September 26, 2012 / 8:30 AM / 5 years ago

Shanks warns solid waste business to weigh on profit

(Reuters) - British waste management firm Shanks Group Plc SKS.L warned that full-year profit would miss analysts’ expectations as a construction slump weighs on its solid waste businesses in the United Kingdom and the Netherlands.

Shares in Shanks dropped 17 percent on Wednesday morning to be the top percentage loser on the London Stock Exchange.

Shanks’ solid waste business, which deals with the sorting and reprocessing of commercial, industrial and construction waste, has been hit by falling prices for recyclable materials and stiffer competition, especially at its UK and Dutch operations.

“The UK and Dutch solid waste businesses have been impacted by the northern European recession and record lows in construction output,” the company said.

Of Shanks’ four divisions, solid waste handles non-hazardous waste like construction debris and also collects and treats garbage from households. The business contributed 37 percent to its profit last year.

“What we’re left with is a depressed year taking on the effects of falling recyclate prices and price competition ... there’s going to be no benefit for a while,” analyst Richard Hickinbotham of Charles Stanley Securities said.

In its annual report in June, Shanks cited an industry study that said volumes in the Dutch construction market would be down 3.5 percent in 2012, with no recovery in the Dutch housing market expected before 2014.

Cost reduction programmes at its UK and Dutch solid waste businesses were already beneficial and “further actions to offset the market headwinds are being finalised,” the company said.

Analysts on average expect the company to report a pretax profit of 36 million pounds ($58.52 million) for the year ending March 31, 2013, according to Thomson Reuters I/B/E/S.

Shanks reported an underlying pretax profit of 38.8 million last year.

Its stock was down about 13 percent at 77.65 pence at 09:19 a.m. British time on the London Stock Exchange on Wednesday.

Writing by Brenton Cordeiro, Editing by Joyjeet Das

Our Standards:The Thomson Reuters Trust Principles.
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