Shanks Group plc Interim Report and Accounts 2006/7

Transcription

1 Shanks Group plc Interim Report and Accounts 2006/7

2 One of Europe's largest independent waste management companies, Shanks Group plc has operations in the United Kingdom, Belgium and the Netherlands and is a leading player in each of these markets. The Group provides an extensive range of waste and resource management solutions and handles a variety of wastes, including domestic refuse, commercial waste, contaminated spoils and hazardous waste. Services offered include collections, domestic and commercial waste recycling, resource recovery, composting, mechanical biological treatment, thermal treatment, industrial cleaning, special waste treatment and modern disposal. Further information about the Group and its activities is available on our website. Shanks Group plc Registered in Scotland No Astor House, Station Road, Bourne End, Buckinghamshire, SL8 5YP contents 21 Financial Highlights 22 Chief Executive s Statement 24 Consolidated Income Statement 24 Consolidated Statement of Recognised Income and Expense 25 Consolidated Balance Sheet 26 Consolidated Cash Flow Statement 27 Consolidated Movement in Net Debt 27 Consolidated Analysis of Net Debt 28 Notes to the Interim Financial Statements 16 Independent Auditors Review Report to Shanks Group plc IBC Shareholder Information and Principal Offices

3 financial highlights. 2006/7 2005/6 First Half First Half + Revenue 247m 225m Headline profit m 17.5m Exceptional items: change in fair value of financial instruments 2 2.3m (5.0)m Profit before tax from continuing operations 22.0m 12.5m Adjusted basic earnings per share 3 5.6p 4.9p Basic earnings per share 6.3p 5.9p Dividend per share 1.9p 1.9p Core Business net debt 121m 92m PFI Companies net debt 4 121m 84m Total Group net debt before fair value adjustment 4 242m 176m Fair value of PFI interest rate swaps 5m 9m Total Group net debt 247m 185m EBITDA on continuing operations m 35.9m 1 On continuing operations before exceptional items and tax 2 The Group considers these items as exceptional for the purposes of determining headline profit 3 On continuing operations before exceptional items, net of related tax 4 Excluding fair value of financial instruments 5 Earnings before interest, tax, depreciation and amortisation (EBITDA), excluding exceptional items and discontinued operations and including charge for long term landfill provisions + Restated (see Note 1 to the interim financial statements) 1

