to future forecasts of taxable profi ts. |
As part of our work on deferred tax we have considered the appropriateness of management's assumptions and estimates in relation to the likelihood of generating suitable future taxable profi ts to support the recognition of deferred tax assets. Specifi cally we considered: |
| In the current year the Group has increased the level of the deferred tax asset recognised to represent | ¤ Board approved budgets and forecasts; |
| a greater amount of forecast taxable profi ts. This refl ects the greater visibility of profi ts under long term contracts in the UK municipal business. |
¤ The level of forecast profi ts by legal entity; and |
| Separately, a Group restructuring has been completed in the year, approved by all relevant tax authorities, | ¤ The historic level of utilisation of deferred tax assets. |
| which has led to an overall tax benefi t. | Having performed the procedures above we found that the level of deferred tax asset recognised at 31 March 2015 is reasonable. |
| Part of the reduction in the underlying effective tax rate is attributable to the impact of the Group restructuring. We utilised our specialist knowledge in this area to audit of the accuracy of the current tax balances recognised in the fi nancial statements. We did not fi nd any errors arising from our work. |
|
| ACCOUNTING FOR PFI/PPP CONTRACTS | |
| Under the terms of the Group's UK PFI/PPP agreements the Group has the obligation to renew and replace parts of the waste management facility as they wear out over the period of the operating contract. Such lifecycle expenditure is accounted for in accordance with IFRIC 12 which requires a provision for lifecycle expenditure to be built up as wear and tear occurs on the facility. |
We have considered the appropriateness of the accounting for lifecycle expenditure by considering the requirements of IFRIC 12, the nature of the expenditure to be incurred by the Group and the nature of its PFI/PPP contractual arrangements. We have audited the calculation of the amounts recognised, which included holding discussions with persons outside of the fi nance team to understand the methodology used to compile the forecasts of future lifecycle expenditure, and we are satisfi ed that the approach taken is in |
| During the year the Group has reassessed the carrying value of the provision required and recorded a £0.3m debit in exceptional items within the income statement relating to amounts that should have been provided |
accordance with the requirements of IFRS. |
| in prior years. Separately, the Group has contracts to operate assets which contain lifecycle obligations that are not accounted for in accordance with IFRIC 12. During the year, the Group has reassessed the allocation of revenue to meet lifecycle maintenance obligations and believes that the amount allocated historically should have been higher. This has led to the recognition of a £2.0m exceptional charge to revenue representing revenue recognised in the past that should have been deferred to future periods. |
We challenged management as to whether it was more appropriate to present the correction of the accounting treatment as a prior year adjustment, rather than as an exceptional item in the current year. We considered the quantum of the portion of the adjustment that relates to the prior year, together with that of the adjustment to associate income (see Accounting for joint ventures and associates below) and note that in aggregate they are not material to the prior year adjusted profi t before tax. Accordingly we are satisfi ed that it is appropriate for these adjustments to be accounted for in the current period as exceptional. |
OVERVIEW
| Area of focus | How our audit addressed the area of focus |
|---|---|
| ACCOUNTING FOR JOINT VENTURES AND ASSOCIATES | |
| The Group has adopted IFRS 11 "Joint Arrangements" and IFRS 12 "Disclosure of Interests in Other Entities" for the fi rst time in these fi nancial statements. IFRS 11 requires that entities account for interests in joint ventures and associates using the equity method. The standard must be applied retrospectively and accordingly comparative fi nancial information has been restated. Previously the Group accounted for such interests using proportional consolidation. IFRS 12 requires extensive new disclosures relating to the Group's interests in joint ventures, associates and joint arrangements. Separately, in relation to one of the Group's PFI related associates, the Group has recorded an exceptional credit of £4.4m in associate income, representing the additional profi ts that ought to have been recognised in prior years based on a reassessment of the appropriateness of the model used to calculate the payment profi le on the fi nancial asset under IFRIC 12. |
Our work in this area included: ¤ Consideration of the appropriateness of the classifi cation of the Group's joint arrangements as joint ventures or joint operations based on the guidance in IFRS 11; ¤ Consideration that the Group has accurately applied the requirements of equity accounting for its joint ventures and associates in the current year; ¤ Auditing the accuracy of the restatement of comparative information in relation to the change from proportional consolidation accounting to equity accounting for the Group's joint ventures; and ¤ Considering the adequacy of the disclosures made in the 2015 fi nancial statements in relation to the requirements of IFRS 12 by considering not only the quantum of the assets and liabilities on the Group's balance sheet, but also the gross assets and liabilities of the joint venture/associate and the nature of its operations. Having performed the procedures above we were satisfi ed that joint ventures and associates had been appropriately classifi ed and accounted for under the requirements of IFRS 11, and that comparative information was accurately restated where applicable. As none of the individual investments in joint arrangements or associates are qualitatively or quantitatively material to the Group, no separate disclosure of the results of these entities was required in terms of IFRS 12. In relation to the £4.4m adjustment to income from associates we considered the appropriateness of the revised model used to calculate the payment profi le on the fi nancial asset and consider that this represents a more appropriate model than the previous one used by the Group. Our considerations of the accounting treatment and disclosure of this item are set out in our response to the "Accounting for PFI/PPP contracts" area of focus. |
| REVENUE RECOGNITION ON CONTRACTS WHERE PERFORMANCE OCCURS OVER TIME | |
| The nature of the Group's performance obligations under revenue contracts varies from business to business and from customer to customer. In the Netherlands Solid Waste business a number of contracts give rise to an obligation to process waste received, although many do not. In the Hazardous Waste division substantially all of the contracts give rise to an obligation to process waste received. Where such obligations exist, when invoices to customers are raised in advance of processing the waste, the revenue is deferred. At 31 March 2015, the Group has £19.1m of deferred revenue on its balance sheet. Due to the varying nature of the Group's contractual obligations we have focused effort on this area to |
We audited management's calculation of deferred revenue, which is calculated based on invoiced waste tonnages and pricing, by: ¤ attending year-end inventory counts of unprocessed waste to test the existence of waste tonnages at year end; ¤ performed substantive tests of detail on the pricing of individual waste components; and ¤ reperformed management's calculation of deferred revenue at year end. Having performed the procedures above we were satisfi ed that the quantities of unprocessed waste at |
address the risk of undetected material errors in the recording of revenue and deferred revenue.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the fi nancial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Group fi nancial statements are a consolidation of six reporting units being Netherlands Solid Waste, Belgium Solid Waste, UK Municipal, Hazardous Waste, Organics and Group Central Services. Of the Group's six reporting units, we identifi ed Hazardous Waste, Netherlands Solid Waste, Belgium Solid Waste, UK
Municipal and Group Central Services which, in our view, required an audit of their complete fi nancial information due to their size compared with the Group. This, together with additional procedures performed at the Group level, gave us the evidence we needed for our opinion on the Group fi nancial statements as a whole. As a result of our scoping we performed audit procedures over 96% of the Group's adjusted profi t before tax.
to calculate the deferred revenue balance.
The Group's accounting function is structured into local or regional fi nance centres for each of the territories in which the Group operates. These functions maintain their own accounting records
and controls and report to the head offi ce fi nance team through an integrated consolidation system. We visited the shared service centres in the Netherlands and Belgium as part of our audit work.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting units by us, as the Group engagement team (who were also responsible for the audit of the UK Municipal audit unit), or component auditors from other PwC network fi rms operating under our instruction. Where the work was performed by our component audit teams in the Netherlands and
Belgium, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether suffi cient appropriate audit evidence had been obtained as a basis for our opinion on the Group fi nancial statements as a whole. This included time spent planning the audit with the component teams, attendance by the Group engagement team at the clearance meetings held for the Netherlands Solid Waste, Hazardous Waste and Belgium Solid Waste reporting units and a review of the audit working papers of our component teams by the Group engagement team.
The scope of our audit was infl uenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the fi nancial statements as a whole.
Based on our professional judgement, we determined materiality for the fi nancial statements as a whole as follows:
| OVERALL GROUP MATERIALITY |
£1.1m (2014: £1.5m). |
|---|---|
| HOW WE DETERMINED IT |
5% of adjusted profi t before tax. |
| RATIONALE FOR BENCHMARK APPLIED |
We believe that profi t before tax, adjusted for non-trading and exceptional items (adjusted profi t before tax) provides us with a consistent year on year basis for determining materiality by eliminating the impact of these items. |
We agreed with the Audit Committee that we would report to them misstatements identifi ed during our audit above £0.1m (2014: £0.1m) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Under the Listing Rules we are required to review the directors' statement, set out on page 93, in relation to going concern. We have nothing to report having performed our review.
As noted in the directors' statement, the directors have concluded that it is appropriate to prepare the fi nancial statements using the going concern basis of accounting. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the fi nancial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group's and Company's ability to continue as a going concern.
In our opinion:
¤ the information given in the Strategic Report and the Directors' Report for the fi nancial year for which the fi nancial statements are prepared is consistent with the fi nancial statements.
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
¤ information in the Annual Report is: • materially inconsistent with the information in the audited fi nancial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or • otherwise misleading. We have no exceptions to report arising from this responsibility. ¤ the statement given by the directors on page 95, in accordance with provision C.1.1 of the UK Corporate Governance Code ("the Code"), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group's and Company's performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company acquired in the course of performing our audit. We have no exceptions to report arising from this responsibility. ¤ the section of the Annual Report on page 74, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report arising from this responsibility.
OVERVIEW
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specifi ed by law are not made. We have no exceptions to report arising from these responsibilities.
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company's compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.
As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the fi nancial statements and for being satisfi ed that they give a true and fair view.
Our responsibility is to audit and express an opinion on the fi nancial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the Company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
An audit involves obtaining evidence about the amounts and disclosures in the fi nancial statements suffi cient to give reasonable assurance that the fi nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the fi nancial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
In addition, we read all the fi nancial and non-fi nancial information in the Annual Report to identify material inconsistencies with the audited fi nancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
John Waters (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 21 May 2015
For the year ended 31 March 2015
| 2015 | 2014 Restated* | ||||||
|---|---|---|---|---|---|---|---|
| Non trading & exceptional |
Non trading & exceptional |
||||||
| Note | Trading £m |
items £m |
Total £m |
Trading £m |
items £m |
Total £m |
|
| Revenue | 3,4 | 601.4 | (2.0) | 599.4 | 633.4 | – | 633.4 |
| Cost of sales | 4 | (506.1) | (21.5) | (527.6) | (528.3) | (5.1) | (533.4) |
| Gross profit (loss) | 95.3 | (23.5) | 71.8 | 105.1 | (5.1) | 100.0 | |
| Administrative expenses | 4 | (61.0) | (23.2) | (84.2) | (59.5) | (17.4) | (76.9) |
| Operating profit (loss) | 3,4,5 | 34.3 | (46.7) | (12.4) | 45.6 | (22.5) | 23.1 |
| Finance income | 4,8 | 14.8 | 0.1 | 14.9 | 10.1 | 0.3 | 10.4 |
| Finance charges | 4,8 | (28.2) | – | (28.2) | (25.9) | (0.3) | (26.2) |
| Share of results from associates and joint ventures | 4,16 | 0.8 | 4.4 | 5.2 | 0.3 | – | 0.3 |
| Profit (loss) before taxation | 3 | 21.7 | (42.2) | (20.5) | 30.1 | (22.5) | 7.6 |
| Taxation | 4,9 | (1.7) | 4.0 | 2.3 | (7.2) | 1.4 | (5.8) |
| Profit (loss) for the year from continuing operations | 20.0 | (38.2) | (18.2) | 22.9 | (21.1) | 1.8 | |
| Discontinued operations | |||||||
| (Loss) profit for the year from discontinued operations | 4,10 | (0.2) | 1.5 | 1.3 | (3.6) | (26.4) | (30.0) |
| Profit (loss) for the year | 19.8 | (36.7) | (16.9) | 19.3 | (47.5) | (28.2) | |
| Attributable to: | |||||||
| Owners of the parent | 19.7 | (36.7) | (17.0) | 19.2 | (47.5) | (28.3) | |
| Non-controlling interest | 0.1 | – | 0.1 | 0.1 | – | 0.1 | |
| 19.8 | (36.7) | (16.9) | 19.3 | (47.5) | (28.2) | ||
| Basic earnings (loss) per share attributable to owners of the parent (pence per share) | |||||||
| Continuing operations | 12 | 5.0 | (9.6) | (4.6) | 5.7 | (5.3) | 0.4 |
| Discontinued operations | 12 | (0.1) | 0.4 | 0.3 | (0.9) | (6.6) | (7.5) |
| 4.9 | (9.2) | (4.3) | 4.8 | (11.9) | (7.1) | ||
| Diluted earnings (loss) per share attributable to owners of the parent (pence per share) | |||||||
| Continuing operations | 12 | 5.0 | (9.6) | (4.6) | 5.7 | (5.3) | 0.4 |
| Discontinued operations | 12 | (0.1) | 0.4 | 0.3 | (0.9) | (6.6) | (7.5) |
| 4.9 | (9.2) | (4.3) | 4.8 | (11.9) | (7.1) |
*The comparatives have been restated following the adoption of IFRS11, see notes 1 and 16.
The notes on pages 107 to 159 are an integral part of these consolidated financial statements.
For the year ended 31 March 2015
| Note | 2015 £m |
2014 £m |
|
|---|---|---|---|
| Items that may be reclassified subsequently to profit or loss: | |||
| Exchange differences on translation of foreign subsidiaries | (25.2) | (4.8) | |
| Fair value movement on cash flow hedges | 17 | (28.1) | 14.5 |
| Deferred tax on fair value movement on cash flow hedges | 19 | 5.6 | (3.8) |
| Share of other comprehensive income of investments accounted for using the equity method | 16 | (3.1) | – |
| (50.8) | 5.9 | ||
| Items that will not be reclassified to profit or loss: | |||
| Actuarial loss on defined benefit pension scheme | 27 | (5.8) | (6.4) |
| Deferred tax on actuarial loss on defined benefit pension scheme | 19 | 1.2 | 1.0 |
| (4.6) | (5.4) | ||
| Other comprehensive (loss) income for the year, net of tax | (55.4) | 0.5 | |
| Loss for the year | (16.9) | (28.2) | |
| Total comprehensive loss for the year | (72.3) | (27.7) | |
| Attributable to: | |||
| Owners of the parent | (70.7) | (27.4) | |
| Non-controlling interest | (1.6) | (0.3) | |
| Total comprehensive loss for the year | (72.3) | (27.7) | |
| Total comprehensive (loss) income attributable to owners of the parent arising from: | |||
| Continuing operations | (72.0) | 2.6 | |
| Discontinued operations | 1.3 | (30.0) | |
| (70.7) | (27.4) |
The notes on pages 107 to 159 are an integral part of these consolidated financial statements.
103
OVERVIEW
FINANCIAL STATEMENTS
As at 31 March 2015
| Group | Company | ||||
|---|---|---|---|---|---|
| Note | 31 March 2015 £m |
Restated* 31 March 2014 £m |
31 March 2015 £m |
31 March 2014 £m |
|
| Assets | |||||
| Non-current assets | |||||
| Intangible assets | 14 | 173.8 | 211.1 | 0.5 | 0.7 |
| Property, plant and equipment | 15 | 282.9 | 322.7 | 0.3 | 0.1 |
| Investments | 16 | 10.1 | 8.4 | 487.4 | 533.4 |
| Financial assets relating to PFI/PPP contracts | 21 | 246.6 | 187.4 | – | – |
| Trade and other receivables | 22 | 2.2 | 2.5 | 82.8 | 38.1 |
| Deferred tax assets | 19 | 21.7 | 12.3 | 4.5 | 3.5 |
| 737.3 | 744.4 | 575.5 | 575.8 | ||
| Current assets | |||||
| Inventories | 20 | 6.9 | 9.4 | – | – |
| Financial assets relating to PFI/PPP contracts | 21 | 31.6 | 8.2 | – | – |
| Trade and other receivables | 22 | 121.0 | 138.2 | 219.3 | 217.7 |
| Derivative financial instruments | 17 | 0.1 | – | 0.1 | – |
| Current tax receivable | 0.1 | 1.9 | 0.9 | 1.4 | |
| Cash and cash equivalents | 23 | 60.8 | 104.2 | 8.0 | 22.9 |
| 220.5 | 261.9 | 228.3 | 242.0 | ||
| Assets classified as held for sale | 10 | 3.5 | 3.2 | – | – |
| 224.0 | 265.1 | 228.3 | 242.0 | ||
| Total assets | 961.3 | 1,009.5 | 803.8 | 817.8 | |
| Liabilities | |||||
| Non-current liabilities | |||||
| Borrowings – PFI/PPP non-recourse net debt | 24 | (160.3) | (149.5) | – | – |
| Borrowings – Other | 24 | (140.8) | (253.8) | (80.5) | (164.3) |
| Derivative financial instruments | 17 | (43.8) | (15.0) | – | – |
| Other non-current liabilities | 25 | (0.6) | (1.2) | (152.4) | (215.3) |
| Deferred tax liabilities | 19 | (30.2) | (38.8) | – | – |
| Provisions | 26 | (40.4) | (33.3) | – | (0.1) |
| Defined benefit pension scheme deficit | 27 | (16.4) | (13.1) | (16.4) | (13.1) |
| (432.5) | (504.7) | (249.3) | (392.8) | ||
| Current liabilities | |||||
| Borrowings – PFI/PPP non-recourse net debt | 24 | (62.3) | (1.7) | – | – |
| Borrowings – Other | 24 | (75.0) | (3.3) | (72.2) | – |
| Derivative financial instruments | 17 | (0.3) | (1.0) | (0.9) | (0.5) |
| Trade and other payables | 25 | (187.0) | (203.1) | (84.2) | (7.9) |
| Current tax payable | (6.3) | (10.6) | – | – | |
| Provisions | 26 | (8.8) | (11.6) | (1.1) | (1.3) |
| (339.7) | (231.3) | (158.4) | (9.7) | ||
| Total liabilities | (772.2) | (736.0) | (407.7) | (402.5) | |
| Net assets | 189.1 | 273.5 | 396.1 | 415.3 | |
| Equity | |||||
| Share capital | 28 | 39.8 | 39.8 | 39.8 | 39.8 |
| Share premium | 28 | 100.0 | 99.9 | 124.0 | 123.9 |
| Exchange reserve | 11.4 | 36.6 | – | – | |
| Retained earnings | 39.7 | 97.4 | 232.3 | 251.6 | |
| Equity attributable to owners of the parent | 190.9 | 273.7 | 396.1 | 415.3 | |
| Non-controlling interest | (1.8) | (0.2) | – | – | |
| Total equity | 189.1 | 273.5 | 396.1 | 415.3 | |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The notes on pages 107 to 159 are an integral part of these consolidated financial statements.
