TIDMRWI
RNS Number : 1014P
Renewi PLC
24 May 2018
This announcement contains inside information
24 May 2018
Renewi plc
Renewi plc (LSE: RWI), the leading international
waste-to-product business, today announces its results for the year
ended 31 March 2018.
GOOD progress in first full year as Renewi
-- Full year performance slightly ahead of upgraded expectations
-- Core Commercial Benelux divisions underlying profits up 36% at CER
-- Cost synergies ahead of plan at EUR15m and on track to deliver expected EUR40m in 2019/20
-- Proactive management to outperform in dynamic recycling markets
-- Well positioned to benefit from long term structural growth in EU recycling
-- Board expectations for good progress in 2018/19 unchanged
Financial Summary
-- Revenue up 8% to GBP1,566m (3% at CER)
-- Underlying EBIT up 30% to GBP69.1m (23% at CER)
-- Reported underlying profit before tax doubled to GBP51.5m (88% at CER)
-- Exceptional and non-trading items of GBP101.5m, GBP73m of
which related to UK Municipal and GBP22m to merger related costs as
expected, resulting in a statutory loss before tax of GBP50.0m
(2017: loss of GBP61.4m)
-- Reported underlying EPS up 30% to 4.8p per share (18% at CER)
-- Net debt better than expected at GBP439m
-- Total dividend maintained at 3.05p per share
Year ended Year ended Change Change
March 2018 March 2017 % Total % CER**
PRO FORMA(#)
------------ ------------ --------- ---------
Revenue GBP1,566m GBP1,451m 8% 3%
------------ ------------ --------- ---------
Underlying EBIT(+) GBP69.1m GBP53.1m 30% 23%
------------ ------------ --------- ---------
REPORTED*
------------ ------------ --------- ---------
Revenue GBP1,566m GBP779m 101% 93%
------------ ------------ --------- ---------
EBITDA(+) GBP156.9m GBP81.1m 93% 84%
------------ ------------ --------- ---------
Underlying EBIT(+) GBP69.1m GBP36.5m 89% 78%
------------ ------------ --------- ---------
Underlying profit before
tax(+) GBP51.5m GBP25.7m 100% 88%
------------ ------------ --------- ---------
Underlying EPS(+) 4.8p 3.7p 30% 18%
------------ ------------ --------- ---------
Underlying free cash flow(+) GBP79.8m GBP23.1m
------------ ------------ --------- ---------
Exceptional and non-trading GBP(101.5)m GBP(87.1)m
items
------------ ------------ --------- ---------
STATUTORY
------------ ------------ --------- ---------
Loss before tax for the GBP(50.0)m GBP(61.4)m
year
------------ ------------ --------- ---------
Basic loss per share (6.0)p (11.3)p
------------ ------------ --------- ---------
Total dividend per share 3.05p 3.05p
------------ ------------ --------- ---------
Cash flow from operating GBP128.4m GBP27.9m
activities
------------ ------------ --------- ---------
(#) Pro forma includes twelve months of Van Gansewinkel (VGG) as
extracted from management accounts and unaudited as if VGG had been
owned throughout the financial year ended 2017.
(*) Reported is as per the preliminary announcement and for 2017
only includes VGG for one month as the merger completed on 28
February 2017.
**CER = at constant exchange rate.
(+) The definition and rationale for the use of non-IFRS
measures are included before the Consolidated Income Statement.
Peter Dilnot, Chief Executive Officer, said:
"We have made good progress in our first full year as Renewi.
Underlying PBT doubled, coming in slightly ahead of our upgraded
expectations, and our cash performance was strong. We exceeded our
synergy target for the year, further developed our detailed
integration plans and established Renewi as a new and powerful
brand in our core markets.
"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
EUR30m 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."
For further information contact:
Renewi plc
Peter Dilnot - Chief Executive Officer
Toby Woolrych - Chief Financial Officer +44 (0)1908 650580
FTI Consulting
Richard Mountain / Susanne Yule +44 (0)20 3727 1340
Notes:
1. The final dividend of 2.1 pence per share will be paid on 27
July 2018 to shareholders on the register at close of business on
29 June 2018.
2. Renewi will be holding an analyst presentation at 9.30 a.m.
today, 24 May in the Entrust Room at etc Venues, Bishopsgate Court,
4-12 Norton Folgate, London E1 6DQ.
3. Webcast details for the presentation at 9.30 a.m.
- Webcast: www.renewiplc.com
- Telephone conference:
UK and International +44 20 3936 2999
Belgium 0800 29 923
Netherlands 085 888 7233
Access code: 876055
4. A copy of this announcement is available on the Company's
website, (www.renewiplc.com). A copy of the presentation being made
today to financial institutions will also be available.
Forward-looking statements
Certain statements in this announcement constitute
"forward-looking statements". Forward-looking statements may
sometimes, but not always, be identified by words such as "will",
"may", "should", "continue", "believes", "expects", "intends" or
similar expressions. These forward-looking statements are subject
to risks, uncertainties and other factors which, as a result, could
cause Renewi plc's actual future financial condition, performance
and results to differ materially from the plans, goals and
expectations set out in the forward-looking statements. Such
statements are made only as at the date of this announcement and,
except to the extent legally required, Renewi plc undertakes no
obligation to revise or update such forward-looking statements.
Chief Executive Officer's Statement
Overview
Renewi 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 GBP51.5m, 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.
Our core Commercial Division delivered a strong performance,
particularly in the Netherlands, and along with a strong
performance by the Monostreams Division, offset headwinds in our
Hazardous Waste and Municipal Divisions. Our overall results
demonstrate the scale, breadth and resilience of the Group's
expanded portfolio of businesses.
Delivering a good Group performance
All comparisons to the 2017 results refer to the performance
that year on a pro forma basis as if Van Gansewinkel (VGG) had been
owned throughout the financial year ended 31 March 2017, except
where stated as reported. Pro forma includes twelve months of VGG
as extracted from management accounts and unaudited. The definition
of non-IFRS measures is included before the Consolidated Income
Statement.
Continuing Operations Revenue Underlying EBIT
----------------------------------- ------------------------------------
Year ended Year ended
Mar Mar Variance Mar Mar Variance
18 17 % 18 17 %
GBPm GBPm Actual CER GBPm GBPm Actual CER
Commercial Waste 1,019.6 925.4 10% 5% 64.6 45.2 43% 36%
Hazardous Waste 203.2 187.9 8% 3% 17.4 20.7 -16% -20%
Monostreams 180.0 159.6 13% 7% 16.0 12.3 30% 24%
Municipal 192.9 207.6 -7% -7% (9.3) (2.6) N/A N/A
Group central
services - - (19.6) (22.5) 13% 15%
Inter-segment
revenue (30.0) (29.9) - -
--------- --------- ------- ---- --------- --------- ------- -----
Total (pro forma
basis) 1,565.7 1,450.6 8% 3% 69.1 53.1 30% 23%
--------- --------- ------- ---- --------- --------- ------- -----
Total (reported
basis) 1,565.7 779.2 101% 69.1 36.5 89%
--------- --------- ------- --------- --------- -------
CER = at constant exchange rate.
The underlying figures above are reconciled to statutory
measures in note 3 in the consolidated financial statements.
Group performance
Group revenues grew by 8% to GBP1,566m at reported currency and
3% at constant currency. Underlying EBIT increased by 30% to
GBP69.1m at reported currency and 23% at constant currency.
Reported underlying profit before tax doubled to GBP51.5m at
reported currency. Reported underlying earnings per share grew by
30% at reported currency to 4.8p (2017: 3.7p). Exceptional items
totalled GBP101.5m (2017: GBP87.1m), principally reflecting the
planned synergy delivery and integration costs of the merger and
the previously reported actions to manage the Group's portfolio of
UK Municipal assets, which resulted in a loss before tax for the
year of GBP50.0m (2017: GBP61.4m). The total dividend for the year
was maintained at 3.05 pence per share, in line with the Group's
policy.
Strong cash management continued through the year. We delivered
an underlying free cash flow of GBP79.8m in the first full year
which was driven by a good working capital performance, well
controlled replacement capital expenditure and delayed soil offset
expenditure at ATM. Our core net debt at 31 March 2018 was
GBP438.7m, representing a multiple of 2.9 times EBITDA, comfortably
within our covenant level of 3.5x and better than our expectations
for the year.
Divisional summary
-- Commercial: strong performance in improving markets,
particularly in the Netherlands, where profit grew 67% at constant
currency
-- Hazardous Waste: underlying profit decline of 20% at constant
currency, as anticipated, reflecting soil issues at ATM
-- Monostreams: 24% underlying profit growth at constant
currency, with encouraging performance from Mineralz, Orgaworld and
Maltha
-- Municipal: loss reflects difficult market conditions and
operational challenges; recovery plan being implemented
Driving strong growth in our core Commercial Division
Our Commercial Division, representing around 65% of our
revenues, had a strong year, increasing underlying EBIT by 36% at
constant currency to GBP64.6m on revenues up 5% to GBP1,020m.
Margins increased by 140 basis points to 6.3% and returns on
operating assets increased 620bps to 20.6%. The Netherlands
increased underlying EBIT strongly by 67% to GBP38.8m, while
Belgium grew underlying EBIT by 7% to GBP25.8m. Growth was driven
by a combination of improving inbound waste volumes and positive
pricing, strong operational gearing and initial synergies,
offsetting a reduction in wood income and in paper and plastic
recyclate income during the second half. The Division focused on
enhancing margins through the renewal of medium and long term
contracts at commercial prices to reflect the improving broader
market conditions and successfully delivered a net gain in
customers over the year. The particularly strong growth rate in the
Netherlands reflects the stronger market recovery in that country
and the opportunity for greater margin recovery. Divisional
synergies amounted to EUR9.2m during the year, ahead of our initial
expectations.
Addressing the short term challenges of soil offset in our
Hazardous Waste Division
Hazardous Waste was impacted by the previously reported
challenges in the offset of remediated soil at ATM following a
dispute with IL&T, a Dutch regulator, over the use of washing
waters in our treatment process. Revenues increased by 3% at
constant currency to GBP203m but underlying EBIT reduced by 20% to
GBP17.4m, with margins decreasing by 250 basis points to 8.6%.
Intake of contaminated soil remained strong, as was throughput of
contaminated water and packed chemical wastes. However, with
limited outlets for the treated soil, we temporarily reduced soil
throughput to around 50% of capacity with a corresponding impact on
ATM's profitability, particularly in the second half. As a result
of the ongoing market challenges with soil offset, an exceptional
charge of GBP2.7m has been reported.
Whilst discussions continue with IL&T, we remain confident
that our treatment process has been in line with all permits and
applicable laws. We are making good progress in developing new
opportunities to place the treated soil during 2018/19 and for the
long term. The Reym/VGIS industrial cleaning business performed
well and also made good progress in integrating VGIS operationally
into the larger Reym organisation, delivering initial synergies of
EUR1m during the year.
Building downstream product opportunities in our Monostreams
Division
Our Monostreams Division delivered a strong performance in its
first full year. At constant currency, revenues increased by 7% to
GBP180m and underlying EBIT grew by 24% to GBP16.0m. Margins
increased by 120 basis points to 8.9%. Growth was particularly
strong in the Mineralz segment, with progress in both project
related landfill volumes and the growing conversion of bottom ashes
into products for building materials. This market will grow in the
coming years as companies comply with the Green Deal between
incinerator companies and the Dutch Government. In Orgaworld the
main drivers were strong source segregated organics (SSO) volumes
and good digester output performance. In Maltha, strong glass
volumes in a diversifying customer portfolio, combined with
operational improvement programmes, improved margins significantly.
We also signed a new shareholder agreement with our joint venture
partner Owens-Illinois for the Maltha business, strengthening the
long term relationship between the two partners. Coolrec continued
its innovative projects with a growing number of leading industrial
partners in the use of recycled plastics and metals.
Action to address and de-risk performance in the Municipal
Division
As previously reported, Municipal, which operates in the UK and
Canada, had a challenging year. Revenue fell by 7% to GBP193m
primarily as a result of reduced construction revenues following
the completion of the Surrey facility in Canada. The Division
recorded an underlying operating loss for the year of GBP9.3m, with
increased losses in both the UK and Canada. Ongoing operational and
portfolio initiatives include signing new refuse derived fuel (RDF)
export agreements to reduce cost, the sale of Westcott Park and
planned termination of the Dumfries & Galloway PFI contract and
the resolution of operational issues in Canada. These initiatives
are expected to reduce losses materially in the year ahead. As
previously announced, an exceptional charge of GBP73m has been
recorded in the year relating to onerous contract provisions and
portfolio management.
Synergy delivery in 2017/18 ahead of plan, with forecast EUR40m
synergies on track
The delivery of our commitment of EUR40m of cost synergies by
2019/20 underpins the expected initial value creation of the merger
and we made good progress towards that target during 2017/18. We
delivered EUR15m of initial synergies compared with our target of
EUR12m and for a lower cost to date than originally planned.
In addition, the run rate of secured annualised cost savings as
at March 2018 was approximately EUR24m, underpinning our confidence
in our EUR30m target for 2018/19. The balance will be achieved in
the second half, primarily from the process and IT migration
projects which are critical to the next phases of planned
integration and cost reduction. Our initiatives support our total
EUR40m target, with further potential new projects being
identified. Lower than expected exceptional synergy delivery costs
of GBP14.6m (2017: GBP4.5m) have been incurred in the year to
deliver these benefits.
Active management to outperform in dynamic recycling markets
Stronger incoming waste market supported by positive
macroeconomic backdrop
Renewi benefited from generally stronger markets for inbound
waste in 2017/18, with broad based volume growth supported by
increasing GDP growth in our core Benelux market. Specifically:
-- GDP grew by 3.1% in the Netherlands and 1.7% in Belgium.
While total waste arising generally increases by a little less than
GDP, for Renewi this is more than offset by an increasing
structural shift towards recycling from landfill and
incineration;
-- Dutch construction continued to grow strongly for a third
consecutive year, increasing by 5.6% during 2017 (compared with
7.1% and 8.0% in 2016 and 2015 respectively). The particularly
strong growth in residential activity of 9.0% in 2017 is expected
to moderate in 2018/19, replaced to some extent by increasing
infrastructure investment; and
-- Specific niche markets all showed underlying input volume
growth, including green waste and sludges for Orgaworld, WEEE
materials and fridges for Coolrec, glass waste for Maltha, bottom
ashes for Mineralz and contaminated soil for ATM.
Volumes were particularly strong in the first half of the year,
most notably in Dutch construction. However, growth slowed during
the winter season compared with the first eight months, partly due
to an unusually cold February and March.
As a result of the volume growth over the past two years,
capacity is increasingly well balanced and we have successfully put
through selective price increases both to offset cost inflationary
pressures, as described in the Operating Review, and to increase
margins as the market improves. Overall, inbound waste markets are
expected to remain positive in 2018/19.
Volatility in recyclate markets largely mitigated by contractual
agreements
In July 2017 the Chinese government announced the National Sword
programme to reduce the import of paper and plastic recyclates,
especially lower grade and contaminated materials. Given that China
uses approximately 50% of the world's recycled paper, this
naturally lead to overcapacity in the market for recycled paper.
The immediate impact was a fall of around 20% in recyclate prices
from relatively high levels of EUR155 per tonne for cardboard in
July to around EUR125 per tonne by September. Prices then
stabilised until February 2018 when they fell sharply, with a low
in March 2018 of around EUR70 per tonne, due in part to inventory
accumulation in the supply chain. Prices stabilised again in April
2018.
Renewi is not materially impacted by movements in the plastics
market but does have an exposure to the paper market. Importantly,
around 80% of Renewi's paper output in its Commercial Division is
subject to dynamic pricing within its customer contracts through
which Renewi's margin is largely protected. This is because changes
in paper prices are automatically passed through to the waste
producing customer. In addition, paper prices have broadly fallen
by significantly less (c20%) for the high grade paper in which the
Commercial Division's Destra plants specialise, as this paper
generally goes directly to European paper mills.
The impact of lower paper recyclate prices on Renewi was around
GBP3m in the second half of 2017/18, as previously reported.
Looking forward, the mitigated full year impact of current paper
and plastic prices on Renewi in 2018/19 is expected to be around
GBP4m, 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.
Tightening capacity in outlet markets for residual waste
Another continuing market trend in 2017/18 was the tightening of
capacity at the incinerators in Belgium and the Netherlands for
burnable waste, including RDF. All the Benelux incinerators are now
effectively full and there is a lack of capacity to treat any
significant volume growth. Accordingly, incinerator gate fees have
continued to rise. Renewi is well placed to manage these market
trends, being the largest commercial Benelux supplier with around
2.4 million tonnes of burnable waste a year and a well-balanced
contract portfolio for the off-take of its residual waste streams.
The tightening market capacity is also evident in the rising costs
of disposal of other residues from sorting lines, such as sieve
sands.
On balance, a lack of incinerator capacity and increasing
incinerator gate fees is positive for Renewi's Commercial Division
as it broadly supports pricing recovery for Benelux recyclers. It
is possible that further strong inbound volume growth could result
in challenges to find sufficient outlets for our residues and a
requirement to limit some commercial intake in the short term.
Increasing gate fees is inherently a negative for our Municipal
Division, however this has been largely mitigated by our strategy
of locking in the vast majority of our output to long term
contracts at fixed rates.
