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Renewi plc (RWI)

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Thursday 04 June, 2020

Renewi plc

Final results

Renewi plc (RWI)
Renewi plc: Final results

04-Jun-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.


4 June 2020

 

Renewi plc

 

Renewi plc (LSE: RWI), the leading international waste-to-product business, announces its results for the year ended 31 March 2020.

 

ROBUST PROGRESS DURING FY20; ACTIONS TAKEN TO MITIGATE IMPACT OF Covid-19; ENHANCED STRATEGY TO deliver sustained long-term growth

 

Otto de Bont, Chief Executive Officer, said:

 

"We made robust progress during the year, delivering financial results in line with our expectations and a number of strategic and financial objectives including: raising €107m through strategic disposals, receiving permission to resume TGG shipments at ATM, delivering our cost synergies and other restructuring projects, and we made good progress with a growing pipeline of circular solutions and partnerships.

 

"Renewi provides an essential service in the front line of maintaining vital services to hospitals, businesses and communities and our dedicated employees have been able to keep serving our customers whilst we have innovated to ensure a safe working environment. Our specific actions on cost and cash will preserve our liquidity even in an extended crisis and we have secured amendments to our banking covenants until September 2021.  As a result of these actions, we are well placed to mitigate the impact of Covid-19. 

 

"Looking forward, the momentum towards a circular economy is unstoppable.  Today, we announce our enhanced strategy, which will enable us to capture the growth opportunities from the circular economy, and our Renewi 2.0 programme, which will deliver improved customer service as well as €20m of cost benefits through digitisation and optimised internal processes. Aligned with our enhanced strategy, we have defined our ambitious sustainable development goals."

 

Financial Summary

  • Financial performance in line with expectations
  • Revenue from ongoing businesses up 2% to €1.70bn1
  • Underlying EBIT from ongoing businesses down 10% to €72.0m1
  • Underlying profit before tax from ongoing businesses down 23% to €44.5m1
  • Underlying EPS from ongoing businesses down 25% to 4.1 cents per share1
  • Core net debt* of €457m (2019: €552m), representing 2.98x EBITDA and below bank covenant of 3.5x
  • As previously announced, total non-trading and exceptional items of €120m, €35m of which were cash, resulting in a statutory loss after tax of €77.1m for the year and a basic loss per share of 7.7 cents per share (2019: loss per share 9.0 cents)
  • As previously announced, no final dividend to be paid due to Covid-19, resulting in a total dividend for the year of 0.45p per share

 

1Numbers quoted on an ongoing businesses basis (excluding the results of the businesses sold during the year) and are stated on an IAS 17 basis, excluding the positive impact of the implementation of IFRS 16 the new lease accounting standard to enable meaningful comparisons. The definition and rationale for the use of non-IFRS measures are included in note 18.

*Core net debt excludes the impact of IFRS 16 leases and net debt relating to the UK PFI/PPP contracts.

 

Operational and Strategic Highlights

  • Continued growth in core Commercial Division despite weaker markets and Covid-19
  • Restrictions lifted on TGG soil shipments at ATM and first shipment made; initial capacity installed to make construction materials from TGG
  • Good performance in Monostreams and Municipal Divisions, with operational improvements and restructuring delivering benefits; lower profits in Municipal as expected
  • Enhanced strategy announced to capture profitable growth in the circular economy by being the leader in recycling and in secondary materials production
  • €40m integration cost synergies delivered.  New €20m Renewi 2.0 programme to create a simpler, more efficient and more digital business with higher margins and improved cash flows
  • Divisional structure simplified from five to four, creating commercial synergy and reducing cost and risk
  • Ambitious new sustainability strategy, closely aligned with core business strategy
  • Successful secondary listing on Euronext Amsterdam exchange

 

Covid-19 Update

  • As previously announced on 29 May 2020, significant actions taken to mitigate the impact of Covid-19 on our people, customers and operations
  • €252m of liquidity at 31 March 2020 and appropriate bank covenant amendments secured to September 2021
  • Swift and decisive action taken to reduce operating costs and preserve cash flows, saving €60m during FY21
  • Executive Directors and Board elected to take a voluntary 20% cut in remuneration during the period of lockdown and the Executive Committee has taken a voluntary 10% cut, executive bonuses for last year will be paid in shares, preserving cash and the bonus scheme for the current year is suspended
  • Volume reductions during lockdown slightly lower than originally expected, remaining cautious as to shape of economic recovery

 

Outlook

Based on our experience since the second half of March, we expect Covid-19 to result in a potential reduction in EBIT and cash of up to €20m in the first quarter compared with our previous expectations.  This outflow is comfortably contained within our €252m of liquidity as at 31 March 2020 and our revised banking covenants.  The outlook for the remainder of the year will be dependent on the nature and timing of the lifting of lockdown restrictions and the speed of economic recovery.  Longer term, waste volumes are resilient through cycles and the transition to increased recycling remains a strong long-term structural growth driver for the Group.  The recovery of earnings at ATM and our Renewi 2.0 programme are expected to further support sustained future earnings growth. 

 

 

 

March 2020

(IFRS16 basis)

March 2020

(IAS17 basis)

March 2019

(IAS17 basis)

% change

(IAS17 basis)

 

 

 

 

 

Revenue+ ongoing businesses

€1,697.0m

€1,697.0m

€1,670.9m

  2%

EBITDA+ ongoing businesses

€187.6m

€157.5m

€165.5m

  -5%

Underlying EBIT+ ongoing businesses

€75.5m

€72.0m

€80.2m

  -10%

Underlying profit before tax+ ongoing businesses

€42.5m

€44.5m

€57.5m

  -23%

Underlying EPS+ ongoing businesses (cents per share)

3.9c

4.1c

5.5c

  -25%

Underlying free cash flow+

€119.9m

€93.0m

€30.3m

 

Exceptional and non-trading items including tax

  €(120.2)m

  €(120.2)m

  €(146.0)m

 

Core net debt (excluding asset held for sale and IFRS 16)

 

 €457.2m

  €552.0m

 

Core net debt to EBITDA

 

  2.98x

  3.06x

 

 

 

 

 

 

STATUTORY

 

 

 

 

Revenue from continuing operations

€1,775.4m

 

€1,780.7m

 

Operating loss from continuing operations

  €(28.1)m

 

  €(56.6)m

 

Loss before tax from continuing operations

  €(59.4)m

 

  €(89.0)m

 

Loss from discontinued operations

  €(16.6)m

 

  €(21.1)m

 

Basic loss per share from continuing operations (cents)

  (7.7)c

 

  (9.0)c

 

Cash flow from operating activities

  €167.8m

 

  €86.8m

 

Final Dividend (pence per share)

  -

 

  0.5p

 

 

+The definition and rationale for the use of non-IFRS measures are included in note 18. Ongoing businesses as presented exclude the financial results for the Canada Municipal business which was sold on 30 September 2019 and the Reym business which was sold on 31 October 2019. In addition, the Canada Municipal segment meets the definition of a discontinued operation and is recorded as such.

 

For further information contact:

Renewi plc

Otto de Bont - 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. Renewi will be holding an online analyst presentation at 10.30 a.m. today.

 

Webcast: https://channel.royalcast.com/webcast/renewi/20200604_1/

 

  1. 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

 

In this review we will:

  • Review a successful FY20, with trading in line with expectations and delivery of our key strategic goals;
  • Summarise the financial and operational impact of Covid-19, and our actions taken in response, highlight our financial robustness and provide some outlook regarding the impact on FY21; and
  • Launch our enhanced strategy for growth, including our innovation funnel, our €20m Renewi 2.0 programme and our new sustainability strategy

 

Group financial performance

 

IFRS 16 is a new reporting standard that has had a material impact on our reported results and the application of the modified retrospective approach has meant that comparative information has not been restated. For the purpose of like for like comparatives, the FY20 results have also been presented in accordance with the previous leasing standard, IAS 17, and all variance analysis shown is on the IAS 17 basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operations

 

Revenue

 

Underlying EBIT

 

 

 

FY20

FY19

 

 

FY20

FY20

FY19

Variance

 

 

 

IFRS16 basis

IAS17 basis

Variance

 

IFRS16 basis

IAS17 basis

IAS17 basis

IAS17 basis

 

 

 

€m

€m

 

%

 

€m

€m

€m

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Waste

 

1,223.6

1,194.4

 

2%

 

89.9

87.6

86.5

 

1%

 

Hazardous Waste

 

91.7

95.4

 

-4%

 

(0.1)

(1.1)

1.7

 

N/A

 

Monostreams

 

213.6

213.3

 

0%

 

14.5

14.1

12.9

 

9%

 

Municipal

 

197.2

195.2

 

1%

 

(2.8)

(2.5)

0.8

 

N/A

 

Group central services

 

  - 

  - 

 

 

 

(26.0)

(26.1)

(21.7)

 

-20%

 

Inter-segment revenue

 

(29.1)

(27.4)

 

 

 

-

-

-

 

 

 

Ongoing Businesses

 

1,697.0

1,670.9

 

2%

 

75.5

72.0

80.2

 

-10%

 

Reym

 

78.4

109.8

 

 

 

12.1

10.0

5.3

 

 

 

Continuing Operations

 

1,775.4

1,780.7

 

0%

 

87.6

82.0

85.5

 

-4%

 

Discontinued Operations

 

10.8

18.3

 

 

 

3.1

2.5

1.5

 

 

 

Total

 

1,786.2

1,799.0

 

-1%

 

90.7

84.5

87.0

 

-3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The underlying figures above are reconciled to statutory measures in note 3 in the consolidated financial statements.