The Financial Statements on pages 102 to 159 were approved by the Board of Directors and authorised for issue on 21 May 2015. They were signed on its behalf by:
Adrian Auer Toby Woolrych
Chairman Group Finance Director
For the year ended 31 March 2015
| Non | |||||||
|---|---|---|---|---|---|---|---|
| Share | Share | Exchange | Retained | controlling | Total | ||
| Group | Note | Capital £m |
Premium £m |
Reserve £m |
Earnings £m |
interest £m |
Equity £m |
| Balance at 1 April 2014 | 39.8 | 99.9 | 36.6 | 97.4 | (0.2) | 273.5 | |
| (Loss) profit for the year | – | – | – | (17.0) | 0.1 | (16.9) | |
| Other comprehensive (loss) income: | |||||||
| Exchange loss on translation of foreign subsidiaries | – | – | (25.2) | – | – | (25.2) | |
| Fair value movement on cash flow hedges | 17 | – | – | – | (26.0) | (2.1) | (28.1) |
| Actuarial loss on defined benefit pension scheme | 27 | – | – | – | (5.8) | – | (5.8) |
| Tax in respect of other comprehensive income items | 19 | – | – | – | 6.4 | 0.4 | 6.8 |
| Share of other comprehensive income of investments | |||||||
| accounted for using the equity method | 16 | – | – | – | (3.1) | – | (3.1) |
| Total comprehensive loss for the year | – | – | (25.2) | (45.5) | (1.6) | (72.3) | |
| Share-based compensation | 7 | – | – | – | 1.3 | – | 1.3 |
| Movement on tax arising on share-based compensation | 19 | – | – | – | 0.2 | – | 0.2 |
| Proceeds from exercise of employee options | 28 | – | 0.1 | – | – | – | 0.1 |
| Dividends | 11 | – | – | – | (13.7) | – | (13.7) |
| Balance as at 31 March 2015 | 39.8 | 100.0 | 11.4 | 39.7 | (1.8) | 189.1 | |
| Balance at 1 April 2013 | 39.7 | 99.8 | 41.4 | 132.7 | 0.1 | 313.7 | |
| (Loss) profit for the year | – | – | – | (28.3) | 0.1 | (28.2) | |
| Other comprehensive (loss) income: | |||||||
| Exchange loss on translation of foreign subsidiaries | – | – | (4.8) | – | – | (4.8) | |
| Fair value movement on cash flow hedges | – | – | – | 15.0 | (0.5) | 14.5 | |
| Actuarial loss on defined benefit pension scheme | 27 | – | – | – | (6.4) | – | (6.4) |
| Tax in respect of other comprehensive income items | 19 | – | – | – | (2.9) | 0.1 | (2.8) |
| Total comprehensive loss for the year | – | – | (4.8) | (22.6) | (0.3) | (27.7) | |
| Share-based compensation | 7 | – | – | – | 0.7 | – | 0.7 |
| Movement on tax arising on share-based compensation | 19 | – | – | – | 0.3 | – | 0.3 |
| Proceeds from exercise of employee options | 28 | 0.1 | 0.1 | – | – | – | 0.2 |
| Dividends | 11 | – | – | – | (13.7) | – | (13.7) |
| Balance as at 31 March 2014 | 39.8 | 99.9 | 36.6 | 97.4 | (0.2) | 273.5 |
The exchange reserve comprises all foreign exchange differences arising since 1 April 2005 from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Group's net investment in foreign operations.
| Share Capital |
Share Premium |
Retained Earnings |
Total Equity |
||
|---|---|---|---|---|---|
| Company | Note | £m | £m | £m | £m |
| Balance at 1 April 2014 | 39.8 | 123.9 | 251.6 | 415.3 | |
| Loss for the year | 13 | – | – | (2.3) | (2.3) |
| Other comprehensive (loss) income: | |||||
| Fair value movement on cash flow hedges | 17 | – | – | (0.3) | (0.3) |
| Actuarial loss on defined benefit pension scheme | 27 | – | – | (5.8) | (5.8) |
| Tax in respect of other comprehensive income items | 19 | – | – | 1.3 | 1.3 |
| Total comprehensive loss for the year | – | – | (7.1) | (7.1) | |
| Share-based compensation | 7 | – | – | 1.3 | 1.3 |
| Movement on tax arising on share-based compensation | 19 | – | – | 0.2 | 0.2 |
| Proceeds from exercise of employee options | 28 | – | 0.1 | – | 0.1 |
| Dividends | 11 | – | – | (13.7) | (13.7) |
| Balance at 31 March 2015 | 39.8 | 124.0 | 232.3 | 396.1 | |
| Balance at 1 April 2013 | 39.7 | 123.8 | 272.2 | 435.7 | |
| Loss for the year | 13 | – | – | (2.9) | (2.9) |
| Other comprehensive income (loss): | |||||
| Fair value movement on cash flow hedges | – | – | 0.5 | 0.5 | |
| Actuarial loss on defined benefit pension scheme | 27 | – | – | (6.4) | (6.4) |
| Tax in respect of other comprehensive income items | 19 | – | – | 0.9 | 0.9 |
| Total comprehensive loss for the year | – | – | (7.9) | (7.9) | |
| Share-based compensation | 7 | – | – | 0.7 | 0.7 |
| Movement on tax arising on share-based compensation | 19 | – | – | 0.3 | 0.3 |
| Proceeds from exercise of employee options | 28 | 0.1 | 0.1 | – | 0.2 |
| Dividends | 11 | – | – | (13.7) | (13.7) |
| Balance as at 31 March 2014 | 39.8 | 123.9 | 251.6 | 415.3 |
The notes on pages 107 to 159 are an integral part of these consolidated financial statements.
OVERVIEW
For the year ended 31 March 2015
| Group | Company | ||||
|---|---|---|---|---|---|
| Note | 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Cash flows from operating activities | 30 | 55.8 | 72.9 | 50.8 | 36.2 |
| Income tax (paid) received | (5.7) | (1.6) | 0.9 | (0.8) | |
| Net cash generated from operating activities | 50.1 | 71.3 | 51.7 | 35.4 | |
| Investing activities | |||||
| Purchases of intangible assets | (1.2) | (1.3) | (0.1) | (0.1) | |
| Purchases of property, plant and equipment | (39.0) | (36.5) | (0.2) | – | |
| Acquisition of business assets | 18 | (0.4) | – | – | – |
| Proceeds from exiting UK Solid Waste | 0.8 | 10.4 | – | – | |
| Insurance proceeds in relation to fire in the Netherlands | – | 5.7 | – | – | |
| Disposals of property, plant and equipment | 2.2 | 10.7 | – | – | |
| Outflows in respect of PFI/PPP arrangements under the | |||||
| financial asset model | (73.0) | (70.6) | – | – | |
| Capital received in respect of PFI/PPP financial assets | 3.4 | 4.2 | – | – | |
| Finance income | 4.0 | 5.0 | 4.6 | 8.9 | |
| Receipt of deferred consideration | 1.9 | 0.4 | – | – | |
| Payment of deferred consideration | (0.1) | – | – | – | |
| Investment in subsidiaries | 16 | – | – | (56.4) | (66.5) |
| Investment in joint venture | 16 | (1.3) | – | – | – |
| Proceeds from disposal of investments and other assets | 1.2 | 1.3 | – | – | |
| Repayment of loans granted to joint ventures | 16 | 1.0 | – | – | – |
| Net cash used in investing activities | (100.5) | (70.7) | (52.1) | (57.7) | |
| Financing activities | |||||
| Finance charges and loan fees paid | (16.8) | (18.2) | (8.9) | (8.8) | |
| Proceeds from issuance of ordinary shares | 28 | 0.1 | 0.2 | 0.1 | 0.2 |
| Dividends paid | 11 | (13.7) | (13.7) | (13.7) | (13.7) |
| Proceeds from issuance of retail bonds | – | 86.1 | – | 86.1 | |
| Repayment of senior notes | – | (15.2) | – | – | |
| (Repayment of) proceeds from bank borrowings | 30 | (18.9) | (52.3) | 8.0 | (37.9) |
| Proceeds from PFI/PPP net debt | 30 | 64.4 | 60.2 | – | – |
| Repayment of PFI/PPP net debt | 30 | (1.8) | (13.1) | – | – |
| Repayments of obligations under finance leases | 30 | (3.3) | (3.4) | – | – |
| Net cash generated from (used in) financing activities | 10.0 | 30.6 | (14.5) | 25.9 | |
| Net (decrease) increase in cash and cash equivalents | (40.4) | 31.2 | (14.9) | 3.6 | |
| Effect of foreign exchange rate changes | 30 | (3.0) | (1.9) | – | – |
| Cash and cash equivalents at the beginning of the year | 104.2 | 74.9 | 22.9 | 19.3 | |
| Cash and cash equivalents at the end of the year | 23 | 60.8 | 104.2 | 8.0 | 22.9 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The notes on pages 107 to 159 are an integral part of these consolidated financial statements.
OVERVIEW
Shanks Group plc is a public limited company listed on the London Stock Exchange and is incorporated and domiciled in Scotland under the Companies Act 2006, registered number SC077438. The address of the registered office is given on page 162. The nature of the Group's operations and its principal activities are set out in note 3.
The financial statements have been prepared on the historical cost basis, except for derivative financial instruments, share-based payments and assets classified as held for sale, which are stated at fair value. The policies set out below have been consistently applied. The Group has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2014. The set of financial statements included in this annual report have been prepared on a going concern basis as the Directors consider that the Group and the Company have adequate resources to continue in operational existence for a period of at least one year from the date of approval of the financial statements.
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and related interpretations (IFRICs) adopted by the European Union (EU) and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Group has adopted the following new standards, amendments to standards and interpretations for the first time for the Group's financial year beginning 1 April 2014:
| Accounting Standard | Requirement | Impact on financial statements |
|---|---|---|
| IFRS 11 Joint Arrangements | To classify joint arrangements as either joint operations or joint ventures, depending upon the Group's contractual rights to the assets and obligations for the liabilities of the arrangements, rather than the legal structure of the joint arrangement. The new standard requires joint ventures to be accounted for under the equity method and joint operations to be reported recognising the Group's share of assets, liabilities, revenues and expenses. |
The nature of the Group's joint arrangements has been evaluated and they have been classified as either joint operations or joint ventures. The adjustments on application of IFRS 11 relate to the change in accounting from proportionate consolidation to equity accounting for a number of the joint arrangements which have been included within the definition of joint ventures. The comparative figures have been restated to reflect the change in accounting policy. The Group's profit after tax and total net assets are unchanged. The table in note 16 shows the impact of the Group's consolidated financial statements, for the year ended March 2014, in relation to the joint ventures which are no longer proportionately consolidated. A third balance sheet as at the beginning of the preceding period is not disclosed as the impact of the retrospective restatement is not considered to be material. |
| IFRS 12 Disclosure of Interests in Other entities |
To disclose information that enables users of its financial statements to evaluate the nature of, and risks associated with, its interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles, and the effects of those interests on its financial position, financial performance and cash flows. |
The adoption of the standard has resulted in the Group assessing its interest in individual joint ventures and associates and concluded that none are individually material for further disclosure. |
Other new standards and amendments had no significant impact on these financial statements.
Standards and interpretations issued by the IASB are only applicable if endorsed by the European Union.
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:
It is anticipated that the adoption of the following standards, amendments and improvements in future periods will have no material impact on the Group's reported results or financial position:
| Effective date: accounting periods commencing on or after | |
|---|---|
| Endorsed by the EU: | |
| Amendment to IAS 19 | 1 July 2014 |
| Not yet endorsed by the EU: | |
| IFRS 14 Regulatory deferral accounts | 1 January 2016 |
| Amendment to IFRS 11 | 1 January 2016 |
| Amendment to IAS 16 and IAS 38 | 1 January 2016 |
| Amendments to IAS 16 and IAS 41 | 1 January 2016 |
| Amendments to IFRS 10 and IAS 28 | 1 January 2016 |
| Amendments to IFRS 10, IFRS 12 and IAS 28 | 1 January 2016 |
| Amendments to IAS 1 | 1 January 2016 |
| Amendment to IAS 27 | 1 January 2016 |
The Group continues to monitor the potential impact of other new standards and interpretations which may be endorsed by the European Union and require adoption by the Group in future accounting periods.
The consolidated financial statements incorporate the financial statements of Shanks Group plc and all its subsidiary undertakings (subsidiaries). Subsidiaries are entities which are directly or indirectly controlled by the Group. Control exists where the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with those used by the Group. The results of subsidiaries acquired or sold during the year are included in the consolidated financial statements up to, or from, the date control passes. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Subsidiary companies set up under PFI/PPP contracts are fully consolidated by the Group and where there is a non-controlling interest this is identified separately from the Group's equity.
An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in the financial and operating decisions of an entity but is not in control or joint control over those policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost or, in the case of a disposal of the majority shareholding, at fair value. The cumulative post-acquisition profits or losses and movements in other comprehensive income are adjusted against the carrying amount of the investment. When the Group's share of losses exceeds the carrying amount of the joint venture or associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture or associate. Accounting policies of associates and joint ventures have been adjusted where necessary to ensure consistency with the policies of the Group.
Where the Group is party to a jointly-controlled operation, the Group, in the consolidated financial statements, proportionately accounts for its share of the income and expenditure, assets and liabilities and cash flows on a line-by-line basis.
OVERVIEW
Equity investments in entities that are neither associates, joint ventures nor subsidiaries are held at cost, less any provision for impairment.
The acquisitions of subsidiaries are accounted for using the purchase method. The cost of acquisition is measured as the fair value of assets transferred and liabilities incurred or assumed. Identifiable assets acquired and liabilities and contingent liabilities assumed, meeting the conditions for recognition under IFRS 3, are recognised at their fair value at the acquisition date. The fair value of businesses acquired may include waste permits, licences and customer lists with the value calculated by discounting the future revenue stream attributable to these lists or relationships, these are recognised as intangible assets and amortised. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. The costs of acquisition are charged to the Income Statement in the period in which they are incurred.
Investments in subsidiary undertakings are stated at cost in the Company's balance sheet, less any provision for impairment in value.
Revenue represents the fair value of consideration received or receivable, including landfill tax but excluding sales taxes, discounts and inter-company sales, for goods and services provided in the normal course of business. Revenue is recognised when it can be reliably measured and when it is probable that future economic benefits will flow to the entity.
Revenue recognition criteria for the key types of transaction are as follows:
Accrued income at the balance sheet date is recognised at the fair value based on contractually agreed prices. It is subsequently invoiced and accounted for as a trade receivable.
Unprocessed waste may give rise to deferred revenue, where invoices to customers are raised in advance of performance obligations being completed, or an accrual for the costs of disposing of residual waste is created once the Group has an obligation for its disposal. These amounts are shown in deferred revenue or accruals in the financial statements as appropriate.
The Group's PFI/PPP contracts are either integrated or residual waste management contracts. The contracts require the building of new infrastructure and all rights to the infrastructure pass to the Local Authority at the termination or expiry of the contract. The Group applies IFRIC 12 (Service Concession Arrangements) which specifies the accounting treatment applied by concession operators. Under IFRIC 12, the operator's rights over infrastructure operated under concession arrangements should be accounted for based on the control of the grantor (the local authority), over what services the operator must provide with the infrastructure, to whom it must provide them and at what price. Accordingly the Group applies the 'financial asset' model as it has an unconditional right to receive cash for the infrastructure. The Group splits the local authority payment between a service element as revenue and a repayment element that is deducted from the financial asset. Interest receivable is added to the financial asset based on the rate implied in the contract payments. Reviews are undertaken regularly to ensure that the financial asset will be recovered over the contract life. Borrowing costs relating to contract specific external borrowings are expensed in the Income Statement.
Bid costs are expensed in the Income Statement until the Group is appointed preferred bidder and there is a high probability that a contract will be awarded. Bid costs incurred after this point are capitalised within trade and other receivables. When the contract is awarded, the costs are included in the relevant financial asset.
Win fees and other contract specific income are transferred to deferred income upon financial close and released to the Income Statement over the period of the delivery of the associated performance obligations.
Under the terms of these contracts, the Group is required to maintain the infrastructure such that it is handed over to the local authority in good working order. Where such expenditure required to fulfil these obligations constitutes major refurbishments and renewals (lifecycle expenditure) a provision is recorded for the best estimate of these costs as the facility is used.
Capital related government grants are released to the Income Statement evenly over the expected useful lives of the related assets. Revenue grants and subsidies are credited in the same period as the items to which they relate.
Goodwill represents the excess of the purchase consideration over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition and is measured at cost less accumulated impairment losses.
For the purpose of impairment testing, goodwill is allocated to those CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination. Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is charged immediately to the Income Statement and is not reversed in a subsequent period.
Goodwill arising on acquisitions prior to the date of transition to IFRS (31 March 2004) has been retained at the previous UK GAAP net book value following impairment tests. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated.
Landfill void represents landfill operation acquisitions and the landfill void was capitalised based on the fair value of the void acquired. This asset is amortised over its estimated useful life on a void usage basis and measured at cost less accumulated amortisation. The estimated remaining useful life is 20 years.
Other intangible assets principally relate to customer lists and contract rights and are capitalised on the basis of the fair value of the assets acquired or on the basis of costs incurred to purchase and bring the assets into use, and are subsequently measured at cost less accumulated amortisation. These are amortised over the estimated useful life on a straight-line basis, as follows:
| Contract right relating to leasehold land | Term of the lease |
|---|---|
| Computer software | 1 to 5 years |
| Acquisition related intangibles: | |
| Waste permits and licences | 5 to 20 years |
| Others including customer lists | 5 to 10 years |
Property, plant and equipment, except for freehold land and assets under construction, is stated at cost less accumulated depreciation and provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Freehold land and assets under construction are not depreciated. The asset's residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Depreciation is provided on these assets to write off their cost (less the expected residual value) on a straight line basis over the expected useful economic lives as follows:
| Buildings | Up to 30 years |
|---|---|
| Fixtures and fittings | 10 years |
| Plant | 5 to 10 years |
| Cars and service vehicles | 5 to 10 years |
| Heavy goods vehicles | 10 years |
| Computer equipment | 3 to 5 years |
| Other items of plant and machinery | 5 to 15 years |
Site development costs including engineering works and the discounted cost of final site restoration are capitalised. These costs are written off over the operational life of each site based on the amount of void space consumed.
Assets other than goodwill are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. An impairment loss is recognised immediately as an operating expense, and at each reporting date the impairment is reviewed for possible reversal.
Where the Group has substantially all the risks and rewards of ownership of a leased asset, the lease is treated as a finance lease. Leased assets are included in property, plant and equipment at the total of the capital elements of the payments during the lease term and the corresponding obligation is included in borrowings. Depreciation is provided to write down the assets over the shorter of the expected useful life and the lease term, unless there is reasonable certainty that the Group will obtain ownership of the asset by the end of the lease term, in which case it is depreciated over its useful life.
All leases other than finance leases are treated as operating leases. Rentals payable under operating leases are charged to the Income Statement on a straight-line basis over the term of the relevant lease. The future aggregate minimum lease payments for operating leases are shown in note 32 to the accounts.
Inventories are stated at the lower of cost and net realisable value and are measured on a first in first out basis.
Provisions are recognised where there is a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect of the time value of money is material the value of a provision is the present value of the expenditures expected to be required to settle the obligation. The discount rates are reviewed at each year end with consideration given to appropriate market rates and the risk in relation to each provision. The unwinding of the discount to present value is included within finance costs.
The Group's policies on provisions for specific areas are:
Full provision is made for the net present value, (NPV), of the Group's unavoidable costs in relation to restoration liabilities at its landfill sites. In addition the Group continues to provide for the NPV of intermediate restoration costs over the life of its landfill sites and mineral extraction sites, based on the quantity of waste deposited or mineral extracted in the year.
Provision is made for the NPV of post closure costs at the Group's landfill sites based on the quantity of waste deposited in the year. Similar costs incurred during the operating life of the sites are written off directly to the Income Statement and not charged to the provision.
Provision for restructuring costs is recognised when a detailed formal plan exists and those affected by that plan have a valid expectation that the restructuring will be carried out.
The Group accounts for pensions and similar benefits under IAS 19 (revised) Employee Benefits. For defined benefit plans, obligations are measured at discounted present value whilst plan assets are recorded at fair value. The operating and financing costs of the plans are recognised separately in the Income Statement. Interest is calculated by applying the discount rate to the net defined pension liability. Actuarial gains and losses are recognised in full through the Statement of Comprehensive Income; surpluses are recognised only to the extent that they are recoverable. Movements in irrecoverable surpluses are recognised immediately in the Statement of Comprehensive Income.
Payments to defined contribution schemes are charged to the Income Statement as they become due. The Group participates in several multi-employer schemes in the Netherlands and Belgium. With the exception of certain schemes in Belgium, these are accounted for as defined contribution plans as it is not possible to split the assets and liabilities of the schemes between participating companies, and the Group has been informed by the schemes that it has no obligation to make additional contributions in the event that the schemes have an overall deficit.
The Group issues equity-settled share-based awards to certain employees. The fair value of share-based awards is determined at the date of grant and expensed based on the Group's estimate of the shares that will eventually vest, on a straight-line basis over the vesting period with a corresponding increase in equity. At each balance sheet date the Group revises its estimates of the number of options that are expected to vest based on service and non-market performance conditions. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares that will eventually vest, save for changes resulting from any market-related performance conditions.
Current tax is based on taxable profit or loss for the year. Taxable profit differs from profit before tax in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years or that are never taxable or deductible. The asset or liability for current tax is calculated using tax rates that have been enacted, or substantively enacted, at the balance sheet date.
Deferred tax is recognised in full where the carrying value of assets and liabilities in the financial statements is different to the corresponding tax bases used in the computation of taxable profits. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that the taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that have been substantively enacted at the balance sheet date.
Deferred tax is charged or credited in the Income Statement, except where it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity.
Deferred income tax liabilities are not provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements as the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority.
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in sterling, which is the Group's presentation currency.
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency of the Group and Parent Company as follows:
Cumulative exchange differences are recognised in the Income Statement in the year in which an overseas subsidiary undertaking is disposed of.