PFI market remains challenging in the UK
The PFI sector in the UK has continued to face significant
challenges. An increasing number of PFI contracts have come under
pressure as a result of austerity measures, poor performance or
because the contracts have proven to be inappropriate in the
current market environment. Within this unfavourable market, our
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. We are actively managing this through ongoing operational
improvements, contractual negotiations with customers and, where
appropriate, management actions to exit specific activities.
Delivering sustainable long term growth
Our vision
Our vision is to be the leading waste-to-product company. This
differentiates Renewi as a company that focuses on extracting value
from waste and supplying high quality secondary raw materials,
rather than on the disposal of waste through mass burn incineration
or landfill. Our vision positions us higher up the value chain in
the segments expected to show the highest structural growth rates
in an industry driven by increasing environmental legislation,
particularly in the European Union where the majority of our
business operates. We believe that our unique focus addresses
social and regulatory trends and also offers the most
capital-efficient solution to waste management.
The circular economy - a growing end market
The markets in which we operate are structurally set for long
term growth, stimulated by environmental need, customer demand and
by increasing regulation. Renewi is uniquely placed to meet the
needs of the growing circular economy with our waste-to-product
model. The circular economy is a growing business model in which
the concept of waste is obsolete. The waste produced by society is
seamlessly reconverted back into secondary raw materials so as to
prevent contamination and preserve scarce virgin materials. There
are three reinforcing drivers that are combining powerfully and
increasingly to build a new and vibrant circular economy. These are
a clear environmental need, greater customer demand and increasing
regulation. We discuss these in more detail on page 10 of our
results below.
Our strategy
We have a clear Group strategy to deliver sustained growth and
attractive returns through:
-- Delivering merger benefits: including committed annual cost savings of EUR40m in 2019/20;
-- Driving margin expansion: across the Group through our
self-help initiatives of commercial effectiveness, continuous
improvement and off-take management;
-- Strategic expansion: by investing in innovation, broadening
our products and services, and investing where we are structurally
advantaged in the growing circular economy and can deliver superior
returns; and
-- Managing our portfolio of assets and businesses: exiting
those that are non-core or under-performing and redeploying capital
into segments where we can deliver increased returns and
growth.
The merger has combined two similar businesses with
complementary inspiring visions, organisations, product portfolios
and geographic footprints. It is on track to deliver significant
synergies, far greater than just cost reduction. Renewi plays an
important role as a recycler and supplier of high quality secondary
raw materials in the growing circular economy to meet the
increasing needs of its customers, regulators and society.
The creation of Renewi has widened the range of products and
services to our combined customer base. For example, we are now not
only providing the Dutch incineration industry with high quality
recovered fuels from the Netherlands, UK and Belgium, but also
recycling its bottom ashes into products for building materials and
immobilising its fly ashes through our Mineralz business, providing
industrial cleaning services through our Reym business and managing
some of its non-core waste streams such as bulky or green waste. We
have also been able to extend our "Total Care" offering that
provides industrial cleaning, waste collection, logistics and
treatment to larger industrial customers under a single
service.
As a result of combining the two legacy businesses, we have also
expanded and strengthened our geographical footprint and now cover
the whole of the Benelux and other European countries such as
Germany, France and Portugal. We can serve customers across the
Benelux more efficiently, saving on logistics costs, improving
customer care and reducing our carbon footprint. Our increased
scale also means that we can procure certain assets and supplies at
more competitive prices.
As expected, we are seeing a wide range of benefits from
combining the logistics scale and expertise of VGG with the broader
treatment capabilities of Shanks. Significant synergies have been
delivered through the rerouting of waste collected from VGG
customers to be treated in Shanks facilities, expanding margins and
optimising asset utilisation. Our merger has also resulted in
better prices and capacity utilisation.
We are also progressing a further initiative regarding the
potential benefit of digitalisation on our industry and on Renewi.
We will focus initially on driving efficiency within our own
company through automation, robotics, and digitalising interfaces
with customers and suppliers. In the longer term, we will focus on
emerging technologies for the industry such as smart bins,
web-based customer relationships, asset light strategies and other
potentially disruptive models.
Generating value in the year ahead
Underpinning our value delivery plans for the year ahead is
driving a strong business performance across the Group. In
particular, we are focused on three specific commercial goals to
improve our performance, comprising:
-- Driving post-merger margin enhancement in the Commercial
Division through commercial effectiveness and continuous
improvement;
-- Securing new soil outlets which will enable ATM to return to
full production during the second half; and
-- Reducing operating losses in the Municipal Division.
Alongside these important objectives, we will generate value
through the delivery of our synergy commitments and the development
of an effective platform for long term growth across the Group.
This will include the rollout of existing post-merger margin
enhancement tools and the selective investment in an innovation
pipeline, which currently comprises over 100 projects at various
stages of development. We will also continue to develop new
sustainability initiatives with OEMs to capture the long term
growth opportunities from the growing circular economy.
Positive future outlook
Divisional outlook
Against a backdrop of positive overall volumes and improved
pricing across the Benelux waste markets, the Commercial Division
is expected to make continuing progress in the current year. We
expect that slightly slower growth in the construction market,
reduced income from paper and plastic recyclates and increased cost
pressures will be more than offset by increasing prices for inbound
waste, our commercial effectiveness and continuous improvement
initiatives and the delivery of our synergy targets. In addition,
our active use of dynamic pricing in customer contracts will
continue to mitigate the impact of volatility in recyclate
prices.
The Hazardous Waste Division is expected to deliver a similar
performance to 2017/18. Whilst we expect to continue to operate at
50% production at ATM during the first half of the year, we are in
well-advanced discussions with a number of potential new soil
outlets which, if secured, would enable the return to full
production from October. Stable pricing is anticipated for these
new soil outlets. In addition, we are working on concepts to
further refine our soil product portfolio and to open up new long
term markets. Ongoing synergy delivery in Reym/VGIS will offset
volume falls arising from fewer major refinery shutdowns in 2018
and contracting onshore gas production.
The Monostreams Division is also expected to perform at similar
levels to 2017/18, with underlying growth offset by the
non-recurrence of certain high margin projects in Mineralz. We
anticipate further growth in the processing of bottom ashes into
secondary products at Mineralz alongside broader benefits across
the Division from the roll out of a continuous improvement
programme. We remain confident that we will secure a long term
expansion permit for the specialist landfill at Maasvlakte,
securing earnings streams from that site for approximately the next
twenty years.
The Municipal Division is expected to report materially reduced
losses in the year ahead as a result of improvements in Canada from
London volumes and Surrey commissioning, and ongoing commercial and
operational gains in ELWA and Cumbria.
Group outlook
The Board expects continued good progress in 2018/19, in line
with its expectations. Volumes remain positive and both cost
inflationary pressures and lower recyclate income are largely being
passed on to inbound waste producers. New soil outlets for ATM are
expected to be open by October, enabling us to resume full
production in the second half and we anticipate a modest recovery
in relevant recyclate prices towards the year end. With run rate
annualised synergies of EUR24m as at March 2018, we remain
confident of delivering synergies of EUR30m in 2018/19 and EUR40m
in 2019/20.
Looking forward, our growth drivers are strong. Renewi plays an
important role in the growing circular economy, a market that is
expected to increase significantly in the coming years with the
support of European Union and government legislation. Moreover, the
fully integrated Renewi has a compelling offering for customers,
combining local service, international expertise and an unrivalled
breadth of products.
Our strategic and commercial positioning will continue to drive
sustainable growth, supported by the delivery of our integration
activities and synergy targets, as well as ongoing opportunities
for margin expansion and cost reduction. With an increasing
pipeline of growth opportunities through innovation and strategic
expansion, Renewi is well positioned to deliver long term growth
and attractive returns.
Peter Dilnot
Chief Executive Officer
The Circular Economy - Our core markets set for long term
structural growth
The circular economy is a growing business model in which the
concept of waste is obsolete. The waste produced by society is
seamlessly reconverted back into secondary raw materials so as to
prevent contamination and preserve scarce virgin materials. There
are three reinforcing drivers that are combining powerfully and
increasingly to build a new and vibrant circular economy. These are
clear environmental need, greater customer demand and increasing
regulation.
The Benelux, our core market, is one of the most advanced areas
in the world with regard to setting the agenda for recycling,
sustainability and developing a circular economy. We believe that
by positioning ourselves to succeed in the Netherlands and Belgium,
we will generate skills and capabilities that will over time be
applicable in other geographies as they adopt UN and EU targets for
sustainability.
Environmental need
The major challenges of our generation are climate change,
environmental pollution and scarcity of raw materials, water and
food. There is a clear pull from societies around the world to
address these challenges in order to preserve a prosperous and
secure future.
Renewi works to prevent global contamination by taking in over
14 million tonnes of waste every year from companies and
households, some of it contaminated or even hazardous. We recycle
or recover 90% of this waste: around 65% of it becomes a secondary
raw material and the remainder is transformed into fuel to produce
green heat or energy. Sustainability is at the core of what we do
every day. We turn waste back into valuable materials. It is
therefore unsurprising that Renewi is listed on the FTSE4Good Index
and has recently been able to refinance almost its entire
borrowings as Green Loans and Bonds.
Customer demand
Companies inevitably respond to societal trends like the demand
for greater sustainability because their customers and employees
demand it. We see a growing number of major OEMs and consumer
brands making new commitments to reduce their carbon footprint,
increase their recycling rates and use more secondary raw
materials. Particular areas of focus at the moment include the
"cradle to cradle" circular use of metals and plastics, the reuse
rather than destruction of some components out of discarded
products, and the optimisation and effective use of out-of-date
food. Overall, there is an increasing demand for the recycled, or
secondary, products that Renewi creates from its operations.
Renewi actively supports its customers to achieve their
recycling targets, secure secondary raw materials and even to
create a completely circular solution in which their products are
collected, recycled and the raw materials resupplied back to the
start of their manufacturing process. Renewi is working with
clients like Miele, Philips, Akzo Nobel, HP, Owens-Illinois and an
increasing number of others to help them give new life to their old
materials.
Regulation
Regulation will drive further structural growth to recycling
rates and the circular economy. The Paris COP21 agreement on
climate change, the United Nations' Sustainable Development Goals
and the European Union's Circular Economy Package are all examples
of how leading policy makers are setting an agenda to stimulate the
markets in which we operate. We are now already experiencing an
increasing drive towards a full circular economy with stretching
recycling targets within the waste framework directive across the
EU, the implementation of a landfill ban, the packaging directive
and most recently the Circular Economy Package.
Our biggest market, The Netherlands, has a stated goal to be a
full circular economy by 2050, being 50% circular by 2030. In
practice this means, for example, that construction companies will
need to use 50% secondary raw materials from 2030, and government
tenders already reward bidders who can achieve this aim early. The
government is also seeking to increase recycling rates more
generally with a stated ambition to increase the household waste
recycling rate from around 50% today to around 75% as soon as 2020.
Legislation has also been tightened with measurements like taxes on
incineration to stimulate recycling and divert waste from
incineration. Landfilling waste has for a long time been strictly
regulated in the Netherlands: only waste that cannot be recycled or
incinerated can be landfilled.
In Belgium there is also ever stricter environmental and
recycling legislation. The VLAREMA legislation that was introduced
in Flanders in 2014, promoting separated waste collection and
recycling, is being tightened. OVAM, the Flemish regulator, is
increasing pressure on waste companies and waste producers to
ensure effective source separation of waste so that it can be most
effectively recycled.
Underpinning long term structural growth
The three drivers of environmental need, customer demand and
regulation are combining powerfully to drive structural growth in
the segments of the market in which Renewi operates. Specifically,
we can expect to see:
-- Increasing recycling rates within the waste market driving
higher volume growth for our recycling activities than the overall
waste trend;
-- More stringent legislation on source separation over time
helping larger and more sophisticated waste collectors who are
better able to manage multiple waste input streams and offer one
stop solutions to customers;
-- Growth in use of secondary raw materials in construction
supporting the production of materials by Netherlands Commercial
(wood, paper) and ATM (soil) as well as the new innovative products
under the Forz product name developed by Mineralz;
-- Growth in the use of secondary raw materials throughout
Europe in packaging glass production and insulation products (glass
wool) supporting volume growth in our Maltha business;
-- More OEMs seeking partnerships to source stable and high
quality metal and plastic secondary raw materials into their
production processes, in the volumes a company like Renewi
processes;
-- Growth in available volumes of sludges, source segregated
organics and out of date food materials for organic processing;
and
-- Increased investment and partnership opportunities in
innovation to convert and reprocess waste to create more valuable
secondary materials, such as waste-to-chemicals, organic
waste-to-food etc.
Operating Review for the year ended 31 March 2018
The Operating Review is presented with performance variances in
local currency and the translation impact of currency movements
excluded unless otherwise stated. For the purposes of understanding
the underlying business performance, the review primarily compares
current year underlying trading with pro forma unaudited prior
period figures which include the results of Van Gansewinkel as if
the latter had been owned throughout the prior year comparative
period.
Commercial Waste
Divisional strategy
The Commercial Division's strategy is to create the market
leader in waste collection and treatment in Belgium and the
Netherlands. Its combined national coverage, operational scale and
advantaged technology positions it strongly. The division will
deliver long term growth and attractive returns from the increasing
demand for its wide range of recycling services. This will be
reinforced through the delivery of synergies and the application of
margin enhancing initiatives such as commercial effectiveness and
continuous improvement.
Financial performance
The Commercial Division performed strongly in 2017/18,
delivering a 36% increase in underlying EBIT to EUR73.3m on
revenues up 5% to EUR1,158m. Margins increased by 140 basis points
to 6.3% and the return on operating assets rose 620 basis points to
20.6%.
Revenue Underlying EBIT
-------------------------------- ---------------------------
Year ended Year ended
Mar Mar Variance Mar Mar Variance
18 17 18 17
Netherlands Commercial
Waste 736.9 690.5 46.4 7% 44.0 26.4 17.6 67%
Belgium Commercial
Waste 422.2 415.4 6.8 2% 29.3 27.5 1.8 7%
Intra-segment revenue (0.9) (2.5) 1.6 - - -
-------- -------- ------ ---- ------ ------ ----- ----
Total EURm (pro
forma) 1,158.2 1,103.4 54.8 5% 73.3 53.9 19.4 36%
-------- -------- ------ ---- ------ ------ ----- ----
Total GBPm (pro
forma at
average rate) 1,019.6 925.4 94.2 10% 64.6 45.2 19.4 43%
---- ----
Total GBPm (as reported) 1,019.6 388.5 631.1 64.6 23.5 41.1
Underlying Return on
EBIT Margin Operating
Assets
------------------ --------------
Netherlands Commercial
Waste 6.0% 3.8% 18.0% 10.5%
Belgium Commercial
Waste 6.9% 6.6% 27.4% 25.3%
-------- -------- ------ ------
Total (pro forma) 6.3% 4.9% 20.6% 14.4%
-------- -------- ------ ------
Pro forma results in the year to March 2017 are unaudited and
include Van Gansewinkel (VGG) as if owned throughout the year
rather than from legal completion on 28 February 2017.
The return on operating assets for Netherlands includes
properties rented from the legacy VGG property company and for
Belgium excludes all landfill related provisions.
Revenues in the Netherlands grew by 7% to EUR736.9m and
underlying EBIT by 67% to EUR44.0m. Margins improved by 220 basis
points to 6.0%. Return on operating assets increased by 750 basis
points to 18.0%, bringing the pre-tax return above the Group's WACC
as the operational leverage and merger synergies sharply increased
returns in our core activities. While total waste volumes were
slightly down as a result of a one off high volume contract in the
prior year, volumes in the core waste streams were positive, with
7% growth in commercial waste and 9% growth in construction waste.
These growth rates were significantly above the market,
demonstrating improvements in both market share and increasing
volumes from other waste companies using Renewi as a secondary
disposer. Average prices increased by approximately 6.5% compared
with 2016/17.
The strong increase in operating margin was encouraging,
particularly given the second half headwinds from falling recyclate
prices and a change in accounting for vehicle maintenance costs.
Recyclate income fell in the second half of the year as a result of
the previously announced fall in the price of paper and plastics.
This impacted second half earnings by around EUR3m. As planned,
Renewi has ended the former VGG policy of capitalising maintenance
costs on older vehicles, bringing around EUR3m of costs back into
the income statement. Initial synergies were EUR4.8m, some 9% ahead
of target.
Belgium revenues increased by 2% to EUR422.2m and underlying
EBIT grew by 7% to EUR29.3m. Underlying volume growth was in line
with the market at around 2%. The core collection and treatment
business was steady, with headwinds in the second half from lower
recyclate prices and increased maintenance costs. The largest
impact in recyclate margins came in the wood segment where there
was a reduction in net margin compared to the prior year of over
EUR3m as a result of the sale of wood moving from an income to a
net expense at the off-take side. The prices to clients had been
increased in the prior year to mitigate this impact. Belgium has
also faced some headwinds regarding outlet volumes including solid
recovered fuel (SRF), as a consequence of which higher priced
alternative outlets had to be used. Profitability of the Cetem
landfill continued to decline as expected, with volumes reducing
prior to its closure in 2019. Initial synergies of EUR4.4m were
delivered, well above target.
Operational review
The Commercial Division performed very well, delivering strong
underlying growth in revenues and profits in its first year of
integration.
As reported in the Chief Executive's Statement, inbound markets
were positive in terms of both volume and price, but volatility in
end markets for our products has required commercial agility and
careful management. Paper and plastic prices fell sharply in the
second half following the Chinese National Sword programme, and the
sale of wood products moved from being an income to a net expense.