Reym revenue includes inter-segment revenue between Reym and other Group entities and intra-segment revenue between Reym and other Hazardous Waste entities.

Discontinued operations include the results of the Canada Municipal segment which meets the criteria as set out in IFRS 5.

 

Excluding discontinued and disposed operations and on an IAS 17 basis, revenues grew by 2% to €1,697m and, as expected, underlying EBIT decreased by 10% to €72.0m.  Underlying profit before tax from ongoing businesses reduced by 23% to €44.5m and underlying earnings per share fell by 25% to 4.1c (2019: 5.5c).

 

The Commercial Division grew revenue by 2% to €1,224m and underlying earnings by 1% to €87.6m.  This was a positive performance, with stronger inbound pricing and the delivery of synergies more than offsetting weaker markets (including a slowdown in Dutch construction), lower recyclate income and an estimated €4m adverse impact from Covid-19.

 

The Hazardous Waste Division revenues fell by 4% to €92m and underlying EBIT reduced, as expected, to a loss of €1.1m due to lower soil volumes processed, especially in the first half.  The waterside had a good year with robust volumes and pricing.

 

The Monostreams Division delivered ongoing benefits from its restructuring programmes, with a particularly strong second half performance.  Revenues were flat at €213m and underlying EBIT increased by 9% to €14.1m.

 

Municipal performed as expected.  Revenues increased by 1% to €197m and the business made a small underlying loss of €2.5m, reflecting a lower contribution from the Derby contract and one-off items.

 

Group Central Services increased slightly less than expected to €26m.  This was primarily due to the non-recurrence of incentive and other accrual releases in the prior year.

 

Total exceptional items of €120m (2019: €146m) were incurred in the year, of which €35m were cash.  These items included €56m of charges relating to the disposal of Reym and Canada, the majority of which were non-cash.  It also included €16m of planned synergy delivery and integration costs.  We also recognised a €26m charge at ELWA as a result of additional taxation levied on burnable waste imported into the Netherlands and a €15m legal provision following an EU State Aid claim against the Walloon region in respect of our Cetem facility.  As a result, there was a Group statutory loss for the year of €77.1m (2019: loss of €97.7m). We remain focused on reducing the exceptional items incurred by the Group and delivering statutory profits in the future.

 

The business delivered a positive net cash inflow of €39m before the benefit of disposals and a total net cash inflow of €141m as a result of a strong focus on cash management.  Underlying free cash flow on an IAS 17 basis increased from €30m to €93m, with improved working capital and tight control of capital expenditure.  Our core net debt at 31 March 2020 was €457m, a 17% reduction on the previous year.  Leverage was 2.98x EBITDA (2019: 3.06x), within our covenant of 3.50x.

 

As previously announced, the total dividend for the year is 0.45p (2019: 1.45p), reflecting our prudent decision not to pay a final dividend in light of the Covid-19 crisis.

 

Delivering our strategic and operational goals

 

 During the year we delivered on a wide range of strategic and financial objectives that have strengthened and de-risked the Group, including:

  • the €40m synergies promised when we completed the merger three years ago;
  • a fifth consecutive year of underlying EBIT growth in the core Commercial Waste Netherlands Division despite numerous market headwinds, including Covid-19;
  • the reopening of the TGG market by the authorities and the first shipments from ATM in two years as well as the installation of capacity to make building materials from cleaned soil;
  • the disposal of our Reym and Municipal Canada businesses for €107m in cash, reducing our net debt by 17%;
  • strengthening the management team, with four important new hires to lead two of the Divisions as well as Human Resources and IT;
  • transitioning to a new profitable contract with the Derby City and Derbyshire County Councils to manage their waste;
  • €8m investments in our innovation pipeline and in two niche acquisitions in the growing circular economy, Rotie and RetourMatras; and
  • the successful secondary listing on Euronext Amsterdam.

 

Managing the impact of Covid-19

 

We announced a full update relating to Covid-19 on 29 May 2020.  In summary:

  • we are an essential service and we have continued to provide seamless waste collection and processing throughout the lockdowns, serving communities, businesses and hospitals.  We are deeply appreciative of the dedication and determination of our colleagues who have provided this excellent service.  We have partnered up with Van Straten Medical and Greencycl for the collection, recycling and returning sanitised PPE to Benelux healthcare workers;
  • Renewi had liquidity of €252m as at 31 March 2020, sufficient to trade through the Covid-19 crisis with no need for additional funding from governments, banks or shareholders.  Appropriate covenant amendments have been agreed with our banks for the period to September 2021;
  • we have detailed scenarios for the potential economic impact of the lockdowns and subsequent market recovery, and we are currently trading at the positive end of those scenarios; and
  • we have introduced measures to reduce operating costs (including a voluntary 20% reduction in Board salaries and fees, and 10% reduction in Executive Committee members salaries), capital expenditure and optimise cash flows, which will save over €60m of cash during the next financial year.

 

Our enhanced strategy for long-term profitable growth

 

Our purpose is to protect our planet by giving new life to used materials, and our vision is to be the leading waste-to-product company in the world's most advanced circular economies.  This differentiates Renewi as a pure play recycler, a company that focuses on supplying high quality secondary materials, which we believe is the best way to extract value from waste. 

 

Our industry is driven by increasing environmental legislation, particularly in the European Union which on 11 March 2020 published "The Circular Economy Action Plan", as a promising continuation of the EU executive's ambition from 2015. The plan acknowledges the need to address the block's resource consumption and to reduce environmental pressures driven by consumption.  More recently, on 28 April 2020, the Dutch Government reconfirmed its intent to impose rising tariffs on CO2 emitters to encourage the carbon transition.  These taxes, to be imposed over the coming decade, are expected to have a significant positive impact on demand for secondary products and will increase the cost of incineration.

 

After a year of successful repositioning of the Group, we are pleased to outline our enhanced strategy to ensure that Renewi captures the profitable growth opportunities arising from carbon reduction and the transition to a circular economy.  This strategy will transition Renewi from a waste collection company to a company focused on production of secondary raw materials to the highest possible quality.

 

Our enhanced strategy and innovation funnel

 

To expand our position as a secondary raw material producer, our strategy is based on three pillars:

  1. Divert more into products from waste streams currently being incinerated or landfilled.  We will invest to start or expand production of secondary raw materials out of waste streams currently going to incineration or landfill.  This will further increase our recycling rate, which we believe is already the highest in the industry at 65%.  Over the next five years we intend to decrease our incineration and landfill rate further by a minimum of 25% and convert this waste into new products.  Some examples of projects that will fuel our growth are the recycling of mattresses and diapers and the advanced recycling of waste plastics and wood.
  2. Improve the quality of the products we produce.  To build a circular economy the usage of secondary raw materials must increase.  For production companies currently using primary raw materials, the easiest way to convert is by using high quality secondary raw materials that they can "drop-in".  We aim to significantly increase the value of our products by investing in advanced processing of our materials; which we call "spread expansion".  Examples include the 4Terra project at ATM to make clean sand and gravel from contaminated soil, to make clean HIPS and ABS plastic from fridges at Coolrec and to manufacture bio-LNG from food waste in Organics.
  3. Selectively gain market share.  Our primary focus is on driving margin expansion from existing waste flows through the first two pillars of our strategy.  In addition, we will continue to selectively increase volumes through net customer gains, niche acquisitions and potentially, in the longer term, through geographic expansion.

