In its post for the year ended 31 March 2016, the waste and recycling business has identified the 25-year contract as a burden on its Municipal division.
The public private partnership (PPP) deal was signed in 2011 and has seen Shanks develop two 75,000 tonne capacity mechanical biological treatment (MBT) plants at Hespin Wood and Barrow-in-Furness to manage the county’s residual household waste (see letsrecycle.com story).
However, the company has come under increasing pressure to improve odour management at its Barrow-in-Furness MBT in recent years. Operations were put on hold in August 2013 due to a fly infestation, and were again suspended by the Environment Agency last year over non-compliance on its permit requirements (see letsrecycle.com story).
Ahead of its preliminary results in May, the company has now decided it will account for the operating contract relating to is Cumbria facilities as ‘onerous’ as of 1 October 2015. This has resulted in an ‘exceptional charge’ of £5 million.
Expectations
However, the Group’s overall expectations for the year ending 31 March 2017 remain unchanged.
Shanks is continuing to focus on cash management, with its year-end core net debt for 2016 recorded at £195 million after adjusting for the impact of the stronger Euro.
The company will also complete construction phases of its Derby and Surrey PPP contracts through an extension of its net debt/EBITDA agreement for a further 12 months to September 2017, while reducing its own total net worth to £175 million.
This will provide ‘additional flexibility’ on the contracts and give further protection against currency fluctuation in the run up to the EU referendum.
Wakefield
Finally, Shanks received £26 million from the £30 million sale of a proportion of its Wakefield PFI projects in 2016, with the remaining balance to be secured in the short term.
In its previous trading update, Shanks Group chief executive Peter Dilnot confirmed the business was still “fully committed” to delivering all 25 years of the contract, which is due to expire in 2038 (see letsrecycle.com story).
The loss on the sale will be £5 million better than previously announced due to movements in swap rates in the weeks prior to completion.
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