While most of our volumes to incineration are secured at fixed
prices, the Division had to secure additional capacity at higher
prices to meet strong inbound waste volumes. Other forms of
outbound residual wastes have also seen sharp increases in disposal
cost, most notably sieve sands and organic wet fractions. The
Belgian market has tightened, where OVAM, the regulator in
Flanders, is seeking to enhance recycling rates through the
management of domestic incineration capacity and export
licences.
Economic recovery in the Benelux is also driving cost inflation
beyond our waste residues. Wage increases covered by collective
labour agreements in the Benelux have been around 3% in 2018 and
there are certain categories where there is a growing labour
shortage. Volume increases have also required us to contract in
both rented trucks and additional temporary labour. The truck fleet
acquired with VGG has also seen repair and maintenance costs
increase following a planned change in accounting policy. Insurance
costs have also risen substantially.
Renewi has a proven commercial effectiveness approach to enhance
margins in these dynamic markets. We are committed to restoring
margins as the economic cycle recovers and our commercial teams are
increasingly focused on margin and not volume, supported by
data-driven analytical tools to manage customer and product
profitability. Annual price increases in January have been
successfully passed to customers. Longer term tenders and contract
renewals are subject to scrutiny to ensure margins and/or volumes
are improving, particularly with regard to certain previously
under-priced VGG contracts. Where appropriate, source separated
waste streams such as paper, wood, glass and plastics are
dynamically priced, meaning that price is adjusted monthly
according to an agreed index thereby, preserving Renewi's margin.
Around 80% of the Division's paper and plastic volumes are covered
by this mechanism.
During 2017/18, we implemented a new organisation and management
structure for the Commercial Waste Division in both the Netherlands
and Belgium. In the Netherlands, Otto de Bont was appointed
Managing Director of Netherlands Commercial from May 2017 joining
us from UTC and GE. We have created a new operating model based on
four regions and two focused businesses (Domestic Collection and
Specialties). In Belgium, Wim Geens has continued as Managing
Director, following his appointment from VGG. We have organised the
business into two regions, a hazardous business unit and a
materials business unit. The Netherlands and Belgium Commercial
organisations share a common new operating model which balances
customer intimacy with the benefits of scale. It also brings
together logistics and treatment facilities within a region to
drive a combined margin. Both organisations retain an even mix of
former Shanks and former VGG leaders, bringing together
complementary skills and experience.
Across all the regions, local management identified quick win
projects to enhance margins through internalisation of waste
streams, optimising disposal costs, reducing logistic movements and
better asset utilisation. During 2017/18, the Division achieved
total synergies of EUR9.2m, with a run rate of around EUR14m as at
31 March 2018. Feasibility studies were also initiated to assess
how best to manage the complex process of integrating two
overlapping businesses with very different structures, processes
and IT systems. The target operating model (TOM) for one way of
working in each Division has been defined and progress made towards
pilot migrations of initial sites in both countries in the first
half of 2018/19. This is the most technically and operationally
challenging part of the integration and, once successfully proven,
a migration of the remainder of the Divisions to the common
platforms will take place during the second half of this year and
early 2019/20. This migration creates the basis for the larger
savings anticipated from route optimisation and selected site
closures as well as creating a common platform for future
efficiency projects and continuous improvement.
Over EUR2m of synergy savings year on year were created when
sharing knowledge and using continuous improvement (CI) tools to
improve processes across our seven main sorting lines in the
Netherlands Commercial Division. Rebalancing mixed waste streams
across these lines has helped to improve the speed and quality of
waste processing to generate the synergies.
Beyond the rebuilding at Icova and Wandre, funded by insurance
receipts, capital investment in the Division remained tightly
controlled at EUR53m, or 91% of depreciation. As disclosed at the
time of the merger, the age of the truck fleet in the former VGG
had increased beyond its optimum economic life as a result of
capital constraints in the downturn and required reinvestment.
After a detailed study of future requirements and the creation of a
harmonised policy and specification for Renewi trucks, significant
truck purchases will be made in 2018/19 and 2019/20, funded by
operating leases, which will bring down the cost of maintenance and
greatly improve the emissions profile and safety features of the
fleet in operation. A EUR5m stone crusher will be installed in
Wateringen in May 2018.
We continue to deploy resource to work on longer term innovation
initiatives. In the Netherlands, we won the Heineken innovation
challenge for return logistics and the recycling of a plastic beer
keg with aluminium liner. The Renewi team's solution used current
glass collection infrastructure combined with a solution for
recycling of the beer keg and reuse of materials. In our Belgian
business, we have collaborated with Reinhard Beck to develop and
launch Renewi branded pet litter from waste wood and we have also
worked with Akzo Nobel to launch Fenix, a brand of recovered and
recycled paint. Multiple partnerships with others are being
explored to assist customers with their sustainability goals and to
create more valuable products from waste.
Hazardous Waste
Divisional strategy
The Hazardous Waste Division's strategy is to grow by increasing
capacity to treat additional volumes while retaining attractive
returns. The Division will also increase the range of products that
can be treated through its assets and consider geographic expansion
where Renewi can sustain competitive advantage.
Financial performance
Hazardous Waste had a challenging year as a result of previously
reported difficulties in placing its treated soil from the ATM
business. Revenues increased by 3% to EUR231.0m while underlying
EBIT decreased by 20% to EUR19.9m. Margins reduced to 8.6% and the
return on assets reduced by 190 basis points to 24.1%. Underlying
performance excluding the soil treatment process was stable.
Revenue Underlying EBIT
--------------------------- -----------------------------
Year ended Year ended
Mar Mar Variance Mar Mar Variance
18 17 18 17
Total EURm (pro
forma) 231.0 224.3 6.7 3% 19.9 24.8 (4.9) -20%
------ ------ ------ --- ------ ------ ------ -----
Total GBPm (pro
forma at
average rate) 203.2 187.9 15.3 8% 17.4 20.7 (3.3) -16%
------ ------ ------ --- ------ ------ ------ -----
Total GBPm (as reported) 203.2 163.0 40.2 17.4 19.7 (2.3)
Underlying Return on
EBIT Margin Operating
Assets
-------------- --------------
Total (pro forma) 8.6% 11.1% 24.1% 26.0%
------ ------ ------ ------
Pro forma results in the year to March 2017 are unaudited and
include Van Gansewinkel as if owned throughout the year rather than
from legal completion on 28 February 2017.
The Reym business combined with Van Gansewinkel Industrial
Services (VGIS) to become the largest industrial cleaning and
services company in the Netherlands. Reym/VGIS saw revenues
increase by 3% to EUR132m with margins increasing by 30 basis
points. Synergies of EUR1m were delivered in the year, well ahead
of target. Underlying activity continued to recover slightly in the
core oil and gas market but pressure on productivity and margins
continues.
Overall revenues at ATM grew by 3.4% to EUR107m. Throughput of
water and packed chemical waste was broadly flat compared to the
prior year, while throughput of soil was reduced to 50% of capacity
or below during the second half. The business benefitted from a
large one-off water contract during the year, only a portion of
which was processed at ATM. As part of the integration, the CFS
waste water treatment facility from former VGG has also been
transferred to Hazardous Waste.
Operational review
ATM, our hazardous waste treatment site, has an advantaged
location, deep technical expertise and a favourable cost position
with regard to its soil and water treatment processes. Given its
defensible nature and attractive returns, the business has
therefore been the focus of investment to increase capacity and
capability.
Performance in 2017/18 was affected by the previously reported
short term challenges in the offset of treated soil. Historically,
ATM had disposed of treated soil for a small consideration to a
neighbouring company, Martens en van Oord (MvO), which placed the
treated soil into the market. End uses for treated soil include
landscaping, industrial and infrastructure developments. Disposal
costs for treated soil have been rising for some time, leading to
an increasing stockpile of soil at MvO. ATM was identifying and in
the process of directly contracting with additional new outlets
when it was the subject of a review by IL&T, an independent
Dutch regulator. IL&T publicly alleged there were flaws in
ATM's treatment process. ATM has strongly refuted the allegations
and has entered into a resolution process with IL&T. Concerns
about the treated soil has delayed progress with securing new
outlet opportunities. As previously reported, ATM reduced
throughput of soil to below 50% of capacity for the second half of
the year with an impact on second half profitability of around
EUR6m. Management is confident that all treated soil is in full
compliance with applicable permits and we continue to take steps to
improve further the soil quality. An encouraging pipeline of
potential customers for the treated soil continues to be developed
and we remain confident that sufficient new outlets will be opened
during 2018/19 to resume full production by October 2018. The final
resolution of the discussions with IL&T could extend for a
further 12-18 months.
ATM has a development programme in place to process the treated
soil further into secondary materials for the construction
industry. In order to create the space for these additional process
steps, we were pleased to acquire 70,000m(2) of adjacent land on
the Moerdijk waterside from MvO in December for a gross
consideration of EUR12.7m, payable as EUR7.2m in cash and through
reacquiring around 1 million tonnes of treated soil. The acquired
land not only provides the capacity to expand our soil process, but
also provides a deep water quay for ship cleaning and for the
logistics movements of soil, water and sludges, as well as
additional warehousing and land for other future capacity expansion
plans.
As a result of the soil offset issues, the Group incurred an
exceptional charge of EUR3.0m relating to the logistics and storage
off-site of around 200,000 tonnes of soil and an obligation to
assist with the disposal of a further 300,000 tonnes of soil not
purchased from MvO.
The other core waste treatment processes for the Division
performed well. Waste water intake was over 650,000 tonnes, with a
further 95,000 tonnes of sludges. In addition, we benefited from a
large one-off water treatment contract relating to the opening of a
new offshore well. Treatment of packed chemical waste through the
pyro plant was up 4% on last year and average prices remained
strong. The CFS water treatment facility in the southern
Netherlands did well, increasing profits by 7%.
During the year, we continued our long term investment programme
to enhance the capacity and capabilities of ATM. As previously
reported, we will install a new burner for the TRI in 2018 and will
then replace the LUVO emissions cleaning unit in 2019. The new
EUR7m warehouse for inbound packed chemical waste, built to address
the latest fire standards, will be completed in the first half of
2018/19.
The industrial cleaning market for our Reym/VGIS business
improved slightly compared to the previous two years, in particular
with regard to major customer shutdowns. Good growth in the
competitive Rotterdam region was partially offset by the ongoing
long term decline in onshore gas production in the north.
Profitability and productivity continued to be challenged by the
short notice being given by customers in both scheduling and
postponing major projects.
An important initiative for Reym has been the integration of the
EUR26m revenue VGIS business into the much larger Reym operation.
The initial focus has been on consolidating the overlapping
footprint. By March 2018, we had closed three sites, with one more
to be transferred to Reym in 2018/19 after some investment to
expand the Amsterdam facility. We secured Works Council approval
for the operational integration of the VGIS employees onto the Reym
planning systems from April 2018.
Monostreams
Divisional strategy
Monostreams is a newly formed division that incorporates Maltha,
Coolrec and Mineralz from VGG with Orgaworld from Shanks. All four
businesses focus on producing high quality product from specific
source segregated input streams and the Division has the highest
recycling rate in the Group at 96% of processed volumes. The
divisional strategy is to deliver profitable growth from the
existing businesses and operational footprint and in the longer
term to grow profits through a larger product portfolio of
secondary materials into the growing circular economy.
Financial performance
Monostreams delivered a strong performance in 2017/18, growing
revenues by 7% to EUR204.4m and underlying EBIT by 24% to EUR18.2m.
Margins improved by 120 basis points to 8.9% and return on
operating assets by 620 basis points to 25.6%.
Revenue Underlying EBIT
---------------------------- -------------------------------
Year ended Year ended
Mar Mar Variance Mar Mar Variance
18 17 18 17
Total EURm (pro
forma) 204.4 190.4 14.0 7% 18.2 14.7 3.5 24%
------ ------ ------ ---- ------ ------ --------- ----
Total GBPm (pro
forma at
average rate) 180.0 159.6 20.4 13% 16.0 12.3 3.7 30%
---- ----
Total GBPm (as reported) 180.0 30.8 149.2 16.0 3.6 12.4
Underlying Return on
EBIT Margin Operating
Assets
-------------- --------------
Total (pro forma) 8.9% 7.7% 25.6% 19.4%
------ ------ ------ ------
Pro forma results in the year to March 2017 are unaudited and
include Van Gansewinkel as if owned throughout the year rather than
from legal completion on 28 February 2017.
The return on operating assets excludes all landfill related
provisions.
Revenue and profit growth were driven by strong performances in
the Mineralz and Maltha businesses. Orgaworld delivered profit
growth on broadly flat revenues, offsetting the impact of a
digester tank leak during the summer of 2018 that materially
disrupted production for three months. Coolrec saw profitability
decline on flat revenues, with particular challenges in the
profitability of the processing of TVs (tubes) and small domestic
appliances and the flotation line in Belgium.
Operational review
The Mineralz business had a good year. Underlying volumes to its
three landfill sites were strong, in particular the Braine site in
Belgium. Volumes of bottom ashes processed into building materials
increased by over 200% and strategic discussions are being held
with a number of Dutch incinerators to expand this important
sustainable initiative. Constructive negotiations have also
continued with the Port of Rotterdam and with associated regulatory
bodies regarding a long term extension to the Maasvlakte landfill
in the Europoort, which offers unique safe immobilisation and
storage in the Netherlands for waste streams such as fly ashes and
low level NORM waste.
Maltha, our glass recycling business, is 33% owned by
Owens-Illinois a leading global glass producer. The business
delivered a strong recovery in 2017/18 from production lows. Maltha
secured important additional inbound glass streams in the UK and
Scandinavia and also arranged a long term customer extension with a
major cullet customer in Portugal. We have invested in a new glass
powder processing line at Dintelmond, with a number of interested
customers, and an extension to capacity at Portugal that will
increase the volume of year round production. An ongoing project to
reduce dust generation at Dintelmond will result in further
investment of around EUR0.9m in 2018/19 to reduce dust levels by at
least 60%. On the back of this strong operational performance, we
were very pleased to renew our long term shareholder agreement with
our partner Owens-Illinois in December 2017.
Orgaworld delivered ongoing growth in volumes treated, in
addition to growth in inbound green waste. During the year,
Orgaworld extended two major Source Segregated Organics (SSO)
contracts as well as its ongoing partnership with a major
supermarket chain for the treatment of out of date food waste. An
unexpected leak in a digester tank at the Amsterdam anaerobic
digestion (AD) facility caused the loss of electricity production
as we repaired the broken digester tank and performed preventative
maintenance elsewhere in the installation. In February 2018, we
announced that Orgaworld had started the second phase of a project
with Delft University and Pacques looking into the production of
bioplastics (PHA) from organic waste.
Coolrec had a mixed year, with flat revenues and lower margins.
Intake of fridges was particularly strong, but other input lines,
including small domestic appliances and TVs (tubes), saw a decline
in volumes and consequently in margins. Margin pressure on the
Belgian flotation line due to the increasingly competitive market
for inbound material also caused reduced profits. Customer
contracts for sustainable long term solutions continued to gain
traction. Coolrec is working with many leading appliance
manufacturers to produce new appliances out of an increasing
percentage of recycled metals and plastics.
Municipal
Divisional strategy
The Municipal Division's strategy is to deliver a recovery plan
that will stabilise and de-risk the business. This will involve
reducing losses resulting from adverse market dynamics, and
ensuring the successful completion and commissioning to full
operational capability of its new assets both under construction or
recently commissioned.
Financial performance
Municipal revenues fell by 7% at constant currency to GBP192.3m
and the business reported an underlying trading loss of GBP9.2m at
constant currency (2017: loss of GBP2.6m). Canada performed
particularly poorly, reporting a loss of GBP3.4m, as a result of
operational challenges in its London facility and contractor delays
with construction at the Surrey facility. Good progress has been
made to resolve these issues and Canada is expected to return to
profit in 2018/19. The UK PFI facilities made increased underlying
losses of GBP1.6m reflecting underperformance of the Wakefield
facility, including the reduction in Feed in Tariff (FIT) subsidy,
losses at the Westcott Park facility and ongoing challenges in the
export of RDF from ELWA.
Revenue Underlying EBIT
-------------------------------- ---------------------------
Year ended Year ended
Mar Mar 17 Variance Mar 18 Mar 17 Variance
18
UK Municipal 176.4 174.8 1.6 1% (5.8) (4.2) (1.6)
Canada Municipal 15.9 32.8 (16.9) -52% (3.4) 1.6 (5.0)
Total GBPm (at constant
currency) 192.3 207.6 (15.3) -7% (9.2) (2.6) (6.6)
------- ------- ------- ----- ------- ------- ---------
Total GBPm (at average
rate as reported) 192.9 207.6 (14.7) -7% (9.3) (2.6) (6.7)
------- ------- ------- ----- ------- ------- ---------
Underlying
EBIT Margin
----------------
UK Municipal -3.3% -2.4%
Canada Municipal * -34.3% 7.4%
------- -------
Total * -5.0% -1.8%
------- -------
All numbers for Canada are shown at a constant exchange rate
*For comparability, the Canadian trading margin excludes Surrey
construction revenue and profits.