 

Innovation is one of our core values and we are working on a number of initiatives to deliver our growth strategy.  Going forward, we will report on this funnel with our results, demonstrating the breadth of opportunities for growth that we are able to pursue. Given that a number of these relate to new products or technologies, we do not expect them all to proceed to commercialisation. 

 

Project

Partner

Opportunity

Status

Sand, gravel & filler at ATM for construction materials

Stand-alone

Successful trials complete and customers engaged.  Capacity expansion underway.

Expansion in bio-gas production

Stand-alone

Permits awaited to construct expanded food waste processing hall in 2020.

Expansion of mattress recycling

IKEA

Third facility opening May 2020, increasing capacity to 1 million mattresses. 

Upgraded feedstock for chemical recycling of plastics

SABIC

€ - €

Commercial contracts being negotiated with major plastics producer and technology company.  Engineering designs being finalised for 30KT line.

Transition bio-gas from electricity to bio-LNG

SHELL

Commercial contracts being finalised with major gas company and technology provider.  Gas cleaning upgrade underway.

Upgraded wood flake supply for low-carbon steel

ARCELOR-MITTAL

€ - €

Technical trials and commercial feasibility alongside major steel producer.

Cellulose from diapers and incontinence products

FMCG major

€ - €

Transition to new technology and commercial partners. Technical feasibility underway.

Next generation bottom ash conversion to construction materials

Energy-from-waste major

Engineering feasibility underway with waste-to-energy partner.

Polyurethane recycling

Chemical recycler

€ - €

Development project to purify polyurethane from mattresses.

 

Shifting from collection to secondary material production

We have a large fleet of trucks collecting commercial waste to supply our recycling operations and today Renewi is the clear market leader in the Benelux.  The collection provides an essential service to waste producers and it marks the beginning of Renewi's value chain, as we become the owner of the commercial waste.  That waste provides the raw materials for Renewi to generate value from the products it makes.  Waste collection is expected to transform in the coming years to reduce carbon emissions and traffic congestion in cities.  This will include "white label" collection collaborations between waste companies to share logistics as well as a transition to low and ultimately zero emission collection vehicles. Renewi will actively drive this transition, securing the waste streams with smart and innovative collection methods. This should ultimately lead to a reduced investment in our own fleet, allowing capital to be deployed in the production of secondary materials.

Our strategy is underpinned by the Renewi 2.0 programme.

 

Renewi 2.0

 

As previously announced, while we have successfully delivered the €40m of cost synergies following the merger of Shanks and VGG, we have identified the opportunity to drive further improvement through a three-year programme to make the company simpler, more customer-focused, more efficient and a better place to work.  This comprises multiple projects, orientated around two key themes:

  • Digitisation of the business.  The waste industry currently lags other industries in providing a fully digital solution for its customers.  We are developing a new front-end interface for customers that will allow them to place and amend orders, have full visibility on our services and related cost as well as on the circular benefits their waste is creating.  This digitisation will deliver a better 24/7 customer experience, while reducing our cost to serve.
  • Simplification and harmonisation of processes.  Our core processes can be simplified and standardised across our divisions to reduce cost, reduce errors, and improve customer, supplier and employee experiences.  We are implementing global process owners for our core processes and centres of excellence to simplify our product offering, improve our core data and eliminate wasted activity.

 

The programme is expected to deliver a minimum of €20m of annual cost benefits on a run-rate basis after completion of this three year programme (March 2023) for a total cash cost of €40m, which will be split into an exceptional cost (€33m) and capital investment (€7m).

 

Our focus on a simpler and lower risk business has included a divisional restructuring.  We have created three strong divisions, combining similar activities into one division, and we have disbanded the Monostreams Division, reallocating its four business units. From 1 April 2020 our new divisional structure comprises:

  • Commercial Waste (Belgium and Netherlands): unchanged except that Orgaworld is now included within the combined organics activities of Commercial Waste Netherlands;
  • Mineralz & Water.  This new division comprises ATM and CFS from Hazardous Waste and Mineralz from Monostreams Division.  The focus of all these units is on the creation of clean mineral products or water creating commercial and operational synergy; and
  • Specialities, comprising Municipal, Coolrec and Maltha.  All three of these businesses are international in nature and have larger scale process-based facilities focused on operational excellence and recycling.  None have collection activities.

In addition, we are centralising group functions further to drive consistency across the Group and leverage expertise and optimise capacity. Central Services costs will be increasingly recharged to the Divisions, reflecting that they are the drivers and causes of these charges.  Around €10m of central costs relating to the Board, strategy and investor relations will be retained as a separate reported cost.

 

Sustainability is at the core of all we do

 

We are also launching Renewi's first long-term sustainability strategy and our new sustainable development objectives for the next three and five years.  These have been developed using current best practice, drawing together our input capital sources and our business strategy to develop three key themes for our SDG policy which contribute towards six of the UN Sustainable Development Goals.  These are: Enable the circular economy; Reduce carbon emissions and waste; and Care for people and from these three themes, we have developed six key objectives:

  • turn our customers' waste into new products.  By doing so we reduce carbon emissions and reduce depletion of the world's finite natural resources.  The key metric for this is the recycling rate;
  • be a leader in clean and green waste collection.  The collection of waste is essential and we aim to reduce the pollution and carbon emissions it causes through deployment of low and ultimately zero emission trucks, white label collection and route optimisation;
  • reduce the carbon impact of our operations.  By their nature, our operations reduce total carbon emissions elsewhere by returning materials for reuse.  Nevertheless, we aim to reduce our own energy consumption where we can and increase use of renewable energy;
  • positively impact our communities.  Providing an essential service to our communities as the national champion of recycling and circularity, we seek a positive impact in the locations where we work, engaging closely with communities, supporting them, and minimising any negative aspects of the work that we do;
  • deliver people home safe and well, every day.  Safety is our first value and we continue to strive to improve our accident rates and to avoid all serious incidents.  In addition, we wish to support the health and mental well-being of all our employees; and
  • make Renewi an even more rewarding, diverse and inclusive working environment.  We seek an engaged workforce drawing on a wide range of backgrounds, all with the opportunity to thrive and achieve their potential within our organisation.

 

Each of these objectives has challenging targets set against them, which are detailed in full in both our forthcoming Annual Report and our Corporate Sustainability Report.

 

Outlook

 

Based on our experience in March and April, we expect Covid-19 to cause a potential earnings and cash shortfall of up to €20m in the first quarter against our previous expectations.  This outflow is comfortably contained within our €252m of liquidity as at 31 March 2020 and our revised banking covenants.  The outlook for the remainder of the year will be dependent on the speed of recovery of the economy and the extent of ongoing restrictions on certain sectors such as hospitality.  Longer term, waste volumes are resilient through cycles and the transition to increased recycling is expected to continue to support our business model.  The recovery of earnings at ATM and our Renewi 2.0 programme are expected to further support sustained future earnings growth. 

 

Operating Review for the year ended 31 March 2020

 

The operating review reports on the business using the historic divisional structure.  A reconciliation of the historic performance to the new divisional structure, including a reallocation of central services cost, is shown on our website.  All percentage comparatives to the prior year in the following section exclude the positive impact of IFRS 16 which amounted to €3.5m EBIT in the year to March 2020 for the ongoing businesses.

 

Commercial Waste

 

Divisional strategy

 

The Commercial Division creates value from its leadership position in waste collection and treatment in the Netherlands and Belgium. Its national coverage, density, operational scale and advantaged technology positions it strongly in its core markets.  The division will deliver long-term growth and attractive returns by increasing diversion from incineration and landfill and through increasing demand for its wide range of recycling services and products. This will be reinforced through the delivery of the benefits of Renewi 2.0 and the application of margin enhancing initiatives such as commercial effectiveness and continuous improvement.

 

Financial performance

 

The Commercial Division performed well in FY20 given weaker markets and the €4m estimated impact of Covid-19 in the second half of March.  Revenues increased by 2% to €1,224m and underlying EBIT increased by 1% to €87.6m.  Margins were constant at 7.2% and the return on operating assets rose a further 50 basis points to 23.6% on an IAS 17 basis (19.2% on an IFRS 16 basis).