The most significant currencies for the Group were translated at the following exchange rates:
| Closing rates | Average rates | ||||||
|---|---|---|---|---|---|---|---|
| Value of £1 | 31 March 2015 |
31 March 2014 |
Change | 31 March 2015 |
31 March 2014 |
Change | |
| Euro | 1.38 | 1.21 | 14.3% | 1.28 | 1.18 | 8.1% | |
| Canadian Dollar | 1.88 | 1.84 | 2.2% | 1.84 | 1.65 | 11.0% |
The Group applies the hedge accounting principles of IAS 39 Financial Instruments: Recognition and Measurement relating to net investment hedging to offset the exchange differences arising on foreign currency denominated borrowings with the translation of foreign operations. Net investment hedges are accounted for by recognising exchange rate movements in the exchange reserve, with any hedge ineffectiveness being charged to the Income Statement in the period the ineffectiveness arises.
Deferred consideration is provided for at the NPV of the Group's expected cost or receipt at the date of acquisition or disposal. The likelihood of payment or receipt for deferred consideration where conditional on meeting certain performance targets is considered on acquisition or disposal. For acquisitions after 1 April 2010, any differences between consideration accrued and consideration paid or received are charged or released to the Income Statement and before this date any differences are adjusted through goodwill.
Trade receivables do not carry interest and are recognised initially at their fair value and are subsequently measured at amortised cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying value and the value of estimated future cash flows. Subsequent recoveries of amounts previously written off are credited in the Income Statement.
Financial assets relating to UK PFI/PPP contracts are classified as loans and receivables and are initially recognised at fair value of consideration receivable and subsequently at amortised cost.
Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. Where the Group has a legally enforceable right to offset with a financial institution, then bank overdrafts are offset against the cash balances.
Interest bearing loans, private placement notes and bonds are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Income Statement using the effective interest rate method and are added to the carrying amount of the borrowings to the extent that they are not settled in the period in which they arise.
Trade payables are not interest bearing and are stated initially at fair value and subsequently held at amortised cost.
In accordance with its treasury policy, the Group only holds or issues derivative financial instruments to manage the Group's exposure to financial risk. The Group does not hold or issue derivative financial instruments for trading or speculative purposes.
Such financial risk includes:
The Group manages these risks through a range of derivative financial instruments, including interest rate swaps, forward foreign exchange contracts and fuel derivatives.
The Group is exposed to the fair value of fixed rate borrowings in the event of early repayment. The Group has no plans to repay any fixed rate borrowings before the applicable maturity date and therefore does not make provision for the fair value of these borrowings in the accounts, which are prepared on a going concern basis.
Interest rate swaps are considered to be used for hedging purposes when they alter the risk profile of an underlying exposure of the Group in line with the Group's risk management policies and is in accordance with established guidelines. At the inception of the hedge relationship the Group documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item. For interest rate swaps which are not designated as a hedge the gains or losses between period ends are taken to finance income or charges in the Income Statement.
The change in the fair value of the portion of the hedging instrument that is determined to be an effective hedge is recognised in equity and subsequently recycled to the Income Statement when the hedged cash flow impacts the Income Statement. The ineffective portion of the fair value of the hedging instrument is recognised immediately in the Income Statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction occurs at which point it is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is recognised in the Income Statement immediately.
Details of the fair values of the derivative financial instruments used for hedging purposes are disclosed in note 17.
Other receivables and other payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
Asset classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets are available for sale in their present condition.
OVERVIEW
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or share options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the net proceeds over the nominal value of any shares issued is credited to the share premium account.
Dividend distributions to the equity holders are recognised in the period in which they are approved by the shareholders in general meeting. Interim dividends are recognised when paid.
The Group's segmental reporting reflects the management structure which is aligned with the core activities of the Group being Solid Waste Benelux, Hazardous Waste, Organics, UK Municipal and Group central services.
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes.
The Group believes that trading profit, underlying profit before tax, underlying profit after tax, underlying free cash flow, underlying earnings per share and EBITDA (earnings before interest, tax, depreciation and amortisation) provide useful information on underlying trends to shareholders. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees.
The terms 'trading profit', 'exceptional items' and 'underlying' are not defined terms under IFRS and may therefore not be comparable with similarly titled profit measures reported by other companies. It is not intended to be a substitute for, or superior to, GAAP measurements of profit.
The term 'underlying' refers to the relevant measure being reported for continuing operations excluding non-trading and exceptional items, financing fair value remeasurements and amortisation of acquisition intangibles, excluding landfill void and computer software. 'Trading profit' is defined as continuing operating profit before amortisation of acquisition intangibles and exceptional items. EBITDA comprises trading profit before depreciation, amortisation and profit or loss on disposal of property, plant and equipment. Reconciliations are set out in note 4.
Items classified as non-trading and exceptional are disclosed separately due to their size or incidence to enable a better understanding of performance. These include, but are not limited to, significant impairments, restructuring of the activities of an entity including employee severance costs, aborted acquisition and disposal transaction costs, onerous contracts, significant provision releases and the profit or loss on disposal of properties. A full listing of those items presented as non-trading and exceptional is shown in note 4.
Financial assets are recognised in accordance with IFRIC 12. They represent the present value of the future cash flows of the contract. These cash flows are dependent on, amongst other things, tonnages, indexation, recycling rates and labour costs.
The Group's UK PFI/PPP arrangements involve the construction of waste management facilities to be provided to local authorities. The building of the facilities is governed by the engineer, procure and construct contract entered into by the Group. The construction work is undertaken by third party contractors with drawdowns of financing from the UK PFI/PPP funders used to pay the subcontractor for the construction works.
We have considered all relevant factors in the contractual arrangements between the parties to determine whether the Group acts as agent or principal during the construction phase of the contracts. The considerations that we have taken into account in reaching this conclusion are:
In summary we consider that, on the basis that the construction contractor is known to the municipality at the date of financial close and in view of the negligible credit risk taken by the Group, on balance, despite some overall risk residing with the Group for delivery of services, we consider that we act as agent versus principal in the provision of construction services. Accordingly, we do not recognise revenue and costs for the construction gross in the Income Statement.
In light of our conclusions in relation to the presentation of the revenue and costs associated with the construction services net in the Income Statement we consider that the most appropriate classification of the PFI/PPP non-recourse debt cash flows associated with the construction of the waste management facilities in the Statement of Cash Flows is as financing and investing cash flows respectively and not as operating cash flows. This classification has been consistently applied to the periods presented in these financial statements.
The Group is the operator for one class of service concession arrangements, that of the provision of waste treatment and waste treatment facilities and these are classified as service concession arrangements in accordance with IFRIC. If the Group underperforms, including failure to divert waste from landfill, the contract can be terminated before the end of the 25 year period.
The table below sets out the Group's interest in service concession arrangements as at 31 March 2015.
| Contract | Financial close | Full Service Commencement | Contract Expiry | Owners of Special Purpose Vehicle |
|---|---|---|---|---|
| Argyll & Bute | September 2001 | April 2003 | September 2026 | Shanks: 100% |
| Cumbria | June 2009 | April 2013 | June 2034 | Shanks: 100% |
| Wakefield | January 2013 | September 2015 | February 2038 | Shanks: 100% |
| Barnsley, Doncaster and Rotherham |
March 2012 | July 2015 | June 2040 | Shanks: 75% SSE Generation Limited: 25% |
| Derby City and Derbyshire | August 2014 | April 2017 | March 2042 | Shanks: 50% Interserve Developments No 4 Limited: 50% |
| Dumfries and Galloway | November 2004 | February 2007 | September 2029 | Shanks: 20% John Laing Environmental Assets Group (UK) Limited: 80% |
| East London Waste Authority December 2002 | August 2007 | December 2027 | Shanks: 20% John Laing Environmental Assets Group (UK) Limited: 80% |
There were no changes in the arrangements for the provision of waste treatment and waste treatment facilities in the year ended 31 March 2015.
Further disclosures in respect of service concession arrangements as required by paragraph 6 SIC 29 are provided on page 52 of the operating review of UK Municipal.
In conducting the impairment review on goodwill and intangibles, management is required to make estimates of pre-tax discount rates, future profitability and growth rates. Detailed descriptions of assumptions and values are given in note 14.
Restoration and aftercare provisions are recognised in the financial statements at the net present value of the estimated future expenditure required to settle the Group's restoration and aftercare provisions. A discount is applied to recognise the time value of money and is unwound over the life of the provision. Provisions also include the present value of the estimated operating losses on loss making onerous contracts. Further information is set out in note 26.
The Group operates a defined benefit scheme for which an actuarial valuation is carried out as determined by the trustees at intervals of not more than three years. The pension cost under IAS 19 (revised) Employee Benefits is assessed in accordance with management's best estimates using the advice of an independent qualified actuary and assumptions in the latest actuarial valuation. The principal assumptions in connection with the Group's retirement benefit scheme are set out in note 27.
The Group operates in the Netherlands, Belgium, the UK and Canada, all of which have their own tax legislation. Deferred tax assets and liabilities are recognised at the current tax rate which may not be the tax rate at which they unwind. The Group has available tax losses, some of which have been recognised as a tax asset and some have not based on management's best estimate of the ability of the Group to utilise those losses. Further information is set out in note 19.
OVERVIEW
The Group's chief operating decision maker is considered to be the Board of Directors. The Group's reportable segments are determined with reference to the information provided to the Board of Directors in order for it to allocate the Group's resources and to monitor the performance of the Group.
The reportable segments are aligned with the core activities of the Group and are as follows:
| Solid Waste Benelux | The collection, recycling and treatment of non-hazardous waste in the Netherlands and Belgium. The other activities in Belgium include landfill disposal and power generation from landfill gas, industrial cleaning activities, biomass processing and the operation of a sand quarry. |
|---|---|
| Hazardous Waste | The reprocessing and recycling of contaminated soil, water and other contaminated materials. Industrial cleaning of heavily contaminated industrial plant. |
| Organics | The collection and treatment of food waste, garden waste and other organic materials. |
| UK Municipal | Long-term PFI/PPP contracts providing recycling and waste management services to local authorities in the UK. |
| Group central services | The head office corporate function. |
The profit measure the Board of Directors uses to evaluate performance is trading profit. Trading profit is continuing operating profit before the amortisation of acquisition intangibles (excluding landfill void and computer software), non-trading and exceptional items. The Group accounts for inter-segment trading on an arm's length basis.
The segment results, which do not include any amounts for discontinued operations, are as follows:
| 2015 £m Netherlands Solid Waste 176.0 Belgium Solid Waste 82.8 Belgium Other 50.9 Intra-segment revenue (12.5) Solid Waste Benelux 297.2 Hazardous Waste 138.0 Netherlands 14.7 Canada 12.0 Other Organics 3.3 |
Restated* | ||
|---|---|---|---|
| 2014 | |||
| £m | |||
| 188.2 | |||
| 91.7 | |||
| 58.7 | |||
| (15.4) | |||
| 323.2 | |||
| 148.2 | |||
| 15.9 | |||
| 13.5 | |||
| 4.8 | |||
| Organics | 30.0 | 34.2 | |
| UK Municipal 144.6 |
137.5 | ||
| Inter-segment revenue (8.4) |
(9.7) | ||
| Total revenue from continuing operations# 601.4 |
633.4 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| Restated* | ||
|---|---|---|
| 2015 £m |
2014 £m |
|
| Netherlands Solid Waste | 9.3 | 12.0 |
| Belgium Solid Waste | 3.9 | 5.6 |
| Belgium Other | 7.8 | 9.7 |
| Divisional central services | (9.1) | (7.6) |
| Solid Waste Benelux | 11.9 | 19.7 |
| Hazardous Waste | 17.7 | 21.8 |
| Divisional central services | (1.3) | (1.9) |
| Hazardous Waste | 16.4 | 19.9 |
| Netherlands | 1.3 | 2.5 |
| Canada | 2.8 | 2.7 |
| Other Organics | 0.6 | (0.1) |
| Divisional central services | (1.3) | (1.0) |
| Organics | 3.4 | 4.1 |
| UK Municipal | 15.0 | 13.1 |
| Divisional central services | (5.0) | (3.9) |
| UK Municipal | 10.0 | 9.2 |
| Group central services | (7.4) | (7.3) |
| Total trading profit | 34.3 | 45.6 |
| Non-trading and exceptional items | (46.7) | (22.5) |
| Total operating (loss) profit from continuing operations | (12.4) | 23.1 |
| Finance income | 14.9 | 10.4 |
| Finance charges | (28.2) | (26.2) |
| Share of results from associates and joint ventures | 5.2 | 0.3 |
| (Loss) profit before taxation and discontinued operations | (20.5) | 7.6 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| Operating Assets | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Solid Waste Benelux £m |
Hazardous Waste £m |
Organics £m |
UK Municipal £m |
Group central services £m |
Tax, net debt and derivatives £m |
Total continuing operations £m |
Discontinued operations £m |
Total £m |
|
| 31 March 2015 | |||||||||
| Gross non-current assets | 215.1 | 155.6 | 85.4 | 256.6 | 1.9 | 21.7 | 736.3 | 1.0 | 737.3 |
| Gross current assets | 61.5 | 32.0 | 5.8 | 60.2 | 0.5 | 61.0 | 221.0 | 3.0 | 224.0 |
| Gross liabilities | (108.7) | (38.5) | (6.1) | (74.2) | (25.7) | (519.0) | (772.2) | – | (772.2) |
| Net assets | 167.9 | 149.1 | 85.1 | 242.6 | (23.3) | (436.3) | 185.1 | 4.0 | 189.1 |
| 31 March 2014* | |||||||||
| Gross non-current assets | 271.6 | 162.4 | 99.9 | 195.6 | 1.2 | 12.3 | 743.0 | 1.4 | 744.4 |
| Gross current assets | 73.2 | 34.5 | 7.8 | 36.2 | 1.3 | 106.1 | 259.1 | 6.0 | 265.1 |
| Gross liabilities | (119.1) | (43.3) | (7.1) | (66.0) | (23.5) | (473.7) | (732.7) | (3.3) | (736.0) |
| Net assets | 225.7 | 153.6 | 100.6 | 165.8 | (21.0) | (355.3) | 269.4 | 4.1 | 273.5 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
OVERVIEW
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION GOVERNANCE STRATEGIC REVIEW
| Group | Total | |||||||
|---|---|---|---|---|---|---|---|---|
| Solid Waste | Hazardous | UK | central | continuing | Discontinued | |||
| Benelux £m |
Waste £m |
Organics £m |
Municipal £m |
services £m |
operations £m |
operations £m |
Total £m |
|
| 31 March 2015 | ||||||||
| Capital expenditure: | ||||||||
| Property, plant and equipment | 19.6 | 23.7 | 2.3 | 0.6 | 0.2 | 46.4 | – | 46.4 |
| Intangible assets | 0.3 | 0.4 | 0.1 | 0.4 | – | 1.2 | – | 1.2 |
| Depreciation charge | 23.1 | 7.6 | 4.8 | 0.3 | – | 35.8 | – | 35.8 |
| Amortisation of intangibles | 3.1 | 0.3 | 0.8 | – | 0.2 | 4.4 | – | 4.4 |
| Impairment charge: | – | |||||||
| Property, plant and equipment | 4.3 | 0.2 | 6.0 | – | – | 10.5 | – | 10.5 |
| Intangible assets | 11.4 | – | – | – | – | 11.4 | – | 11.4 |
| 31 March 2014* | ||||||||
| Capital expenditure: | ||||||||
| Property, plant and equipment | 20.1 | 11.6 | 8.0 | 0.6 | – | 40.3 | 1.1 | 41.4 |
| Intangible assets | 0.5 | 0.4 | 0.3 | – | 0.1 | 1.3 | – | 1.3 |
| Depreciation charge | 26.2 | 7.7 | 5.2 | 0.5 | – | 39.6 | 0.5 | 40.1 |
| Amortisation of intangibles | 3.9 | 0.2 | 0.8 | – | 0.2 | 5.1 | 0.5 | 5.6 |
| Impairment charge: | ||||||||
| Property, plant and equipment | 5.1 | – | 0.8 | – | – | 5.9 | – | 5.9 |
| Intangible assets | 14.7 | – | – | 0.6 | – | 15.3 | – | 15.3 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The Group's revenue from external customers and information about its segment assets (non-current assets excluding cash, financial instruments and deferred tax assets) by geographical location are detailed below:
| Revenue from external customers | Non-current assets | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
Restated* 2014 £m |
|
| Netherlands | 321.2 | 343.9 | 374.1 | 436.7 |
| Belgium | 123.6 | 137.0 | 36.9 | 47.4 |
| UK | 142.6 | 139.0 | 276.4 | 219.0 |
| Canada | 12.0 | 13.5 | 27.2 | 27.6 |
| 599.4 | 633.4 | 714.6 | 730.7 |
OVERVIEW
To improve the understanding of the Group's financial performance, items which do not reflect the underlying performance are presented in non-trading and exceptional items.
| Note | 2015 £m |
2014 £m |
|
|---|---|---|---|
| Continuing operations | |||
| UK Municipal lifecycle | 2.0 | – | |
| Total non-trading and exceptional revenue | 2.0 | – | |
| Impairment of assets | 12.4 | 3.1 | |
| Impairment of goodwill and acquisition intangibles | 14 | 11.1 | 15.3 |
| Reassessment of discount rate for long-term provisions | 7.1 | – | |
| Restructuring charges | 6.5 | 8.7 | |
| Canadian contract issues | 3.0 | – | |
| Onerous contract provisions | 2.1 | (5.5) | |
| Amortisation of acquisition intangibles | 14 | 1.9 | 2.3 |
| Costs relating to fires | 1.0 | – | |
| Portfolio activities | 1.0 | – | |
| Acquisition costs | 0.6 | – | |
| UK Municipal lifecycle | 0.3 | – | |
| Belgium waste disposal costs | (0.1) | 1.7 | |
| Reassessment of contingent consideration | (0.8) | (1.0) | |
| Exit from loss making Hygea contract | (1.4) | (2.2) | |
| Aborted bid costs | – | 2.9 | |
| Belgium litigation provision | – | 0.9 | |
| Hazardous Waste net litigation recovery | – | (1.4) | |
| Insurance settlement net of impairment of assets in relation to a fire in the Netherlands | – | (2.3) | |
| Total non-trading and exceptional items in operating (loss) profit | 46.7 | 22.5 | |
| UK Associates income | (4.4) | – | |
| Change in fair value of derivatives | (0.1) | (0.3) | |
| Exceptional interest charge in relation to the Belgium litigation | – | 0.3 | |
| Continuing non-trading and exceptional items in loss before tax | 42.2 | 22.5 | |
| Tax on non-trading and exceptional items | (4.0) | (1.4) | |
| Continuing non-trading and exceptional items in loss after tax | 38.2 | 21.1 | |
| Discontinued operations | |||
| Discontinued operations (further details in note 10) | (1.5) | 24.4 | |
| Credit issues with regard to deferred consideration | – | 2.0 | |
| Total non-trading and exceptional items in loss after tax | 36.7 | 47.5 |
The above non-trading and exceptional items include the following:
A total charge of £2.3m (2014: £nil) for a one-off adjustment relating to lifecycle expenditure in UK Municipal contracts. Where these obligations arise in contracts to which the Group does not apply IFRIC 12, an adjustment of £2.0m has arisen relating to revenue recognised in the past.
Impairment of assets of £12.4m (2014: £3.1m) including plant and equipment impairment of £10.5m principally £4.4m at the Gent site in Belgium and £6.0m for the Westcott Park organics facility in the UK. In addition, based on management's expectations of future performance of certain CGUs, further impairments of £0.3m of intangibles, £0.9m of inventory and £0.7m of other assets have been taken.
Goodwill impairment charge of £11.1m (2014: £15.3m) relating to Solid Waste Netherlands as a result of lower than expected performance in the division and an associated revision of the future trading performance.
Increased charge of £7.1m (2014: £nil) relating to long-term provisions as a result of the decrease in the discount rate due to the significant decline in long-term government bond yields during the year.
Restructuring charges and associated costs of £6.5m (2014: £8.7m) relating to the structural cost reduction programme including the introduction of shared service centres in Netherlands and Belgium.
Contractual issues in Organics Canada, including the write off of trade receivables and associated operating and legal costs relating to the arbitration ruling in Ottawa of £3.0m (2014: £nil).
Onerous contract provisions charge of £2.1m (2014: credit of £5.5m) following the reassessment of our best estimates of the required provisions.
Amortisation of intangible assets acquired in business combinations of £1.9m (2014: £2.3m).
£1.0m (2014: £nil) relating to the costs associated with fires principally at the Gent site in Belgium. This amount also includes a small element for costs relating to a fire at a UK Municipal site which were not recoverable from insurers.