The UK business reported revenues up 1% to GBP176.4m and made a
trading loss of GBP5.8m (2017: loss of GBP4.2m). The key drivers of
the ongoing losses, as previously reported, were 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. The biggest
risk remains the paper and plastic recyclate market and the
commissioning of the Derby facility, which we will take control of
when it has passed its full service commencement tests. Exceptional
costs of GBP72.3m were incurred in the year relating to decisive
portfolio management and further onerous contract provisions which
are discussed below. Management do not anticipate further
exceptional costs relating to the UK assets.
The Canadian business reported revenues down by 52% to GBP15.9m
reflecting the end of the construction phase of the new Surrey
facility. The business reported a disappointing trading loss of
GBP3.4m primarily due to the previously reported recurrence of
operational difficulties at the London facility and contractor
construction issues at Surrey.
Operational review - UK
As previously reported, the UK business continued to be impacted
by a range of challenges during 2017/18, offsetting the effect of
improvement initiatives.
At ELWA, the operating performance continued to be impacted by
weak FX rates and higher RDF export fees into the Netherlands and
Germany. A new 100,000 tonne per annum contract with the AEB
incinerator at Amsterdam is expected to improve performance next
year. Following successful management action to resolve operational
and compliance issues in Cumbria, the Group has released GBP4m of
onerous contract provisions that are no longer required. We have
therefore been able to reverse its onerous contract status and the
contract will be reported through the income statement during
2018/19.
Operational stability at the new Wakefield and Barnsley,
Doncaster and Rotherham (BDR) facilities improved over the year
with all performance tests passed at Wakefield. However, as
previously reported, the facilities did not achieve the anticipated
gains in underlying profitability. In particular, the Wakefield
anaerobic digestion (AD) facility was impacted by an 80% reduction
in the FIT renewable subsidy awarded by the government compared to
that included in the original bid model. Additionally, it was
discovered, once in operation, that the gas yield on the residual
waste fraction was less than half that originally expected.
Throughput at the BDR facility was also curtailed as the marginal
cost of processing additional commercial waste became loss making
largely due to the high cost of disposal as RDF. As noted in the
Chief Financial Officer's review, the significant progress made to
stabilise performance across both facilities in the year has
assisted management in being able to assess the required onerous
contract provisions taken to reflect the expected future losses
from these two contracts, resulting in an exceptional onerous
contract provision increase of GBP56.6m.
The Derby facility made encouraging progress following the 2016
insolvency of a major technology supplier to the EPC contractor for
the Derby project, Interserve plc. The facility has now accepted
first waste for commissioning, and was granted renewable obligation
certificates (ROCs) after generating electricity from the thermal
treatment unit, thereby removing one of the main remaining risks to
the future profitability of the facility. Commissioning is well
underway, and full service commencement is scheduled during 2018
once a full range of operational performance tests have been
passed.
During the year we took decisive action to exit loss-making
contracts or facilities where we have been unable to restore
profitability and where there is a defined exit route that makes
good sense for shareholders. In March 2018, we sold our loss-making
facility at Westcott Park to Olleco for an undisclosed sum. This
has resulted in a non-cash write-off of GBP8m and cash exit costs
of GBP6m, saving annual losses of around GBP1.5m per annum going
forward. We have also entered into negotiations regarding the
Dumfries & Galloway PFI contract with a view to exiting the
operating contract held between Renewi and Shanks Dumfries and
Galloway Limited. This fifteen-year-old contract was not capable of
meeting the new regulations that require greater diversion from
landfill in Scotland, and long-running negotiations were unable to
agree the required amendments without materially increasing the
risk to Renewi. The contract generated a loss of GBP3m in 2017/18
and an additional provision of GBP9m was taken to cover the costs
of termination.
Energen Biogas, our 50% joint venture in Scotland, delivered
another year of solid profit growth based on good availability of
volumes due to the Zero Waste Scotland policy. Investments in the
past two years to increase capacity and provide a gas-to-grid
capability are generating strong returns.
Operational review - Canada
Our Canadian assets experienced challenges in 2017/18 that are
largely expected to be resolved enabling improved performance and
profitability in 2018/19. New management has now been put in place
and is driving wide ranging commercial and operational
improvements.
The Ottawa facility saw a reduction in profitability due to
higher costs of residual disposal. The London plant experienced a
recurrence of operational issues relating to the stability of the
biology in the composting process. This initially reduced
throughput whilst consequent odour challenges delayed the ramp up
to full production. Outstanding issues have been settled with
MOECC, the Canadian regulator. The plant has recently learned that
it has been unsuccessful in renewing its contract with the City of
Toronto, partly as a result of these issues. This will reduce
committed tonnage into London by around 35% for 2018/19 however, a
pipeline of alternative inputs is being progressed.
The innovative bio-fuel facility in Surrey, Canada experienced
commissioning delays as a result of contractor issues in
construction. These have now been addressed and first waste was
accepted in December 2017 and the facility was formally opened in
March 2018. Full service commencement is expected later in the year
and the facility should significantly reduce or eliminate losses
during 2018/19.
Integration and Synergy Delivery
The integration of two similar sized entities is complex and has
been approached with detailed planning, tight operational control
and through deploying experienced resources.
The first key objective was to create a single new and unified
management team. Our Renewi Executive Committee reflects a balance
of former Shanks, former VGG and new external hires. These new
leaders have brought fresh perspectives from blue chip backgrounds
such as GE, SABIC, UTC and Fedex/TNT, while at the same time we
have retained the deep corporate and waste sector knowledge that is
essential to driving profitability in the waste industry. Our new
Executive Committee was completed by the end of August 2017,
following which we were then able to sequentially design and
populate our organisation structures for the next layers of
management throughout the organisation. This was done in two waves
in each of the Belgian and Netherlands Commercial businesses and in
our Group Central Services, completing in January 2018.
At the same time as implementing our new management structures,
we have designed a target operating model (TOM), both for the whole
Group and most specifically for the Commercial Division in Belgium
and the Netherlands (where the two differently structured
businesses are merging into one way of working). The new TOM has
been designed to maintain excellent customer intimacy while
creating robust and efficient operating platforms that reduce cost
and enable future expansion. The design phase has been completed
and we are currently implementing pilot studies and expect to
migrate the majority of our activities during the second half of
the current year.
IT systems lie at the heart of the integration journey. We have
reviewed and selected core platforms around which we will build our
processes for the migration to one way of working. Many of the
systems are now undergoing significant modification so they can
manage the breadth of activities and processes required in Renewi.
The outcome over the next two years will then form a platform for
further sustained investment and improvement to further reduce cost
and improve performance.
The entire programme is managed by integration teams within each
relevant division led by a dedicated integration leader and
supported by external experts. The programme is managed and
reviewed by the executive directors with support from a small
central Integration Management Office (IMO). We have created a
detailed integration master plan to manage both divisional and
functional integration activities, addressing interdependencies and
ensuring milestones are met. Synergies are tracked from the moment
they are identified to the time of realisation. The synergy plans
are, and will continue to be, subject to audit both internally and
externally to ensure that we can be confident that the resulting
benefits are both real and sustainable. The central IMO also keeps
close track of current and forecast integration costs, whether
exceptional or capital in nature.
Synergy delivery in 2017/18 ahead of plan with forecast EUR40m
synergies on track
Our commitment to deliver EUR40m of cost synergies by 2019/20
underpins the initial value creation of the merger.
We made very good progress during 2017/18, delivering EUR15m of
synergies against a target of EUR12m for much lower cost to date
than originally planned. Encouragingly, the run rate of secured
cost savings as at March 2018 was approximately EUR24m,
underpinning our confidence in delivering our EUR30m target for
2018/19. The balance of this year's saving will be achieved in the
second half primarily through the process and IT migration projects
which are critical to the next phases of integration and cost
reduction. Our initiatives support our total EUR40m target, with
further potential new projects being identified.
The savings are delivered in three main areas: direct, indirect
and scale savings:
-- Direct savings include significant benefits from rerouting
waste to optimise margins, as well as reduced costs from route
optimisation and site closures. Some of these benefits will only be
secured following process and IT migration. During the year we
exited a large former VGG site in Utrecht, saving an annualised
EUR0.7m, and a further three small sites in Hazardous Waste, saving
EUR0.1m. We also delivered savings of an annualised EUR0.3m from
reduced costs of outbound logistics of waste to incineration.
-- Scale savings include benefits in terms of recyclate income,
disposal costs and procurement. Procurement benefits of over
EUR2.5m (annualised) have been delivered and this is expected to
more than double by the end of 2018/19.
-- Indirect savings include the benefit of having a single Board
and senior management team (EUR4m) as well as other overhead
reduction cost programmes such as the closure of a small shared
service centre in Zaventem, Belgium, which was integrated into the
larger shared service centre in Lommel, Belgium, saving an
annualised EUR1.5m.
We have over 420 identified synergy projects. Around 320 are
quick win projects, for example local initiatives to make better
use of waste, and 220 (69%) of these have already been completed.
We also have 60 mid-size and 40 large-size initiatives, many of
whose implementation is dependent upon the IT and process
migration.
Chief Financial Officer's Review
Introduction
The first full year of Renewi has seen the successful delivery
of the Group's strategic and commercial plans and the delivery of
its integration and synergy targets ahead of plan. In addition,
there have been integration and synergy activities within the
finance function itself that are delivering material value to the
Group through more efficient financing and which will build robust
and scalable platforms for future expansion. We report on some of
these initiatives later in this review.
For the purposes of understanding the underlying business
performance, this review primarily compares current year underlying
trading with unaudited pro forma prior period figures which include
the results of Van Gansewinkel as if the latter had been owned
throughout the prior year comparative period.
Overall, the first year of Renewi has delivered well against all
our core financial KPIs. Revenues grew by 3% at constant currency,
growing faster in our core Commercial Division, which was up 5%.
Group trading margins grew by 70 basis points to 4.4%, increasing
significantly in Commercial and Monostreams as a result of
commercial initiatives, synergy delivery, volume growth and
operational improvements. Underlying margins in Hazardous Waste
were robust but were impacted by the short term challenges at ATM,
our soil treatment business highlighted during the year. Finally,
we saw a material improvement in our Group return on operating
assets from 11.5% to 15.9%, driven by very strong increases again
in the Commercial and Monostreams Divisions. We remain on track for
the returns from the merger to exceed our WACC in 2018/19.
Financial Review
Constant
Mar 18 Mar 17 Total Currency
GBPm GBPm Change Change
% %
Pro forma:
Revenue 1,565.7 1,450.6 8% 3%
Underlying EBIT 69.1 53.1 30% 23%
Reported:
Revenue 1,565.7 779.2 101% 93%
Underlying EBIT 69.1 36.5 89% 78%
Underlying profit before
tax 51.5 25.7 100% 88%
Underlying earnings per
share (p) 4.8 3.7 30% 18%
Pro forma results in the year to March 2017 are unaudited and
include Van Gansewinkel as if owned throughout the year rather than
from legal completion on 28 February 2017.
The Sterling/Euro exchange rate moved from EUR1.17:GBP1 at 31
March 2017 to EUR1.14:GBP1 at 31 March 2018, with the average rate
for the year moving by 4.7% from EUR1.19:GBP1 to EUR1.14:GBP1.
Revenue grew by 3% at constant currency (an increase of 8% at
actual rates), with growth across all divisions except Municipal.
Revenue on a reported basis increased by 101% to GBP1,566m.
Underlying EBIT improved 23% to GBP69.1m at constant currency (an
increase of 30% at actual rates). Reported underlying EBIT
increased by 89% on a reported basis. The Commercial and
Monostreams Divisions performed strongly whilst the Municipal
Division was affected by previously reported challenges in both the
UK and Canada.
Non-trading and exceptional items excluded from pre-tax
underlying profits
To enable a better understanding of underlying performance,
certain items are excluded from underlying EBIT and underlying
profit due to their size, nature or incidence.
Total non-trading and exceptional items from continuing
operations amounted to GBP101.5m (2017: GBP87.1m). Onerous contract
provision increases, as previously reported, amounted to GBP52.7m
(2017: GBP28.2m) representing the net present value of future
estimated losses at BDR and Wakefield over the next 22 years offset
by a release at Cumbria due to improved operational performance. A
further charge of GBP22.5m was related to decisive portfolio
management activity to reduce both losses and future risk exposure
in UK Municipal and GBP22.1m (2017: GBP7.4m) related directly to
the merger and synergy delivery costs. Other charges of GBP4.2m
included additional soil, storage and logistics costs of GBP2.7m
relating to the soil market offset at ATM, amortisation of
intangible assets acquired in a business combination of GBP5.8m
together with the insurance claims for two significant fires in the
Commercial Division earlier in the year. Of these non-trading and
exceptional items, some GBP20.5m were non-cash. These items are
explained further in note 4 to the financial statements.
The operating loss on a statutory basis, after taking account of
all non-trading and exceptional items, was GBP32.4m (2017:
GBP39.0m).
As previously reported, based on current market conditions and
the delivery of our ongoing recovery plans, no further exceptional
charges are anticipated in respect of the UK Municipal assets. With
regard to the ATM soil offset market challenges, additional costs
of up to EUR3m are anticipated in the first half of 2018/19
relating to further one-off logistics and storage charges pending
the re-opening of the offset market.
Net finance costs
Net finance costs, excluding exceptional transaction related
finance costs, were GBP7.1m higher year on year at GBP19.9m (2017:
GBP12.8m) due to the full year impact of the merger, particularly
with the post-merger debt, a full year's charge for Van Gansewinkel
(VGG) finance lease costs and the discount unwind on provisions not
included in the prior period. We were pleased to deliver total
finance costs well below our expectations, partly through tight
management of net leverage and also through a number of synergy
projects in the treasury function that reduced the costs of
ancillary financing items. Total finance income is higher in
2017/18 as it includes 12 months of income from the subordinated
debt funding of GBP17.5m into the Derby PPP project on 31 March
2017. The non-trading and exceptional item charge of GBP11.6m in
the prior year included the costs of arranging the new banking
facility to support the merger along with the retirement of the
previous funding arrangements.
Share of results from associates and joint ventures
The principal return comes from our joint venture in the
anaerobic digestion facility in Scotland where operational
performance remains strong following recent investments.
Loss before tax
Loss before tax from continuing operations on a statutory basis,
including the impact of non-trading and exceptional items, was
GBP50.0m (2017: GBP61.4m).
Taxation
Total taxation for the year on continuing operations was a
credit of GBP2.0m (2017: GBP0.5m). The effective tax rate on
underlying profits from continuing operations was 25.2% at
GBP13.0m, up from 23.0% last year reflecting the increasing profits
in regions with relatively higher tax rates, and slightly better
than our expectations of 25.5%. Both the Dutch and Belgian
governments indicated recently that they were considering a number
of corporate tax reforms, including lower corporate tax rates.
These changes were substantively enacted in Belgium in early 2018
which resulted in lower deferred tax liabilities at 31 March 2018
due to the reduced future rates and a tax credit of GBP6.8m which
has been recorded as exceptional tax. The tax credit arising on the
non-trading and exceptional items of GBP101.5m was GBP8.2m given a
significant proportion of these are non-taxable.
Looking forward, we anticipate the underlying tax rate to fall
to around 24% in the next few years, reflecting the recently
enacted rates in Belgium.
The Group statutory loss after tax, including all discontinued
and exceptional items, was GBP47.6m (2017: GBP61.4m).
Earnings per share (EPS)
Underlying EPS from continuing operations, excluding non-trading
and exceptional items, increased by 30% to 4.8p per share (2017:
3.7p). Basic EPS from continuing operations was 6.0p loss per share
compared to a loss of 11.3p per share in the prior year.
Dividend
The Board is recommending an unchanged final dividend of 2.1
pence per share. Subject to shareholder approval, the final
dividend will be paid on 27 July 2018 to shareholders on the
register at close of business on 29 June 2018. Total dividend
cover, based on earnings before non-trading and exceptional items
from continuing operations, is 1.6 times (2017: 1.2 times).
Discontinued operations
The profit from discontinued operations of GBP0.4m (2017: loss
of GBP0.5m) relates to former UK solid waste activities and
includes the profit on sale of a surplus asset.
Cash flow performance
A summary of the total cash flows in relation to core funding is
shown in the table below. As reported last year, the prior period
underlying free cash flow of GBP23.1m is principally on a
pre-merger basis and as such is not comparable to the current
period.
Mar 18 Mar 17
GBPm GBPm
EBITDA 156.9 81.1
Working capital movement
and other 20.8 (5.0)
Net replacement capital
expenditure (75.8) (38.2)
Interest and tax (22.1) (14.8)
------- --------
Underlying free cash flow 79.8 23.1
Growth capital expenditure (3.1) (4.2)
UK PFI funding (2.2) (20.1)
Canada Municipal funding (10.2) (19.6)
Acquisitions and disposals (6.5) 3.3
Dividends paid (24.4) (15.1)
Restructuring spend (1.1) (1.9)
Synergy & integration
spend (17.9) (1.0)
Transaction related spend (10.8) (19.2)
Other (13.8) (16.8)
VGG acquisition - net
cash 0.7 (277.9)
Equity raise (net of costs) - 136.4
Net core cash flow (9.5) (213.0)
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Free cash flow conversion 113% 63%
All numbers above include both continuing and discontinued
operations.
Free cash flow conversion is underlying free cash flow as a
percentage of underlying EBIT.
Net core cash flow above reconciles to the movement in net debt
of GBP10.6m in note 10 after taking into account movements in
PFI/PPP non-recourse net debt, capitalisation and amortisation of
loan fees and foreign exchange.