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Underlying EBIT

 

 

FY20

FY19

 

 

FY20

FY20

FY19

Variance

 

 

IFRS16 basis

IAS17 basis

Variance

 

IFRS16 basis

IAS17 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

%

 

€m

€m

€m

%

 

 

 

 

 

 

 

 

 

 

 

Netherlands Commercial

786.0

764.7

3%

 

56.0

54.3

53.2

2%

 

Belgium Commercial

439.1

430.8

2%

 

33.9

33.3

33.3

0%

 

Intra-segment revenue

(1.5)

(1.1)

 

 

-

-

-

 

 

Total

1,223.6

1,194.4

2%

 

89.9

87.6

86.5

1%

 

 

 

 

 

 

 

 

 

 

 

 

Underlying EBIT Margin

 

Return on Operating Assets

 

 

 

FY20

FY20

FY19

 

FY20

FY20

FY19

 

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

Netherlands Commercial

7.1%

6.9%

7.0%

 

15.9%

19.0%

18.7%

 

 

Belgium Commercial

7.7%

7.6%

7.7%

 

29.5%

38.8%

37.3%

 

 

Total

7.3%

7.2%

7.2%

 

19.2%

23.6%

23.1%

 

 

 

 

 

 

 

 

 

 

 

 

The return on operating assets for Belgium excludes all landfill related provisions.

 

Revenues in the Netherlands grew by 3% to €786.0m and underlying EBIT by 2% to €54.3m.  Margins fell by 10 basis points to 6.9%.  Return on operating assets increased by 30 basis points to 19.0% (15.9% on the IFRS 16 basis). 

 

As previously reported, the core market has been softer this year.  Dutch construction was slower after four strong growth years and was further impacted from July 2019 by regulatory rulings about the chemical PFAS in soil, an issue partially resolved in December, and by limitations being imposed to manage nitrogen deposition near sites of environmental importance.  Recyclate markets have also been weaker with generally lower volumes and prices.  The Covid-19 related lockdown in the second half of March has primarily affected roller bins (commercial waste) and food waste.  Core volumes fell by 2% in the year, with construction and bulky waste down by 3.5%.  Recyclate volumes fell by 1%, with paper down 1.6% and metals down 11%.  Other volumes were down by 5%, mainly lower value rubble and soil/sludges.  Pricing per tonne for inbound waste increased by over 12% as we successfully passed on significant increases in incinerator taxes, other disposal costs and higher than usual labour cost increases and saw the positive impact of dynamic pricing adjustments to offset lower recyclate income, which fell by 23%.

 

The stable operating margin was encouraging, particularly given the headwind from lower volumes, lower recyclate prices, the increasing costs of disposal of residues and a €1m year-end provision for potential Covid-19 related bad debts.  Total synergies were €17.7m, with additional synergies of €6.4m delivered during the year.

 

Belgium revenues increased by 2% to €439.1m and underlying EBIT was flat at €33.3m.  Margins were broadly flat at 7.6%, which was encouraging given the cost pressures and the closure in the year of the landfill at Cetem.  Underlying volumes were flat, in line with the market.  Market trends were similar to the Netherlands, with price increases offsetting inflation in disposal and labour costs and a reduction in recyclate income.  The impact of Covid-19 in March was greater than in the Netherlands as a result of a more severe lockdown. Total synergies were €10.6m, with additional synergies of €2.8m delivered during the year.

 

Operational review

 

Our Commercial Division has made good progress in all its market facing strategies and also in completing integration and preparing for Renewi 2.0.

 

Clean and green collection

The efficient collection of waste provides an essential service to customers and provides us with the raw materials from which to create new products.  However, the process of collection creates pollution and traffic.  We expect that waste collection will transform in the coming years to be cleaner, greener and more efficient.  Renewi will be a leader in that transformation.

 

It starts with reducing pollution using today's technologies.  During the past year we invested €64m in purchasing 423 trucks with the latest Euro VI emission technologies.  Euro VI trucks reduce pollutants by over 90% compared to the older trucks they are replacing, significantly improving the air quality of the cities in which they operate.  Over 45% of our fleet is now Euro VI and we are targeting 100% by 2025.  Our route optimisation software further minimises the number of collection kilometres driven and in the last year our lifts/km metric improved by 27% in the Netherlands.  We expect that governments will soon ban or fine more polluting trucks in inner cities and that our investments will give us a strong operating position.

 

Over the next decade, we expect a step change in the reduction of carbon emissions from waste collection through two approaches. The first is a requirement that waste companies combine to collect waste in single "white label" truck fleets per town, increasing route efficiency and reducing the number of vehicles. Initial trials in Gouda and Haarlem have now been expanded in the area of Roosendaal/Bergen om Zoom in the Netherlands and Oost-Vlaanderen in Belgium and several projects in other city centres in the Netherlands are in the preparation phase.  The second will be a transition to use of zero emission vehicles (ZEV), likely electric or hydrogen powered.  During the last year we ordered the first two ZEV waste trucks in the Netherlands for trials.  We will continue working with all major truck manufacturers to develop this technology.  Given that ZEVs are much more expensive than current diesel models, we anticipate that, once the technology is proven, governments will need to mandate their use in order to stimulate the transition.

 

Increasing diversion from landfill and incineration

Waste volumes overall are relatively flat, with modest further growth for Renewi expected from share gain or tuck-in acquisitions.  We expect to continue to drive our margin expansion by increasing the diversion of waste we collect away from landfill and incineration.

 

An example of this was our €1.7m investment in June 2019 in RetourMatras, a company that has technology to recycle mattresses.  Mattresses are difficult to handle, prone to cause fires, and are expensive to transport and to incinerate.  The RetourMatras technology separates mattresses into textiles, foam and metals for recycling, creating a full circular solution.  We were pleased to co-invest in this technology with IKEA, a leading seller of mattresses with a strong commitment to sustainability.  Our initial goal is to complete coverage in the Netherlands by installing sufficient capacity to recycle all waste mattresses - at which point we anticipate that regulators will mandate that they should no longer be incinerated. In parallel we are assessing international expansion opportunities.

 

In Belgium we have an unparalleled range of sorting capabilities.  In the last year, we have installed a new 60KT sorting line in Liege to cycle waste into eleven different product streams and our wood sorting line at Eeklo is separating up to 35-40% of waste wood for reuse in furniture instead of as biomass. 

 

Investing in added value secondary materials production

Having diverted waste from landfill and incineration, our second strategy is to increase the value we add from the products we make through increased quality.  We call this "spread expansion".  Examples of spread expansion include the final commissioning of our Wateringen stonecrusher and the wood treatment line in Vlaardingen.  We have also consolidated some of our materials processing capabilities to our Gent master plant, including a new higher quality plastics sorting line.  A new baling press in Vilvoorde is improving the quality and value of our recycled paper and cardboard streams. 

 

Our innovation funnel contains numerous other projects to increase the value-add from our materials.  For example, at RetourMatras we are undertaking research to extract additional value by bonding the foam to create carpet underlay or alternatively reprocessing the foam to create polyurethane.  We are in commercial discussions to repurpose part of our anaerobic digestion site in Amsterdam to produce bio-LNG for one of the world's leading petrochemical companies as a higher value-add alternative to green electricity.  We are also in commercial discussions to build a sorting line near Eindhoven to produce a high-quality plastics feedstock for chemical plastics recycling in partnership with a leading global plastics manufacturer.

 

Integration, synergies and Renewi 2.0

FY20 also saw the successful completion of our synergy programme with the €40m target delivered on time.  Most of the synergy benefits in the year were the full-year effects of major projects from the year before, especially site rationalisation and route optimisation.  New projects that were completed towards the end of the year included the harmonisation of CLA terms and conditions in Belgium, the roll-out of the E-hour time registration system across all employees, and the implementation of digital acceptance of waste.  Site migration of the former Shanks construction business onto the Renewi operations platform and the harmonisation of Dutch CLA terms and conditions are expected to take place during 2020, completing the integration with a final further exceptional cost of €4m. 

