Hanson's clean-up deal - Hanson's clean-up deal

Hanson, the building materials group, has ring-fenced its environmental liabilities in America, thanks to £168 million deal with two reinsurance companies.

In return for the one-off payment, Centre Solutions, a member of the Zurich Group, and Swiss Re, have agreed to provide £488 million of insurance cover for environmental liabilities that Hanson inherited when it bought Beazer, the US-based business, in 1991. At that time, Beazer had already sold the relevant subsidiary, Koppers Company, whose activity involved creosoting railway sleepers and telegraph poles. The problem was that creosote had been leaking into the ground.

Hanson originally made a £1.32 billion provision. By the end of 1997 it had used around £270 million of this on remedial work. The introduction of more cost-effective methods of dealing with contaminated ground water led to Hanson releasing £639 million of those provisions in 1996 and 1997.

Hanson was left with a balance of £412 million at the end of last year. The latest deal means £67 million of these provisions are no longer required: the money will be released, creating an exceptional credit.

"It was an expensive drag on cash flow," said Justin Read, Hanson group treasurer.

"This was the last legacy from the old Hanson. We have now turned the corner."

Andrew Dougal, Hanson chief executive, said: "In addition, we have sold nearly £700 million of non-core businesses since the final demerger last year. We now have the opportunity to expand our main business."

Hanson is expected to make a pre-tax profit of £219 million this year, following 1997's figure of £225 million, with an increase to £246 million in 1999.

Kevin Cammack, analyst with stockbroker Merrill Lynch, dubbed the reinsurance settlement as "an unexpectedly inexpensive expulsion of its environmental liabilities". Cammack lifted his valuation of Hanson shares from 330p to 390p and added that "Hanson remains our top sector pick".

Hanson's current net cash balance should now drop to £165 million by the end of the year, Cammack concluded. Assuming the company is prepared to "gear-up" its balance sheet to 30 per cent, this implies a buying power of up to £600 million. "The US beckons," said Cammack. Hanson, the building materials group, has ring-fenced its environmental liabilities in America, thanks to £168 million deal with two reinsurance companies.

In return for the one-off payment, Centre Solutions, a member of the Zurich Group, and Swiss Re, have agreed to provide £488 million of insurance cover for environmental liabilities that Hanson inherited when it bought Beazer, the US-based business, in 1991. At that time, Beazer had already sold the relevant subsidiary, Koppers Company, whose activity involved creosoting railway sleepers and telegraph poles. The problem was that creosote had been leaking into the ground.

Hanson originally made a £1.32 billion provision. By the end of 1997 it had used around £270 million of this on remedial work. The introduction of more cost-effective methods of dealing with contaminated ground water led to Hanson releasing £639 million of those provisions in 1996 and 1997.

Hanson was left with a balance of £412 million at the end of last year. The latest deal means £67 million of these provisions are no longer required: the money will be released, creating an exceptional credit.

"It was an expensive drag on cash flow," said Justin Read, Hanson group treasurer.

"This was the last legacy from the old Hanson. We have now turned the corner."

Andrew Dougal, Hanson chief executive, said: "In addition, we have sold nearly £700 million of non-core businesses since the final demerger last year. We now have the opportunity to expand our main business."

Hanson is expected to make a pre-tax profit of £219 million this year, following 1997's figure of £225 million, with an increase to £246 million in 1999.

Kevin Cammack, analyst with stockbroker Merrill Lynch, dubbed the reinsurance settlement as "an unexpectedly inexpensive expulsion of its environmental liabilities". Cammack lifted his valuation of Hanson shares from 330p to 390p and added that "Hanson remains our top sector pick".

Hanson's current net cash balance should now drop to £165 million by the end of the year, Cammack concluded. Assuming the company is prepared to "gear-up" its balance sheet to 30 per cent, this implies a buying power of up to £600 million. "The US beckons," said Cammack.