Costs of £1.0m (2014: £nil) as a result of various portfolio activities including the exit from Jaartsveld soil washing activities in the Netherlands and the disposal of environmental services consultancy in Belgium.
Acquisition costs of £0.6m (2014: £nil).
The release of unutilised provision of £0.1m following the completion of the disposal of excess unprocessed waste at the Gent site in Belgium (2014: charge of £1.7m).
A release of £0.8m (2014: £1.0m) following the final reassessment of the contingent consideration payable on a previous acquisition in Netherlands Solid Waste.
£1.4m credit following the final negotiated exit from the loss-making Hygea contract in Belgium (2014: credit of £2.2m).
The Group has revised its modelling of the financial asset repayment profiles of two UK associates as a result of a more appropriate model being prepared on conversion to IFRS in the individual entity financial statements. This has resulted in a one-off profit of £4.4m (2014: £nil) to recognise profits that ought to have been recognised in the past.
| Reconciliation of trading profit to EBITDA from continuing operations | 2015 £m |
Restated* 2014 £m |
|---|---|---|
| Trading profit | 34.3 | 45.6 |
| Depreciation of property, plant and equipment | 35.8 | 39.6 |
| Amortisation of intangible assets (excluding acquisition intangibles) | 2.5 | 2.8 |
| Non-exceptional gains on disposal of property, plant and equipment | (0.2) | (1.9) |
| Non cash landfill related expense and provisioning | 0.6 | 0.9 |
| EBITDA from continuing operations | 73.0 | 87.0 |
Operating profit for the year is stated after charging (crediting):
| 2015 | Restated* 2014 |
||
|---|---|---|---|
| Continuing operations | Note | £m | £m |
| Staff costs | 6 | 156.2 | 161.8 |
| Depreciation of property, plant and equipment | 15 | 35.8 | 39.6 |
| Amortisation of intangible assets | 14 | 4.4 | 5.1 |
| Repairs and maintenance expenditure on property, plant and equipment | 33.2 | 36.1 | |
| Net profit on disposal of property, plant and equipment | (0.2) | (1.9) | |
| Non-trading and exceptional items | 4 | 46.7 | 22.5 |
| Trade receivables impairment | 22 | 2.9 | 1.1 |
| Government grants | (0.1) | (0.2) | |
| Operating lease costs: | |||
| – Minimum lease payments | 11.3 | 13.6 | |
| – Less sub-lease rental income | (0.2) | (0.2) | |
| 11.1 | 13.4 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Remuneration of the Group's auditor, PricewaterhouseCoopers LLP and its associates: | ||
| – Audit of parent company and consolidated accounts | 0.2 | 0.2 |
| – Audit of subsidiaries pursuant to legislation | 0.4 | 0.4 |
| Fees payable to the auditors pursuant to legislation | 0.6 | 0.6 |
| Total non-audit fees – Other services | 0.1 | 0.1 |
| Total fees | 0.7 | 0.7 |
Staff costs and the average monthly number of employees analysed by reportable segment are shown below:
| Note | 2015 £m |
Restated* 2014 £m |
|
|---|---|---|---|
| The total remuneration of all continuing operations employees comprised: | |||
| Wages and salaries | 120.6 | 124.5 | |
| Social security costs | 23.9 | 25.4 | |
| Share-based benefits | 7 | 1.3 | 0.7 |
| Other pension costs | 27 | 10.4 | 11.2 |
| 156.2 | 161.8 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| 2015 | Restated* 2014 |
|
|---|---|---|
| Number | Number | |
| The average monthly number of people by reportable segment employed by the Group during the year was: | ||
| Solid Waste Benelux | 2,062 | 2,076 |
| Hazardous Waste | 789 | 766 |
| Organics | 92 | 88 |
| UK Municipal | 543 | 545 |
| Group central services | 20 | 16 |
| Total continuing operations | 3,506 | 3,491 |
| Discontinued operations – UK Solid Waste | – | 240 |
| Total | 3,506 | 3,731 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
OVERVIEW
As described in the Remuneration Report, the Group issues equity-settled share-based payments under a Savings Related Share Option Scheme (SRSOS) and a Long Term Incentive Plan (LTIP). The Executive Share Option Scheme (ESOS) was discontinued in August 2005.
| SRSOS | ESOS | LTIP | ||||
|---|---|---|---|---|---|---|
| Options | Weighted average exercise price |
Options | Weighted average exercise price |
Options | ||
| Outstanding at 1 April 2013 | Number 1,260,071 |
pence 76p |
Number 78,025 |
pence 109p |
Number 7,508,000 |
|
| Granted during the year | 653,562 | 76p | – | – | 4,913,500 | |
| Forfeited during the year | (144,671) | 77p | (18,877) | 114p | (1,132,500) | |
| Expired during the year | (237,487) | 75p | – | – | (930,000) | |
| Exercised during the year | (237,761) | 77p | – | – | – | |
| Outstanding at 31 March 2014 | 1,293,714 | 76p | 59,148 | 107p | 10,359,000 | |
| Granted during the year | 576,407 | 84p | – | – | 3,358,000 | |
| Forfeited during the year | (189,190) | 77p | (6,292) | 114p | (300,000) | |
| Expired during the year | (243,196) | 77p | – | – | (1,792,000) | |
| Exercised during the year | (130,366) | 81p | (18,877) | 91p | – | |
| Outstanding at 31 March 2015 | 1,307,369 | 79p | 33,979 | 114p | 11,625,000 | |
| Exercisable at 31 March 2015 | 31,297 | 92p | 33,979 | 114p | ||
| Exercisable at 31 March 2014 | 20,503 | 79p | 59,148 | 107p | ||
| Weighted average share price at date of exercise | 103p | 107p | ||||
| At 31 March 2015: | ||||||
| Range of price per share at exercise | 73p to 92p | 114p | ||||
| Weighted average remaining contractual life | 1-2 years | 2 months |
| SRSOS | LTIP | |||||
|---|---|---|---|---|---|---|
| Valuation model | 2015 Black Scholes |
2014 Black Scholes |
2015 Discounted |
2014 Discounted |
2015 Monte Carlo |
2014 Monte Carlo |
| Weighted average fair value | 24p | 21p | 104p | 73p | 22p | 14p |
| Weighted average share price | 103p | 95p | 104p | 83p | 104p | 83p |
| Weighted average exercise price | 84p | 76p | – | – | – | – |
| Expected volatility | 28% | 28% | – | – | 28% | 28% |
| Expected life | 3 years | 3 years | 3 years | 3 years | 3 years | 3 years |
| Risk-free interest rate | 1.35% | 1.0% | – | – | 1.4% | 0.6% |
| Dividend yield | 3.2% | 4.1% | – | 4.1% | 3.5% | 4.1% |
For the LTIP awards granted, the fair value of the element subject to non-market conditions has been calculated using a discounted model based on the share price at the award date and the expense recognised is based on expectations of these conditions being met which are reassessed at each balance sheet date. The awards granted during 2014/15 vest after three years, four years and five years, however, there is no service condition after three years just a holding period of one and two years.
The Monte Carlo valuation model is used to determine the weighted average fair value of the market conditions element of awards granted. Expected volatility has been calculated using average volatility historical data over a three-year period from the grant date. The risk-free interest rate is based on the implied yield of zero-coupon government bonds with a remaining term equal to the expected life. The expected life used in the models equals the vesting period. Further details and performance metrics are detailed in the Directors' Remuneration Report on pages 77 to 91.
The Group recognised a total charge of £1.3m (2014: £0.7m) relating to equity-settled share-based payments.
| Continuing operations | 2015 £m |
Restated* 2014 £m |
|---|---|---|
| Finance charges | ||
| Interest payable on borrowings wholly repayable within five years | 11.9 | 10.8 |
| Interest payable on borrowings repayable after five years | – | 2.4 |
| Interest payable on PFI/PPP non-recourse net debt | 12.8 | 8.2 |
| Unwinding of discount on provisions (note 26) | 2.1 | 2.7 |
| Unwinding of discount on deferred consideration payable | – | 0.1 |
| Interest charge on the retirement pension scheme (note 27) | 0.5 | 0.3 |
| Amortisation of loan fees | 0.9 | 1.4 |
| Total finance charges | 28.2 | 25.9 |
| Finance income | ||
| Interest receivable on financial assets relating to PFI/PPP contracts | (14.1) | (9.4) |
| Unwinding of discount on deferred consideration receivable | (0.2) | (0.1) |
| Interest income on bank deposits | (0.1) | (0.1) |
| Interest receivable on other loans and receivables | (0.4) | (0.5) |
| Total finance income | (14.8) | (10.1) |
| Exceptional interest charge (note 4) | – | 0.3 |
| Change in fair value of derivatives at fair value through profit or loss | (0.1) | (0.3) |
| Net finance charges | 13.3 | 15.8 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The tax (credit) charge based on the (loss) profit for the year from continuing operations is made up as follows:
| Restated* | ||
|---|---|---|
| 2015 £m |
2014 £m |
|
| Current tax: UK corporation tax | ||
| – Current year | 0.7 | – |
| – Prior year | (0.2) | (0.2) |
| Overseas tax | ||
| – Current year | 4.2 | 5.7 |
| – Prior year | (0.4) | 0.1 |
| Total current tax | 4.3 | 5.6 |
| Deferred tax (note 19) | ||
| – Origination and reversal of temporary differences in the current year | (6.7) | 1.5 |
| – Adjustment in respect of prior year | 0.1 | (1.3) |
| Total deferred tax | (6.6) | 0.2 |
| Total tax (credit) charge for the year | (2.3) | 5.8 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
OVERVIEW
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION GOVERNANCE STRATEGIC REVIEW
The tax on the Group's (loss) profit for the year from continuing operations differs from the UK standard rate of tax of 21% (2014: 23%), as explained below:
| 2015 | Restated* 2014 |
|
|---|---|---|
| Total (loss) profit before taxation | £m (20.5) |
£m 7.6 |
| Tax (credit) charge based on UK tax rate of 21% (2014: 23%) | (4.3) | 1.7 |
| Effects of: | ||
| Adjustment to tax charge in respect of prior years | (0.5) | (1.4) |
| Profits taxed at overseas tax rates | (1.5) | (0.5) |
| Non-deductible impairments of goodwill | 2.8 | 3.5 |
| Non-deductible (non-taxable) other items | 0.3 | (0.7) |
| Unrecognised deferred tax assets | 1.6 | 2.2 |
| Change in tax rate | 0.2 | 1.0 |
| Revised income from equity accounted associates | (0.9) | – |
| Total tax (credit) charge for the year | (2.3) | 5.8 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The Finance Act 2013, which was substantially enacted on 17 July 2013, included legislation to reduce the main rate of UK corporation tax from 23% to 21% from 1 April 2014 and then to 20% by 1 April 2015. As a result the UK deferred tax at 31 March 2015 has been calculated based on the rate of 20% (2014: 20%).
| Group | 2015 £m |
2014 £m |
|---|---|---|
| Property, plant and equipment | 3.5 | 3.2 |
The assets classified as held for sale at 31 March 2015 include the material recycling facility at Kettering relating to the exit from UK Solid Waste and land and buildings in relation to Jaartsveld following the decision to exit from soil washing activities at this location. These assets are measured at their non-recurring fair value less costs to sell using observable inputs, being the prices for recent sales of similar assets, and are therefore classified within level 2 of the fair value hierarchy.
On 31 December 2013 the Group completed the sale of the majority of its UK Solid Waste business to Biffa Waste Services Limited. In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, the net results of these operations were presented within discontinued operations in the Income Statement and the assets to be sold were presented separately in the Balance Sheet.
The tables below show the results of the discontinued operations which are included in the Group Income Statement and Group Cash Flow Statement respectively.
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Revenue | 0.5 | 40.0 |
| Cost of sales | (0.5) | (39.0) |
| Administrative expenses | (0.2) | (5.4) |
| Trading loss before exceptional and non-trading items | (0.2) | (4.4) |
| Exceptional and non-trading items | 1.5 | (24.5) |
| Operating profit (loss) before finance costs and tax on discontinued operations | 1.3 | (28.9) |
| Finance charges | – | (0.1) |
| Profit (loss) before tax on discontinued operations | 1.3 | (29.0) |
| Taxation | – | 1.0 |
| Profit (loss) after tax on discontinued operations | 1.3 | (28.0) |
An exceptional credit of £1.5m was recognised in 2015 for the release of certain provisions relating to the disposal of the UK Solid Waste business. The prior year exceptional and non-trading items included a loss of £20.4m to recognise the remeasurement of the disposal assets to their fair value less costs to sell. The prior period taxation credit of £1.0m included £0.1m in relation to the remeasurement to fair value less costs to sell.
In addition to the £28.0m loss after tax on discontinued operations in the prior year, a £2.0m charge was reflected for credit issues with regard to deferred consideration.
The profit (loss) for the year is stated after (crediting) charging:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Wages and salaries | – | 6.9 |
| Social security costs | – | 0.7 |
| Other pension costs | – | 0.3 |
| Depreciation of property, plant and equipment | – | 0.5 |
| Amortisation of intangible assets | – | 0.5 |
| Repairs and maintenance expenditure on property, plant and equipment | – | 0.3 |
| Net profit on disposal of property, plant and equipment | – | (0.2) |
| Non-trading and exceptional items | (1.5) | 26.5 |
| Trade receivables impairment | – | 0.2 |
| Operating lease costs – minimum lease payments less sub-lease rental income | – | 3.4 |
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Net cash flows used in operating activities | (1.5) | (4.9) |
| Net cash flows generated from investing activities | 0.8 | 9.4 |
| Net cash flows used in financing activities | – | (0.1) |
| Net cash flows (used in) generated from discontinued operations | (0.7) | 4.4 |
OVERVIEW
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Amounts recognised as distributions to equity holders in the year: | ||
| Final dividend paid for the year ended 31 March 2014 of 2.35p per share (2013: 2.35p) | 9.3 | 9.3 |
| Interim dividend paid for the year ended 31 March 2015 of 1.1p per share (2014: 1.1p) | 4.4 | 4.4 |
| 13.7 | 13.7 | |
| Proposed final dividend for the year ended 31 March 2015 of 2.35p per share (2014: 2.35p) | 9.3 | 9.3 |
| Total dividend per share | 3.45p | 3.45p |
| 12. Earnings per share | ||
| 2014 | |
|---|---|
| 397.6m | |
| 0.3m | 0.3m |
| 397.9m | |
| 1.7 | |
| 21.1 | |
| 19.9 | 22.8 |
| (4.6)p | 0.4p |
| 5.0p | 5.7p |
| (30.0) | |
| 26.4 | |
| (3.6) | |
| (7.5)p | |
| (0.1)p | (0.9)p |
| (28.3) | |
| 47.5 | |
| 19.2 | |
| (7.1)p | |
| 4.8p | |
| 397.8m 398.1m (18.3) 38.2 1.3 (1.5) (0.2) 0.3p (17.0) 36.7 19.7 (4.3)p 4.9p |
The Directors believe that adjusting basic earnings per share for the effect of the amortisation of acquisition intangibles (excluding landfill void and computer software), the change in fair value of derivatives and exceptional items enables comparison with historical data calculated on the same basis. Exceptional items are those items that need to be disclosed separately on the face of the Income Statement, because of their size or incidence, to enable a better understanding of performance.
.
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own Income Statement or Statement of Comprehensive Income. Shanks Group plc reported a loss for the year ended 31 March 2015 of £2.3m (2014: £2.9m loss). The Company operates solely in the UK providing central services.
| Group | Company | |||||
|---|---|---|---|---|---|---|
| Goodwill | Landfill void | Computer software and others |
Acquisition related intangibles |
Total | Computer Software |
|
| £m | £m | £m | £m | £m | £m | |
| Cost | ||||||
| At 1 April 2013* | 248.0 | 21.7 | 8.5 | 43.0 | 321.2 | 0.9 |
| Additions | – | – | 1.3 | – | 1.3 | 0.2 |
| Disposals | (13.6) | – | (0.1) | (13.4) | (27.1) | – |
| Reclassification | – | – | 0.6 | (0.6) | – | – |
| Exchange | (5.1) | (0.5) | (0.3) | (0.8) | (6.7) | – |
| At 31 March 2014 | 229.3 | 21.2 | 10.0 | 28.2 | 288.7 | 1.1 |
| Acquisition through business combination | 0.1 | – | – | – | 0.1 | – |
| Additions | – | – | 1.2 | – | 1.2 | 0.1 |
| Disposals | (0.7) | – | (1.1) | (1.0) | (2.8) | – |
| Reclassification | – | – | 2.6 | – | 2.6 | – |
| Exchange | (28.1) | (2.6) | (1.1) | (3.4) | (35.2) | – |
| At 31 March 2015 | 200.6 | 18.6 | 11.6 | 23.8 | 254.6 | 1.2 |
| Accumulated amortisation and impairment | ||||||
| At 1 April 2013* | 32.9 | 7.8 | 6.0 | 24.3 | 71.0 | 0.2 |
| Amortisation charge | – | 1.8 | 1.0 | 2.8 | 5.6 | 0.2 |
| Impairment charge | 14.9 | – | – | 0.4 | 15.3 | – |
| Disposals | (6.1) | – | (0.1) | (6.7) | (12.9) | – |
| Reclassification | – | – | 0.4 | (0.4) | – | – |
| Exchange | (0.6) | (0.2) | (0.2) | (0.4) | (1.4) | – |
| At 31 March 2014 | 41.1 | 9.4 | 7.1 | 20.0 | 77.6 | 0.4 |
| Amortisation charge | – | 1.5 | 1.0 | 1.9 | 4.4 | 0.3 |
| Impairment charge | 11.1 | – | 0.3 | – | 11.4 | – |
| Disposals | – | – | (1.2) | (1.0) | (2.2) | – |
| Exchange | (6.0) | (1.2) | (0.7) | (2.5) | (10.4) | – |
| At 31 March 2015 | 46.2 | 9.7 | 6.5 | 18.4 | 80.8 | 0.7 |
| Net book value | ||||||
| At 31 March 2015 | 154.4 | 8.9 | 5.1 | 5.4 | 173.8 | 0.5 |
| At 31 March 2014 | 188.2 | 11.8 | 2.9 | 8.2 | 211.1 | 0.7 |
| At 31 March 2013 | 215.1 | 13.9 | 2.5 | 18.7 | 250.2 | 0.7 |
*The Group opening position has been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
Of the total £4.4m (2014: £5.6m) amortisation charge for the year, £1.9m (2014: £2.8m) related to intangible assets arising on acquisition including £nil (2014: £0.5m) relating to discontinued operations. Of the remaining amortisation expense of £2.5m (2014: £2.8m), £1.7m (2014: £2.1m) has been charged in cost of sales and £0.8m (2014: £0.7m) has been charged in administrative expenses.
The acquisition related intangibles net book value of £5.4m (2014: £8.2m) included customer lists of £2.6m (2014: £4.6m) and permits of £1.9m (2014: £2.4m).
The reclassification of £2.6m in the year relates to a contract right over leasehold land that has been reclassified from land and buildings.
OVERVIEW
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION GOVERNANCE STRATEGIC REVIEW
Impairment testing is carried out at cash generating unit (CGU) level on an annual basis. The following is a summary of the goodwill allocation for each reporting segment:
| 2015 £m |
Restated* 2014 £m |
|
|---|---|---|
| Solid Waste Benelux | 53.0 | 72.9 |
| Hazardous Waste | 84.3 | 96.3 |
| Organics | 13.4 | 15.3 |
| UK Municipal | 3.7 | 3.7 |
| Total goodwill | 154.4 | 188.2 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The Group estimates the recoverable amount of a CGU using a value in use model by projecting cash flows for the next five years together with a terminal value using a growth rate. The key assumptions underpinning the recoverable amounts of the CGUs tested for impairment is forecast revenue and trading profit. The forecast revenues in these models are based on management's predictions of overall market growth rates, including both volume and price. Trading margin is the average trading profit margin as a percentage of revenue over the five-year forecast period. The five-year plans used in the impairment models are based on management's past experience and future expectations of performance and reflect the planned changes in the CGUs as a result of restructuring programmes and actions instigated in the current year together with limited recovery and improvement in general market and economic conditions.
