Shanks’ profit warning knocks shares

Shares in waste manager Shanks Group fell after it cut its pre-tax profit forecast by a fifth because of depressed activity in the construction industry.

Shanks, which derives about 80 per cent of its profits from European and UK industrial and commercial customers, said its solid waste division had been hurt by Europe’s grim economic conditions and “record lows in construction output”.

The solid waste division brings in the bulk of Shanks’ revenues and last year earned some 40 per cent of total group pre-tax profits.

The warning sent shares in the Milton Keynes-based group down as much as 15 per cent, before partially recovering to close down 9 per cent at 82.45p.

Increased competition and the falling price of recyclate – materials recycled from construction and industrial sites, such as waste paper, that are used to form new products – have combined to pile pressure on Shanks’ margins.

Analysts scrambled to downgrade their forecasts, with Justin Jordan at Jefferies cutting his underlying pre-tax profit expectations 16 per cent to £29.9m for the 12 months to the end of March 2013.

John Lawson at house broker Investec also cut his forecast by a similar margin, but added a grain of optimism: “Market conditions in the solid waste business remain challenging. That said, costs continue to fall and, with a fair wind, profits should rebound strongly.”

Before Wednesday’s warning, analysts’ underlying pre-tax profit forecasts for the 2012-13 financial year ranged from £30.9m to £36.9m – lower than the £38.8m reported last year.

“While market conditions in solid waste remain very challenging, our organics, hazardous waste and UK municipal businesses are performing well,” said Peter Dilnot, the former army helicopter pilot who took over as Shanks chief executive in February.

Shanks, which employs more than 4,000 people across northern Europe and Canada, has sought to take advantage of European Union initiatives to cut the amount of waste going to landfill and increase recycling.

The group has been focused on producing renewable energy from waste rather than simply burying it, and operates anaerobic digestion plants – which convert food and garden waste into electricity – in Amsterdam, Glasgow and Ontario.

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