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Shanks Group says adverse weather impacts performance, private equity discussions on-going

Independent waste management specialist Shanks Group (LSE: SKS) warned that the exceptionally adverse weather conditions impacted its operations, resulting in full-year trading slightly below the board's expectations.

In December, Shanks became the latest waste manager to receive the attentions of private equity. It is in confidential discussions with the Carlyle Group, following a preliminary and highly conditional cash offer for the company.

"In what remain tough trading conditions for the waste industry, we continue to deliver against our priorities of cutting costs, improving free cash flow and investing in our growth strategy of recycling, organic processing and UK PFI”, said chief executive Tom Drury, “Whilst the outlook for calendar 2010 remains uncertain in some markets, we believe that the effective actions we have taken, our focused strategy together with our strong market positions, proven technologies and compelling regulatory drivers will lead to significant value creation over the medium term".

Shanks' operational performance was something of a mixed bag, reporting an ahead-of-expectations underlying performance in the Netherlands. The Canadian Orgaworld composting operation is said to be performing well as improved margins overcame slower-than-anticipated volume growth. The UK business is in-line with expectations, with potential PFI (private finance initiative) projects in the pipeline.

Trading conditions in Belgium have continued to be very demanding. The continued decline in Foronex wood markets there has led Shanks to lower its expectations further from the half year ended 30 September 2009.

Shanks said its cost reduction plans remain on track, having already achieved over £7m of the targeted £10m savings. Consequently year-end net debt is now expected to be below the closing position at the half year and better than the previous expectations.

Disclosure: The author holds no positions in the company