4 chief executive s statement. I am pleased to report a strong performance in the first half of the 2006/7 year. The Group s Headline Profit (profit from continuing operations before exceptional items and tax) improved 13% to 19.7m (2005/6: 17.5m*). The tax rate on Headline Profit remained at 34%. Adjusted basic earnings per share (from continuing operations before exceptional items) were up 14% to 5.6p (2005/6: 4.9p*). Your Board has maintained the interim dividend at 1.9p per share. For continuing operations, Group turnover increased to 247m (2005/6: 225m*), profit after tax was 14.7m (2005/6: 8.0m*) and basic earnings per share were 6.3p (2005/6: 3.4p*). In total, profit after tax was 14.7m (2005/6: 13.8m* including discontinued operations) and basic earnings per share were 6.3p (2005/6: 5.9p*). Profit before tax from continuing operations was 22.0m (2005/6: 12.5m*) after an exceptional 2.3m non-cash credit for the change in fair value of financial instruments (2005/6: 5.0m non-cash charge). Our landfill joint ventures have continued to perform well in the period benefiting from increased volumes. Progress is proceeding according to plan on the construction of our innovative Mechanical Biological Treatment (MBT) facilities, which are used on the East London Waste Authority (ELWA) and the Dumfries & Galloway (D&G) PFI contracts. The first of the two facilities at ELWA is now fully operational with the second, and that at D&G, due for completion in Additionally the ELWA contract will benefit from a price rise in summer 2007 which will address the current predicted squeeze in profits. Stricter interpretation of landfill regulations by the Scottish Environmental Protection Agency (SEPA) is causing costs to rise significantly on the former local authority landfill sites now managed by the Group within the D&G and Argyll & Bute contracts. Lower investment returns will result and a mitigation programme has commenced. The MBT facility in the D&G contract is not affected by this issue. Divisional Review United Kingdom Operating profit was down 0.2m at 2.0m (2005/6: 2.2m*) following lower contributions from Contaminated Land Services and the Private Finance Initiative (PFI) activities. Contaminated Land Services enjoyed a particularly strong trading spell in the first half of last year. Collections, recycling and joint ventures continued to improve. The recent addition of the waste management and recycling activities of John W Hannay & Co Limited has considerably strengthened our position in Scotland adding facilities which are already demonstrating their worth. More waste is being diverted from landfill to more cost effective outlets. All waste collected in the region is now pre-treated prior to final disposal. Increasingly this business model will pervade as landfill tax increases and the requirement to pre-treat all waste prior to landfill in October 2007 approaches. Belgium Operating profit improved 13% on last year s already strong performance to 9.4m (2005/6: 8.3m). Both nonhazardous and hazardous waste activities showed a marked improvement across all three regions. Our landfill in Wallonia continued to benefit from bonus volumes diverted from public sector incinerators experiencing operational difficulties. There was also a full six month benefit from the enlarged Liège municipal collection contract which commenced in July The Netherlands Operating profit in the Netherlands improved 14% to 13.9m (2005/6: 12.2m*). The acquisition of Smink Beheer BV on 30 June 2006 has expanded our geographical coverage eastwards from our * (see Note 1 to the interim financial statements) 2

5 strong presence in the Randstadt area. The performance in the first three months is encouraging with results ahead of our acquisition plan. Profits from the existing solid waste businesses have improved. In June 2005 disposal costs rose sharply as a result of the introduction of the landfill ban in Germany, depressing results. The effect of these cost increases had been substantially mitigated by the start of the current year by increased recycling and price increases. Both our industrial cleaning business, Reym, and our hazardous waste treatment activity, ATM, performed well. Reym generated a significant improvement on last year in part due to increased activity in the petrochemical sector, stimulated by high oil prices. The result from ATM was down on last year as a consequence of an earlier major maintenance shut down. Outlook Although UK local authority contract tender flow was slow in the period, activity has recently increased. Interest in our innovative MBT technology, developed with Italian partner Ecodeco, is high following the successful start up of the ELWA facilities and confirmed demand for the Secondary Recovered Fuel (SRF) from the MBT process. The evolution of the UK market for commercial and industrial waste is continuing, as predicted, with further rises in landfill tax and the requirement next year to pre-treat all waste before landfill. We are confident that our continental business model of high recycling and recovery will have growing relevance in the UK. Contaminated Land Services activity is improving especially with the prospect of remediation projects in East London ahead of the 2012 Olympic Games. Central Services Central Services costs increased to 2.6m (2005/6: 2.3m) reflecting additional charges for share based payments. Financing Since 31 March 2006 principal Group borrowings relating to the core business increased by 45m to 121m (31 March 2006: 76m) due principally to the acquisitions of Smink Beheer BV in the Netherlands and the waste management and recycling activities of John W Hannay & Co Limited in the UK. Following continued investment, borrowings in the PFI companies increased by 15m to 121m (31 March 2006: 106m), bringing total debt to 242m (31 March 2006: 182m), before adjustment for the fair value of financial instruments. The Group is pleased with its recent Dutch acquisition of Smink Beheer BV and continues to search for similar opportunities. Trading in the Benelux area is robust and is expected to remain so for the balance of the year. Consequently the Board is confident in achieving its expectations for 2006/7. M C E Averill Group Chief Executive 3