 

Focus turned in the second half towards projects that would form part of Renewi 2.0, the group-wide programme to modernise Renewi.  A large part of Renewi 2.0 focuses on the customer and in Belgium a customer centric project has been rolled out to engage and enthuse our employees in how to look after customers, and to measure customer satisfaction more deeply.  At the heart of the new customer experience will be MyRenewi - a portal where customers can place, amend and review orders, and manage their accounts.  This meets a clear demand in terms of service, while improving the data quality that flows into our systems.  Internally we will be investing in automation of many core processes.  We will be implementing a Renewi source-to-pay system, starting with the shared service centre and preparation for Commercial Waste Belgium during the next year.  We are also creating a global process management team, centres of excellence for product management and reporting, and a team to improve data quality.  These teams, funded by other efficiencies, are expected to transform the efficiency of our core processes over the coming three years, improving customer and employee satisfaction and reducing cost.

 

Managing headwinds

As reported earlier, the year has contained its headwinds.  Recyclate prices hit multi-year lows, especially paper which has fallen by 75% from peak to trough.  There have also been significant inflationary pressures from the increased incinerator taxes, higher disposal costs and increased labour costs.  We have successfully mitigated these headwinds, passing on these cost pressures in full in the form of higher prices for inbound waste.  Dynamic pricing contracts for recyclates provides a mechanism to automatically adjust for changes in paper, plastic and metal prices for up to 75% of our volumes.

 

The year was also made more complex when AEB, one of the largest incinerators in the Netherlands, closed unexpectedly for four months in the summer of 2019 for technical reasons.  This sudden loss of capacity could have caused a severe disruption to our customer service and a material economic loss for Renewi.  However, using our crisis protocols, we were able to react swiftly to lobby governments to open new outlets and storage, to communicate with customers and to redirect waste to new locations.  A €3m provision for uncovered costs taken at the half year was not required as all additional costs were settled and our business and our customers were unaffected.

 

Divisional outlook

 

As reported earlier, during the lockdown period waste volumes have fallen by up to 35% in Belgium and up to 15% in the Netherlands, the latter supported by resilience in construction waste volumes.  We anticipate a gradual recovery from these lows as the lockdowns ease through the first quarter.  We anticipate that volumes for the remainder of the next financial year will be lower than previously expected, dependent upon the easing of lockdown restrictions, including in specific sectors such as hospitality, and the speed of economic recovery.  Construction may also reduce somewhat in the near term in response to lower GDP.  Recyclate prices are expected to remain low as a result of reduced demand and lower oil and commodity prices.  Other inbound and outbound pricing has remained stable.  Swift cost actions have been taken to reduce the impact and additional plans are in place should volumes reduce further.  Longer term, waste volumes are historically resilient, and we expect governments to continue to stimulate recycling and the use of secondary materials. 

 

Hazardous Waste

 

Divisional strategy

 

Our initial focus is to return ATM to normal operation on the soil line. In the future we intend to refine soil outputs further into higher value secondary raw materials.  Following the successful sale of the Reym industrial cleaning business, we are merging ATM (and the smaller treatment site CFS) with our Mineralz business to create the Mineralz & Water Division from 1 April 2020.

 

Financial performance

 

ATM performed as expected as a result of the ongoing restrictions on the shipments of thermally cleaned soil in the Dutch market which ended in December 2019.  Revenues fell by 4% to €92m and underlying EBIT fell to a loss of €1.1m. An exceptional item of €3.1m (2019: €6.5m) was additionally reported in relation to the ATM soil issue.  Now that the TGG market has been reopened, the cost of storing TGG stocks (currently €3m per annum) will in future be taken in ordinary trading.  Reym was sold on 31 October 2019. 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Underlying EBIT

 

 

FY20

FY19

 

 

FY20

FY20

FY19

Variance

 

 

IFRS16 basis

IAS17 basis

Variance

 

IFRS16 basis

IAS17 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

%

 

€m

€m

€m

%

 

 

 

 

 

 

 

 

 

 

 

ATM & Others

91.7

95.4

-4%

 

(0.1)

(1.1)

1.7

N/A

 

Reym

81.3

115.9

-30%

 

12.1

10.0

5.3

89%

 

Total

173.0

211.3

-18%

 

12.0

8.9

7.0

27%

 

 

 

 

 

 

 

 

 

 

 

 

Underlying EBIT Margin

 

Return on Operating Assets

 

 

 

FY20

FY20

FY19

 

FY20

FY20

FY19

 

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

ATM & Others

-0.1%

-1.2%

1.8%

 

-0.2%

-8.6%

9.5%

 

 

Reym

14.9%

12.3%

4.6%

 

 

 

 

 

 

Total

6.9%

5.1%

3.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reym revenue includes intra-segment revenue between Reym and other Hazardous Waste entities

 

Operational review

 

FY20 has been an important year of turnaround for ATM.  During the year ATM worked closely with IL&T and other local regulators such as DCMR to specify and then conduct detailed tests on our stockpiles in order to fully characterise the soil beyond the usual norms of the industrial code (BRL) under which it was shipped.  These tests demonstrated clearly that our thermally treated soil (TGG) can be applied in the right industrial locations and poses no risk to health or to the environment.  The IL&T confirmed these results and reported in December 2019 that the analytical results of the TGG provide a thorough representation of the TGG quality and that the TGG can be applied in industrial locations, subject to the usual review for the intended application by the local regulators.  At the end of the year, we started shipment of 200KT of TGG for a project in Amsterdam.  We maintain an encouraging pipeline of potential customers for TGG, both domestically and internationally, and we are working through permitting requirements with respective local authorities to allow their shipment.  At the same time, we are reviving the inbound soil pipeline, which will take some time to recover to historic levels as it is generally project/contract based.

 

ATM has also been investing in a new process to convert TGG, hot from the kiln, into gravel, sand and a filler that can be used in the manufacture of asphalt, concrete and cement.  Following successful pilot scale trials, a full-size separator was installed at the end of 2019 which is being progressively commissioned.  The quality of the products appears to be good and customer trials have gone well.  Product certification is also underway for different grades of product.  We believe that a market for these secondary construction materials exists that will over time absorb most or all of ATM's production, at a positive selling price compared to the negative consideration for placing TGG.  Production of these construction materials is constrained by a lack of logistics and storage, for the filler in particular, and a lack of space on site pending the shipment of more TGG.  We are investing during 2020 to increase functional capacity.

 

The other core waste treatment processes for the Division performed well. Water intake and treatment at ATM increased slightly compared to the prior year. Treatment of packed chemical waste through the ATM pyro plant was slightly lower than prior year due to significant maintenance activities and the new inbound warehouse was commissioned during the second half of the year. The CFS water treatment facility in the southern part of the Netherlands did well, maintaining flat revenue against lower volumes.

 

Divisional outlook

 

We expect to increase throughput on the TRI line from 20% to c40% of capacity, as previously forecast, mainly supported by increased offtake of the new products to construction customers.  Capacity will continue to be constrained for these products during FY21 as additional silos and handling capacity are being installed.  We expect TGG outlets to be secured during the year which will initially be used to reduce excess inventory, particularly of soil produced before 2018.  Following the reopening of the end market, the €3m of annual storage costs for this inventory will now be accounted for in ordinary trading rather than as an exceptional item.  Covid-19 has had a lower impact on ATM as water volumes are not directly affected by the lockdown and we have soil stocks sufficient to keep processing.  However, the low oil price is expected to reduce water volumes over the year and we anticipate delays in some construction projects, slowing the recovery of inbound contaminated soil volumes.  Over the longer term we continue to target a recovery at ATM to historic levels of profitability.

 

Monostreams

 

Divisional strategy

 

Monostreams incorporates Maltha, Coolrec, Mineralz and Orgaworld.  All four focus on producing high quality products from specific source segregated input streams.  Following acquisitions and disposals during FY20, the Monostreams Division was disbanded on 31 March 2020.  Maltha and Coolrec form part of the new Specialities Division, Mineralz joins ATM as the Mineralz & Water Division and Orgaworld becomes part of an Organics business unit in Commercial Waste Netherlands.

 

Financial performance

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Underlying EBIT

 

 

FY20

FY19

 

 

FY20

FY20

FY19

Variance

 

 

IFRS16 basis

IAS17 basis

Variance

 

IFRS16 basis

IAS17 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

%

 

€m

€m

€m

%

 

 

 

 

 

 

 

 

 

 

 

Total Monostreams

213.6

213.3

0%

 

14.5

14.1

12.9

9%

 

 

 

 

 

 

 

 

 

 

 

 

Underlying EBIT Margin

 

Return on Operating Assets

 

 

 

FY20

FY20

FY19

 

FY20

FY20

FY19

 

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

Total Monostreams

6.8%

6.6%

6.0%

 

17.9%

21.3%

18.1%

 

 

 

 

 

 

 

 

 

 

 

 

The return on operating assets excludes all landfill related provisions.