For each of the CGUs with significant goodwill, in comparison with the total carrying value of goodwill of the Group, the key assumptions, long term growth rate and discount rate used in the value in use calculations are as follows. In addition, where there has been an impairment loss in a CGU, the recoverable amount is also disclosed below:
| 31 March 2015 | Netherlands Solid Waste |
Hazardous Waste |
|---|---|---|
| Revenue (% annual growth rate) | 3.5% | 4.7% |
| Trading margin (average % of revenue) | 5.5% | 13.5% |
| Long term growth rate | 2.0% | 2.0% |
| Pre-tax discount rate | 9.9% | 10.1% |
| Recoverable amount of the CGU | £174m | N/A |
| 31 March 2014 | Netherlands Solid Waste |
Hazardous Waste |
|---|---|---|
| Revenue (% annual growth rate) | 1.5% | 3.3% |
| Trading margin (average % of revenue) | 7.1% | 14.5% |
| Long term growth rate | 2.0% | 2.0% |
| Pre-tax discount rate | 9.9% | 10.4% |
| Recoverable amount of the CGU | £209m | N/A |
The net impairment losses recognised in the consolidated Income Statement within exceptional administrative expenses, in respect of goodwill and acquisition related intangibles were as follows:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Solid Waste Benelux | 11.1 | 14.7 |
| UK Municipal | – | 0.6 |
| 11.1 | 15.3 |
OVERVIEW
A goodwill impairment charge of £11.1m (2014: £8.9m) has been recognised in administrative expenses in relation to the Netherlands Solid Waste CGU as a result of lower than expected performance in the division in the year and an associated revision of the future trading performance. Following this impairment the carrying value of the goodwill of the Netherlands Solid Waste CGU was £51.8m (2014: £70.7m). Any decrease in the growth rate in revenue over the review period (without any further cost actions) or in the longterm growth rate or any increase in the pre-tax discount rate would mean that the carrying value of the Netherlands Solid Waste CGU would exceed its recoverable amount and further impairment would arise.
For our Hazardous Waste, Organics and UK Municipal segments, the recoverable amounts were determined to be in excess of the carrying values and it is considered unlikely that any reasonably possible change to key assumptions would result in an impairment charge.
The other prior year Solid Waste Benelux impairment charge was goodwill of £5.4m and acquisition intangibles of £0.4m in relation to the Gent site in Belgium.
| Land and buildings |
Landfill sites |
Plant and machinery |
Total | |
|---|---|---|---|---|
| Group | £m | £m | £m | £m |
| Cost | ||||
| At 1 April 2013* | 280.5 | 42.5 | 533.5 | 856.5 |
| Additions | 5.2 | – | 36.2 | 41.4 |
| Disposals | (21.4) | – | (38.8) | (60.2) |
| Transfer to assets held for sale (note 10) | (7.1) | – | (8.7) | (15.8) |
| Exchange | (10.7) | (0.8) | (11.5) | (23.0) |
| At 31 March 2014 | 246.5 | 41.7 | 510.7 | 798.9 |
| Acquisition through business combination | – | – | 0.3 | 0.3 |
| Additions | 12.0 | – | 34.4 | 46.4 |
| Disposals | (0.7) | – | (11.7) | (12.4) |
| Transfer to assets held for sale (note 10) | (2.8) | – | – | (2.8) |
| Reclassification | (2.1) | – | (0.5) | (2.6) |
| Exchange | (26.2) | (5.2) | (63.1) | (94.5) |
| At 31 March 2015 | 226.7 | 36.5 | 470.1 | 733.3 |
| Accumulated depreciation and impairment | ||||
| At 1 April 2013* | 96.2 | 38.5 | 351.3 | 486.0 |
| Depreciation charge | 8.3 | 0.8 | 31.0 | 40.1 |
| Impairment charge | 1.1 | – | 4.8 | 5.9 |
| Remeasurement to fair value of assets held for sale | 2.8 | – | 8.3 | 11.1 |
| Disposals | (10.7) | – | (32.0) | (42.7) |
| Transfer to assets held for sale (note 10) | (3.9) | – | (8.7) | (12.6) |
| Exchange | (2.9) | (0.9) | (7.8) | (11.6) |
| At 31 March 2014 | 90.9 | 38.4 | 346.9 | 476.2 |
| Depreciation charge | 8.0 | 0.3 | 27.5 | 35.8 |
| Impairment charge | 0.6 | – | 9.9 | 10.5 |
| Disposals | (0.4) | – | (9.9) | (10.3) |
| Transfer to asset held for sale (note 10) | (1.7) | – | – | (1.7) |
| Reclassification | 1.6 | – | (1.6) | – |
| Exchange | (10.7) | (4.8) | (44.6) | (60.1) |
| At 31 March 2015 | 88.3 | 33.9 | 328.2 | 450.4 |
| Net book value | ||||
| At 31 March 2015 | 138.4 | 2.6 | 141.9 | 282.9 |
| At 31 March 2014 | 155.6 | 3.3 | 163.8 | 322.7 |
| At 31 March 2013 | 184.3 | 4.0 | 182.2 | 370.5 |
*The opening position has been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
Included in plant and machinery are assets held under finance leases with a net book value of £11.7m (2014: £12.2m) and in land and buildings are assets under finance leases with a net book value of £2.6m (2014: £nil).
Included above are plant and machinery assets under construction of £6.5m (2014: £23.4m) and land and buildings assets under construction of £7.4m (2014: £9.4m).
Depreciation expense of £34.8m (2014: £38.3m restated) has been charged in cost of sales, £1.0m (2014: £1.3m) in administrative expenses and £nil (2014: £0.5m) in discontinued operations.
The net reclassification of £2.6m in the year relates to a contract right over leasehold land that has been reclassified to intangible assets.
The current year impairment charge of £10.5m included £6.0m (2014: £nil) relating to the UK Organics Westcott Park site, £4.4m (2014: £0.9m) relating to the Belgium Solid Waste Gent site and £0.1m (2014: £nil) as a result of portfolio activities. The UK Organics Westcott Park CGU consists of plant and machinery which was impaired following a reassessment of the risks in delivering long term profitability at the site. The pre-tax discount rate applied to the value in use calculation was 9.5%. The Belgium Solid Waste Gent CGU consists of land and buildings and plant and machinery which were impaired as a result of a reassessment of the long term forecasts of this CGU, driven by challenging external market conditions which have contributed to lower than budgeted performance during the year. The pre-tax discount rate applied to the value in use calculation was 9.3%. The impairments were all charged to cost of sales.
The prior year impairment also included £3.4m as a result of a fire in the Netherlands, £0.8m against assets at the Benelux Van Tuijl site and £0.8m relating to the Belgium green energy site.
| Land and | Plant and | ||
|---|---|---|---|
| Company | buildings £m |
machinery £m |
Total £m |
| Cost | |||
| At 1 April 2013 | 0.1 | 0.4 | 0.5 |
| Disposals | – | (0.3) | (0.3) |
| At 31 March 2014 | 0.1 | 0.1 | 0.2 |
| Additions | – | 0.2 | 0.2 |
| Disposals | – | (0.1) | (0.1) |
| At 31 March 2015 | 0.1 | 0.2 | 0.3 |
| Accumulated depreciation | |||
| At 1 April 2013 | – | 0.4 | 0.4 |
| Depreciation charge | – | (0.3) | (0.3) |
| At 31 March 2014 | – | 0.1 | 0.1 |
| Disposals | – | (0.1) | (0.1) |
| At 31 March 2015 | – | – | – |
| Net book value | |||
| At 31 March 2015 | 0.1 | 0.2 | 0.3 |
| At 31 March 2014 | 0.1 | – | 0.1 |
| At 31 March 2013 | 0.1 | – | 0.1 |
| Group | Company | |||||
|---|---|---|---|---|---|---|
| Loans to joint ventures £m |
Joint ventures £m |
Associates £m |
Other unlisted investments £m |
Total £m |
Investments in subsidiary undertakings £m |
|
| At 1 April 2013* | 2.3 | 1.3 | 1.4 | 3.1 | 8.1 | 466.9 |
| Additions | – | – | – | – | – | 66.5 |
| Share of retained profits | – | – | 0.3 | – | 0.3 | – |
| At 31 March 2014 | 2.3 | 1.3 | 1.7 | 3.1 | 8.4 | 533.4 |
| Additions | – | 1.3 | – | – | 1.3 | 56.4 |
| Disposals | – | – | – | (0.3) | (0.3) | – |
| Repayment | (1.0) | – | – | – | (1.0) | (102.4) |
| Share of retained profits | – | 0.5 | 4.7 | – | 5.2 | – |
| Fair value adjustment on cash flow hedges | – | (0.1) | (3.0) | – | (3.1) | – |
| Exchange | – | – | – | (0.4) | (0.4) | – |
| At 31 March 2015 | 1.3 | 3.0 | 3.4 | 2.4 | 10.1 | 487.4 |
*The opening position for the Group has been restated following the adoption of IFRS 11, see notes 1 and below for details.
One joint venture is held at nil value as the Group's share of losses exceeds the carrying amount as a result of the charge in relation to the fair value movement on effective cash flow interest rate hedges. The Group's share of losses in the year and cumulatively which are unrecognised was £7.9m (2014: £nil).
On 31 December 2014 the Group sold its investment in Hygea SCRL for £0.6m, the investment had been fully impaired.
Where the associate or joint venture holds non-recourse PFI/PPP debt there is a restriction on payment of dividends, this is due to the terms of the financing facility agreements and require lender approval.
Details of principal subsidiary undertakings, joint ventures and investments in associates are shown in note 35. The nature of the Group's principal joint ventures and associates are typically in companies holding UK PFI arrangements with non-recourse borrowings. We have assessed each entity and have not identified any as individually material for further disclosure.
The repayment in the Company relates to an in specie dividend of £104.4m of which £102.4m was deemed to be a return of investment resulting in a £2.0m credit to the Income Statement.
The table below shows the Joint Venture assets and liabilities which were included within the Group's Consolidated Balance Sheet at 1 April 2013 prior to adopting IFRS 11:
| At 1 April 2013 £m |
|
|---|---|
| Property, plant and equipment | 4.8 |
| Trade and other receivables | 1.9 |
| Deferred tax asset | 0.4 |
| Cash | 0.5 |
| Total assets | 7.6 |
| Borrowings | (3.6) |
| Loans from related party | (1.2) |
| Trade and other payables | (2.3) |
| Deferred tax liability | (0.1) |
| Provisions | (0.7) |
| Total liabilities | (7.9) |
| Net Assets | (0.3) |
| Goodwill | 1.6 |
| Investments in Joint Ventures | 1.3 |
The impact of adopting IFRS 11 on the Group's Consolidated Income Statement for the year ended 31 March 2014 is shown below.
| As previously reported £m |
Impact of adoption of IFRS 11 £m |
As presented £m |
|
|---|---|---|---|
| Revenue | 636.4 | (3.0) | 633.4 |
| Cost of sales | (535.7) | 2.3 | (533.4) |
| Gross profit | 100.7 | (0.7) | 100.0 |
| Administrative expenses | (77.3) | 0.4 | (76.9) |
| Operating profit | 23.4 | (0.3) | 23.1 |
| Finance income | 10.4 | – | 10.4 |
| Finance charges | (26.4) | 0.2 | (26.2) |
| Share of results from associates and joint ventures | 0.3 | – | 0.3 |
| Profit before taxation | 7.7 | (0.1) | 7.6 |
| Taxation | (5.9) | 0.1 | (5.8) |
| Profit after taxation for the year from continuing operations | 1.8 | – | 1.8 |
| Loss for the year from discontinued operations | (30.0) | – | (30.0) |
| Loss for the year | (28.2) | – | (28.2) |
| Other comprehensive income for the year, net of tax | 0.5 | – | 0.5 |
| Total comprehensive loss for the year | (27.7) | – | (27.7) |
The impact of adopting IFRS 11 in relation to the relevant line items on the Group Consolidated Balance Sheet is shown below. Any line items not affected have been grouped together.
| As previously reported £m |
Impact of adoption of IFRS 11 £m |
As presented £m |
|
|---|---|---|---|
| Consolidated Balance sheet | |||
| Non-current assets | |||
| Intangible assets | 212.7 | (1.6) | 211.1 |
| Property, plant and equipment | 327.1 | (4.4) | 322.7 |
| Investments | 5.9 | 2.5 | 8.4 |
| Deferred tax assets | 12.7 | (0.4) | 12.3 |
| Other non-current assets | 189.9 | – | 189.9 |
| 748.3 | (3.9) | 744.4 | |
| Current assets | |||
| Trade and other receivables | 139.4 | (1.2) | 138.2 |
| Cash and cash equivalents | 104.6 | (0.4) | 104.2 |
| Other current assets | 22.7 | – | 22.7 |
| 266.7 | (1.6) | 265.1 | |
| Total assets | 1,015.0 | (5.5) | 1,009.5 |
| Non-current liabilities | |||
| Borrowings – Other | (256.9) | 3.1 | (253.8) |
| Provisions | (34.0) | 0.7 | (33.3) |
| Other non-current liabilities | (217.6) | – | (217.6) |
| (508.5) | 3.8 | (504.7) | |
| Current liabilities | |||
| Borrowings – Other | (3.7) | 0.4 | (3.3) |
| Trade and other payables | (204.3) | 1.2 | (203.1) |
| Current tax payable | (10.7) | 0.1 | (10.6) |
| Other current liabilities | (14.3) | – | (14.3) |
| (233.0) | 1.7 | (231.3) | |
| Total liabilities | (741.5) | 5.5 | (736.0) |
| Net assets | 273.5 | – | 273.5 |
The impact on the consolidated statement of cash flows has not been disclosed as the movements are not material.
OVERVIEW
| 2015 | 2014 | |||
|---|---|---|---|---|
| Group | Assets £m |
Liabilities £m |
Assets £m |
Liabilities £m |
| Interest rate swaps – effective hedges | – | 42.6 | – | 15.2 |
| Interest rate swaps – at fair value through profit or loss | – | 0.3 | – | 0.4 |
| Forward foreign exchange contracts – effective hedges | – | 0.3 | – | 0.2 |
| Fuel derivatives – effective hedges | 0.1 | 0.9 | – | 0.2 |
| Total | 0.1 | 44.1 | – | 16.0 |
| Current | 0.1 | 0.3 | – | 1.0 |
| Non-current | – | 43.8 | – | 15.0 |
| Total | 0.1 | 44.1 | – | 16.0 |
The fair value of a cash flow hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than one year and as a current asset or liability when the remaining maturity is less than one year.
The notional principal amount of the outstanding interest rate swap contracts at 31 March 2015 was £237.0m (2014: £231.6m restated). The expiry dates of the contracts range from 30 June 2015 (earliest) to 30 June 2037 (latest).
The notional principal amount of the forward foreign exchange contracts was £4.0m (2014: £11.8m). The hedged highly probable forecast transactions denominated in a foreign currency are expected to occur at various dates up to 1 April 2016.
The value of wholesale fuel covered by fuel derivatives at 31 March 2015 amounted to £7.3m (2014: £5.0m), the hedged highly probable forecast purchases of wholesale fuel are expected to occur throughout the year ended 31 March 2016.
Cumulative losses recognised in equity on the derivative financial instruments as of 31 March 2015 were £43.7m (2014: £15.6m) with a loss of £28.1m recognised in the current period (2014: £14.5m gain).
The Company held an effective fuel derivative current liability of £0.9m (2014: £0.2m) and a current asset of £0.1m (2014: £nil). In the prior year the Company held an effective interest rate swap liability of £0.2m and effective forward foreign exchange contracts of £0.1m. The notional value of the wholesale fuel covered by fuel derivatives as at 31 March 2015 amounted to £7.3m (2014: £5.0m). In the prior year the principal amount of the forward foreign exchange contracts was £4.4m and the notional principal amount of the outstanding interest rate swaps was £26.2m.
On 25 August 2014 Shanks acquired the business assets, £0.3m of plant and machinery, from Marcelis, a small tuck-in acquisition in Solid Waste Netherlands for consideration of £0.4m. The residual excess of £0.1m over the net assets acquired has been recognised in goodwill representing the synergy of acquiring the collection activities of this recycling company.
On 1 January 2015 Shanks acquired a site comprising six hectares of land and operational assets including water and waste storage tanks, a distillation tower, laboratories, warehousing and offices. The fair value of the land and building acquired was £2.9m with £0.6m of the consideration deferred and this transaction has been treated as an asset acquisition and not a business combination.
Deferred tax is provided in full on temporary differences under the liability method using applicable local tax rates. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.
| Retirement benefit |
Tax | Derivative financial |
Capital | Other timing | ||
|---|---|---|---|---|---|---|
| Group | scheme £m |
losses £m |
instruments £m |
allowances £m |
differences £m |
Total £m |
| At 1 April 2013* | 2.0 | 2.7 | 7.2 | (37.1) | (0.9) | (26.1) |
| (Charge) credit to Income Statement (note 9) | (0.4) | 0.4 | (0.1) | 2.4 | (2.5) | (0.2) |
| Credit relating to discontinued operations | – | 0.9 | – | – | 0.1 | 1.0 |
| Credit (charge) to equity | 1.0 | – | (3.8) | – | 0.3 | (2.5) |
| Exchange | – | – | – | 1.1 | 0.2 | 1.3 |
| At 31 March 2014 | 2.6 | 4.0 | 3.3 | (33.6) | (2.8) | (26.5) |
| (Charge) credit to Income Statement (note 9) | (0.5) | 5.2 | – | 2.7 | (0.8) | 6.6 |
| Credit to equity | 1.2 | – | 5.6 | – | 0.2 | 7.0 |
| Exchange | – | – | – | 3.6 | 0.8 | 4.4 |
| At 31 March 2015 | 3.3 | 9.2 | 8.9 | (27.3) | (2.6) | (8.5) |
| Deferred tax assets | 3.3 | 1.0 | 8.9 | 4.6 | 3.9 | 21.7 |
| Deferred tax liabilities | – | 8.2 | – | (31.9) | (6.5) | (30.2) |
| At 31 March 2015 | 3.3 | 9.2 | 8.9 | (27.3) | (2.6) | (8.5) |
| Deferred tax assets | 2.6 | 0.2 | 3.3 | 3.9 | 2.3 | 12.3 |
| Deferred tax liabilities | – | 3.8 | – | (37.5) | (5.1) | (38.8) |
| At 31 March 2014 | 2.6 | 4.0 | 3.3 | (33.6) | (2.8) | (26.5) |
*The opening balance has been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
At 31 March 2015, £21.2m (2014: £12.3m restated) of the deferred tax asset and £30.2m (2014: £38.8m) of the deferred tax liability is expected to be recovered after more than one year.
As at 31 March 2015, the Group had unused trading losses (tax effect) of £29.7m (2014: £24.8m restated) available for offset against future profits. A deferred tax asset has been recognised in respect of £9.2m (2014: £4.0m restated) of such losses and recognition is based on management's projections of future profits in the relevant companies. No deferred tax asset has been recognised in respect of the remaining £20.5m (2014: £20.8m restated) due to the uncertainty of future profit streams. Tax losses may be carried forward indefinitely in the relevant companies.
No liability has been recognised on the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries. This is because the Group is in a position to control the timing and method of the reversal of the differences and it is probable that such differences will not give rise to a tax liability in the foreseeable future. The total temporary difference at 31 March 2015 amounted to £140.7m (2014: £138.7m) and the unrecognised deferred tax on the unremitted earnings is estimated to be £0.4m (2014: £0.5m) which relates to taxes payable on repatriation and dividend withholding taxes levied by overseas jurisdictions. UK tax legislation relating to company distributions provides for exemption from tax for most repatriated profits, subject to certain exemptions.
| Company | Retirement benefit schemes £m |
Derivative financial instruments £m |
Other timing differences £m |
Total £m |
|---|---|---|---|---|
| At 1 April 2013 | 2.0 | 0.2 | 0.4 | 2.6 |
| (Charge) credit to Income Statement | (0.4) | – | 0.1 | (0.3) |
| Credit (charge) to equity | 1.0 | (0.1) | 0.3 | 1.2 |
| At 31 March 2014 | 2.6 | 0.1 | 0.8 | 3.5 |
| Charge to Income Statement | (0.5) | – | – | (0.5) |
| Credit to equity | 1.2 | 0.1 | 0.2 | 1.5 |
| At 31 March 2015 | 3.3 | 0.2 | 1.0 | 4.5 |
At 31 March 2015, £4.5m (2014: £3.5m) of the deferred tax asset is expected to be recovered after more than one year.
As at 31 March 2015, the Company has unused tax losses (tax effect) of £5.0m (2014: £4.2m) available for offset against future profits. No deferred tax asset has been recognised in respect of the losses due to the unpredictability of future profit streams. Tax losses may be carried forward indefinitely.