Free cash flow conversion in the current year benefited from a
strong working capital performance across the divisions, enhanced
by good collection activities together with the impact of the soil
market offset issues at ATM which has increased the level of
accruals for disposal costs. Replacement capital expenditure at
GBP75.8m represents 88% of depreciation (2017: 85%), which is
slightly lower than our original estimate of approximately 90% for
this first post-merger year. Capital expenditure across all
divisions has remained tightly controlled across the year and
integration related expenditure has been lower than expected. The
cash interest spend in the year was significantly higher than last
year due to increased borrowings following the merger. In addition,
some GBP1.0m of loan fees have been paid to secure the one year
extension option for the main credit facility.
The growth capital expenditure of GBP3.1m is principally in
Municipal and relates to operator enhancements which are classified
as an intangible asset. The Canada Municipal funding reflects the
construction spend on the Surrey facility. The prior year UK PFI
funding spend included the GBP17.5m subordinated debt funding into
the Derby project.
For acquisitions and disposals, the cash outflow principally
relates to the purchase of the adjacent land on the Moerdijk
waterside from Martens van Oord in December 2017. The receipt in
the prior period includes the monies received from the sale of
49.99% of the equity in the Wakefield SPV which was completed in
August 2016 and other disposals net of the acquisition of the
commercial waste activities of the City of Leiden.
Synergy and integration related expenditure includes GBP9.4m for
initial synergy delivery costs including redundancy settlements and
GBP8.5m for costs incurred in the merger and integration of the two
businesses. Transaction related expenditure is significantly higher
than the current year charge as a number of fees and costs were not
paid by 31 March 2017 given that the merger only completed on 28
February 2017.
The other category includes the GBP3.0m funding for the closed
UK defined benefit pension scheme along with expenditure of
GBP10.6m relating to UK Municipal contractual issues and onerous
contracts.
Following the merger, net cash generated from operating
activities increased from GBP22.6m in the prior year to GBP121.7m
in the year ended 31 March 2018. A reconciliation to the underlying
cash flow performance as referred to above is included in note 16
to the financial statements.
Merger related accounting
Transaction and integration costs
As noted last year, these transactions related costs will be
reported as non-trading and exceptional as they are incurred and
have been grouped into three segments:
-- Transaction costs relating to the acquisition and related
financing which were principally all incurred in 2017;
-- Synergy delivery costs relating to the delivery of the EUR40m
cost synergies including the costs of site closures, redundancies
and other reorganisation costs; and
-- Integration costs relating to the merger and integration of
the two businesses including advisers' fees, transitional costs
arising from merging the two organisations and certain IT and
rebranding costs that cannot be capitalised.
The expected total transaction related costs to be incurred over
the next two years remain unchanged at EUR50m for the cash cost of
synergy delivery and EUR20m for other integration costs. For
synergy delivery costs, some GBP4.5m (EUR5.3m) was incurred in
2016/17, GBP12.3m (EUR13.9m) in 2017/18 and we expect the split of
future costs to be approximately EUR23m in 2018/19 and EUR8m in
2019/20. For integration costs, some GBP2.9m (EUR3.4m) was incurred
in 2016/17, GBP7.5m (EUR8.5m) in 2017/18 and we expect
approximately a further EUR7m in 2018/19 and EUR1m in 2019/20.
As previously reported, we expect to incur non-cash impairment
costs arising from our site closure programme and GBP2.3m has been
recognised to date. We will advise as to the further impact once we
have finalised the list of sites that are expected to be impacted
by the integration.
We have previously referred to the requirement for
integration-related capital investment including investment in
rebranding, truck replacements within the relatively older VGG
fleet and an investment in new IT platforms for growth for the
merged business. It has been determined that the majority of the
rebranding spend, expected to be cEUR12m over the initial two-year
period, is not capital in nature and will therefore be classified
as integration costs. The truck replacement programme is currently
underway and is likely to be financed via operating lease rather
than outright purchase. The expected expenditure on IT capital
investment over the coming two years is GBP20m.
Purchase price accounting (PPA)
As reported on in the 2017 Annual Report, the merger with VGG
was accounted for in accordance with IFRS 3 (Revised) Business
Combinations including a fair value review of all assets and
liabilities acquired at 28 February 2017 with the exception of the
real estate assets. The valuation of these real estate assets was
concluded in the first half of the year and resulted in an increase
in the carrying value of land and buildings of GBP31.5m with a
corresponding decrease in intangible assets and goodwill. The
provisional fair value as reported previously has now been
finalised given the closure of the 12-month period from acquisition
and all final adjustments have been accounted for at the date of
acquisition and consequently the amounts reported at 31 March 2017
have been restated. The final goodwill on acquisition was GBP327.8m
together with intangible assets of GBP34.6m.
Integrating the finance function to deliver enhanced value
Finance transformation programme
We have put in place a wide-ranging three-year programme to
integrate the two businesses and then build new and improved
capability at a lower cost. This programme is under the
responsibility of a Finance Transformation Director who works with
the finance function and in the divisions to ensure a seamless
ongoing capability during the integration process.
Treasury programmes to increase liquidity and reduce cost
Following the completion of the merger, we have put in place
numerous projects to increase the efficiency of our borrowing
structures, improving liquidity and reducing borrowing costs.
Examples include the roll out of a group-wide treasury management
system, increased use of cash pooling, the merger of invoice
discounting programmes on best terms and the addition of new and
lower cost guarantee facilities. Savings equivalent to over EUR5m
in financing costs over the next five years have been
delivered.
Enhanced capabilities in Risk Management, Internal Control and
Internal Audit
We have enhanced our investment in Risk Management, Internal
Control and Internal Audit, reflecting the requirements of the
enlarged Group. Our Risk, Control and Audit Manager now reports
directly to the CFO and is recruiting additional staff. All core
Group documents such as Accounting Policies Manual, Authorisation
Document and Control Manual have been updated and implemented
across the Group. In 2018/19 we will be revising our key control
framework and automating its review mechanisms.
Reduced transaction costs through shared services
One of the material synergy opportunities from the merger was
the reduction in the cost of transactional finance by reducing the
number of shared service centres (SSC) in the Group. During 2017/18
we closed our SSC at Zaventem in Belgium, merging it with the
larger SSC at Lommel in Belgium. During 2018/19 we expect to close
our SSC in Amersfoort, the Netherlands, again transferring
activities to Lommel.
Investment projects
Expenditure in 2018/19
The Group's ongoing expectations for replacement capital
expenditure remain around 75-80% of depreciation. This underlying
level may from time to time be supplemented with larger scale
replacement projects. Given 2018/19 is another year of catch up
with a few larger projects and the start of the investment in new
IT platforms, the ratio is therefore expected to be around 100%
this year. Over the next two to three years we expect to spend
EUR15m to replace and upgrade major components of Hazardous Waste's
soil treatment line and EUR2m for the digestate dryer at Roeselare.
Growth capital expenditure will also increase next year with the
planned c. GBP13m investment in the expansion at Maasvlakte and the
GBP4m extension of the Ottawa site.
Group return on assets - pro forma basis
The Group return on operating assets (excluding debt, tax and
goodwill) from continuing operations increased from 11.5% at 31
March 2017 to 15.9% at 31 March 2018. The Group post-tax return on
capital employed was 5.6% compared with 4.2% at 31 March 2017.
Treasury and cash management
Core net debt and gearing ratios
Core net debt excludes the net debt relating to the UK PFI/PPP
contracts which is non-recourse to the Group and is secured over
the assets of the special purpose vehicles (SPVs). The net core
cash outflow of GBP9.5m, along with an adverse exchange effect of
GBP6.0m on the translation into Sterling of the Group's Euro and
Canadian Dollar denominated debt and loan fee amortisation, has
resulted in a core net debt increase to GBP438.7m. This was lower
than expected due to the timing of synergy delivery and integration
costs and lower capital spend in the last few months of the year.
Net debt to EBITDA was 2.9x, comfortably within our covenant limit
of 3.5x. We continue to expect net debt to rise as integration
costs and capital expenditure are incurred over the following
eighteen months with a peak at or around 3.0x in mid-2018/19.
Debt structure and strategy
Core borrowings, excluding PFI/PPP non-recourse borrowings, are
all long term as set out in the table below.
All figures in GBPm Drawn Term
EUR100m Belgian retail bond 87.6 Jul-19
EUR100m Belgian Green retail 87.6 Jun-22
bond
EUR575m Main credit facility 291.7 Sep-22
-------
466.9
Finance leases and other 37.2
Loan fees (1.5)
Cash (63.9)
Core net debt 438.7
-------
At the time of the announcement of the proposed merger on 29
September 2016, the Group entered into a new five-year EUR600m
multi-currency facility with a syndicate of banks, comprising both
a term and revolving credit facility. During the period, EUR25m of
the revolving credit facility was cancelled and the first one-year
extension option was exercised such that the facility matures in
five years on 29 September 2022. A further one-year extension
option remained in place. At 31 March 2018, some GBP291.7m was
drawn. The new facility has been hedged with a EUR125m interest
rate cap and three cross currency swaps totalling GBP150m at fixed
Euro interest rates of 2.2% and 1.7%. In addition, the Group has
two retail bonds each of EUR100m, which have an annual coupon of
4.23% and 3.65% respectively. As at 31 March 2018, 93% of our core
banking facility borrowings were fixed or hedged. At 31 March 2018,
the Group had guarantees of GBP206.3m (2017: GBP216.4m).
On 22 May Renewi announced that it has signed a new amendment
and extension to its main banking facility, converting it to a
EUR550m Green Loan. Renewi is one of the first FTSE250 companies to
refinance its entire bank borrowings using this green
certification. The new facility is also one of the first to
introduce sustainability improvement to the terms of the borrowing
facility. Accordingly, Renewi will benefit from a lower margin
payable on its borrowings in the event that it achieves each of
five ambitious sustainability objectives.
Debt borrowed in the special purpose vehicles (SPVs) created for
the financing of UK PFI/PPP programmes is separate from the Group
core debt and is secured over the assets of the SPVs with no
recourse to the Group as a whole. Interest rates are fixed by means
of interest rate swaps at contract inception. At 31 March 2018,
this debt amounted to GBP82.9m (31 March 2017: GBP87.1m).
Directors' valuation of UK PFI/PPP portfolio
The Directors provide a valuation of the financial investments
in the SPVs used to fund the contracts and into which the Group has
often invested in the form of subordinated debt and equity. The
benefits of these financial assets are not easily assessed from the
financial statements. As at 31 March 2018, the Directors believed
that this valuation was unchanged at GBP45m.
Retirement benefits
The Group operates a defined benefit pension scheme for certain
UK employees which has been closed to new entrants since September
2002. At 31 March 2018, the net retirement benefit deficit relating
to the UK scheme was GBP11.9m compared with GBP15.5m at 31 March
2017. The decrease in the deficit was a result of the lower
liabilities due to higher corporate bond yields partially offset by
lower asset returns than expected. The most recent actuarial
valuation of the scheme was carried out at 5 April 2015 and a
funding plan of GBP3.1m per annum for a further four years has been
agreed with the trustees. The next actuarial valuation is due at 5
April 2018. VGG also operates a number of defined benefit pension
schemes for employees in the Netherlands and Belgium which had a
net retirement benefit deficit of GBP5.9m (2017: GBP6.1m).
Explanation of non-IFRS measures
The Directors use alternative performance measures as they
believe these measures provide additional useful information on the
underlying trends, performance and position of the Group. These
measures are used for internal performance analysis. These terms
are not defined terms under IFRS and may therefore not be
comparable with similarly titled measures used by other companies.
These measures are not intended to be a substitute for, or superior
to, IFRS measurements. The alternative performance measures used
are set out below.
Financial Measure How we define it Why we use it
Underlying Operating profit from Provides insight into
EBIT (previously continuing operations ongoing profit generation
referred to excluding amortisation and trends
as trading of intangible assets arising
profit) on acquisition, fair value
remeasurements, non-trading
and exceptional items
---------------------------------- ------------------------------
Underlying Underlying EBIT as a percentage Provides insight into
EBIT/Trading of revenue ongoing margin development
margin (previously and trends
referred to
as trading
profit margin)
---------------------------------- ------------------------------
EBITDA Underlying EBIT before Measure of earnings and
depreciation, amortisation cash generation to assess
and profit or loss on operational performance
disposal of plant, property
and equipment
---------------------------------- ------------------------------
Underlying Profit before tax from Facilitates underlying
profit before continuing operations performance evaluation
tax before non-trading and
exceptional items, amortisation
of intangible assets arising
on acquisition and fair
value remeasurements
---------------------------------- ------------------------------
Underlying Earnings per share before Facilitates underlying
EPS non-trading and exceptional performance evaluation
items, amortisation of
intangible assets arising
on acquisition and fair
value remeasurements
---------------------------------- ------------------------------
Return on operating Last 12 months underlying Provides a measure of
assets EBIT divided by a 13 month the return on assets
average of total net assets across the Divisions
excluding core net debt, and the Group excluding
derivatives, tax balances, goodwill and acquisition
goodwill and acquisition intangible balances
intangibles
---------------------------------- ------------------------------
Post-tax return Last 12 months underlying Provides a measure of
on capital EBIT as adjusted by the the Group return on assets
employed Group effective tax rate taking into account the
divided by a 13 month historic and acquisition
average of total net assets intangible balances
excluding core net debt
and derivatives
---------------------------------- ------------------------------
Underlying Net cash generated from Measure of cash available
free cash flow operating activities principally after regular replacement
excluding non-trading capital expenditure to
and exceptional items pay dividends, fund growth
and including interest, capital projects and
tax and replacement capital invest in acquisitions
spend
---------------------------------- ------------------------------
Free cash flow The ratio of underlying Provides an understanding
conversion free cash flow to underlying of how our profits convert
EBIT into cash
---------------------------------- ------------------------------
Core net debt Core net debt includes The borrowings relating
cash and cash equivalents to the UK PFI/PPP contracts
but excludes the net debt are non-recourse to the
relating to the UK PFI/PPP Group and excluding these
contracts gives a suitable measure
of indebtedness for the
Group
---------------------------------- ------------------------------
Net debt to Core net debt divided Commonly used measure
EBITDA by an annualised EBITDA of financial leverage
with a net debt value and consistent with covenant
based on the terminology definition
of financing arrangements
and translated at an average
rate of exchange for the
period
---------------------------------- ------------------------------
Pro forma information 11 months to 28 February Provides a comparable
2017 for VGG as extracted measure of performance
from unaudited management across both periods
accounts are added to
11 months of legacy Shanks
plus the month of March
2017 for the combined
Group to give the pro
forma 2017 numbers
---------------------------------- ------------------------------
Underlying The effective tax rate Provides a more comparable
effective tax on underlying profit before basis to analyse our
rate tax tax rate
---------------------------------- ------------------------------
Consolidated Income Statement
For the year ended 31 March 2018
2018 2017
------------------------------------------ -----------------------------------------
Non-trading &
Non-trading & exceptional
Trading exceptional items Total Trading items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
Revenue 3 1,565.7 - 1,565.7 779.2 - 779.2
Cost of sales (1,276.9) (70.7) (1,347.6) (653.3) (43.3) (696.6)
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
Gross profit (loss) 288.8 (70.7) 218.1 125.9 (43.3) 82.6
Administrative
expenses (219.7) (30.8) (250.5) (89.4) (32.2) (121.6)
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
Operating profit
(loss) 3,4 69.1 (101.5) (32.4) 36.5 (75.5) (39.0)
Finance income 5 12.3 - 12.3 10.3 - 10.3
Finance charges 5 (32.2) - (32.2) (23.1) (11.6) (34.7)
Share of results from
associates and joint
ventures 2.3 - 2.3 2.0 - 2.0
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
Profit (loss) before
taxation 51.5 (101.5) (50.0) 25.7 (87.1) (61.4)
Taxation 4,6 (13.0) 15.0 2.0 (5.9) 6.4 0.5
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
Profit (loss) for the
year from continuing
operations 38.5 (86.5) (48.0) 19.8 (80.7) (60.9)
Discontinued
operations
(Loss) profit for the
year from
discontinued
operations (0.1) 0.5 0.4 - (0.5) (0.5)
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
Profit (loss) for the
year 38.4 (86.0) (47.6) 19.8 (81.2) (61.4)
===================== ==== ========= ==================== ========= ========= ===================== =======
Attributable to:
Owners of the parent 38.0 (85.8) (47.8) 20.1 (81.2) (61.1)
Non-controlling
interests 0.4 (0.2) 0.2 (0.3) - (0.3)
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
38.4 (86.0) (47.6) 19.8 (81.2) (61.4)
===================== ==== ========= ==================== ========= ========= ===================== =======
Basic earnings (loss) per share attributable to owners of the parent (pence per share)
Continuing operations 7 4.8 (10.8) (6.0) 3.7 (15.0) (11.3)
Discontinued
operations 7 - - - - (0.1) (0.1)
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
4.8 (10.8) (6.0) 3.7 (15.1) (11.4)
===================== ==== ========= ==================== ========= ========= ===================== =======
Diluted earnings (loss) per share attributable to owners of the parent (pence per share)