 

Monostreams recovered well in FY20, particularly with a strong second half as restructuring benefits were realised.  Underlying EBIT increased by 9% to €14.1m, on flat revenues at €213.6m.  Margins increased by 60 basis points to 6.6% with return on operating assets up by 320 basis points from 18.1% to 21.3% (17.9% on an IFRS 16 basis).  Coolrec, Maltha and Orgaworld all delivered strong earnings growth, offset by an expected decline in Mineralz due to previously announced margin pressures in the landfill sites. 

 

Operational review

 

The Coolrec business recycles e-waste and white goods into plastics and metals.  As announced last year, we have significantly simplified the business offering, exiting loss-making product lines and territories.  Profits increased as a result, while revenues were significantly reduced.  We are investing to improve quality and capacity in the core fridge recycling lines and in improving plastic quality at our Waalwijk facility.

 

Maltha, jointly owned with Owens-Illinois, also made good progress in recovering margin in the year.  New management has driven a sustained improvement in commercial and operational performance, especially at the Dintelmond site.  The overall glass market is set for growth due to a shift from plastic packaging towards glass products. 

 

Mineralz showed a decline in margins, as expected, following the increased landfill tax in the Netherlands which could not fully be passed on to customers, as well as lower volumes in soil cleaning following the nitrogen deposition concerns in the Netherlands.

 

Orgaworld had another strong year, with organic revenue growth boosted by the acquisition of Rotie, a collection and depackaging business adjacent to our Amsterdam digester.  Good volumes were supported by increased electricity generation at improved prices.

 

Divisional outlook

 

All business units were significantly impacted during April by the lockdown, through a mix of lower volumes, lower demand for product or loss of production capacity.  Performance is expected to improve through May and thereafter will be driven by the speed of economic recovery and the easing of lockdown restrictions.  No long-term impact is expected on any of the business units.

 

Municipal

 

Divisional strategy

 

We have greatly simplified the Municipal portfolio, including the disposal of our Canadian assets during FY20.  The core focus is on continuing to improve the operating performance of the remaining assets to reduce cash losses and create a platform for future growth.  Municipal has been combined with Coolrec and Maltha to create the new Specialities Division going forward, an international division with a strong focus on operational and margin improvement.

 

Financial performance

 

The Municipal Division made a small underlying loss of €2.5m, as expected, compared to a profit of €0.8m in the prior year, on revenues 1% higher at €197m.  The prior year included higher profits on the original Derby contract before it was terminated and one-off items such as rates rebates. 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

Underlying EBIT

 

 

FY20

FY19

 

 

FY20

FY20

FY19

 

 

IFRS16 basis

IAS17 basis

Variance

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

%

 

€m

€m

€m

 

 

 

 

 

 

 

 

 

 

Total UK Municipal

197.2

195.2

1%

 

(2.8)

(2.5)

0.8

 

 

 

 

 

 

 

 

 

 

 

Underlying EBIT Margin

 

 

 

 

 

 

FY20

FY20

FY19

 

 

 

 

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

 

 

 

Total UK Municipal

-1.4%

-1.3%

0.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying EBIT includes utilisation of €12.2m (2019: €10.0m) from onerous contract provisions

 

Current year performance saw underlying improvement, particularly at Cumbria, BDR and ELWA.  The introduction of a €32 per tonne import tax on burnable waste to the Netherlands from 1 January 2020 added significantly to the cost base of ELWA, resulting in an exceptional charge of €25.9m reflecting an onerous contract provision of €15.5m and an asset impairment of €10.4m.

 

Operational review - UK

 

Municipal delivered significant underlying operational improvements and a successful transition to a new contract directly with Derby City and Derbyshire County Councils, The impact of the Dutch import tax on ELWA cast a shadow over what was otherwise a positive year.

 

Improving operational performance

Achieving stable operations gives Renewi a platform to drive continuous improvement through all contracts. This includes optimising operating costs, eliminating cost of failure, and reducing exposure to difficult offtake markets.  During the past year we have delivered 36 projects across our contracts, including a project increasing the gas generation and performance of our AD composting process in BDR; and in ELWA, a focus on asset maintenance delivered a reduction in spend on parts, decreased our reliance on third party contractors and has improved the condition and performance of our assets. Looking forward, an expanding continuous improvement programme will deliver further improvements. 

 

New contract at Derby

We had for some years a contract to be long-term operator of Sinfin Lane, a gasification facility, as part of a PPP contract between Renewi and the constructor, Interserve, and Derby City and Derbyshire County Councils.  Last year, we wrote off our investment in the contract as Interserve were over two years behind schedule delivering the project.  In August 2019 the contract was terminated by the lenders.  We have continued to work with and support Derby City and Derbyshire County Councils and have entered into a continuity services contract directly with them to manage their waste.  This contract no longer carries the long term operational or financial risk associated with the original contracts.

 

Incinerator taxes, Brexit and ELWA

Our ELWA facility has for many years exported the majority of its 200,000 tonnes of burnable waste per year to the Netherlands.  The unexpected introduction of a €32 per tonne import tax on burnable waste from 1 January 2020 has added up to €6m per annum of extra costs, which makes the ELWA contract onerous.  An exceptional charge of €25.9m was announced in January to address the increased future costs of disposal.  We have also included expected additional future costs of haulage and tariffs relating to Brexit once the transition period ends.

 

Divisional outlook

 

Covid-19 is having a moderate impact on Municipal during the lockdown period due to the closure of household waste recycling centres (HWRCs) and lower recyclate income.  This loss of profitability should be restored towards prior levels as HWRCs reopen and no long-term impact is expected.

 

CFO REVIEW

INTRODUCTION

 

FY20 was a successful year in which we made good progress in strengthening the balance sheet, improving underlying margins and returns and increasing free cash flow.

  • We successfully strengthened the balance sheet through disposals and the issuance of a new €75m green bond.  This resulted in our reducing core net debt from €552m to €457m, and having €252m of liquidity as at 31 March 2020
  • We delivered underlying growth of 30 bps to 7.4% in our operating margin and 180 bps in our return on operating assets to 24.1% (19.8% on an IFRS16 basis) in our Commercial and Monostreams Divisions (83% of revenue)
  • We increased our free cash flow by €85m to €96m and, excluding the benefit of the disposals, we generated net positive cash , a year ahead of schedule
  • We completed our secondary listing on Euronext Amsterdam and we have seen increasing investment by funds with a significant environmental mandate

 

Exceptional items were again significant.  The majority were non-cash such as disposals (€56m) or related to value creating activities like synergy delivery (€13m).  The introduction in the Netherlands on 1 January 2020 of a €32 per tonne tax on the import of burnable waste from the UK necessitated a €26m charge at our ELWA municipal contract.  We have also taken a provision of €15m following the ruling by the European Union in February 2020 that it will be further investigating alleged state aid provided by the Walloon region of Belgium to our landfill site at Cetem in the period 2010-2015.  The Walloon region and Renewi remain confident in our case, which is expected to take several years to resolve. 

 

Looking forward, our financial strategy for Renewi is centred on:

  • improving margins and returns through increased diversion, higher value products and more efficient processes including through the Renewi 2.0 programme;
  • increasing free and net cash flows and reducing leverage towards the Board's target of 2x, taking into account the challenge of Covid-19; and
  • eliminating unplanned exceptional items.

 

FINANCIAL REVIEW

 

 

 

 

 

 

Financial Performance

FY20

FY20

FY19

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

€m

 

Continuing operations

 

 

 

 

Revenue

1,775.4

1,775.4

1,780.7

 

EBITDA

199.7

167.5

177.4

 

Underlying EBIT

87.6

82.0

85.5

 

 

 

 

 

 

Underlying profit before tax

54.1

54.3

62.5

 

Non-trading & exceptional items

(113.5)

(113.5)

(151.5)

 

Loss before tax

(59.4)

(59.2)

(89.0)

 

Total tax (charge) credit for the year

(1.1)

(1.1)

12.4

 

Loss for the year from continuing operations

(60.5)

(60.3)

(76.6)

 

Loss for the year from discontinued operations

(16.6)

(17.0)

(21.1)

 

Total operations: loss for the year

(77.1)

(77.3)

(97.7)

 

 

 

 

 

 

 

IFRS 16 is a new reporting standard that has had a material impact on our reported results: for continuing operations increasing EBITDA by €32.2m, EBIT by €5.6m and interest costs by €5.8m as well as increased year end assets and debt.  The full impact is shown in note 19 to the financial statements.  As we have applied the modified retrospective approach prior year comparatives are not restated.  The above table shows the reported performance on an IFRS 16 basis along with IAS17 to provide a comparative with 2019.