OVERVIEW
| Group | ||
|---|---|---|
| 2015 £m |
2014 £m |
|
| Raw materials and consumables | 6.2 | 7.7 |
| Work in progress | – | 0.2 |
| Finished goods | 0.7 | 1.5 |
| 6.9 | 9.4 |
Financial assets result from the application of IFRIC 12 on accounting for concession arrangements relating to the UK PFI/PPP Municipal contracts and they are measured initially at fair value of consideration receivable and subsequently at amortised cost. The movement in the carrying value of non-current and current financial assets is as follows:
| Group | £m |
|---|---|
| At 1 April 2013 | 125.5 |
| Income recognised in the income statement: Interest Income (note 8) | 9.4 |
| Advances | 69.1 |
| Repayments | (8.4) |
| At 31 March 2014 | 195.6 |
| Income recognised in the income statement: Interest Income (note 8) | 14.1 |
| Advances | 73.7 |
| Repayments | (7.3) |
| Reclassified to provisions | 2.1 |
| At 31 March 2015 | 278.2 |
| Current | 31.6 |
| Non-current | 246.6 |
| At 31 March 2015 | 278.2 |
| Current | 8.2 |
| Non-current | 187.4 |
| At 31 March 2014 | 195.6 |
| Group | Company | ||||
|---|---|---|---|---|---|
| Restated* | |||||
| 2015 £m |
2014 £m |
2015 £m |
2014 £m |
||
| Non-current assets | |||||
| Amounts owed by subsidiary undertakings | – | – | 82.8 | 36.9 | |
| Deferred consideration | 1.0 | 1.5 | – | – | |
| Other receivables | 1.2 | 1.0 | – | 1.2 | |
| 2.2 | 2.5 | 82.8 | 38.1 | ||
| Current assets | |||||
| Trade receivables | 81.2 | 93.9 | – | – | |
| Provision for impairment of receivables | (6.6) | (5.6) | – | – | |
| Trade receivables – net | 74.6 | 88.3 | – | – | |
| Accrued income | 26.0 | 18.6 | – | – | |
| Amounts owed by subsidiary undertakings | – | – | 218.9 | 216.1 | |
| Deferred consideration | 0.7 | 1.7 | – | – | |
| Other receivables | 8.0 | 14.0 | 0.3 | 1.5 | |
| Prepayments | 11.7 | 15.6 | 0.1 | 0.1 | |
| 121.0 | 138.2 | 219.3 | 217.7 |
Movement in the provision for impairment of receivables:
| Group | ||
|---|---|---|
| 2015 £m |
2014 £m |
|
| At 1 April | 5.6 | 5.7 |
| Charged to Income Statement | 2.9 | 1.3 |
| Utilised | (1.2) | (1.3) |
| Exchange | (0.7) | (0.1) |
| At 31 March | 6.6 | 5.6 |
The allowance for bad and doubtful debts is equivalent to 8.1% (2014: 6.0% restated) of gross trade receivables.
Ageing of trade receivables that are past due but not impaired:
| Group | ||
|---|---|---|
| 2015 £m |
Restated* 2014 £m |
|
| Neither impaired nor past due | 53.6 | 54.6 |
| Not impaired but overdue by less than three months | 20.1 | 29.9 |
| Not impaired but overdue by between three and six months | 0.4 | 2.0 |
| Not impaired but overdue by more than six months | 0.5 | 1.8 |
| Impaired | 6.6 | 5.6 |
| Impairment provision | (6.6) | (5.6) |
| 74.6 | 88.3 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
Past due and current amounts are not impaired where collection is considered likely. The Group considers that the carrying amount of trade and other receivables approximates their fair value.
There is no other concentration of credit risk with respect to trade and other receivables as the Group has a large number of customers internationally dispersed with no individual customer owing a significant amount.
The carrying amounts of trade and other receivables are denominated in the following currencies:
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Sterling | 32.0 | 34.6 | 107.8 | 119.7 |
| Euro | 88.7 | 102.6 | 191.7 | 136.1 |
| Canadian Dollar | 2.5 | 3.5 | 2.6 | – |
| 123.2 | 140.7 | 302.1 | 255.8 |
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Cash at bank and in hand | 60.6 | 50.6 | 8.0 | 6.4 |
| Short-term deposits | 0.2 | 53.6 | – | 16.5 |
| 60.8 | 104.2 | 8.0 | 22.9 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The carrying amounts of cash and of cash equivalents are denominated in the following currencies:
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Sterling | 18.2 | 22.4 | 1.5 | 1.7 |
| Euro | 40.8 | 77.6 | 6.3 | 18.9 |
| Canadian Dollar | 1.8 | 4.2 | 0.2 | 2.3 |
| 60.8 | 104.2 | 8.0 | 22.9 |
| Group | Company | ||||
|---|---|---|---|---|---|
| Restated* | |||||
| 2015 £m |
2014 £m |
2015 £m |
2014 £m |
||
| Current borrowings | |||||
| Retail bonds | 72.2 | – | 72.2 | – | |
| Finance lease obligations | 2.8 | 3.3 | – | – | |
| Core borrowings | 75.0 | 3.3 | 72.2 | – | |
| PFI/PPP non-recourse net debt | 62.3 | 1.7 | – | – | |
| 137.3 | 5.0 | 72.2 | – | ||
| Non-current borrowings | |||||
| Senior notes | 28.8 | 32.9 | – | – | |
| Retail bonds | 71.8 | 164.3 | 71.8 | 164.3 | |
| Bank loans | 31.3 | 50.1 | 8.7 | – | |
| Finance lease obligations | 8.9 | 6.5 | – | – | |
| Core borrowings | 140.8 | 253.8 | 80.5 | 164.3 | |
| PFI/PPP non-recourse net debt | 160.3 | 149.5 | – | – | |
| 301.1 | 403.3 | 80.5 | 164.3 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The table below details the maturity profile of non-current borrowings:
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Between one and two years | 7.1 | 143.8 | – | 82.2 |
| Between two years and five years | 152.1 | 103.2 | 80.5 | – |
| Over five years | 141.9 | 156.3 | – | 82.1 |
| 301.1 | 403.3 | 80.5 | 164.3 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
At 31 March 2015, the Group's core bank financing was a £130.2m (€180m) (2014: £148.8m (€180m)) multi-currency revolving credit facility with seven major banks entered into on 31 January 2014 and expiring in January 2019. At 31 March 2015 £37.0m (€51.1m) (2014: £51.7m (€62.5m) of the revolving credit facility was drawn and the remaining £93.2m (€128.9m) (2014: £97.1m (€117.5m)) funds were available for drawing by way of a revolving credit facility on a maximum of three days notice or for ancillary derivative facilities.
At 31 March 2015, the Group had outstanding £28.9m (€40m) (2014: £33.1m (€40m)) of seven-year Pricoa private placement senior notes issued in April 2011 at a fixed interest rate of 5.025%.
The Group has issued two tranches of retail bonds to investors in Belgium and Luxembourg which are listed on the London Stock Exchange. The five-year retail bonds of £72.4m (€100m) (2014: £82.7m (€100m)) issued in October 2010 have an annual coupon of 5.0% and the six-year retail bonds of £72.4m (€100m) (2014: £82.7m (€100m)) issued on 30 July 2013 have an annual coupon of 4.23%.
The Group's finance lease liabilities are payable as follows:
| 2015 | 2014 | |||||
|---|---|---|---|---|---|---|
| Group | Minimum lease payments £m |
Interest £m |
Principal £m |
Minimum lease payments £m |
Interest £m |
Principal £m |
| Within one year | 3.2 | (0.4) | 2.8 | 3.8 | (0.5) | 3.3 |
| Between one and five years | 6.9 | (0.8) | 6.1 | 5.9 | (0.6) | 5.3 |
| More than five years | 4.6 | (1.8) | 2.8 | 1.3 | (0.1) | 1.2 |
| 14.7 | (3.0) | 11.7 | 11.0 | (1.2) | 9.8 |
The Group has an option to purchase leased assets at the end of the lease term. There are no restrictions imposed by lessors to take out further debt or leases.
The carrying amounts of borrowings are denominated in the following currencies:
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Sterling | 228.4 | 149.6 | 5.8 | – |
| Euro | 187.3 | 231.6 | 146.9 | 164.3 |
| Canadian Dollar | 22.7 | 27.1 | – | – |
| 438.4 | 408.3 | 152.7 | 164.3 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Current liabilities | ||||
| Trade payables | 70.6 | 81.5 | 0.1 | 0.4 |
| Other tax and social security payable | 10.8 | 15.4 | 0.4 | 0.4 |
| Other payables | 15.4 | 14.8 | 0.6 | 0.3 |
| Accruals | 71.0 | 72.5 | 6.5 | 6.8 |
| Deferred revenue | 19.1 | 18.9 | – | – |
| Deferred consideration | 0.1 | – | – | – |
| Amounts owed to Group undertakings | – | – | 76.6 | – |
| 187.0 | 203.1 | 84.2 | 7.9 | |
| Non-current liabilities | ||||
| Deferred consideration | 0.4 | 0.9 | – | – |
| Government grants | 0.2 | 0.3 | – | – |
| Amounts owed to Group undertakings | – | – | 152.4 | 215.3 |
| 0.6 | 1.2 | 152.4 | 215.3 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The carrying amounts of trade and other payables and other non-current liabilities are denominated in the following currencies:
| Group | Company | |||
|---|---|---|---|---|
| 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
|
| Sterling | 64.3 | 64.1 | 222.3 | 218.9 |
| Euro | 121.6 | 138.7 | 14.3 | 4.3 |
| Canadian Dollar | 1.7 | 1.5 | – | – |
| 187.6 | 204.3 | 236.6 | 223.2 |
| Site restoration and |
||||
|---|---|---|---|---|
| Group | aftercare £m |
Restructuring £m |
Other £m |
Total £m |
| At 1 April 2014* | 30.3 | 3.3 | 11.3 | 44.9 |
| Provided in the year – including the impact of the change in discount rate | 5.5 | 2.6 | 5.7 | 13.8 |
| Reclassification from financial assets | – | – | 2.1 | 2.1 |
| Released in the year | – | (0.1) | (1.5) | (1.6) |
| Finance charges – unwinding of discount (note 8) | 1.3 | – | 0.8 | 2.1 |
| Utilised in the year | (0.4) | (3.8) | (3.4) | (7.6) |
| Exchange | (3.8) | (0.3) | (0.4) | (4.5) |
| At 31 March 2015 | 32.9 | 1.7 | 14.6 | 49.2 |
| Current | 2.0 | 1.7 | 5.1 | 8.8 |
| Non-current | 30.9 | – | 9.5 | 40.4 |
| At 31 March 2015 | 32.9 | 1.7 | 14.6 | 49.2 |
| Current | 1.7 | 2.8 | 7.1 | 11.6 |
| Non-current | 28.6 | 0.5 | 4.2 | 33.3 |
| At 31 March 2014 | 30.3 | 3.3 | 11.3 | 44.9 |
*The opening balances have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The site restoration provision as at 31 March 2015 related to the cost of final capping and covering of the landfill sites. The Group's minimum unavoidable costs have been reassessed at the year end and the net present value fully provided for. These costs are expected to be paid over a period of up to 24 years from the balance sheet date and may be impacted by a number of factors including changes in legislation and technology.
Post-closure costs of landfill sites, including such items as monitoring, gas and leachate management and licensing, have been estimated by management based on current best practice and technology available. These costs may be impacted by a number of factors including changes in legislation and technology. The dates of payments of these aftercare costs are uncertain but are anticipated to be over a period of approximately 30 years from closure of the relevant landfill site.
The restructuring provision relates to redundancy and related costs incurred in the structural cost reduction programme. Costs, net of releases, of £2.5m (2014: £2.6m) have been reflected and £3.8m (2014: £3.8m) has been utilised during the year. As at 31 March 2015 the majority of the affected employees had left the Group's employment with the remainder due to depart during the following year.
Other provisions principally cover onerous contracts, onerous leases, lifecycle expenditure obligations, warranties and indemnities. Onerous contracts are provided at the net present value of the operating losses of the onerous contracts and releases in the year are set out in note 4. The provisions are to be utilised over the period of the contracts to which they relate with the latest date being 2034. Under the terms of the agreements for the disposal of UK Operations, the Group has given a number of warranties and indemnities to the purchasers which may give rise to payments.
| Company | Restructuring £m |
Other £m |
Total £m |
|---|---|---|---|
| At 1 April 2014 | 0.3 | 1.1 | 1.4 |
| Utilised in the year | (0.2) | (0.1) | (0.3) |
| At 31 March 2015 | 0.1 | 1.0 | 1.1 |
| Current | 0.1 | 1.0 | 1.1 |
| Non-current | – | – | – |
| At 31 March 2015 | 0.1 | 1.0 | 1.1 |
| Current | 0.2 | 1.1 | 1.3 |
| Non-current | 0.1 | – | 0.1 |
| At 31 March 2014 | 0.3 | 1.1 | 1.4 |
OVERVIEW
| Group | ||
|---|---|---|
| Retirement benefit costs | 2015 £m |
2014 £m |
| UK defined contribution scheme | 0.7 | 1.0 |
| UK defined benefit scheme | 0.3 | 1.2 |
| Overseas pension schemes | 9.4 | 10.0 |
| 10.4 | 12.2 |
The Group and Company's principal pension scheme is the Shanks Group Pension Scheme which covers eligible UK employees and has both funded defined benefit and defined contribution sections. The defined benefit plan provides benefits to members in the form of a guaranteed level of pension payable for life, the level of benefits provided depends on the members' length of service and salary. Plan assets are managed by the trustees. There are five trustees, three were appointed by the Company and two were nominated by members, who are responsible for ensuring the scheme is run in accordance with the members' best interests and the pension laws of the UK (which are overseen by The Pensions Regulator).
The most recently completed triennial actuarial valuation of the Scheme, which was performed by independent qualified actuaries for the trustees of the Scheme, was carried out as at 5 April 2012. The Group has agreed that it will aim to eliminate the pension plan deficit over seven years, with an agreed annual deficit contribution of £3.1m. This level of funding will be reassessed as part of the 5 April 2015 actuarial valuation. The total estimated contributions expected to be paid to the scheme in the year ending 31 March 2016 are £3.3m.
The significant actuarial assumptions adopted at the balance sheet date were as follows:
| 2015 % p.a. |
2014 % p.a. |
|
|---|---|---|
| Discount rate | 3.4 | 4.3 |
| Rate of price inflation | 3.1 | 3.5 |
| Consumer price inflation | 2.0 | 2.5 |
The discount rate assumption for 2015 is derived from the single agency curve based on high quality AA rated bonds. In 2014 the rate was derived based on iBoxx AA rated bonds.
The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a member currently aged 65 will live on average for a further 23 years if they are male and for a further 25 years if they are female. For a member who retires in 2034 at age 65 the assumptions are that they will live on average for around a further 24 years after retirement if they are male or for a further 27 years after retirement if they are female.
| 2015 £m |
2014 £m |
|
|---|---|---|
| Current service cost | 0.3 | 0.5 |
| Interest expense on scheme net liabilities | 0.5 | 0.3 |
| Curtailment cost | – | 0.7 |
| Net retirement benefit charge before tax | 0.8 | 1.5 |
The prior year curtailment cost was incurred following the exit from UK Solid Waste which resulted in a 40% reduction in the active membership of the scheme. This led to an increase in liabilities and the additional cost was reflected in non-trading and exceptional items within discontinued operations.
The amounts recognised in the balance sheet are as follows:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Present value of funded obligations | (169.2) | (148.0) |
| Fair value of plan assets | 152.8 | 134.9 |
| Pension scheme deficit | (16.4) | (13.1) |
| Related deferred tax asset (note 19) | 3.3 | 2.6 |
| Net pension liability | (13.1) | (10.5) |
The movement in the net defined benefit obligation over the year was as follows:
| Present value of obligations £m |
Fair value of plan assets £m |
Total £m |
|
|---|---|---|---|
| At 1 April 2013 | (142.4) | 133.6 | (8.8) |
| Current service cost | (0.5) | – | (0.5) |
| Curtailment cost | (0.7) | – | (0.7) |
| Interest (expense) income | (6.2) | 5.9 | (0.3) |
| Remeasurements: | |||
| Actuarial loss on scheme liabilities arising from changes in financial assumptions | (1.8) | – | (1.8) |
| Actuarial loss on scheme liabilities arising from changes in experience | (0.1) | – | (0.1) |
| Return on plan assets excluding interest expense | – | (4.5) | (4.5) |
| Contributions from employer | – | 3.6 | 3.6 |
| Contributions from plan participants | (0.1) | 0.1 | – |
| Benefit payments | 3.8 | (3.8) | – |
| At 31 March 2014 | (148.0) | 134.9 | (13.1) |
| Current service cost | (0.3) | – | (0.3) |
| Interest (expense) income | (6.3) | 5.8 | (0.5) |
| Remeasurements: | |||
| Actuarial loss on scheme liabilities arising from changes in financial assumptions | (19.6) | – | (19.6) |
| Actuarial loss on scheme liabilities arising from changes in experience | 0.9 | – | 0.9 |
| Return on plan assets excluding interest expense | – | 12.9 | 12.9 |
| Contributions from employer | – | 3.3 | 3.3 |
| Contributions from plan participants | (0.1) | 0.1 | – |
| Benefit payments | 4.2 | (4.2) | – |
| At 31 March 2015 | (169.2) | 152.8 | (16.4) |
The weighted average duration of the defined benefit obligation is 19 years.
The assets held by the scheme in managed funds and cash were as follows:
| 2015 | 2014 | |||
|---|---|---|---|---|
| £m | % | £m | % | |
| Equities | 40.9 | 26.8 | 36.3 | 26.9 |
| Index linked gilts | 48.9 | 32.0 | 40.4 | 29.9 |
| Corporate bonds | 30.6 | 20.0 | 27.9 | 20.7 |
| Newton Diversified Growth Fund | 31.7 | 20.7 | 29.8 | 22.1 |
| Cash | 0.7 | 0.5 | 0.5 | 0.4 |
| Total | 152.8 | 100.0 | 134.9 | 100.0 |
145
OVERVIEW
| 2015 | 2014 | |
|---|---|---|
| £m | £m | |
| Actuarial losses on scheme liabilities | (18.7) | (1.9) |
| Actuarial gain (losses) on scheme assets | 12.9 | (4.5) |
| Actuarial loss | (5.8) | (6.4) |
Cumulative actuarial gains and losses recognised in the statement of comprehensive income since 1 April 2004 are losses of £28.9m (2014: £23.1m).
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
| Impact on net defined benefit obligation | |||||
|---|---|---|---|---|---|
| Change in assumption % |
Increase in assumption £m |
Decrease in assumption £m |
|||
| Discount rate | 0.25 | 7.6 | (7.9) | ||
| Rate of price inflation | 0.25 | (4.7) | 4.5 | ||
| Consumer price inflation | 0.25 | (4.7) | 4.5 | ||
| Increase by 1 year in assumption £m |
Decrease by 1 year in assumption £m |
||||
| Life expectancy | (5.6) | 5.7 |
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, as changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the balance sheet.
Through its defined benefit pension scheme the Group is exposed to a number of risks, the most significant of which are:
The scheme liabilities are calculated using a discount rate set with reference to corporate bond yields and if plan assets underperform this yield, this will result in a deficit. The Group's pension scheme holds a significant proportion of equities, which are expected to outperform corporate bonds in the long-term although exposing the Group to volatility and risk in the short-term. The trustees have agreed an underlying strategy with the Company so that any ongoing improvements in the scheme's funding position would trigger movements from growth assets (equities and diversified growth) to non-growth assets (gilts and bonds) in order to protect and consolidate such improvements. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The Group does not use derivatives to manage the risks of the scheme.
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the scheme's bond holdings.
The majority of the scheme's benefit obligations are linked to inflation and higher inflation will lead to higher liabilities although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation.
The majority of the scheme's obligations are to provide benefits for the life of the member, so increases in the life of the member will result in an increase in the liabilities.
In the Netherlands, employees are members of either a multi-employer pension scheme or other similar externally funded schemes. These schemes are treated as defined contribution plans as it is not possible to separately identify the Group's share of the assets and liabilities of those schemes. The Group has been informed by the schemes that it has no obligation to make additional contributions in the event that the schemes have an overall deficit.
In Belgium, as a result of recent legislation changes all of the pension schemes we operate have to be considered as defined benefit schemes under IAS 19. At March 2015 the potential liability to the Group was estimated and determined as not significant.