Continuing operations 7 4.8 (10.8) (6.0) 3.7 (15.0) (11.3)
Discontinued
operations 7 - - - - (0.1) (0.1)
--------------------- ---- --------- -------------------- --------- --------- --------------------- -------
4.8 (10.8) (6.0) 3.7 (15.1) (11.4)
===================== ==== ========= ==================== ========= ========= ===================== =======
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2018
2018 2017
GBPm GBPm
----------------------------------------------------------------------------------------- ------ ------
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign subsidiaries 7.3 14.7
Fair value movement on cash flow hedges 7.2 1.3
Deferred tax on fair value movement on cash flow hedges (1.5) (0.7)
Share of other comprehensive income of investments accounted for using the equity method 0.7 0.3
----------------------------------------------------------------------------------------- ------ ------
13.7 15.6
----------------------------------------------------------------------------------------- ------ ------
Items that will not be reclassified to profit or loss:
Actuarial gain (loss) on defined benefit pension schemes 3.0 (10.7)
Deferred tax on actuarial gain (loss) on defined benefit pension schemes (0.6) 1.7
----------------------------------------------------------------------------------------- ------ ------
2.4 (9.0)
----------------------------------------------------------------------------------------- ------ ------
Other comprehensive income for the year, net of tax 16.1 6.6
Loss for the year (47.6) (61.4)
----------------------------------------------------------------------------------------- ------ ------
Total comprehensive loss for the year (31.5) (54.8)
========================================================================================= ====== ======
Attributable to:
Owners of the parent (32.3) (54.3)
Non-controlling interests 0.8 (0.5)
----------------------------------------------------------------------------------------- ------ ------
Total comprehensive loss for the year (31.5) (54.8)
========================================================================================= ====== ======
Total comprehensive loss attributable to owners of the parent arising from:
Continuing operations (32.7) (53.8)
Discontinued operations 0.4 (0.5)
----------------------------------------------------------------------------------------- ------ ------
(32.3) (54.3)
========================================================================================= ====== ======
Consolidated Balance Sheet
As at 31 March 2018
Restated*
31 March 31 March
2018 2017
Note GBPm GBPm
Assets
Non-current assets
Intangible assets 9 606.3 585.7
Property, plant and equipment 9 623.0 615.9
Investments 16.7 15.8
Loans to associates and joint ventures 13.9 14.2
Financial assets relating to PFI/PPP contracts 166.4 165.5
Trade and other receivables 4.6 3.1
Derivative financial instruments 14 0.5 0.3
Deferred tax assets 24.9 31.3
-------------------------------------------------- ---- --------- ---------
1,456.3 1,431.8
----------------------------------------------- ---- --------- ---------
Current assets
Inventories 23.3 19.9
Loans to associates and joint ventures 5.9 5.7
Financial assets relating to PFI/PPP contracts 13.5 13.3
Trade and other receivables 257.8 234.7
Derivative financial instruments 14 1.4 -
Current tax receivable 0.1 0.1
Cash and cash equivalents 63.9 74.9
-------------------------------------------------- ---- --------- ---------
365.9 348.6
Assets classified as held for sale 0.3 0.3
-------------------------------------------------- ---- --------- ---------
366.2 348.9
----------------------------------------------- ---- --------- ---------
Total assets 1,822.5 1,780.7
-------------------------------------------------- ---- --------- ---------
Liabilities
Non-current liabilities
Borrowings - PFI/PPP non-recourse net debt (81.7) (85.0)
Borrowings - Other (489.7) (482.4)
Derivative financial instruments 14 (29.1) (30.0)
Other non-current liabilities (6.9) (5.1)
Deferred tax liabilities (62.9) (77.5)
Provisions 12 (201.7) (146.9)
Defined benefit pension schemes deficit 13 (22.3) (26.9)
-------------------------------------------------- ---- --------- ---------
(894.3) (853.8)
----------------------------------------------- ---- --------- ---------
Current liabilities
Borrowings - PFI/PPP non-recourse net debt (1.2) (2.1)
Borrowings - Other (12.9) (16.4)
Derivative financial instruments 14 (0.1) (0.8)
Trade and other payables (472.1) (410.8)
Current tax payable (18.4) (14.4)
Provisions 12 (41.1) (45.0)
-------------------------------------------------- ---- --------- ---------
(545.8) (489.5)
----------------------------------------------- ---- --------- ---------
Total liabilities (1,440.1) (1,343.3)
-------------------------------------------------- ---- --------- ---------
Net assets 382.4 437.4
================================================== ==== ========= =========
Equity
Share capital 80.0 79.9
Share premium 377.4 377.2
Exchange reserve 46.2 39.1
Retained earnings (126.5) (63.3)
-------------------------------------------------- ---- --------- ---------
Equity attributable to owners of the parent 377.1 432.9
Non-controlling interests 5.3 4.5
-------------------------------------------------- ---- --------- ---------
Total equity 382.4 437.4
================================================== ==== ========= =========
* The balance sheet as at 31 March 2017 has been restated for
acquisition accounting adjustments in relation to the Van
Gansewinkel Groep (VGG) acquisition.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2018
Restated*
Share Share Exchange Retained Non-controlling Total
capital premium reserve earnings interests equity
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 April 2017 79.9 377.2 39.1 (63.3) 4.5 437.4
(Loss) profit for the year - - - (47.8) 0.2 (47.6)
Other comprehensive income
(loss):
Exchange gain on translation
of foreign subsidiaries - - 7.1 - 0.2 7.3
Fair value movement on cash
flow hedges - - - 6.8 0.4 7.2
Actuarial gain on defined
benefit pension schemes - - - 3.0 - 3.0
Tax in respect of other comprehensive
income items - - - (2.1) - (2.1)
Share of other comprehensive
income of investments accounted
for using the equity method - - - 0.7 - 0.7
Total comprehensive income
(loss) for the year - - 7.1 (39.4) 0.8 (31.5)
------------------------------------------- -------- -------- -------- --------- ---------------- -------
Share-based compensation - - - 1.8 - 1.8
Movement on tax arising on share-based
compensation - - - (0.2) - (0.2)
Proceeds from exercise of
employee options 0.1 0.2 - - - 0.3
Own shares purchased by the
Employee Share Trust - - - (1.0) - (1.0)
Dividends - - - (24.4) - (24.4)
------------------------------------------- -------- -------- -------- --------- ---------------- -------
Balance as at 31 March 2018 80.0 377.4 46.2 (126.5) 5.3 382.4
=========================================== ======== ======== ======== ========= ================ =======
Balance at 1 April 2016 39.8 100.2 24.4 20.4 (2.0) 182.8
Loss for the year - - - (61.1) (0.3) (61.4)
Other comprehensive income
(loss):
Exchange gain on translation
of foreign subsidiaries - - 14.7 - - 14.7
Fair value movement on cash
flow hedges - - - 1.5 (0.2) 1.3
Actuarial loss on defined
benefit pension schemes - - - (10.7) - (10.7)
Tax in respect of other comprehensive
income items - - - 1.0 - 1.0
Share of other comprehensive
income of investments accounted
for using the equity method - - - 0.3 - 0.3
------------------------------------------- -------- -------- -------- --------- ---------------- -------
Total comprehensive income
(loss) for the year - - 14.7 (69.0) (0.5) (54.8)
------------------------------------------- -------- -------- -------- --------- ---------------- -------
Share-based compensation - - - 0.5 - 0.5
Movement on tax arising on share-based
compensation - - - (0.1) - (0.1)
Proceeds from share issues, net
of transaction costs 21.1 115.2 - - - 136.3
Issue of ordinary shares in consideration
for a business combination 19.0 161.7 - - - 180.7
Proceeds from exercise of employee
options - 0.1 - - - 0.1
Non-controlling interest on acquisition
of a subsidiary - - - - 7.0 7.0
Dividends - - - (15.1) - (15.1)
------------------------------------------- -------- -------- -------- --------- ---------------- -------
Balance as at 31 March 2017 79.9 377.2 39.1 (63.3) 4.5 437.4
=========================================== ======== ======== ======== ========= ================ =======
* The non-controlling interests as at 31 March 2017 have been
restated for acquisition accounting adjustments in relation to the
VGG acquisition.
The exchange reserve comprises all foreign exchange differences
arising since 1 April 2005 from the translation of the financial
statements of foreign operations as well as from the translation of
liabilities that hedge the Group's net investment in foreign
operations.
Consolidated Statement of Cash Flows
For the year ended 31 March 2018
2018 2017
GBPm GBPm
Loss before tax (50.0) (61.4)
Finance income (12.3) (10.3)
Finance charges 32.2 34.7
Share of results from associates and joint ventures (2.3) (2.0)
------------------------------------------------------------------------------------------------- ------ -------
Operating loss from continuing operations (32.4) (39.0)
Operating profit (loss) from discontinued operations 0.4 (0.5)
Amortisation and impairment of intangible assets 15.9 8.6
Depreciation and impairment of property, plant and equipment 81.9 48.6
Loss (gain) on disposal of property, plant and equipment 2.1 (0.5)
Impairment of investments 0.9 -
Increase in service concession arrangement receivable (10.2) (19.6)
Exceptional loss (gain) on disposal of property, plant and equipment 11.5 (0.5)
Exceptional loss on disposal of subsidiaries - 0.2
Exceptional gain on insurance proceeds in relation to fires in the Netherlands and Belgium (5.1) -
Net increase in provisions 45.6 29.0
Payments to fund defined benefit pension scheme deficits (3.1) (3.1)
Share-based compensation 1.8 0.5
Operating cash flows before movement in working capital 109.3 23.7
Increase in inventories (3.1) (1.5)
Increase in receivables (17.0) (4.1)
Increase in payables 39.2 9.8
------------------------------------------------------------------------------------------------- ------ -------
Cash flows from operating activities 128.4 27.9
Income tax paid (6.7) (5.3)
------------------------------------------------------------------------------------------------- ------ -------
Net cash inflow from operating activities 121.7 22.6
------------------------------------------------------------------------------------------------- ------ -------
Investing activities
Purchases of intangible assets (7.9) (7.0)
Purchases of property, plant and equipment (77.3) (37.0)
Disposals of property, plant and equipment 4.2 2.8
Exceptional disposal of property, plant and equipment (3.8) -
Insurance proceeds in relation to fires in the Netherlands and Belgium 3.6 -
Acquisition of subsidiary, net of cash acquired (5.6) 53.3
Acquisition of business assets (0.2) (1.1)
Proceeds from disposal of subsidiary - 1.1
Receipt of deferred consideration 0.2 4.6
Payment of deferred consideration (0.6) (1.3)
Dividends received from associates and joint ventures 1.3 0.1
Loans granted to associates and joint ventures (0.1) (18.5)
Repayment of loans granted to associates and joint ventures 0.2 -
Outflows in respect of PFI/PPP arrangements under the financial asset model (2.0) (2.1)
Capital received in respect of PFI/PPP financial assets 4.0 3.5
Finance income 9.9 9.9
Net cash (outflow) inflow from investing activities (74.1) 8.3
------------------------------------------------------------------------------------------------- ------ -------
Financing activities
Finance charges and loan fees paid (26.8) (28.9)
Proceeds from share issues 0.3 141.5
Costs in relation to share issues - (5.1)
Investment in own shares by the Employee Share Trust (1.0) -
Dividends paid (24.4) (15.1)
Repayment of VGG loan and derivatives acquired as part of the business combination - (289.5)
Proceeds from bank borrowings 10.2 211.2
Repayment of PFI/PPP net debt (4.2) (4.0)
Repayments of obligations under finance leases (13.3) (3.2)
Net cash (outflow) inflow from financing activities (59.2) 6.9
------------------------------------------------------------------------------------------------- ------ -------
Net (decrease) increase in cash and cash equivalents (11.6) 37.8
Effect of foreign exchange rate changes 0.6 2.4
Cash and cash equivalents at the beginning of the year 74.9 34.7
------------------------------------------------------------------------------------------------- ------ -------
Cash and cash equivalents at the end of the year 63.9 74.9
================================================================================================= ====== =======
Notes to the Consolidated Financial Statements
1. General information
Renewi plc is a public limited company listed on the London
Stock Exchange and is incorporated and domiciled in Scotland under
the Companies Act 2006, registered number SC077438. The address of
the registered office is 16 Charlotte Square, Edinburgh, EH2 4DF.
The nature of the Group's operations and its principal activities
are set out in note 3.
2. Basis of preparation
The figures and financial information for the year ended 31
March 2018 are extracted from but do not constitute the statutory
financial statements for that year. The figures and financial
information are audited. The Income Statement, Statement of
comprehensive income, Statement of changes in equity and Statement
of cash flows for the year ended 31 March 2017 and the Balance
sheet as at 31 March 2017 have been derived from the full Group
accounts published in the Annual Report and Accounts 2017 which
have been delivered to the Registrar of Companies and on which the
report of the independent auditors was unqualified and did not
contain a statement under section 498 of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2018 will be
filed with the Registrar of Companies in due course.
The consolidated financial statements are prepared in accordance
with International Financial Reporting Standards (IFRS) and related
interpretations issued by the IFRS Interpretations Committee (IFRS
IC) adopted by the European Union (EU) and therefore comply with
Article 4 of the EU IAS Regulation and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The Group has applied all accounting standards and interpretations
issued relevant to its operations and effective for accounting
periods beginning on 1 April 2017. The IFRS accounting policies
have been applied consistently to all periods presented and
throughout the Group for the purpose of the consolidated financial
statements.
Comparative information
The comparative information in the consolidated balance sheet
for the year ended March 2017 has been restated for acquisition
accounting adjustments in relation to the Van Gansewinkel Groep BV
(VGG) acquisition in accordance with IFRS 3 Business Combinations,
see note 11 for the impact of the restatement.
Changes in presentation
The Group changed the composition of its reporting segments from
1 April 2017, following the VGG acquisition which in the prior year
was reported as a separate reportable segment. A new divisional
structure has been created as a result of the merger of Shanks and
VGG which is both market facing and customer-focused. Accordingly,
the segmental information presented in these financial statements
has been restated to reflect the information now provided to the
chief operating decision maker in order to assess performance and
to make decisions on allocating resources. The following changes
have been made to the Group's reportable segments as reported at 31
March 2017:
-- The Commercial Waste reportable segment comprises the former
Shanks Commercial Divisions in the Netherlands and Belgium and the
former VGG Collections Division in the Netherlands and Belgium.
-- The Hazardous Waste reportable segment comprises the former
Shanks Hazardous Waste Division and now includes VGIS (previously
Van Gansewinkel Industrial Services) and CFS (previously Van
Gansewinkel CFS).
-- Monostreams is a new reportable segment which includes the
three former businesses of the Recycling Division of VGG and the
former Shanks Dutch Orgaworld business previously included in the
Commercial Waste reportable segment.
-- The Group Central Services reportable segment comprises the
former Shanks and former VGG corporate head office functions.
-- The Municipal reportable segment is unchanged.
As required under IFRS 8 Operating Segments, the Group has
restated the corresponding segment information for the prior year
to enable comparisons to the new structure.
Changes in accounting policies, new standards and
interpretations not yet adopted
Standards and interpretations issued by the International
Accounting Standards Board (IASB) are only applicable if endorsed
by the European Union. At 31 March 2018 the following standards and
interpretations were in issue but not yet effective:
Accounting
standard Requirements Impact on financial statements
----------------- --------------------------------- ---------------------------------
IFRS 9 Financial This standard addresses The Group has performed
Instruments the classification, measurement an initial assessment
and recognition approaches of the impact of this
for financial assets and standard. Following adoption
liabilities and requires of the standard, increased
additional disclosures disclosures on hedging
in relation to hedging will be required, otherwise
activities. we do not expect implementation
will have a material impact.
Effective for periods
beginning on or after
1 April 2018.
----------------- --------------------------------- ---------------------------------
IFRS 15 Revenue IFRS 15 applies to all The Group has performed
Recognition contracts with customers an assessment of the impact
and IFRS 15 excluding those covered of this standard. Adoption
(amendment) by other IFRSs such as of the standard will not
lease contracts, insurance have a material impact
contracts and financial on the Income Statement,
instruments. operating profit will
be unchanged but there
Core principle of the will be a relatively minor
standard: increase in revenue and
Recognise revenue to depict cost of sales in relation
the transfer of goods to non-cash consideration.
or services to customers There will be no impact
in an amount that reflects on the Balance sheet.
the consideration to which
the entity expects to
be entitled in exchange
for those goods or services.
Effective for periods
beginning on or after
1 April 2018.
----------------- --------------------------------- ---------------------------------
IFRS 16 Leases This standard changes The Group is currently
the way leases are recognised, performing an assessment
measured, presented and of this standard. It is
disclosed. Almost all expected to have a material
operating leases will impact on the Balance
be recognised as a liability sheet as it will result
together with a corresponding in the Group recognising
"right of use asset". assets and lease liabilities.
The assets will be depreciated
Effective for periods and interest charged on
beginning on or after the lease liabilities,
1 April 2019. which replaces the operating
lease costs currently
recognised in the Income
Statement. This may initially
result in the Group recognising
a higher lease expense
than the current operating
lease cost. It is not
expected to have a material
impact on the Income Statement
but the exact value will
depend on the leases held
in the future.
----------------- --------------------------------- ---------------------------------
There are no other IFRSs or IFRS IC interpretations not yet
effective that would be expected to have a material impact on the
Group and there were no new IFRSs or IFRS IC interpretations which
were early adopted by the Group.
Exchange Rates
The assets and liabilities of foreign operations, including
goodwill arising on acquisition, are translated to sterling at
foreign exchange rates ruling at the reporting date. The income and
expenses of foreign operations are translated into sterling at the
average rate of exchange during the year.