 

As well as IFRS 16, the performance in the year has been impacted by the disposals.  Reym is recorded as part of continuing operations with seven months in FY20 compared to the full year in 2019.  The Canadian business however met the definition of a discontinued operation.  Group revenue on a continuing operations basis increased marginally to €1,775m.  Underlying EBIT from continuing operations decreased by €3.5m or 4% to €82.0m on an IAS 17 basis.

 

IFRS 16 also has a significant impact on underlying EBITDA given the depreciation on right-of-use assets which amounted to €27m in the year. The table below sets out the EBITDA by division on both an IFRS 16 and IAS 17 basis for the current year.

 

 

 

 

 

 

 

Underlying EBITDA

FY20

FY20

FY19

Variance

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

€m

%

 

 

 

 

 

 

 

Netherlands Commercial

107.3

93.8

92.5

1%

 

Belgium Commercial

60.7

53.8

53.6

0%

 

Commercial Waste

168.0

147.6

146.1

1%

 

Hazardous Waste (excluding Reym)

10.7

7.1

9.9

-28%

 

Monostreams

28.1

25.5

24.1

6%

 

Municipal

(0.9)

(1.8)

1.9

N/A

 

Group central services

(18.3)

(20.9)

(16.5)

-27%

 

Ongoing Businesses

187.6

157.5

165.5

-5%

 

Reym

12.1

10.0

11.9

 

 

Continuing Operations

199.7

167.5

177.4

-6%

 

Discontinued Operations

3.1

2.5

3.9

 

 

Total

202.8

170.0

181.3

-6%

 

 

 

 

 

 

 

 

As both disposed businesses were reported as assets held for sale at March 2019 the current year results have been favourably impacted by the suspension of depreciation at Reym and Canada for the periods up to sale.  The table below bridges the year on year performance excluding IFRS 16. This shows that for the ongoing businesses underlying EBIT fell by €8.2m or 10%, in line with our expectations, primarily due to reduced output at ATM, the profitable legacy Derby contract last year and the reinstatement of bonus and LTIP provisions as forecast.

 

 

 

 

 

 

 

 

FY20

FY19

Variance

 

 

€m

€m

€m

%

 

 

 

 

 

 

 

Underlying EBIT: Continuing operations

87.6

85.5

2.1

2%

 

Impact of Reym

(12.1)

(5.3)

(6.8)

 

 

Underlying EBIT: Ongoing businesses excluding IFRS 16 impact

75.5

80.2

(4.7)

-6%

 

Impact of IFRS 16

(3.5)

-

(3.5)

 

 

Underlying EBIT: Ongoing businesses

72.0

80.2

(8.2)

-10%

 

 

 

 

 

 

 

 

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 before tax due to their size, nature or incidence.  The Group reported significant non-trading and exceptional items, under the main headings as follows:

  • merger and integration costs: items that were known and planned for in relation to the costs of integrating Renewi.  These costs are one-off relating to the merger with VGG and exceptional in nature;
  • portfolio costs: items associated with the acquisition or disposal of assets, including profit or loss on sale, goodwill impairments and transaction costs;
  • UK Municipal contract issues: including onerous contract provisions and impairments;
  • other changes in long- term provisions: including significant legal provisions and changes in discount rates; and
  • other items.

 

Total non-trading and exceptional items amounted to €120.2m (2019: €146.0m) as set out in the table below with cash items of €35m. Further details are provided in note 5 to the consolidated financial statements.

 

 

 

 

 

Non-trading & exceptional items

FY20

FY19

 

 

€m

€m

 

 

 

 

 

Merger related costs

16.3

56.8

 

Portfolio management activity

29.8

8.7

 

UK Municipal contract issues

25.9

64.3

 

Other changes in long term provisions

33.0

-

 

Other items

4.3

5.9

 

Amortisation of acquisition intangibles

6.4

6.4

 

Exceptional finance costs

(2.2)

9.4

 

Non-trading & exceptional items in loss before tax

113.5

151.5

 

Tax on non-trading & exceptional items

(9.8)

(12.4)

 

Exceptional tax

(2.4)

(15.6)

 

Discontinued operations

18.9

22.5

 

Total

120.2

146.0

 

 

 

 

 

 

The portfolio management activity charge of €29.8m includes the final charge for the loss on disposal of the Reym business.  Credits of €6.1m were recorded relating to previous transactions.

 

As previously announced, €25.9m is relating to an impairment and onerous contract provision for the ELWA contract in UK Municipal, €17.9m relating to the reduction in discount rates used for long term provisions and a €15.1m legal provision for the recent Belgian state aid litigation.  The exceptional finance costs include a current year credit for ineffectiveness of interest rate derivatives.

 

At merger completion we announced total expected merger related cash costs of €50m for synergy delivery, €20m for other integration costs and €12m for rebranding capital spend.  The table below shows how this has been incurred since the merger date and is in line with initial indications.  As noted previously, branding spend has been expensed rather than capitalised.  A final €4m of spend will be incurred in FY21 to complete outstanding IT integration. 

 

 

 

 

 

 

 

 

 

 

Merger related P&L charges

FY17

FY18

FY19

FY20

Total

Original

Difference

 

 

€m

€m

€m

€m

€m

€m

€m

 

 

 

 

 

 

 

 

 

 

Integration costs*

3.4

8.5

12.5

2.3

26.7

20.0

(6.7)

 

Synergy delivery

5.3

13.4

22.1

13.8

54.6

50.0

(4.6)

 

Branding capex

-

-

-

-

-

12.0

12.0

 

Initial merger programme

8.7

21.9

34.6

16.1

81.3

82.0

0.7

 

Monostreams restructuring

-

0.5

10.0

(0.5)

10.0

 

 

 

Non-cash costs

-

2.6

12.2

0.7

15.5

 

 

 

Total

8.7

25.0

56.8

16.3

106.8

 

 

 

 

 

 

 

 

 

 

 

 

*Including branding capex now expensed rather than capitalised

 

The discontinued operations charge of €18.9m reflects the final loss on disposal of the sale of the Municipal Canada business.  In line with accounting requirements as a result of uncertainty of receipt, the contingent proceeds from this disposal will only be recognised if more certain. 

 

EBIT from continuing operations, after taking account of all non-trading and exceptional items, was a loss of €28.1m (2019: €56.6m loss).

 

Net finance costs

Net finance costs from continuing operations, excluding exceptional items, increased by €11.0m to €34.4m (2019: €23.4m).  The largest driver was the adoption of IFRS 16 from 1 April 2019 resulting in a €5.8m increase in lease interest.  Interest payable on borrowings increased by €2.2m due to higher levels of debt compared to the prior period and a higher margin payable due to higher leverage in the first part of the year.  Other finance costs increased by €1.1m principally due to higher interest charges on invoice financing as referenced at the half year.

 

Share of results from associates and joint ventures

An increased profit of €0.9m (2019: €0.4m) due to one-off income which is not expected to recur.

 

Loss before tax

Loss before tax from continuing operations on a statutory basis, including the impact of non-trading and exceptional items, was €59.4m (2019: €89.0m).

 

Taxation

Total taxation for the year on continuing operations was a charge of €1.1m (2019: credit of €12.4m). The effective tax rate on underlying profits from continuing operations was 24.5% at €13.3m, lower than last year's 25.0% and driven by enactment of lower tax rates in Belgium.  A tax credit of only €12.2m is attributable to the non-trading and exceptional items of €113.5m given a significant proportion of these are non-taxable.

 

As reported previously, both the Dutch and Belgian governments implemented a number of corporate tax reforms in recent periods which have resulted in exceptional tax credits from reductions in future tax rates.  In the current year the Dutch Government has made further revisions and reversed some of the planned tax rate falls which has resulted in an exceptional tax charge of €1.6m being recorded this year.  The total exceptional tax credit of €2.4m also includes a credit for the release of provisions in relation to pre-merger tax issues (€2.5m) and an enacted lower tax rate in the UK (€1.5m).