The total cost in the year for overseas pensions was £9.4m (2014: £10.0m).
| Group | Number | Ordinary shares of 10p each £m |
Share premium £m |
|---|---|---|---|
| Share capital allotted, called up and fully paid | |||
| At 1 April 2013 | 397,463,413 | 39.7 | 99.8 |
| Issued under share option schemes | 237,761 | 0.1 | 0.1 |
| At 31 March 2014 | 397,701,174 | 39.8 | 99.9 |
| Issued under share option schemes | 149,243 | – | 0.1 |
| At 31 March 2015 | 397,850,417 | 39.8 | 100.0 |
During the year 149,243 (2014: 237,761) ordinary shares were allotted following the exercise of share options under the Savings Related Share Option Schemes for an aggregate consideration of £123,435 (2014: £182,570). Further disclosures relating to sharebased options are set out in note 7.
| Ordinary shares of 10p each |
Share premium | ||
|---|---|---|---|
| Company | Number | £m | £m |
| Share capital allotted, called up and fully paid | |||
| At 1 April 2013 | 397,463,413 | 39.7 | 123.8 |
| Issued under share option schemes | 237,761 | 0.1 | 0.1 |
| At 31 March 2014 | 397,701,174 | 39.8 | 123.9 |
| Issued under share option schemes | 149,243 | – | 0.1 |
| At 31 March 2015 | 397,850,417 | 39.8 | 124.0 |
OVERVIEW
| Group carrying value | Company carrying value | ||||
|---|---|---|---|---|---|
| Financial assets | Note | 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
| Loans and receivables | |||||
| Financial assets relating to PFI/PPP contracts | 21 | 278.2 | 195.6 | – | – |
| Loans to joint ventures | 16 | 1.3 | 2.3 | – | – |
| Trade and other receivables excluding prepayments | 22 | 111.5 | 125.1 | 302.0 | 255.7 |
| Cash and cash equivalents | 23 | 60.8 | 104.2 | 8.0 | 22.9 |
| Derivative financial instruments | |||||
| Fuel derivatives | 17 | 0.1 | – | 0.1 | – |
| Available for sale financial assets | |||||
| Unlisted investments | 16 | 2.4 | 3.1 | – | – |
| 454.3 | 430.3 | 310.1 | 278.6 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The Group considers that the fair value of financial assets is not materially different to their carrying value. For unlisted investments the carrying value is measured at cost as the range of possible fair values is significant. The Group has no current plans to dispose of these investments.
| Group carrying value | Company carrying value | ||||
|---|---|---|---|---|---|
| Financial liabilities | Note | 2015 £m |
Restated* 2014 £m |
2015 £m |
2014 £m |
| Financial liabilities at amortised cost | |||||
| Bank loans – core borrowings | 24 | 31.3 | 50.1 | 8.7 | – |
| Retail bonds | 24 | 144.0 | 164.3 | 144.0 | 164.3 |
| Senior notes | 24 | 28.8 | 32.9 | – | – |
| Finance lease obligations | 24 | 11.7 | 9.8 | – | – |
| Bank loans – PFI/PPP non-recourse net debt | 24 | 222.6 | 151.2 | – | – |
| Trade and other payables excluding non-financial liabilities | 25 | 157.5 | 169.7 | 236.2 | 222.8 |
| Derivative financial instruments | |||||
| Fuel derivatives | 17 | 0.9 | 0.2 | 0.9 | 0.2 |
| Forward foreign exchange contracts | 17 | 0.3 | 0.2 | – | 0.1 |
| Interest rate swaps | 17 | 42.9 | 15.6 | – | 0.2 |
| 640.0 | 594.0 | 389.8 | 387.6 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The Group uses the following hierarchy of valuation techniques to determine the fair value of financial instruments:
The table below presents the Group's assets and liabilities measured at fair value:
| Level 2 | ||
|---|---|---|
| 2015 £m |
2014 £m |
|
| Assets | ||
| Derivative financial instruments | 0.1 | – |
| 0.1 | – | |
| Liabilities | ||
| Derivative financial instruments | 44.1 | 16.0 |
| Retail bonds | 149.6 | 168.6 |
| Senior notes | 31.7 | 36.3 |
| 225.4 | 220.9 |
The Group considers that the fair value of bank loans, trade and other payables, contingent consideration and finance lease obligations are not materially different to their carrying value.
During the year ended 31 March 2015, there were no transfers between level 1 and level 2 fair value measurements and no transfers into and out of level 3.
The following financial assets are subject to offsetting arrangements enforceable in the event of default on debt facilities:
| 2015 | 2014 | |
|---|---|---|
| Bank Loans PFI/PPP |
Bank Loans PFI/PPP |
|
| non-recourse net debt £m |
non-recourse net debt £m |
|
| PFI/PPP non-recourse gross debt | 233.9 | 163.0 |
| PFI/PPP cash and cash equivalents | (11.3) | (11.8) |
| PFI/PPP non-recourse net debt | 222.6 | 151.2 |
The Group is exposed to market risk (interest rate risk and commodity price risk), foreign exchange risk, liquidity risk and credit risk. The Group's Treasury function is charged with managing and controlling risk relating to the financing and liquidity of the Group under policies approved by the Board of Directors. The Group does not enter into speculative transactions.
The Group has continued to limit its exposure to interest rate risk by entering into fixed rate retail bonds and fixed rate senior notes that fix a substantial part of the Group's core borrowings.
OVERVIEW
The PFI/PPP non-recourse borrowings are at floating rates and the Group has entered into interest rate swaps at the inception of each PFI/PPP contract. The interest rate swaps hedge the interest cash flows. The interest rate swaps which are considered to be used for hedging purposes are accounted for under IAS 39 hedge accounting with changes in the fair value of interest rate swaps being recognised directly in reserves, as they are effective hedges. Interest rate swaps which have not been designated as hedges by the Group are classified as held for trading in accordance with IAS 39. The interest rate swaps relating to the PFI/PPP nonrecourse borrowings are presented in current or non-current liabilities as determined by the term of the related borrowings as the Group believes this best reflects the commercial reality of the instruments.
Changes in interest rates could have a significant impact on core banking covenants relating to interest cover and on the interest charge in the Income Statement. In order to measure the risk, borrowings and the expected interest cost for the year are forecast on a quarterly basis and scenarios run using management's expectations of a reasonably possible change in interest rates. Interest expense volatility remained within acceptable limits throughout the year. The Group's exposure has not significantly changed.
The interest rate profile of financial assets and liabilities were as follows:
| 2015 | 2014 | |||||
|---|---|---|---|---|---|---|
| Group | Floating rate £m |
Fixed rate £m |
Weighted average interest rate % |
Restated* Floating rate £m |
Restated* Fixed rate £m |
Restated* Weighted average interest rate % |
| Financial assets | ||||||
| Financial assets relating to PFI/PPP contracts | – | 278.2 | 6.1 | – | 195.6 | 6.3 |
| Cash and cash equivalents | 60.6 | – | – | 50.6 | – | – |
| Short-term deposits | 0.2 | – | 0.3 | 53.6 | – | 0.3 |
| Financial liabilities | ||||||
| Senior notes | – | 28.8 | 5.0 | – | 32.9 | 5.4 |
| Retail bonds | – | 144.0 | 4.6 | – | 164.3 | 4.6 |
| Bank loans – PFI/PPP non-recourse net debt | 222.6 | – | 3.6 | 151.2 | – | 3.6 |
| Bank loans – core borrowings | 31.3 | – | 2.8 | 50.1 | – | 2.4 |
| Interest rate swaps – notional principal | (237.0) | 237.0 | 3.3 | (231.6) | 231.6 | 3.2 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The weighted average interest rate for the interest rate swaps is the weighted average of the fixed interest rates which ranges from 0.99% to 5.79% (2014: 0.99% to 5.79% restated).
Excluded from the analysis above is £11.7m (2014: £9.8m) of amounts payable under finance leases as set out in note 24, which are subject to fixed rates of interest. In addition, trade and other receivables and trade and other payables have been excluded as they are not interest bearing.
The average term for short-term deposits is no more than three months.
Interest rate sensitivity (assuming all other variables remain constant):
| 2015 | ||||
|---|---|---|---|---|
| Income sensitivity £m |
Equity sensitivity £m |
Income sensitivity £m |
Equity sensitivity £m |
|
| 1% increase in interest rates | ||||
| Derivatives | 2.1 | 45.9 | 1.8 | 42.1 |
| Non-derivatives | (1.6) | (1.6) | (1.2) | (1.2) |
| 0.5 | 44.3 | 0.6 | 40.9 | |
| 1% decrease in interest rates | ||||
| Derivatives | (2.1) | (29.2) | (1.8) | (26.8) |
| Non-derivatives | 1.6 | 1.6 | 1.2 | 1.2 |
| (0.5) | (27.6) | (0.6) | (25.6) |
OVERVIEW
A 1% movement has been applied to interest rates for the year ended 31 March 2015, representing management's assessment of a reasonably possible change in interest rates (2014: 1%). The interest rate sensitivity is taken to occur from 31 March 2014 and so the change in the fair value of the borrowings and interest rate derivatives is shown as an equity sensitivity which results in an increase of £44.3m (2014: £40.9m) for a 1% increase in interest rate and a decrease of £27.6m (2014: £25.6m) for a 1% decrease in rates.
The Company in the prior year had short-term deposits of £16.5m at an effective interest rate of 0.2%. The effective interest rate on the Company's cash and cash equivalents was 0% (2014: 0%). The weighted average effective interest rate relating to the Company was 4.6% (2014: 4.6%) for the retail bonds. Interest on inter-company loan balances is charged at rates of between 0% and 13% (2014: 0% and 13%).
The Group operates in Europe and Canada and is exposed to foreign exchange risk for movements between the Euro, Canadian Dollar and Sterling. The Group's subsidiaries conduct the majority of their business in their respective functional currencies; therefore there is limited transaction risk. The Group mitigates some foreign exchange risk on financial assets and exports of processed waste arising in the UK but denominated in Euros through the use of forward exchange contracts. Foreign exchange risk arises mainly from net investments in foreign operations. This exposure is reduced by funding the investments as far as possible with borrowings in the same currency. The Group applies hedge accounting principles to net investments in foreign operations and the related borrowings.
The Group has designated the carrying value of Euro borrowings of £144.0m (2014: £164.3m) (fair value of £149.6m (2014: £168.6m)) as a net investment hedge of the Group's investments denominated in Euros. The hedge was 100% effective for the year ended 31 March 2015 (2014: 100%) and as a result the related exchange gain of £20.7m (2014: £5.3m) on translation of the borrowings into Sterling has been recognised in the exchange reserve.
Foreign exchange rate sensitivity (assuming all other variables remain constant):
| 2015 | ||||
|---|---|---|---|---|
| Income sensitivity £m |
Equity sensitivity £m |
Income sensitivity £m |
Equity sensitivity £m |
|
| 10% increase in foreign exchange rates against Sterling | ||||
| Euro | 1.2 | 18.0 | (0.4) | 18.1 |
| Canadian Dollar | 0.1 | 0.3 | (0.1) | 0.2 |
| 1.3 | 18.3 | (0.5) | 18.3 |
The table above details how the Group's income and equity would increase if there were a 10% increase in the respective currency against Sterling. A 10% decrease would have an equal and opposite effect. A 10% movement has been applied to each currency representing management's assessment of a reasonably possible change in foreign exchange currency rates (2014: 10%).
The Group is exposed to fuel price risk therefore management's risk strategy aims to provide protection against sudden and significant increases in oil prices whilst ensuring that the Group is not competitively disadvantaged in the event of a substantial fall in the price of fuel. It is expected that part of this risk can be recovered via escalation clauses linked to the price of fuel within contracts such as UK PFI/PPP.
To meet these objectives the fuel risk management programme allows for the use of a number of derivatives available on the over-thecounter (OTC) markets with approved counterparties and within approved limits. There were £7.3m of fuel derivatives in place at 31 March 2015 (2014: £5.0m). The fair value of wholesale fuel covered by derivatives at 31 March 2015 amounted to a liability of £0.9m (2014: £0.2m) and an asset of £0.1m (2014: £nil).These contracts were designated as cash flow hedges against highly probable future fuel purchase forecasts to occur during the following 12 months from the balance sheet date.
The following table demonstrates the gross sensitivity of a reasonably possible change in fuel prices, with all other variables held constant:
| 2015 | 2014 |
|---|---|
| Income sensitivity £m |
Income sensitivity £m |
| 10% increase in wholesale fuel price (excluding duty) 0.9 |
1.2 |
| 10% decrease in wholesale fuel price (excluding duty) (0.9) |
(1.2) |
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due.
As well as committed term borrowings under a syndicated loan facility, the Group maintains uncommitted lending facilities with a range of banks for working capital purposes. The Group manages liquidity risk by monitoring forecast cash flows to ensure that facility drawdowns are arranged as necessary and an adequate level of headroom is maintained. The Group's exposure to and the way it manages liquidity risk has not changed from the previous year.
For more details of the Group's bank overdrafts, bank loans and senior notes see note 24.
Undrawn committed borrowing facilities:
| Core borrowings | PFI/PPP non-recourse net debt |
Total Group | ||||
|---|---|---|---|---|---|---|
| Group | 2015 £m |
2014 £m |
2015 £m |
2014 £m |
2015 £m |
2014 £m |
| Expiring within one year | – | – | 20.2 | – | 20.2 | – |
| Expiring between one and two years | – | 1.6 | 8.8 | 62.0 | 8.8 | 63.6 |
| Expiring in more than two years | 93.4 | 92.1 | 1.4 | 41.0 | 94.8 | 133.1 |
| 93.4 | 93.7 | 30.4 | 103.0 | 123.8 | 196.7 |
In addition, the Group had access to £26.8m (2014: £27.3m) of undrawn uncommitted working capital facilities.
As at 31 March 2015, the Company had undrawn committed borrowing facilities at floating rates of £93.4m (2014: £92.1m) expiring in more than two years.
The Group manages the liquidity risk of derivatives by entering into these only by way of hedging existing and projected exposures with counterparties of approved credit ratings for the OTC trades with no margin calls or high thresholds for margin calls.
In the majority of cases subsidiary undertakings holding non-recourse PFI/PPP debt and financial assets are restricted in their ability to transfer funds to the parent in the form of cash dividends or to repay loans and advances. This is due to the terms of the financing facility agreements and require lender approval to make such transfers.
The following table analyses the Group's financial liabilities and net settled derivative financial instruments into relevant maturity groupings. The maturities of the undiscounted cash flows, including interest and principal, at the balance sheet date are based on the earliest date on which the Group is obliged to pay:
| Within one year £m |
Between one and five years £m |
Over five years £m |
|
|---|---|---|---|
| At 31 March 2015 | |||
| Senior notes | 1.5 | 32.6 | – |
| Retail bonds | 79.0 | 84.6 | – |
| Bank loans – core borrowings | 0.9 | 35.0 | – |
| Bank loans – PFI/PPP non-recourse net debt | 70.5 | 47.8 | 191.9 |
| Finance lease liabilities | 3.2 | 6.9 | 4.6 |
| Net settled derivative financial instruments | 6.5 | 23.7 | 50.4 |
| Trade and other payables | 157.1 | 0.4 | – |
| 318.7 | 231.0 | 246.9 | |
| At 31 March 2014* | |||
| Senior notes | 1.7 | 38.9 | – |
| Retail bonds | 7.6 | 100.8 | 86.2 |
| Bank loans – core borrowings | 1.4 | 56.6 | – |
| Bank loans – PFI/PPP non-recourse net debt | 7.3 | 93.4 | 100.5 |
| Finance lease liabilities | 3.8 | 5.9 | 1.3 |
| Net settled derivative financial instruments | 6.8 | 24.6 | 56.4 |
| Trade and other payables | 168.8 | 0.9 | – |
| 197.4 | 321.1 | 244.4 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
The Group's core bank loans, retail bonds and senior notes are unsecured but are subject to cross guarantees within the Group. Each PFI/PPP company has non-recourse loan facilities which are secured by a legal mortgage over any land and a fixed and floating charge over the assets of the PFI/PPP company.
Credit risk is the risk of financial loss where counterparties are not able to meet their obligations.
Surplus cash, when not used to repay borrowings, is placed on deposit with banks and money market funds in accordance with a policy that specifies the minimum acceptable credit rating and the maximum exposure to each counterparty. At 31 March 2015 the amount of credit risk on cash and short term deposits totalled £60.8m (2014: £104.2m restated).
Trade and other receivables mainly comprise amounts due from customers for services performed. Management consider that the exposure to any single customer is not significant and that where credit quality is in doubt, adequate provision has been made for probable losses. At 31 March 2015 the amount of credit risk on trade and other receivables amounted to £123.2m (2014: £140.7m restated). The Group does not hold any collateral as security.
The financial assets relating to PFI/PPP contracts are recoverable from the future revenues relating to these contracts. Management consider that as the counterparties for the future revenues are UK local authorities or councils, there is minimal credit risk. At 31 March 2015 the amount of credit risk on financial assets amounted to £278.2m (2014: £195.6m).
The Group actively manages the capital available to fund the Group, comprising equity and reserves together with core debt funding. In order to make decisions over where capital is allocated, the Group monitors the return on capital employed. The Group has a funding strategy to ensure there is an appropriate debt to equity ratio as well as an appropriate debt maturity profile. The strategy is based on the requirements of the Company's Articles of Association, which state that core debt should be limited to three times the level of capital and reserves, which is the equity attributable to the owners of the parent. The Group's funding strategy has not changed from the previous year.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as core net debt divided by total capital. The gearing ratios at 31 March 2015 and 2014 were as follows:
| 2015 | 2014 | ||
|---|---|---|---|
| Note | £m | £m | |
| Total core borrowings | 24 | 215.8 | 257.1 |
| Less: cash and cash equivalents | 23 | (60.8) | (104.2) |
| Core net debt | 155.0 | 152.9 | |
| Total equity | 189.1 | 273.5 | |
| Total capital | 344.1 | 426.4 | |
| Gearing ratio | 45% | 36% |
The Group has to comply with a number of banking covenants which are set out in the agreements for bank loans and senior notes. There are financial covenants which are measured using the performance of the core Group, excluding PFI companies and joint ventures, and relate to interest cover, the ratio of debt to EBITDA and the net worth of the Group. There are other restrictions in the loan documentation concerning acquisitions, disposals, security and other issues. The Group has complied with its banking covenants during the year.
| Group | Company | |||
|---|---|---|---|---|
| Restated* | ||||
| 2015 £m |
2014 £m |
2015 £m |
2014 £m |
|
| (Loss) profit before tax | (20.5) | 7.6 | (2.3) | (3.7) |
| Fair value gain on financial instruments | (0.1) | (0.3) | – | – |
| Finance income | (14.8) | (10.1) | (5.4) | (8.8) |
| Finance charges | 28.2 | 26.2 | 11.0 | 11.2 |
| Share of results from associates and joint ventures | (5.2) | (0.3) | – | – |
| Operating (loss) profit from continuing operations | (12.4) | 23.1 | 3.3 | (1.3) |
| Operating profit (loss) from discontinued operations | 1.3 | (30.9) | – | – |
| Amortisation and impairment of intangible assets | 15.8 | 20.9 | 0.3 | 0.2 |
| Depreciation and impairment of property, plant and equipment | 46.3 | 45.9 | – | – |
| Fair value adjustments in relation to the UK Solid Waste exit | – | 20.4 | – | – |
| Exceptional gain of insurance proceeds in relation to fire in the Netherlands | – | (5.7) | – | – |
| Exceptional loss on disposal of business assets | 0.5 | – | – | – |
| Exceptional gain on sale of impaired investment in associate | (0.6) | – | – | – |
| Net in specie dividend (note 16) | – | – | (2.0) | – |
| Non-exceptional gain on disposal of property, plant and equipment | (0.2) | (2.1) | – | – |
| Current asset write offs | 1.7 | 2.5 | – | – |
| Reassessment of contingent consideration | (0.8) | (1.0) | – | – |
| Exchange loss | – | – | (0.3) | (1.4) |
| Increase in long-term provisions due to discount rate change | 7.1 | – | – | – |
| Net decrease in provisions | (1.7) | (13.4) | (0.3) | (1.1) |
| Payments to fund defined benefit pension scheme deficit | (3.1) | (3.1) | (3.1) | (3.1) |
| Pension curtailment | – | 0.7 | – | 0.7 |
| Share-based compensation | 1.3 | 0.7 | 1.3 | 0.7 |
| Operating cash flows before movement in working capital | 55.2 | 58.0 | (0.8) | (5.3) |
| Decrease in inventories | 0.5 | 1.2 | – | – |
| Decrease in receivables | 1.7 | 8.0 | 38.7 | 38.5 |
| (Decrease) increase in payables | (1.6) | 5.7 | 12.9 | 3.0 |
| Cash flows from operating activities | 55.8 | 72.9 | 50.8 | 36.2 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| 2015 £m |
Restated* 2014 £m |
|
|---|---|---|
| Net increase in cash and cash equivalents | (40.4) | 31.2 |
| Net increase in borrowings and finance leases | (40.4) | (62.3) |
| Capitalisation of loan fees | – | 2.4 |
| Total cash flows in net debt | (80.8) | (28.7) |
| Finance leases entered into during the year | (6.5) | (5.8) |
| Deferred interest of PFI/PPP non-recourse debt | (8.8) | (4.0) |
| Amortisation of loan fees | (0.9) | (1.4) |
| Exchange gain | 23.5 | 10.1 |
| Movement in net debt | (73.5) | (29.8) |
| Net debt at beginning of year | (304.1) | (274.3) |
| Net debt at end of year | (377.6) | (304.1) |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
OVERVIEW
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION GOVERNANCE STRATEGIC REVIEW
| At 1 April 2014* £m |
Cash flows £m |
Other non-cash changes £m |
Exchange movements £m |
At 31 March 2015 £m |
|
|---|---|---|---|---|---|
| Cash and cash equivalents | 104.2 | (40.4) | – | (3.0) | 60.8 |
| Bank loans | (50.1) | 18.9 | (0.5) | 0.4 | (31.3) |
| Senior notes | (32.9) | – | – | 4.1 | (28.8) |
| Retail bonds | (164.3) | – | (0.4) | 20.7 | (144.0) |
| Finance leases | (9.8) | 3.3 | (6.5) | 1.3 | (11.7) |
| Total core net debt | (152.9) | (18.2) | (7.4) | 23.5 | (155.0) |
| PFI/PPP non-recourse net debt | (151.2) | (62.6) | (8.8) | – | (222.6) |
| Total net debt | (304.1) | (80.8) | (16.2) | 23.5 | (377.6) |
*The opening position has been restated following the adoption of IFRS 11, see note 1 for details.