6 consolidated income statement. first half ended 30 September 2006 Note Continuing operations Revenue Cost of sales (200.4) (180.8) (358.6) Gross profit Administrative expenses (23.7) (23.5) (45.0) Operating profit Finance charges: Interest payable and other (8.1) (7.0) (12.7) Interest receivable Change in fair value of financial instruments 2.3 (5.0) (3.7) Total finance charges 2 (0.7) (7.9) (8.6) Profit before tax from continuing operations Tax 3 (7.3) (4.5) (10.5) Profit after tax for the period from continuing operations Discontinued operations Profit after tax for the period from discontinued operations Profit for the period Dividends 4 (8.9) (8.9) (13.4) Retained profit for the period Dividend per share 4 1.9p 1.9p 5.7p Earnings per share basic 5 6.3p 5.9p 13.0p diluted 5 6.2p 5.9p 12.9p Earnings per share from continuing operations basic 5 6.3p 3.4p 8.5p diluted 5 6.2p 3.4p 8.4p The interim financial information and related comparative interim information is unaudited. 2005/6 first half comparative information has been to reflect the reclassification of operations discontinued in the second half of 2005/6 and the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. consolidated statement of recognised income and expense. first half ended 30 September 2006 Exchange (loss) gain on translation of foreign operations (4.2) (1.3) 1.9 Actuarial loss on defined benefit pension schemes (1.0) (2.4) (0.6) (5.2) (3.7) 1.3 Deferred tax in respect of the above Net (expense) income recognised directly in equity (4.9) (2.9) 1.5 Profit for the period Total recognised income and expense for the period The interim financial information and related comparative interim information is unaudited. 2005/6 first half comparative information has been to reflect the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. 4

7 consolidated balance sheet. at 30 September 2006 At At At 30 September 30 September 31 March Note Non-current assets Intangible assets Property, plant and equipment Loans to joint ventures Other investments Trade and other receivables Deferred tax assets Current assets Inventories Trade and other receivables Current tax receivable Cash and cash equivalents Total assets Current liabilities Borrowings (6.0) (3.1) (10.9) Trade and other payables (118.9) (114.3) (114.1) Current tax payable (13.3) (8.5) (8.3) Provisions 7 (7.7) (10.8) (9.1) (145.9) (136.7) (142.4) Non-current liabilities Borrowings (304.3) (236.3) (237.3) Other non-current liabilities (0.1) (1.1) (0.7) Deferred tax liabilities (30.6) (15.2) (17.5) Provisions 7 (21.5) (14.0) (16.3) Retirement benefit obligations (10.8) (19.2) (10.3) (367.3) (285.8) (282.1) Total liabilities (513.2) (422.5) (424.5) Net assets Equity Share capital Share premium Exchange reserve Retained earnings Total equity The interim financial information and related comparative interim information is unaudited. 2005/6 first half comparative information has been to reflect the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. 5

8 consolidated cash flow statement. first half ended 30 September 2006 Note Net cash from operating activities Investing activities Purchases of intangible assets (0.5) (0.2) Purchases of property, plant and equipment (14.0) (14.5) (31.9) Disposals of property, plant and equipment Financial asset capital advances (13.2) (21.5) (48.8) Financial asset capital repayments Acquisition of subsidiary and other businesses (net of cash and debt) (54.7) (0.4) (4.2) Net proceeds from disposals of subsidiary and other businesses Income received from other investments 0.7 Net cash used in investing activities (79.7) (4.8) (45.4) Financing activities Interest paid (7.6) (6.2) (12.6) Interest received Proceeds from issue of shares Dividends paid (8.9) (8.9) (13.4) Increase in borrowings Increase in obligations under finance leases Repayments of obligations under finance leases (1.5) (1.6) (3.0) Net cash flow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period The interim financial information and related comparative interim information is unaudited. 2005/6 first half comparative information has been to reflect the reclassification of operations discontinued in the second half of 2005/6 and the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. 6