The most significant currencies for the Group were translated at
the following exchange rates:
Closing rates Average rates
----------------------------- -----------------------------
Value of 31 March 31 March 31 March 31 March
GBP1 2018 2017 Change 2018 2017 Change
------------ --------- --------- ------- --------- --------- -------
Euro 1.14 1.17 (2.4)% 1.14 1.19 (4.7)%
Canadian
dollar 1.81 1.67 8.5% 1.71 1.79 (4.1)%
Underlying business performance
The Group uses alternative performance measures as they believe
these measures provide additional useful information on the
underlying trends, performance and position of the Group. These
measures are used by the Group for internal performance analysis
and incentive compensation arrangements for employees. The term
'underlying' refers to the relevant measure being reported for
continuing operations excluding non-trading and exceptional items,
financing fair value remeasurements and amortisation of acquisition
intangibles. These include underlying earnings before interest and
tax (underlying EBIT), underlying profit before tax, underlying
profit after tax, underlying free cash flow, underlying earnings
per share and EBITDA (earnings before interest, tax, depreciation
and amortisation). The terms 'EBIT', 'exceptional items' and
'underlying' are not defined terms under IFRS and may therefore not
be comparable with similarly titled profit measures reported by
other companies. They are not intended to be a substitute for, or
superior to, GAAP measurements of profit. 'Underlying EBIT' is
defined as continuing operating profit before amortisation of
acquisition intangibles and exceptional items. The Group incurs
costs each year in maintaining intangible assets which include
acquired customer relationships, permits and licences and excludes
amortisation of these assets from underlying EBIT to avoid double
counting such costs within underlying results. Landfill related
expenses and provisioning are no longer an adjusting item in
determining the Group's EBITDA as it is part of the underlying
business. A full list of alternative performance measures and
non-IFRS measures together with reconciliations are set out on page
30 and note 16.
3. Segmental reporting
The Group's chief operating decision maker is considered to be
the Board of Directors. The Group's reportable segments determined
with reference to the information provided to the Board of
Directors in order for it to allocate the Group's resources and to
monitor the performance of the Group are set out below. Following
the implementation of the new divisional structure on 1 April 2017
the Group's reportable segments are:
Commercial Waste Collection and treatment of commercial waste in the Netherlands and Belgium.
Hazardous Waste Industrial cleaning and treatment of hazardous waste in the Netherlands.
Monostreams Production of materials from waste streams in specific end markets such as glass, electrical
and electronic equipment, organics and minerals in the Netherlands, Belgium, France,
Germany,
Hungary and Portugal.
Municipal Operation of waste management facilities under long-term municipal contracts in the UK and
Canada.
Group central services Head office corporate function.
The Commercial Waste reportable segment includes the Netherlands
and Belgium operating segments and the Municipal reportable segment
includes the UK and Canada operating segments, based on
geographical location. Operating segments within the Commercial
Waste and Municipal divisions have been aggregated and reported as
one reportable segment as they operate in similar markets in
relation to the nature of the products, services, production
processes and type of customer. The Monostreams reportable segment
includes three businesses from the former VGG Recycling Division
and the former Shanks Dutch Orgaworld business.
The profit measure the Board of Directors uses to evaluate
performance is underlying EBIT. Underlying EBIT is continuing
operating profit before the amortisation of acquisition
intangibles, fair value measurements, non-trading and exceptional
items. The Group accounts for inter-segment trading on an arm's
length basis.
Restated*
2018 2017
Revenue GBPm GBPm
Netherlands Commercial Waste 648.7 245.8
Belgium Commercial Waste 371.7 142.7
Intra-segment (0.8) -
------- ---------
Commercial Waste 1,019.6 388.5
------- ---------
Hazardous Waste 203.2 163.0
------- ---------
Monostreams 180.0 30.8
------- ---------
UK Municipal 176.4 174.8
Canada Municipal 16.5 32.8
Municipal 192.9 207.6
------- ---------
Inter-segment revenue (30.0) (10.7)
------------------------------------------- ------- ---------
Total revenue from continuing operations 1,565.7 779.2
=========================================== ======= =========
* The comparatives have been restated to reflect the new
reportable segments
3. Segmental reporting - continued
Restated*
2018 2017
Results GBPm GBPm
------------------------------------------------ ------- ---------
Netherlands Commercial Waste 38.8 15.4
Belgium Commercial Waste 25.8 8.1
Commercial Waste 64.6 23.5
------- ---------
Hazardous Waste 17.4 19.7
------- ---------
Monostreams 16.0 3.6
------- ---------
UK Municipal (5.8) (4.2)
Canada Municipal (3.5) 1.6
Municipal (9.3) (2.6)
------- ---------
Group central services (19.6) (7.7)
Total underlying EBIT 69.1 36.5
Non-trading and exceptional items (101.5) (75.5)
------------------------------------------------- ------- ---------
Total operating loss from continuing operations (32.4) (39.0)
Finance income 12.3 10.3
Finance charges (32.2) (23.1)
Finance charges - non trading and exceptional
items - (11.6)
Share of results from associates and joint
ventures 2.3 2.0
------------------------------------------------- ------- ---------
Loss before taxation and discontinued
operations (50.0) (61.4)
================================================= ======= =========
* The comparatives have been restated to reflect the new
reportable segments
4. Non-trading and exceptional items
To improve the understanding of the Group's financial
performance, items which are not considered to reflect the
underlying performance are presented in non-trading and exceptional
items.
2018 2017
GBPm GBPm
----------------------------------------------------------------------------- ----- -----
Merger related costs:
Synergy delivery costs - cash 12.3 4.5
Synergy delivery costs - non-cash 2.3 -
Integration costs 7.5 2.9
------------------------------------------------------------------------------ ----- -----
22.1 7.4
----------------------------------------------------------------------------- ----- -----
Portfolio management activity:
UK Municipal 22.5 -
Acquisition costs 0.4 18.9
Industrial Cleaning disposal in Belgium - 0.4
Disposals in the Netherlands - (0.3)
22.9 19.0
----------------------------------------------------------------------------- ----- -----
Other items:
UK Municipal onerous contract provisions 52.7 28.2
ATM soil issues 2.7 -
Restructuring charges and employee related costs 0.1 2.4
(Income) costs relating to fires (2.3) 1.6
Other UK Municipal contract issues (2.5) 5.3
50.7 37.5
----------------------------------------------------------------------------- ----- -----
Exceptional finance costs - 11.6
Impairment of assets - 9.5
Amortisation of acquisition intangibles 5.8 2.1
Non-trading and exceptional items in loss before tax (continuing operations) 101.5 87.1
Tax on non-trading and exceptional items (8.2) (6.4)
Exceptional tax credit (6.8) -
------------------------------------------------------------------------------ ----- -----
Non-trading and exceptional items in loss after tax (continuing operations) 86.5 80.7
Discontinued operations (0.5) 0.5
Total non-trading and exceptional items in loss after tax 86.0 81.2
============================================================================== ===== =====
The above non-trading and exceptional items include the
following:
Merger related costs
Due to the significance of the merger on the Group and the
associated synergy delivery projects these costs are considered to
be exceptional. Synergy delivery costs of GBP14.6m (2017: GBP4.5m)
and integration costs of GBP7.5m (2017: GBP2.9m) were incurred as
the Group executes merger plans for generating value. Synergy
delivery costs include GBP2.3m of non-cash impairments of assets at
the Belgium Commercial Zaventem Shared Service Centre and property
in Netherlands Commercial identified as part of site
rationalisation. The total cost of GBP22.1m (2017: GBP7.4m) was
split GBP4.2m (2017: GBPnil) in cost of sales and GBP17.9m (2017:
GBP7.4m) in administrative expenses.
4. Non-trading and exceptional items - continued
Portfolio management activity
UK Municipal charge of GBP22.5m (2017: GBPnil) included the exit
of its loss-making anaerobic digestion facility at Westcott Park
and the decision to initiate the termination of the D&G PFI
operating contract. The Group completed the sale of the Westcott
Park facility on 28 March 2018 resulting in a loss on disposal and
related costs totalling GBP14.0m. Discussions are ongoing with the
D&G council and other stakeholders with termination of the
operating contract expected in the next financial year therefore
the onerous contract was increased together with a non-cash write
down of the investment totalling GBP9.0m. Additionally a provision
of GBP0.5m in relation to a previous disposal was released as no
longer required.
Further transaction costs of GBP0.4m (2017: GBP18.9m) relating
to the merger of Van Gansewinkel Groep BV have been incurred in the
year, principally comprising legal and other advisory costs. These
are considered exceptional as part of the overall total transaction
costs.
The total cost of GBP22.9m (2017: GBP19.0m) was split GBP8.3m
(2017: GBPnil) in cost of sales and GBP14.6m (2017: GBP19.0m) in
administrative expenses.
Other items
UK Municipal onerous contract provisions charge of GBP52.7m
(2017: GBP28.2m) relates to additional provisions of GBP27.1m
(2017: GBP8.6m) and GBP29.5m (2017: GBPnil) at BDR and Wakefield
respectively given the financial and operational performance of
these assets this year and specifically the material
underperformance in organic throughput, subsidies and off-take
pricing compared with the original contractual assumptions made
many years ago. This charge is net of a GBP3.9m release in relation
to Cumbria following successful management action to resolve
operational and compliance issues. The prior year charge also
included increases to the Cumbria and D&G onerous contract
provisions, a specific loss-making contract under the ELWA
operating contract and provisions for incremental capital works
required at BDR and Wakefield to enable the plants to function as
intended.
The charge for ATM soil issues of GBP2.7m (2017: GBPnil) relates
to the soil offset market and includes additional costs of
logistics and off-site storage.
Restructuring charges and employee related costs were incurred
for structural cost reduction programmes across the Group in place
prior to the merger of GBP0.1m (2017: GBP1.5m) and reassessment of
prior year employee related provisions of GBPnil (2017:
GBP0.9m).
Net credit of GBP2.3m (2017: GBP1.6m charge) as a result of
significant fires during the year at two Commercial sites, one in
the Netherlands and one in Belgium. At each site property, plant
and equipment has been impaired totalling GBP1.8m and clean-up
costs have been incurred. These have been partly offset by the
insurance recovery of GBP5.1m of which GBP3.6m has been received in
cash. In addition insurance funds of GBP0.6m were received in
relation to a prior year claim for a fire at a legacy VGG site. The
prior year charge related to incremental operating costs which were
unable to be reclaimed under the Group's business interruption
insurance following the fire at the UK Municipal East London site
in August 2014.
The other UK Municipal contract issues of GBP2.5m credit (2017:
GBP5.3m charge) includes settlement of a claim with a guarantor in
relation to the Wakefield construction contract and a Cumbria
settlement offset by the impairment of contract rights in the ELWA
contract of GBP1.9m (2017: GBPnil). The prior year charge included
costs in relation to the Derby contact due to a delay in
commissioning, reinstatement of leased land and a legal claim in
Canada.
The total charge of GBP50.7m (2017: GBP37.5m) was split GBP51.9m
(2017: GBP32.0m) in cost of sales and GBP1.2m credit (2017: GBP5.5m
charge) in administrative expenses.
Finance costs
The prior year charge of GBP11.6m includes the costs of
arranging the banking facility, extinguishment of the previous
facility together with the settlement of the Pricoa deferred
premium.
Impairment of assets
Impairment of assets of GBP9.5m in the prior year related to
plant and equipment at the Westcott Park UK Municipal facility
(GBP6.0m), contract rights in UK Municipal (GBP3.2m) and Shanks
branding on trucks in Netherlands Commercial (GBP0.3m). The total
charge of GBP9.5m was split GBP9.2m in cost of sales and GBP0.3m in
administrative expenses.
Amortisation of acquisition intangibles
Amortisation of intangible assets acquired in business
combinations of GBP5.8m (2017: GBP2.1m) is all recorded in cost of
sales.
Exceptional tax
The exceptional tax credit of GBP6.8m (2017: GBPnil) relates to
the change in Belgium tax rate, see note 6 for further details.
5. Net finance charges
2018 2017
GBPm GBPm
Finance charges
Interest payable on borrowings wholly repayable within five years 16.6 7.9
Interest payable on borrowings repayable after five years - 2.9
Interest payable on PFI/PPP non-recourse net debt 7.0 7.3
Unwinding of discount on provisions 5.6 2.6
Interest charge on the retirement benefit schemes 0.6 0.3
Amortisation of loan fees 0.3 1.0
Other finance costs 2.1 1.1
----------------------------------------------------------------------- ------ ------
Total finance charges 32.2 23.1
----------------------------------------------------------------------- ------ ------
Finance income
Interest receivable on financial assets relating to PFI/PPP contracts (9.7) (9.6)
Unwinding of discount on deferred consideration receivable (0.2) (0.2)
Interest receivable on other loans and receivables (2.4) (0.5)
----------------------------------------------------------------------- ------ ------
Total finance income (12.3) (10.3)
--------------------------------------------------------------------------- ------ ------
Exceptional finance charges (see note 4) - 11.6
---------------------------------------------------------------------------- ------ ------
Net finance charges 19.9 24.4
============================================================================ ====== ======
6. Taxation
The tax credit based on the loss for the year from continuing
operations is made up as follows:
2018 2017
GBPm GBPm
Current tax
UK corporation tax
- Current year 1.2 1.4
Overseas tax
- Current year 8.7 3.7
- Prior year 0.2 0.2
Total current tax charge 10.1 5.3
--------------------------------------------------------------------------- ------ -----
Deferred tax
- Origination and reversal of temporary differences in the current year (11.7) (5.3)
- Adjustment in respect of the prior year (0.4) (0.5)
Total deferred tax credit (12.1) (5.8)
--------------------------------------------------------------------------- ------ -----
Total tax credit for the year (2.0) (0.5)
=========================================================================== ====== =====
For the accounting period ended 31 March 2018, the standard
Belgian corporate income tax rate is 33.99%. Under the corporate
income tax reform as enacted by the Belgian government on 22
December 2017, there will be a phased reduction of this tax rate to
29.58% for accounting periods starting on or after 1 January 2018
and furthermore 25% from 1 January 2020. As a result, the Belgian
deferred tax has been calculated at the substantively enacted rates
depending on when the timing differences are expected to reverse.
This has resulted in an exceptional tax credit of GBP6.8m in the
current year.
Changes to the UK corporation tax rate were substantively
enacted as part of Finance Bill 2016 (on 7 September 2016). This
included a reduction in the main corporation tax rate from 19% to
17% by 1 April 2020. As a result the UK deferred tax for the year
has been calculated based on the substantively enacted rates.
7. Earnings per share
2018 2017
--------------------------------- ---------------------------------
Weighted Weighted
average Earnings average Earnings
number per number per
Earnings of shares share Earnings of shares share
GBPm million pence GBPm million pence
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Underlying profit after
tax 38.5 19.8
Non-controlling interests (0.4) 0.3
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Underlying earnings
per share 38.1 799.9 4.8 20.1 536.3 3.7
Adjustments:
Non-trading and exceptional
items (101.5) (87.1)
Tax on non-trading and
exceptional items 8.2 6.4
Exceptional tax 6.8 -
Non-controlling interests 0.2 -
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Basic loss per share (48.2) 799.9 (6.0) (60.6) 536.3 (11.3)
Dilutions - 0.5 - - 0.9 -
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Diluted loss per share (48.2) 800.4 (6.0) (60.6) 537.2 (11.3)
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Underlying earnings
per share 38.1 799.9 4.8 20.1 536.3 3.7
Dilutions - 0.5 - - 0.9 -
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Underlying diluted earnings
per share 38.1 800.4 4.8 20.1 537.2 3.7
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Discontinued operations
Basic earnings (loss)
per share 0.4 799.9 - (0.5) 536.3 (0.1)
Diluted earnings (loss)
per share 0.4 800.4 - (0.5) 536.3 (0.1)
------------------------------------ --------- ----------- --------- --------- ----------- ---------
Underlying loss per
share (0.1) 799.9 - - 536.3 -
Underlying diluted loss
per share (0.1) 800.4 - - 536.3 -
==================================== ========= =========== ========= ========= =========== =========
The Directors believe that adjusting earnings per share for the
effect of the amortisation of acquisition intangibles, the change
in fair value of derivatives, non-trading and exceptional items
enables comparison with historical data calculated on the same
basis. Exceptional items are those items that need to be disclosed
separately on the face of the Income Statement, because of their
size or incidence, to enable a better understanding of
performance.