| Restated* | ||
|---|---|---|
| 2015 | 2014 | |
| £m | £m | |
| Net cash generated from operating activities | 50.1 | 71.3 |
| Exclude provisions and restructuring spend | 12.3 | 16.5 |
| Exclude payments to fund denied benefit pension scheme | 3.1 | 3.1 |
| Include finance charges and loan fees paid | (16.8) | (18.2) |
| Include finance income received | 4.0 | 5.0 |
| Include purchases of intangible assets | (1.2) | (1.3) |
| Include purchases of replacement items of property, plant and equipment | (30.3) | (23.8) |
| Include proceeds from disposals of property, plant & equipment | 2.2 | 3.9 |
| Underlying free cash flow | 23.4 | 56.5 |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
| Group | 2015 £m |
Restated* 2014 £m |
|---|---|---|
| Contracts placed for future capital expenditure on financial assets | 33.5 | 69.9 |
| Contracts placed for future capital expenditure on property, plant and equipment | 13.1 | 16.4 |
| Contracts placed for future intangible assets | – | 0.2 |
| Joint venture contracts placed for future capital expenditure | 50.6 | 0.2 |
| Group | 2015 £m |
2014 £m |
|---|---|---|
| The future aggregate minimum lease payments under non-cancellable operating leases are as follows: | ||
| Within one year | 8.5 | 10.2 |
| Later than one year and less than five years | 19.5 | 23.0 |
| More than five years | 59.4 | 67.2 |
| 87.4 | 100.4 | |
| Future minimum lease payments expected to be received under non-cancellable sub-leases | (0.3) | (0.1) |
| 87.1 | 100.3 |
Due to the nature of the industry in which the business operates, from time to time the Group is made aware of claims or litigation arising in the ordinary course of the Group's business. Provision is made for the Directors' best estimate of all known claims and all such legal actions in progress. The Group takes legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice that the action is unlikely to succeed or a sufficiently reliable estimate of the potential obligation cannot be made.
Under the terms of sale agreements, the Group gave a number of indemnities and warranties relating to the disposed operations for which appropriate provisions are held.
In respect of contractual liabilities the Company and its subsidiaries have given guarantees and entered into counter indemnities of bonds and guarantees given on their behalf by sureties and banks totalling £199.1m (2014: £197.6m). In addition, the Company has contingent liabilities in respect of both VAT and HM Revenue & Customs group payment arrangements of £0.8m (2014: £1.3m).
The Company has given guarantees in respect of the Group's subsidiary and joint venture undertakings' borrowing facilities totalling £57.8m (2014: £91.8m).
OVERVIEW
The Group had the following transactions and outstanding balances with associates and joint ventures, in the ordinary course of business:
| Associates | Joint ventures | |||
|---|---|---|---|---|
| 2015 £m |
2014 £m |
2015 £m |
2014 £m |
|
| Sales | 52.9 | 43.8 | 20.9 | 0.8 |
| Purchases | 0.1 | – | 1.2 | 0.8 |
| Management fees | 0.8 | 0.7 | 0.6 | 0.2 |
| Interest on loans to joint ventures | – | – | 0.2 | 0.2 |
| Receivables at 31 March | 4.2 | 11.0 | 3.1 | 1.3 |
| Payables at 31 March | – | – | 0.1 | 0.3 |
| Loans made by Group companies at 31 March | – | – | 1.3 | 2.3 |
| Loans made to Group companies at 31 March | – | – | 0.4 | 0.5 |
The receivables and payables are due one month after the date of the invoice, they are unsecured in nature and bear no interest.
Key management personnel comprises the Board of Directors and the members of the Group's Executive Committee. The disclosures required by the Companies Act 2006 and those specified by the Financial Conduct Authority relating to Directors' remuneration (including retirement benefits and incentive plans), interests in shares, share options and other interests, are set out within the Remuneration Report on pages 77 to 91, and form part of these financial statements. The emoluments paid or payable to key management personnel were:
| 2015 £m |
2014 £m |
|
|---|---|---|
| Short-term employee benefits | 3.2 | 3.1 |
| Post employment benefits | 0.2 | 0.2 |
| Share-based payments | 0.8 | 0.5 |
| 4.2 | 3.8 |
A list of the Company's principal subsidiaries is set out in note 35. Transactions with subsidiaries relate to interest on intercompany loans and management charges. Net interest income was £4.0m (2014: £5.7m) and management charges were £6.8m (2014: £6.9m). Total outstanding balances are listed in notes 22 and 25.
The Company held, through wholly-owned subsidiaries,100% of the issued share capital of the following principal trading subsidiaries (unless otherwise stated) all of which operate in the waste management sector, have a 31 March year end and have been consolidated in the Group's financial statements. The Group has taken the exemption under Companies Act section 410 not to list all subsidiaries, however a full list will be annexed to the next annual return.
| Country of incorporation |
|
|---|---|
| Principal Group subsidiary undertakings | |
| Shanks Nederland B.V. | Netherlands |
| Shanks Netherlands Holdings B.V. | Netherlands |
| Shanks B.V. | Netherlands |
| Icova B.V. | Netherlands |
| BV van Vliet Groep Milieu-dienstverleners | Netherlands |
| Vliko B.V. | Netherlands |
| Klok Containers B.V. | Netherlands |
| Smink Beheer B.V. | Netherlands |
| Transportbedrijf van Vliet B.V. (Contrans) | Netherlands |
| Afvalstoffen Terminal Moerdijk B.V. (ATM) | Netherlands |
| Reym B.V. | Netherlands |
| Orgaworld International B.V. | Netherlands |
| Orgaworld Nederland B.V. | Netherlands |
| Shanks s.a. | Belgium |
| Shanks Hainaut s.a. | Belgium |
| Shanks Liège-Luxembourg s.a. | Belgium |
| Shanks Brussels-Brabant s.a. | Belgium |
| Shanks Vlaanderen n.v. | Belgium |
| Shanks Wood Products n.v. | Belgium |
| Shanks Waste Management Limited | UK |
| Shanks PFI Investments Limited | UK |
| Orgaworld Canada Limited | Canada |
| Orgaworld Surrey General Partner Limited | Canada |
| Orgaworld Design-Builder General Partner Limited | Canada |
| Subsidiary undertakings holding UK PFI/PPP contracts | |
| Shanks Argyll & Bute Limited | UK |
| Shanks Cumbria Limited | UK |
| 3SE (Barnsley, Doncaster and Rotherham) Limited (75%) | UK |
| Wakefield Waste PFI Limited | UK |
The Company held, through wholly-owned subsidiaries, the following interests in principal joint venture companies and associates, all of which operate in the waste management sector.
| % Group holding |
Most recent year end |
Country of incorporation |
|
|---|---|---|---|
| Energen Biogas Limited | 50% | 31 March 2015 | UK |
| Resource Recovery Solutions (Derbyshire) Holdings Limited | 50% | 31 March 2015 | UK |
| ELWA Holdings Limited | 20% | 31 March 2015 | UK |
| Shanks Dumfries and Galloway Holdings Limited | 20% | 31 March 2015 | UK |
OVERVIEW
| 2015 £m |
Restated* 2014 £m |
Restated* 2013 £m |
Restated* 2012 £m |
Restated* 2011 £m |
|
|---|---|---|---|---|---|
| Consolidated income statement | |||||
| Revenue1 | 601.4 | 633.4 | 611.9 | 672.5 | 632.9 |
| Trading profit from continuing operations1 | 34.3 | 45.6 | 44.9 | 52.5 | 44.4 |
| Finance charges – interest | (10.6) | (11.7) | (10.8) | (11.0) | (7.9) |
| Finance charges – other | (2.8) | (4.1) | (3.8) | (4.8) | (6.3) |
| Share of results from associates and joint ventures | 0.8 | 0.3 | (0.3) | (0.8) | (0.4) |
| Profit from continuing operations before exceptional items and tax (underlying profit) |
21.7 | 30.1 | 30.0 | 35.9 | 29.8 |
| Non-trading and exceptional items | (42.2) | (22.5) | (40.3) | (3.8) | (12.9) |
| (Loss) profit before tax from continuing operations | (20.5) | 7.6 | (10.3) | 32.1 | 16.9 |
| Taxation | (1.7) | (7.2) | (7.5) | (9.6) | (7.9) |
| Exceptional tax and tax on exceptional items | 4.0 | 1.4 | 6.7 | 5.2 | 9.7 |
| (Loss) profit after tax from continuing operations | (18.2) | 1.8 | (11.1) | 27.7 | 18.7 |
| Profit (loss) after tax from discontinued operations | 1.3 | (30.0) | (24.1) | (2.0) | 3.2 |
| (Loss) profit for the year | (16.9) | (28.2) | (35.2) | 25.7 | 21.9 |
| (Loss) profit attributable to: | |||||
| Owners of the parent | (17.0) | (28.3) | (35.3) | 25.7 | 21.9 |
| Non-controlling interest | 0.1 | 0.1 | 0.1 | – | – |
| (16.9) | (28.2) | (35.2) | 25.7 | 21.9 | |
| Consolidated balance sheet | |||||
| Non-current assets | 737.3 | 744.4 | 767.7 | 750.9 | 755.9 |
| Other assets less liabilities | (170.6) | (166.8) | (179.7) | (172.9) | (160.2) |
| Net debt | (377.6) | (304.1) | (274.3) | (207.4) | (198.3) |
| Net assets | 189.1 | 273.5 | 313.7 | 370.6 | 397.4 |
| Equity attributable to owners of the parent | |||||
| Share capital and share premium | 139.8 | 139.7 | 139.5 | 139.1 | 139.1 |
| Reserves | 51.1 | 134.0 | 174.1 | 231.5 | 258.3 |
| 190.9 | 273.7 | 313.6 | 370.6 | 397.4 | |
| Non-controlling interest | (1.8) | (0.2) | 0.1 | – | – |
| Total equity | 189.1 | 273.5 | 313.7 | 370.6 | 397.4 |
| Financial ratios | |||||
| Underlying earnings per share – continuing operations | 5.0p | 5.7p | 5.7p | 6.6p | 5.5p |
| Basic earnings per share – continuing operations | (4.6)p | 0.4p | (2.8)p | 7.0p | 4.7p |
| Dividend per share | 3.45p | 3.45p | 3.45p | 3.45p | 3.25p |
*The comparatives have been restated following the adoption of IFRS 11, see notes 1 and 16 for details.
Revenue and trading profit from continuing operations is stated before exceptional items and amortisation of acquisition intangibles.
| HOLDERS | % | SHARES HELD |
% | |
|---|---|---|---|---|
| Private shareholders | 2,081 | 69.2 | 9,989,993 | 2.5 |
| Corporate shareholders | 926 | 30.8 | 387,860,424 | 97.5 |
| Total | 3,007 | 100.0 | 397,850,417 | 100.0 |
| SIZE OF SHAREHOLDING | HOLDERS | % | SHARES HELD |
% |
| 1 – 5,000 | 2,078 | 69.1 | 4,006,065 | 1.0 |
| 5,001 – 25,000 | 596 | 19.8 | 6,539,240 | 1.6 |
| 25,001 – 50,000 | 87 | 2.9 | 3,106,660 | 0.8 |
| 50,001 – 100,000 | 68 | 2.3 | 5,147,172 | 1.3 |
| 100,001 – 250,000 | 58 | 1.9 | 10,185,731 | 2.6 |
| 250,001 – 500,000 | 29 | 1.0 | 10,127,707 | 2.5 |
| over 500,000 | 91 | 3.0 | 358,737,842 | 90.2 |
| Total | 3,007 | 100.0 | 397,850,417 | 100.0 |
| 2 July 2015 3 July 2015 |
Ex-dividend date for fi nal 2015 dividend Record date for fi nal 2015 dividend |
|---|---|
| 23 July 2015 | Annual General Meeting |
| 31 July 2015 | Payment of fi nal 2015 dividend |
| November 2015 | Announcement of interim results |
| and dividend | |
| 31 March 2016 | 2016 fi nancial year end |
| May 2016 | Announcement of 2016 results and |
| dividend recommendation |
For updates to the calendar during the year, please visit the Shanks Group website: www.shanksplc.com
Administrative enquiries concerning shareholdings in the Company should be made to the Registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ. Computershare can also be contacted by telephone on 0870 707 1290. Shareholders can also manage their holding online by registering at www.investorcentre.co.uk.
Shareholders are strongly encouraged to receive their cash dividends by direct transfer as this ensures dividends are credited promptly and effi ciently. Shareholders who do not currently have their dividends paid directly to a bank or building society account, and who wish to do so, should complete a mandate form obtainable from Computershare. Overseas shareholders wishing to receive their dividend payment in local currency can now do so using Computershare's Global Payments Service.
If shareholders have only a small number of shares the value of which makes it uneconomic to sell, they may wish to consider donating them to the charity ShareGift (registered charity no. 1052686). Further information may be obtained from their website at www.sharegift.org or by calling 020 7930 3737.
Shareholders may elect to receive future shareholder documents and information by email or via the Company's website. This is intended to help the environment by reducing paper and transport as well as enabling the Company to save on administration, printing and postage costs. Please contact the Company Registrar for details.
Fraudsters use persuasive and highpressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an infl ated price in return for an upfront payment. Whilst high profi ts are promised, if you buy or sell shares in this way you will probably lose your money.
¤ Check the Financial Services Register from www.fca.org.uk to see if the person and fi rm contacting you is authorised by the FCA.
¤ Beware of fraudsters claiming to be from an authorised fi rm, copying its website or giving you false contact details.
If you are approached by a fraudster please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can fi nd out more about investment scams, or call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
161
OVERVIEW
Shanks Group plc Dunedin House Auckland Park, Mount Farm Milton Keynes Buckinghamshire MK1 1BU Tel: 00 44 (0) 1908 650580 Fax: 00 44 (0) 1908 650651 website: www.shanksplc.com e-mail: [email protected]
Shanks Group plc 16 Charlotte Square Edinburgh EH2 4DF Registered in Scotland No. SC077438
Philip Griffi n-Smith, FCIS
Independent Auditors PricewaterhouseCoopers LLP
Barclays Bank plc BNP Paribas Fortis Bank s.a./ n.v. HSBC Bank plc ING Bank n.v. KBC Bank n.v. Rabobank International The Royal Bank of Scotland plc
Shanks Nederland B.V Lindeboomseweg 15 3828 NG Hoogland The Netherlands Tel: 00 31 (0) 332 050 200 Fax: 00 31 (0) 332 050 211 website: www.shanks.nl e-mail: [email protected]
Shanks Belgium Corporate Village Leonardo Da Vincilaan, 2 1935 Zaventem Belgium Tel: 00 32 (0) 247 710 00 Fax: 00 32 (0) 272 124 54 website: www.shanks.be e-mail: [email protected]
Shanks Hazardous Waste Computerweg 12D Postbus 1545 3821 AB Amersfoort The Netherlands Tel: 00 33 (0) 455 88 90 Fax: 00 33 (0) 456 25 81 website: www.shankshazardouswaste.com e-mail: [email protected]
Shanks Waste Management Limited Dunedin House Auckland Park, Mount Farm Milton Keynes Buckinghamshire MK1 1BU Tel: 00 44 (0) 1908 650650 Fax: 00 44 (0) 1908 650699 website: www.shanksmunicipal.co.uk e-mail: [email protected]
Financial Advisers Greenhill & Co International LLP
PR Advisers Brunswick
Corporate Brokers Investec
| A&B | Argyll & Bute |
|---|---|
| AD | Anaerobic Digestion |
| AGM | Annual General Meeting |
| BDR | Barnsley, Doncaster and Rotherham |
| BENELUX | The economic union of Belgium, The Netherlands and Luxembourg |
| C&D | Construction and Demolition |
| CAGR | Compound Annual Growth Rate |
| CGU | Cash Generating Unit |
| CHP | Combined Heat and Power |
| CONNECTUS | Group-wide collaboration tool |
| CORE NET DEBT | Borrowings less cash from core facilities excluding PFI/PPP non-recourse debt |
| CR | Corporate Responsibility |
| D&G | Dumfries and Galloway |
| DAB | Deferred Annual Bonus |
| EBITDA | Earnings Before Interest, Tax, Depreciation and Amortisation |
| ELWA | East London Waste Authority |
| EPS | Earnings Per Share |
| ESP | Electrostatic Precipitator |
| EU | European Union |
| GDP | Gross Domestic Product |
| GHG | Greenhouse Gas |
| FCA | Financial Conduct Authority |
| FRC | Financial Reporting Council |
| HWRC | Household Waste Recycling Centre |
| I&C | Industrial and Commercial |
| ICT | Information and Communications Technology |
| IFRS | International Financial Reporting Standards |
| IVC | In-Vessel Composting |
| JV | Joint Venture |
| KPI | Key Performance Indicator |
|---|---|
| LTIP | Long-term Incentive Plan |
| M&A | Mergers and Acquisitions |
| MBT | Mechanical Biological Treatment |
| MDF | Medium Density Fibreboard |
| MRF | Material Recycling Facility |
| MWH | Megawatt Hours of energy generated |
| PBT | Profi t Before Tax |
| PDR | Performance Development Review |
| PFI | Private Finance Initiative |
| PPP | Public Private Partnership |
| P&L | Profi t and Loss |
| RDF | Refuse Derived Fuel |
| ROC | Renewable Obligations Certifi cate |
| ROCE | Return on Capital Employed |
| SPV | Special Purpose Vehicle |
| SRF | Solid Recovered Fuel |
| SRSOS | Savings Related Share Option Scheme |
| SSC | Shared Service Centre |
| SSO | Source Segregated Organics |
| TAG | Tar and Asphalt Granulate |
| TRADING PROFIT | Operating profi t before the amortisation of acquisition intangibles, exceptional items and discontinued operations |
| TSR | Total Shareholder Return |
| UK GAAP | UK Generally Accepted Accounting Practice |
| UFCF (UNDERLYING FREE CASH FLOW) |
Cash fl ow before dividends, growth capex, PFI funding, acquisitions, disposals and exceptional items |
| UNDERLYING FREE CASH FLOW CONVERSION |
Underlying free cash fl ow divided by trading profi t |
| WACC | Weighted Average Cost of Capital |
OVERVIEW
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When you have fi nished with this report please recycle it. Please see details on page 161 on how to receive electronic copies of future documentation from Shanks Group plc.
Dunedin HouseAuckland ParkMount FarmMilton Keynes Buckinghamshire MK1 1BU
T + 44 (0)1908 650 580 F + 44 (0)1908 650 651 website: www.shanksplc.com email: [email protected] twitter: @shanks_waste youtube: www.youtube.com/theshanksgroup
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