9 consolidated movement in net debt. first half ended 30 September 2006 Net increase in cash and cash equivalents Increase in borrowings and finance leases (68.3) (24.5) (31.0) Amortisation of loan fees (0.2) (0.3) (0.4) Exchange gain (loss) (1.9) Change in fair value of interest rate swaps 2.3 (5.0) (3.7) Movement in net debt (58.4) (6.0) (10.1) Net debt at beginning of period (188.8) (178.7) (178.7) Net debt at end of period (247.2) (184.7) (188.8) The interim financial information and related comparative interim information is unaudited. 2005/6 first half comparative information has been to reflect the reclassification of operations discontinued in the second half of 2005/6 and the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. consolidated analysis of net debt. at 30 September 2006 At At At 30 September 30 September 31 March Core Business net debt Private Finance Initiative net debt Total Group net debt before fair value of interest rate swaps Fair value of Private Finance Initiative interest rate swaps Total Group net debt The interim financial information and related comparative interim information is unaudited. 2005/6 first half comparative information has been to reflect the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. 7

10 notes to the interim financial statements. 1 Basis of preparation of the interim financial statements and status of financial information The interim financial information, which was approved by the Directors on 8 November 2006, is unaudited but has been reviewed by the auditors and their report is set out on page 16. The interim financial statements have been prepared in accordance with the Listing Rules of the Financial Services Authority and use the International Financial Reporting Standards (IFRS) accounting policies set out in the published financial statements of the Group for the year ended 31 March The financial information for the year ended 31 March 2006 does not comprise financial statements within the meaning of section 240 of the Companies Act 1985, and has been extracted from the Group s 2006 published financial statements which have been filed with the Registrar of Companies. The auditors opinion on those financial statements was unqualified and did not contain a statement made under section 237(2) or (3) of the Companies Act The comparative information for the six months ended 30 September 2005 has been to reflect the final impact of the transition from UK GAAP to IFRS. The Group issued its Interim Report 2005/6 based on the provisional IFRS restatement issued on 17 October There was a change from the provisional restatement in relation to the accounting treatment of PFI contracts, which are now accounted for as financial assets. For continuing operations for the six months ended 30 September 2005, operating profit was reduced by 1.7m, net interest expense was reduced by 1.3m and profit before tax was reduced by 0.4m. Profit after tax and the retained profit for the period were reduced by 0.3m. On the balance sheet, intangible assets were reduced by 20.7m, property, plant and equipment was reduced by 71.4m, non-current trade and other receivables were increased by 100.1m, deferred tax assets were reduced by 4.8m, current trade and other receivables were reduced by 1.6m and borrowings were reduced by 1.6m. Overall retained earnings brought forward at 31 March 2005 were increased by 0.3m and closing net assets and total equity were unchanged. The comparative information for the six months ended 30 September 2005 has also been to reflect the reclassification of operations discontinued in the second half of 2005/6. For continuing operations, operating profit and profit before tax have been increased by 0.3m and profit after tax increased by 0.2m. Equivalent information for discontinued operations has been accordingly. There is no impact on the balance sheet. 2 Segmental analysis Waste management business shown by management responsibility and geographical area: (a) Continuing operations Revenue United Kingdom Belgium Netherlands Total revenue Group Share of joint ventures Total revenue Operating profit United Kingdom Belgium Netherlands Central Services (2.6) (2.3) (4.4) Total operating profit Group Share of joint ventures Total operating profit Finance charges Interest payable and other (8.1) (7.0) (12.7) Interest receivable Change in fair value of financial instruments 2.3 (5.0) (3.7) Total finance charges (0.7) (7.9) (8.6) Profit before tax from continuing operations Tax (7.3) (4.5) (10.5) Profit after tax for the period from continuing operations Intersegment sales are not significant. 8