8. Dividends
2018 2017
GBPm GBPm
Amounts recognised as distributions to equity holders in the year:
Final dividend paid for the year ended 31 March 2017 of 2.1p per share (2016: 2.35p) 16.8 9.4
Interim dividend paid for the year ended 31 March 2018 of 0.95p per share (2017: 0.95p) 7.6 5.7
---------------------------------------------------------------------------------------- ----- -----
24.4 15.1
======================================================================================== ===== =====
Proposed final dividend for the year ended 31 March 2018 of 2.1p per share (2017: 2.1p) 16.8 16.8
---------------------------------------------------------------------------------------- ----- -----
Total dividend per share 3.05p 3.05p
======================================================================================== ===== =====
9. Goodwill, intangible assets and property, plant and equipment
Goodwill Intangible assets Property, plant and equipment Total
GBPm GBPm GBPm GBPm
Net book value at 1 April 2016 169.0 25.5 297.0 491.5
Acquisition through business
combination - VGG 337.2 53.1 285.1 675.4
Acquisition through business
combination - other 0.2 0.8 - 1.0
Additions - 11.1 34.3 45.4
Disposals - - (3.5) (3.5)
Depreciation and amortisation - (5.4) (41.8) (47.2)
Impairment - (3.2) (6.8) (10.0)
Exchange 13.6 1.4 23.1 38.1
Net book value at 31 March 2017 520.0 83.3 587.4 1,190.7
Purchase price allocation adjustment
(note 11) (9.4) (8.2) 28.5 10.9
--------------------------------------- -------- ----------------- ----------------------------- -------
Net book value at 31 March 2017
restated 510.6 75.1 615.9 1,201.6
Additions - 9.4 82.7 92.1
Acquisition through business
combinations 13.0 0.2 7.7 20.9
Disposals - - (13.7) (13.7)
Depreciation and amortisation - (12.7) (78.9) (91.6)
Impairment - (3.2) (3.0) (6.2)
Exchange 12.5 1.4 12.3 26.2
--------------------------------------- -------- ----------------- ----------------------------- -------
At 31 March 2018 536.1 70.2 623.0 1,229.3
======================================= ======== ================= ============================= =======
At 31 March 2018, the Group had property, plant and equipment
capital commitments of GBP16.8m (2017: GBP18.9m).
10. Borrowings
At 31 March 2018, the Group had a core Euro denominated
multicurrency bank facility of EUR575m (2017: EUR600m) consisting
of a EUR143.8m (2017: EUR143.8m) term loan and EUR431.2m (2017:
EUR456.2m) revolving credit facility. The facility matures on 29
September 2022 following the exercise of the first one year
extension option and is subject to a further one year extension
option. At 31 March 2018 the term loan was fully drawn, GBP118.8m
(2017: GBP123.0m) and GBP172.0m (2017: GBP156.2m) of the revolving
credit facility was drawn for borrowing in Euros, Canadian dollars
and Sterling. In addition the Group had two retail bonds of EUR100m
each expiring in July 2019 and June 2022.
Movement in net debt At 1 Other At 31
April Cash non-cash Exchange March
2017 flows changes movements 2018
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 74.9 (11.6) - 0.6 63.9
Bank loans and overdrafts (283.4) (10.2) 0.9 (1.2) (293.9)
Retail bonds (170.2) - (0.2) (4.2) (174.6)
Finance leases (45.2) 13.3 (1.0) (1.2) (34.1)
------------------------------ ------- ------ --------- ---------- -------
Total core net debt (423.9) (8.5) (0.3) (6.0) (438.7)
PFI/PPP non-recourse net debt (87.1) 4.2 - - (82.9)
------------------------------ ------- ------ --------- ---------- -------
Total net debt (511.0) (4.3) (0.3) (6.0) (521.6)
============================== ======= ====== ========= ========== =======
Analysis of movement in net debt 2018 2017
GBPm GBPm
Net decrease in cash and cash equivalents (11.6) (40.4)
Net decrease in borrowings and finance leases 7.3 72.9
Capitalisation of loan fees 1.0 -
Cash and borrowings acquired through the VGG business combination - (240.4)
------------------------------------------------------------------- ------- -------
Total cash flows in net debt (3.3) (207.9)
Finance leases entered into during the year (1.0) (1.1)
Amortisation of loan fees (0.3) (1.8)
Exchange loss (6.0) (16.5)
Movement in net debt (10.6) (227.3)
Net debt at beginning of year (511.0) (283.7)
------------------------------------------------------------------- ------- -------
Net debt at end of year (521.6) (511.0)
=================================================================== ======= =======
11. Acquisitions
Van Gansewinkel Groep (VGG) acquisition
On 28 February 2017, the Group acquired 100% of the share
capital of Van Gansewinkel Groep BV (VGG) for GBP204.9m being
GBP24.9m cash paid, consideration shares of GBP180.7m net of
GBP0.7m received subsequently in accordance with the terms of the
Purchase agreement. The fair value of the 190,187,502 shares issued
was based on the published share price on the date of acquisition
of 95p per share.
The fair value of the identifiable assets and liabilities
acquired in respect of the VGG acquisition are shown below:
GBPm
------------------------------------------------------- -------
Intangible assets: Customer relationships 20.9
Intangible assets: Licenses 8.2
Intangible assets: Permits 5.5
Intangible assets: Software 8.6
Intangible assets: Leasehold title 1.7
Property, plant and equipment 313.6
Investments 2.5
Trade and other receivables 107.8
Assets held for sale 0.3
Inventory 11.1
Deferred taxation 5.6
Current tax receivable 0.1
Cash and cash equivalents 78.2
-------------------------------------------------------- -------
564.1
------------------------------------------------------- -------
Trade and other payables (188.4)
Provisions (100.2)
Defined benefit pension schemes deficit (8.1)
Deferred tax liability (44.3)
Current tax payable (7.8)
Derivatives (12.6)
Borrowings - Syndicated facility (276.9)
Borrowings - Finance leases, overdraft and other loans (41.7)
-------------------------------------------------------- -------
(680.0)
------------------------------------------------------- -------
Net identifiable assets acquired (115.9)
Less: Non-controlling interests (7.0)
Add: Goodwill arising on acquisition 327.8
-------------------------------------------------------- -------
Net assets acquired 204.9
======================================================== =======
At 31 March 2017 the fair values of the identifiable assets and
liabilities acquired in respect of the VGG acquisition were
provisional. These have now been retrospectively adjusted to
reflect new information obtained about the facts and circumstances
that existed as of the acquisition date. The impact of the
restatement has been to increase property, plant and equipment by
GBP28.5m, other intangibles by GBP1.2m, trade and other receivables
by GBP0.7m, trade and other payables by GBP1.5m, provisions by
GBP3.7m, deferred tax liability by GBP3.9m and corporation tax
liability by GBP3.2m with a reduction in goodwill of GBP9.4m,
acquisition intangibles of GBP9.4m and non-controlling interests of
GBP0.7m. The goodwill arising on the acquisition is attributable to
management's expectations in regard to VGG's growth prospects and
margin improvements as well as synergies to be achieved post
acquisition.
Other acquisitions
In December 2017 ATM in the Hazardous Waste division acquired
MVO Moerdijk BV, subsequently renamed ATM Terra BV, for a
consideration of GBP6.3m. The business comprises a waterside quay
and warehousing under a long-term lease from the Dutch authorities
and a permit together with soil offset and deferred tax
liabilities. The provisional fair value of the total identifiable
net liabilities acquired was GBP6.7m resulting in goodwill of
GBP13.0m representing the possibilities for strategic
expansion.
In March 2018 the Netherlands Commercial division made a small
tuck in business combination comprising of plant and equipment and
customer relationships for consideration of GBP0.2m.
12. Provisions
Site restoration and
aftercare Restructuring Onerous contracts Other Total
GBPm GBPm GBPm GBPm GBPm
At 1 April 2017 115.2 6.4 40.6 26.0 188.2
Purchase price allocation
adjustment (note 11) (1.8) - 5.5 - 3.7
---------------------------- --------------------------- ------------- ------------------- ----- ------
At 1 April 2017 - restated 113.4 6.4 46.1 26.0 191.9
Provided in the year 0.3 8.8 65.6 3.4 78.1
Released in the year - (0.2) (3.9) (0.6) (4.7)
Finance charges - unwinding
of discount 4.1 - 1.4 0.1 5.6
Utilised in the year (3.6) (7.6) (13.4) (3.8) (28.4)
Reclassified to deferred
revenue - - - (3.5) (3.5)
Exchange 2.9 0.5 0.1 0.3 3.8
---------------------------- --------------------------- ------------- ------------------- ----- ------
At 31 March 2018 117.1 7.9 95.9 21.9 242.8
============================ =========================== ============= =================== ===== ======
Current 4.8 7.9 20.2 8.2 41.1
Non-current 112.3 - 75.7 13.7 201.7
---------------------------- --------------------------- ------------- ------------------- ----- ------
At 31 March 2018 117.1 7.9 95.9 21.9 242.8
============================ =========================== ============= =================== ===== ======
Current 5.0 6.4 23.0 10.6 45.0
Non-current 108.4 - 23.1 15.4 146.9
---------------------------- --------------------------- ------------- ------------------- ----- ------
At 31 March 2017 113.4 6.4 46.1 26.0 191.9
============================ =========================== ============= =================== ===== ======
Site restoration
The site restoration provision at 31 March 2018 related to the
cost of final capping and covering of the landfill sites and
mineral extractions sites. The Group's minimum unavoidable costs
have been reassessed at the year end and the net present value
fully provided for. These costs are expected to be paid over a
period of up to 33 years from the balance sheet date and may be
impacted by a number of factors including changes in legislation
and technology.
Aftercare
Post-closure costs of landfill sites, including such items as
monitoring, gas and leachate management and licensing, have been
estimated by management based on current best practice and
technology available. These costs may be impacted by a number of
factors including changes in legislation and technology. The dates
of payments of these aftercare costs are uncertain but are
anticipated to be over a period of at least 30 years from closure
of the relevant landfill site.
Restructuring
The restructuring provision relates to redundancy and related
costs incurred as part of previous structural cost programmes in
the legacy businesses and more recently, restructuring initiatives
including the delivery of merger related synergies. As at 31 March
2018 the provision is expected to be spent in the following year as
affected employees leave the business.
Onerous contracts
Onerous contracts are provided at the net present value of
either exiting the contracts or fulfilling our obligations under
the contracts. The provisions are to be utilised over the period of
the contracts to which they relate with the latest date being 2040.
Further details of the additions in the year principally relate to
the UK Municipal business and are shown in note 4.
Other
Other provisions principally cover dilapidations, long-service
employee awards, legal claims, warranties and indemnities. Under
the terms of the agreements for the disposal of certain businesses,
the Group has given a number of warranties and indemnities to the
purchasers which may give rise to payments.
13. Defined benefit pension schemes
The Group has the legacy Shanks UK defined benefit scheme which
covers UK employees and is closed to new entrants and the legacy
VGG defined benefit schemes eligible to certain employees in both
the Netherlands and Belgium.
The amounts recognised in the Income Statement were as
follows:
2018 2017
GBPm GBPm
Current service cost 2.4 0.5
Interest expense on scheme net liabilities 0.6 0.3
Net retirement benefit charge before tax 3.0 0.8
============================================= ===== =====
The amounts recognised in the balance sheet were as follows:
2018 2017
GBPm GBPm
Present value of funded obligations (238.3) (245.5)
Fair value of plan assets 216.0 218.6
Pension scheme deficit (22.3) (26.9)
Related deferred tax asset 4.5 5.3
-------------------------------------- ------- -------
Net pension liability (17.8) (21.6)
====================================== ======= =======
The legacy Shanks UK defined benefit scheme deficit reduced by
GBP4.4m from 31 March 2017 as changes to the assumptions reduced
liabilities partly offset by asset returns being lower than
expected. The legacy VGG defined benefit schemes deficit decreased
by GBP0.2m from 31 March 2017.
14. Financial instruments at fair value
The Group holds derivative financial instruments used for
hedging which are measured at fair value. The Group uses the
following hierarchy of valuation techniques to determine the fair
value of financial instruments:
-- Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly;
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data.
The Group does not hold any financial instruments at fair value
which are valued using Level 1 or Level 3 techniques and there have
been no transfers between categories in the current or preceding
periods.
Valuation techniques used to derive Level 2 fair values
The fair values of interest rate swaps, interest rate caps,
cross-currency interest rate swaps, forward foreign exchange
contracts and fuel derivatives are determined by discounting the
future cash flows using the applicable period-end yield curve. For
the retail bonds, the fair value is based on indicative market
pricing.
The table below presents the Group's assets and liabilities
measured at level 2 fair values:
Level 2
---------------
2018 2017
GBPm GBPm
--------------------------------- ------- ------
Assets
Derivative financial instruments 1.9 0.3
----------------------------------- ------- ------
1.9 0.3
Liabilities
Derivative financial instruments 29.2 30.8
Retail bonds 176.6 177.4
205.8 208.2
================================= ======= ======
The Group considers that the fair value of all other financial
assets and financial liabilities was not materially different to
their carrying value.
15. Contingent liabilities
Due to the nature of the industry in which the business
operates, from time to time the Group is made aware of claims or
litigation arising in the ordinary course of the Group's business.
Provision is made for the Directors' best estimate of all known
claims and all such legal actions in progress. The Group takes
legal advice as to the likelihood of success of claims and actions
and no provision is made where the Directors consider, based on
that advice that the action is unlikely to succeed or a
sufficiently reliable estimate of the potential obligation cannot
be made.
Under the terms of sale agreements, the Group has given a number
of indemnities and warranties relating to the disposed operations
for which appropriate provisions are held.
16. Reconciliations of non-IFRS measures
Restated*
2018 2017
Reconciliation of underlying EBIT to EBITDA from continuing operations GBPm GBPm
Underlying EBIT 69.1 36.5
Depreciation of property, plant and equipment 78.9 41.8
Amortisation of intangible assets (excluding acquisition intangibles) 6.9 3.3
Non-exceptional loss (gains) on disposal of property, plant and equipment 2.1 (0.5)
EBITDA from continuing operations 157.0 81.1
============================================================================ ===== =========
* The definition of EBITDA excludes an adjustment for landfill
related expense and provisioning and consequently the comparatives
have been restated.
2018 2017
Reconciliation of underlying free cash flow as presented in the CFO Review GBPm GBPm
------------------------------------------------------------------------------------------ ------ ------
Net cash inflow from operating activities 121.7 22.6
Exclude provisions, working capital and restructuring spend 36.0 25.5
Exclude payments to fund UK defined benefit pension scheme 3.1 3.1
Exclude increase in service concession arrangement 10.2 19.6
Include finance charges and loan fees paid (excluding exceptional finance charges) (25.3) (19.4)
Include finance income received 9.9 9.9
Include purchases of replacement items of intangible assets (7.9) (3.1)
Include purchases of replacement items of property, plant and equipment (71.6) (37.9)
Include proceeds from disposals of property, plant & equipment 3.7 2.8
Underlying free cash flow 79.8 23.1
==================================================================================== === ====== ======
17. Events after the balance sheet date
On 22 May 2018 the Group announced that it had signed an
amendment and extension to its multicurrency bank facility,
converting it to a EUR550m Green Loan. The EUR550m loan has been
extended until May 2023 with options to extend to 2025.
APPENDIX
The following additional information, summarised from the Renewi
plc Annual Report and Accounts 2018, is disclosed in accordance
with Disclosure and Transparency Rule 6.3.5.
1. Principal Risks and Uncertainties affecting the Group
Output pricing and demand - that the demand/value we receive for
recycled and recovered product falls.
Output capacity - lack of capacity at outlets/increased price of
disposal of burnable waste and other residues.
Environmental permit risk - that our environmental permits to
operate are restricted or removed.
Changes in law and policy - adverse impacts from changes in law
and policy, including environmental, tax and similar legal and
policy regimes.
Long-term contracts - that we enter into or renew long-term
contracts at disadvantageous terms or we rely on a small number of
large contracts.
Labour availability and costs - that there are shortages of
certain labour types leading to unavailability or severe wage
inflation.
Integration risks - that integration of the two companies
including the creation of a strong corporate culture and migration
of IT systems is ineffective and/or fails to deliver anticipated
synergies.
Brexit - that a hard Brexit disrupts the export of waste and
recyclates internationally, creating off-take costs in UK and
over-capacity of incineration in the Benelux.
Input pricing competition - that market pricing may put pressure
on our margins.
Talent development/leadership - that we lack the required
management capabilities.
Operational failure - operational failure and/or fire at a key
facility leading to business interruption and other costs.
Investment and growth - that funding is not available or that
funding sources are available, but that cash generation is
insufficient to allow access to funding.
Digitalisation - That a disruptive technology or business model
deployed by a competitor or new entrant impacts our ability to
compete.
Health and safety risk - injury or loss of life. That we incur
reputational loss, or civil and criminal costs.
Input volumes - that incoming waste volumes in the market may
fall should macroeconomic conditions reverse.
ICT failure and cyber threat - that ICT failure and/or cyber
crime causes business interruption or loss.
2. Directors' Responsibility, financial information and posting
of accounts
The 2018 Annual Report which will be published in June 2018
contains a responsibility statement in compliance with DTR 4.1.12.
This states that on 24 May 2018, the date of the approval of the
Annual Report, the Directors confirm that to the best of their
knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group: and
-- the Strategic Report in the Annual Report includes a fair
review of the development and performance of the business and the
position of the Group, together with a description of the principal
risks and uncertainties that it faces.
The financial information set out above does not constitute the
Company's full statutory accounts for the year ended 31 March 2017
or 2018, but is derived from those accounts. Statutory accounts for
2016/17 have been delivered to the Registrar of Companies and those
for 2017/18 will be delivered following the Company's Annual
General Meeting on 12 July 2018. The auditors have reported on
those accounts; their reports were unqualified and did not contain
statements under Section 498(2) or (3) of the Companies Act
2006.
The changes to the Board of Directors of Renewi plc since the
2017 Annual Report were:
-- Luc Sterckx joined the Board on 1 September 2017 as a non-executive director
-- Jolande Sap joined the Board on 1 April 2018 as a non-executive director
A list of current directors is maintained on the Renewi plc
website: www.renewiplc.com.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SEDFADFASEDI
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May 24, 2018 02:00 ET (06:00 GMT)
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