Shanks to sell lossmaking UK industrial waste sites to Biffa

Shanks, the waste management company, is selling its lossmaking sites handling the disposal of solid industrial waste to Biffa for about £9.5m.

Biffa, the UK's second largest waste management group by sales, is buying 11 sites in Scotland and England. Shanks has also put two sites that recycle solid waste in Kettering and Blochairn up for sale. It hopes that will bring in a further £6m in cash.

Peter Dilnot, chief executive of Shanks, said: "The UK solid waste business is undifferentiated and sub-scale."

Biffa, by comparison, has scale and national reach, he said.

Like so many competitors, Shanks has been struggling to make money in the UK market in handling solid industrial waste. The division made a pre-tax loss of £3.6m on about £55m of revenues in the year to March - a little under 10 per cent of Shanks' annual turnover.

The net cash inflow from the disposals will be about £14m, which will help to lift underlying pre-tax profits by 11 per cent, the group said.

The money will be invested back into Shanks' higher margin businesses in Benelux and Canada such as hazardous waste disposal, and also into building up its UK municipal contracts. The company's Benelux solid waste division, which is a market leader, will be unaffected by the sale.

Solid waste disposal is the collection, sorting, treatment and disposal of solid waste materials from industrial and commercial businesses. That ranges from black bags to paper, glass and detritus from construction sites. Shanks specialises in recycling waste rather that burning or burying it.

But like the rest of the industry, which is highly competitive and fragmented, it has been hit by reduced volumes of waste - as a result of the economic slowdown - as well as lower prices for recycled waste. The industry has also been hit by sharp increases in landfill tax.

Pennon, which also owns South West Water, reported sharp falls in pre-tax profits of its Viridor waste management arm as a result of poor demand for recycled waste material - known as "recyclate".

Indeed, falling margins on recyclates were among the factors that prompted lenders to Biffa to take control of the debt-laden company last November.

In September, Aim-quoted Augean announced the sale of its waste network division which sorts and sends waste for recycling, treating, or dropping into landfill sites. The new chief executive said it was a highly-competitive, highly-regulated commodity business that was tied closely to industrial and construction activity and had little pricing power.

The challenges prompted Veolia of France to sell its UK water business and US solid waste business last year as part of a €6bn divestment programme.

Shanks' shares rose 3.4p per cent to 98p.

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