11 2 Segmental analysis continued (b) Discontinued operations Revenue United Kingdom Netherlands Total revenue Operating profit (loss) United Kingdom Netherlands (0.3) (0.3) Total operating profit Profit on disposal of operations (United Kingdom) Finance charges Interest payable (0.6) (0.6) Profit before tax from discontinued operations Tax (0.5) 2.1 Profit after tax for the period from discontinued operations Interest payable has been allocated to discontinued operations by applying the external interest rate to the net operating assets employed. At At At 30 September 30 September 31 March (c) Analysis of net assets United Kingdom Gross assets Gross liabilities (46.8) (67.9) (50.9) Net operating assets Belgium Gross assets Gross liabilities (43.8) (42.5) (42.4) Net operating assets Netherlands Gross assets Gross liabilities (59.4) (39.3) (47.8) Net operating assets Central Services Gross assets Gross liabilities (9.0) (9.7) (9.4) Net operating liabilities (7.4) (6.4) (8.8) Total Gross assets Gross liabilities (159.0) (159.4) (150.5) Net operating assets Current tax (11.9) (2.5) (6.9) Deferred tax (16.9) (2.2) (2.5) Net debt (247.2) (184.7) (188.8) Net assets /6 first half comparative information has been to reflect the reclassification of operations discontinued in the second half of 2005/6 and the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. 9

12 notes to the interim financial statements. continued 3 Tax Current tax UK corporation tax at 30% (2005/6: 30%) Current year Prior year 1.0 (3.2) Double tax relief (1.4) (2.2) Overseas tax Current year Prior year (0.1) (0.1) Total current tax charge Deferred tax Current year 2.2 (1.1) 1.6 Prior year (0.1) (0.3) Total deferred tax charge (credit) 2.1 (1.1) 1.3 Tax charge for the period Total tax charge continuing operations Total tax charge (credit) discontinued operations 0.5 (2.1) Total tax charge for period The tax rate for the first half of the current year is based on the estimated charge for the full year. 4 Dividends Amounts recognised as distributions to equity holders in the period: Interim dividends 4.5 Final dividends Total dividends An interim dividend of 1.9p per share (2005/6: 1.9p per share) was approved by the Board on 8 November 2006 and will be paid on 10 January 2007 to shareholders on the register at close of business on 15 December The final dividend for 2005/6 of 3.8p per share (2004/5: 3.8p per share) was approved by the Shareholders at the Annual General Meeting on 27 July 2006 and was paid on 4 August

13 5 Earnings per share Number of shares Weighted average number of ordinary shares for basic earnings per share 234.7m 234.2m 234.3m Effect of share options in issue 0.6m 1.0m 0.8m Weighted average number of ordinary shares for diluted earnings per share 235.3m 235.2m 235.1m (a) Calculation of basic and adjusted basic earnings per share Earnings for basic earnings per share being profit for the period ( m) Earnings from discontinued operations being profit for the period from discontinued operations ( m) (5.8) (10.6) Earnings for basic earnings per share being profit for the period from continuing operations ( m) Change in fair value of interest rate swaps (net of tax) ( m) (1.6) Earnings for adjusted basic earnings per share from continuing operations ( m) Basic earnings per share (pence) 6.3p 5.9p 13.0p Basic earnings per share from continuing operations (pence) 6.3p 3.4p 8.5p Basic earnings per share from discontinued operations (pence) 2.5p 4.5p Adjusted basic earnings per share from continuing operations (pence) (see note below) 5.6p 4.9p 9.6p (b) Calculation of diluted earnings per share Earnings for basic earnings per share being profit for the period ( m) Effect of dilutive potential ordinary shares ( m) Earnings for diluted earnings per share ( m) Earnings from discontinued operations ( m) (5.8) (10.6) Earnings for diluted earnings per share from continuing operations ( m) Diluted earnings per share (pence) 6.2p 5.9p 12.9p Diluted earnings per share on continuing operations (pence) 6.2p 3.4p 8.4p Diluted earnings per share on discontinued operations (pence) 2.5p 4.5p 2005/6 first half comparative information has been to reflect the reclassification of operations discontinued in the second half of 2005/6 and the change in the accounting treatment of PFI contracts made between interim and final reporting in 2005/6. The Directors believe that adjusting basic earnings per share for the effect of 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. Changes in the fair values of financial instruments on interest rate swaps that the Group is required to enter into in relation to its PFI arrangements are excluded as they do not reflect commercial reality. 11

