Waste-to-product business, Renewi, announced today that it expects to benefit from long term structural growth in European recycling, despite reporting a loss of £50m last year before tax.
Renewi was formed through a merger of UK waste business Shanks and its Dutch competitor Van Gansewinkel
This loss was in part due to the company’s UK Municipal Division, which made a trading loss of £5.8m, according to Renewi’s annual results for the year to March 2018.
The key drivers of the “ongoing losses”, were UK margin pressure in the recovered fuels market, recyclate price falls in the fourth quarter, the sensitivity of the legacy business model to market shifts, and specific operational optimisation issues, Renewi said.
However, while the UK market was under pressure, the company’s operations on the continent performed much better. Renewi has operations in the UK and the Benelux countries. And, despite the losses, which are largely due to exceptional items of merger integration with the Van Gansewinkel Group, Renewi Group revenues grew by 8% and underlying EBIT increased by 30% to £69.1m (£53.1m 2016/17).
Renewi noted that it has had a successful first full year since the “transformational merger” of Shanks with Van Gansewinkel Groep (VGG) which completed on 28 February 2017. “Reported underlying profit before tax doubled to £51.5m, and we produced a strong cash performance. Over the year we made good progress with the post-merger integration, exceeding our first year synergy target and establishing Renewi as a new and powerful brand in our core markets.”
Benelux now accounts for two thirds of Renewi’s revenues.
Risk
And, Renewi – formerly Shanks – said the “biggest risk” remains the paper and plastic recyclate market and the commissioning of the Derby facility, which the company will take control of when it has passed its full service commencement tests.
The Waste Treatment Centre in Derby is the flagship part of a long-term waste contract with Derbyshire county council and Derby city council. It includes a mechanical biological treatment facility, a recycling plant and an energy from waste process.
Artists impression of the Sinfin Lane facility in Derby
As previously reported, Renewi has entered into negotiations regarding the Dumfries & Galloway PFI contract with a view to exiting the operating contract (see letsrecycle.com story). The contract generated a loss of £3m in 2017/18 and an additional provision of £9m was taken to cover the costs of termination.
PFI
According to Renewi, the PFI sector in the UK has continued to face “significant challenges”. As a result, its Municipal Division’s portfolio of assets has been “vulnerable contractually to the volatile recovered fuel markets, rising (continental) European incinerator gate fees and the weakness of sterling”.
Renewi said it is actively managing this through ongoing operational improvements, contractual negotiations with customers and, where appropriate, management actions to exit specific activities. The Municipal Division’s strategy is to deliver a recovery plan that will “stabilise and de-risk the business”.
The company has also attributed some of its loss making to lower paper recyclate prices as a result of the China restrictions. The impact of these lower prices was around £3m in the second half of 2017/2018.
“Our commercial division, which accounts for around 65% of Group revenue, delivered a strong performance in improving markets, offsetting headwinds in the Hazardous and Municipal Divisions.”
Peter Dilnot
Renewi
Renewi said: “Looking forward, the mitigated full year impact of current paper and plastic prices on Renewi in 2018/19 is expected to be around £4m, of which half is in the Municipal Division which produces lower grade product and is unable to pass recyclate price changes back to its customers.”
‘Good progress’
Commenting on the results, Peter Dilnot, chief executive officer, said: “We have made good progress in our first full year as Renewi.
“Our commercial division, which accounts for around 65% of Group revenue, delivered a strong performance in improving markets, offsetting headwinds in the Hazardous and Municipal Divisions, and demonstrating the scale, breadth and resilience of our expanded portfolio.
“The Board expects continued good progress in 2018/19, in line with its expectations, as we deliver our projected synergies of €30m for the current year. With underlying market growth, an increasing pipeline of opportunities through innovation and strategic expansion, Renewi is well positioned to deliver long term growth and attractive returns.”
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Source: letsrecycle.com Waste Managment