14 notes to the interim financial statements. continued 6 Acquisitions (a) On 30 June 2006 the Group acquired 100% of the share capital of Smink Beheer BV in the Netherlands, for a total consideration of 61.1m. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the business, were as follows: Fair Provisional Book value fair value adjustment value Intangible assets Property, plant and equipment Inventories Trade receivables Cash Trade payables (11.6) 3.3 (8.3) Deferred tax liabilities (1.0) (12.3) (13.3) Provisions (5.2) 0.1 (5.1) Provisional goodwill 24.6 Total consideration (including costs) 61.1 Satisfied by: Cash consideration (including costs) 59.5 Deferred consideration 1.6 Total consideration (including costs) 61.1 (b) On 1 July 2006 the Group acquired the waste management and recycling activities of John W Hannay & Co Limited in the United Kingdom, for a total consideration of 9.0m. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the business, were as follows: Fair Provisional Book value fair value adjustment value Property, plant and equipment Borrowings (0.5) (0.5) Provisional goodwill 6.7 Total cash consideration (including costs) 9.0 (c) During the period the Group completed the acquisition of other tuck-in businesses. The aggregate book value of the assets and liabilities acquired and the provisional fair value to the Group, pending completion of the evaluation of the businesses, were as follows: Fair Provisional Book value fair value adjustment value Property, plant and equipment Provisional goodwill 1.8 Total cash consideration (including costs)

15 7 Provisions Site restoration and aftercare Other Total At 31 March Provided cost of sales finance charges Acquisitions Utilised (1.5) (0.7) (2.2) Exchange (0.4) (0.4) At 30 September Current Non-current At 30 September Current Non-current At 31 March Current Non-current At 30 September Reconciliation of changes in total equity Opening total equity as at 31 March Profit for the period Dividends paid (see note 4) (8.9) (8.9) (13.4) Exchange (loss) gain on translation of foreign operations (4.2) (1.3) 1.9 Loss on defined benefit pension schemes (net of tax) (0.7) (1.6) (0.4) Share based payments Issue of share capital Closing total equity

16 notes to the interim financial statements. continued 9 Net cash flow (a) Continuing operations Net cash from operating activities Operating profit from continuing operations Amortisation of intangible assets Depreciation of property, plant and equipment Charge for long term landfill provisions Earnings before interest, tax, depreciation and amortisation (EBITDA) Gain on disposal of property, plant and equipment (0.6) (1.3) Net decrease in provisions (2.7) (1.7) (4.4) Share based payments Operating cash flows before movement in working capital Decrease (increase) in inventories (1.2) (Increase) decrease in receivables (7.9) (8.8) 7.9 Decrease in payables (2.8) (11.6) (10.9) Cash generated by operations Income taxes paid (2.7) (5.7) (1.5) Net cash from operating activities Investing activities Purchases of intangible assets (0.5) (0.2) Purchases of property, plant and equipment (14.0) (13.0) (30.7) Disposals of property, plant and equipment Financial asset capital advances (13.2) (21.5) (48.8) Financial asset capital repayments Acquisitions of subsidiary and other businesses (net of cash and debt) (54.7) (0.4) (4.2) Net proceeds from disposals of subsidiary and other businesses Income received from other investments 0.7 Net cash used in investing activities (79.7) (3.3) (44.2) (b) Discontinued operations Net cash from operating activities Operating profit from discontinued operations Depreciation of property, plant and equipment Net decrease in provisions (2.8) Operating cash flows before movement in working capital 2.4 (0.3) Increase in inventories (0.1) (0.4) Decrease in receivables Increase in payables Cash generated by operations Net cash from operating activities Investing activities Purchases of property, plant and equipment (1.5) (1.2) Net cash used in investing activities (1.5) (1.2) 14

17 9 Net cash flow continued (c) Total Group operations Net cash from operating activities Operating profit from all operations Amortisation of intangible assets Depreciation of property, plant and equipment Charge for long term landfill provisions Earnings before interest, tax, depreciation and amortisation (EBITDA) Gain on disposal of property, plant and equipment (0.6) (1.3) Net decrease in provisions (2.7) (1.7) (7.2) Share based payments Operating cash flows before movement in working capital Decrease (increase) in inventories (1.6) (Increase) decrease in receivables (7.9) (7.4) 9.3 Decrease in payables (2.8) (11.2) (10.4) Cash generated by operations Income taxes paid (2.7) (5.7) (1.5) Net cash from operating activities Investing activities Purchases of intangible assets (0.5) (0.2) Purchases of property, plant and equipment (14.0) (14.5) (31.9) Disposals of property, plant and equipment Financial asset capital advances (13.2) (21.5) (48.8) Financial asset capital repayments Acquisitions of subsidiary and other businesses (net of cash and debt) (54.7) (0.4) (4.2) Net proceeds from disposals of subsidiary and other businesses Income received from other investments 0.7 Net cash used in investing activities (79.7) (4.8) (45.4) 15

18 independent auditors review report to Shanks Group plc. Introduction We have been instructed by the Company to review the financial information for the six months ended 30 September 2006 which comprises the consolidated balance sheet as at 30 September 2006 and the related consolidated income statement, consolidated statement of recognised income and expense, consolidated cash flow statement, consolidated movement in net debt, consolidated analysis of net debt and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out in Note 1 to the interim financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Shanks Group plc management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, 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. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September PricewaterhouseCoopers LLP Chartered Accountants London 8 November 2006 Notes: (a) The maintenance and integrity of the Shanks Group plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. 16

19 shareholder information. 2006/7 Calendar 15 December 2006 Shares go ex-dividend 17 December 2006 Record date for interim dividend 2006/7 10 January 2007 Payment of interim dividend 2006/7 31 March 2007 End of 2006/7 financial year June 2007 Announcement of 2006/7 results and recommended dividend July 2007 Annual Report published, Annual General Meeting August 2007 Final dividend payable Low cost share dealing service Hoare Govett Limited offers an execution only, Low Cost Postal Share Dealing Service, which enables UK resident investors to buy or sell small certificated holdings of Shanks Group plc 10p Ordinary Shares in a simple and economic manner. Further information may be obtained from: Hoare Govett Limited 250 Bishopsgate, London, EC2M 4AA Service Helpline No: Registrar and Transfer Office Any enquiries relating to shareholdings such as lost certificates, dividend payments or a change of address should be made to the Registrar and Transfer Office (see address below). Mandated dividends are paid by BACS (Bankers Automated Clearing System) which credits shareholders bank or building society accounts on the payment date. The appropriate tax voucher will be sent to the registered address. Further information on this facility can be obtained from the Registrar. principal offices. Corporate Head Office Registered Office Registrars Shanks Group plc Shanks Group plc Computershare Investor Services PLC Astor House Shanks House PO Box 82 Station Road 211 Blochairn Road The Pavilions Bourne End Blochairn Bridgwater Road Buckinghamshire Glasgow Bristol SL8 5YP G21 2RL BS29 7NH Tel: (0) Registered in Scotland No Tel: Fax: (0) website: info@shanks.co.uk The paper used was manufactured at a mill that has the Nordic Swan accreditation for environmental production. It is 50% totally chlorine free and recycled, any wastage in the finishing process has been minimised. Designed by CV&Co Printed by Park Communications Limited, England

20 Shanks Group plc Interim Report and Accounts 2006/7