 

Looking forward, we anticipate the underlying tax rate may fall slightly to around 24% in the next few years as no further tax rate changes are anticipated.

 

The Group statutory loss after tax, including all discontinued and exceptional items, was €77.1m (2019: €97.7m).

 

Earnings per share (EPS)

Underlying EPS from ongoing businesses, excluding non-trading and exceptional items, was 3.9 cents per share, a decrease of 25% on a like for like basis.  Basic EPS from continuing operations was 7.7 cents loss per share compared to a loss of 9.0 cents per share in the prior year.

 

Dividend

As announced previously, and in response to Covid-19, the Board has decided not to pay a final dividend for the year ended 31 March 2020.  The interim dividend of 0.45 pence per share was paid on 10 January 2020.

 

CASH FLOW PERFORMANCE

 

A summary of the total cash flows is shown below:

 

 

 

 

 

 

Cash Flow

FY20

FY20

FY19

 

 

IFRS16 basis

IAS17 basis

IAS17 basis

 

 

€m

€m

€m

 

 

 

 

 

 

EBITDA

202.8

170.0

181.3

 

Working capital movement

22.9

22.9

(22.2)

 

Movement in provisions and other

(4.5)

(4.5)

(9.8)

 

Net replacement capital expenditure

(64.2)

(64.2)

(88.1)

 

Interest, loan fees and tax

(37.1)

(31.2)

(30.9)

 

Underlying free cash flow

119.9

93.0

30.3

 

UK Municipal contracts

(23.6)

(25.2)

(19.0)

 

Free cash flow

96.3

67.8

11.3

 

Growth capital expenditure

(10.1)

(10.1)

(11.7)

 

Synergy, integration & restructuring spend

(24.3)

(24.3)

(38.7)

 

Other

(8.4)

(9.6)

(9.5)

 

Disposals net of acquisitions

95.7

95.7

24.1

 

Dividends paid

(8.6)

(8.6)

(27.4)

 

Net core cash flow

140.6

110.9

(51.9)

 

Net debt disposed/acquired

(6.4)

(12.8)

-

 

Replacement capital expenditure - new IFRS 16 leases

(61.8)

-

-

 

Total

72.4

98.1

(51.9)

 

 

 

 

 

 

Opening net debt excluding UK PPP net debt

(552.0)

(552.0)

(500.6)

 

Loan fee amortisation

0.9

0.9

2.2

 

Transfer to disposal group

-

-

4.2

 

IFRS 16 transition adjustment

(177.3)

-

-

 

Net debt movement excluding UK PPP net debt

72.4

98.1

(51.9)

 

Exchange

(3.9)

(4.2)

(5.9)

 

Closing net debt excluding UK PPP net debt

(659.9)

(457.2)

(552.0)

 

 

 

 

 

 

Free cash flow conversion

132%

110%

35%

 

 

 

 

 

 

All numbers above include both continuing and discontinued operations.

Free cash flow conversion is underlying free cash flow as a percentage of underlying EBIT.

 

Free cash flow conversion on an IAS 17 basis was strong at 110% compared to the 35% in FY19.  Working capital was an inflow of €22.9m based on the timing of payables, recovery on receivables delayed in the last quarter last year and increased efficiency on the sale of receivables programme. Some of this benefit is expected to reverse in the new financial year. Replacement capital spend, excluding new IFRS 16 leases, was well controlled at €64.2m (2019: €88.1m) representing c.75% of depreciation.  Capital spend was restricted in the first half pending the completion of the disposals of Canada and Reym which has resulted in a lower spend across the full year.  In addition, a number of leases previously considered operating leases before the introduction of IFRS 16 totalling €61.8m have been entered into and these are now recorded as right-of-use assets and are shown separately in the above cash flow.  As previously reported, we are investing in a rejuvenation of our truck fleet through leases that spread the cash costs of the trucks over a six year period.

 

UK Municipal contracts reflect the cash spend on UK onerous contracts of €23.6m including a significant amount for the final months of the legacy Derby contract before it was terminated, along with spend on the ELWA contract which is onerous as from 1 January 2020.  The cash outflow on all other contracts was as expected.

 

The growth capital spend includes the Ottawa expansion (now disposed of) and the completion of the expansion of the Maasvlakte landfill site.

 

Synergy, integration and restructuring spend of €24.3m included €22.3m for synergy delivery and merger related integration costs.  In addition, €2m of spend has arisen for initial restructuring and fees relating to Renewi 2.0.

 

Other cash flows include the ATM spend on additional logistics and other associated costs of €4m, €3.5m funding for the closed UK defined benefit pension scheme and €2.4m relating to the purchase of short term investments in the insurance captive

 

The disposals and acquisitions inflow includes the net proceeds from the sale of our Canadian and Reym businesses, along with €4.3m spend on the acquisition of the Rotie organic waste collection business and the 32% stake in RetourMatras BV, a mattress recycler, alongside Ikea.

 

Net cash generated from operating activities increased from €73.6m in the prior period to €157.7m in the current year.  A reconciliation to the underlying cash flow performance as referred to above is included in note 18 in the consolidated financial statements.

 

RENEWI 2.0

 

As reported in the CEO's review, we have launched our Renewi 2.0 programme which is intended to complete the creation of a modern waste-to-product company with digital interfaces to customers and suppliers, supported by modern, lean and efficient core processes.  These include the introduction of a cloud-based source to pay system and the creation of Global Process Owners for core processes to standardise and reduce inefficiency.

 

We believe that Renewi 2.0 will deliver cost benefits at an annualised run rate of €20m by March 2023.  The cost of the programme is expected to be €40m, split between capital and an exceptional charge as follows:

 

 

 

 

 

 

 

Renewi 2.0: expected costs and benefits

FY21

FY22

FY23

FY24

 

 

€m

€m

€m

€m

 

 

 

 

 

 

 

Net benefit

1

5

12

20

 

Exceptional costs

(14)

(10)

(6)

-

 

Capital spend

(1)

(4)

(2)

-

 

Net cash flow

(14)

(9)

4

20

 

 

 

 

 

 

 

In addition to the above cash spend certain non-cash impairments of c€3m are anticipated

 

INVESTMENT PROJECTS

 

Expenditure in 2020/21

The Group's long-term expectations for replacement capital expenditure remain around 80% of depreciation.  This level may from time to time be supplemented with larger scale replacement projects.  As a result of the current pandemic total capital spend for FY21 is now estimated to be c.€75m, similar to the previous year and lower than our previous expectations.  This spend will include the new infrastructure for the construction materials at ATM and a new de-packaging hall in Organics in Commercial Netherlands.

 

Return on assets

The Group return on operating assets (excluding debt, tax and goodwill) from ongoing businesses increased from 26.7% at 31 March 2019 to 27.5% at 31 March 2020 on an IAS 17 basis.  IFRS 16 adoption has increased assets by c€175m, with a significant proportion reflecting very long-term leaseholds of Dutch waterside locations which cannot be owned under Dutch law.  Under IFRS 16 the Group return on operating assets as at 31 March 2020 was 19.0%.  The reported Group post-tax return on capital employed from ongoing businesses was 6.6% (31 March 2019: 6.9%).

 

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) and excludes IFRS 16 related leases.  Core net debt at €457.2m (2019: €552.0m) was better than management expectations with working capital and capital expenditure well controlled and cash received from the disposals.  Liquidity was also very strong with cash balances of €195m and total liquidity of €252m.  Net debt to EBITDA was 2.98x, comfortably within our covenant limit of 3.5x.  On 29 May 2020 we announced a new structure of higher covenant test levels to ensure solvency through the Covid-19 crisis.  These peak at 6.0x during 2020, falling steadily back to 3.5x in September 2021.

Debt structure and strategy

Borrowings, excluding PFI/PPP non-recourse borrowings, are mainly long-term as set out in the table below. 

 

 

 

 

Debt Structure

Drawn

Term

 

 

€m

 

 

 

 

 

 

€100m Belgian Green retail bond

100.0

June 2022

 

€75m Belgian Green retail bond

75.0

July 2024

 

€495m Green RCF and term loan

437.1

May 2023/2024

 

Green EUPP

25.0

December 2023/2025

 

 

637.1

 

 

Historic IAS 17 finance leases and other

19.3

 

 

Loan fees

(4.7)

 

 

Cash and Money market funds

(194.5)

 

 

Core net debt (as per covenant definitions)

457.2

 

 

IFRS 16 finance leases

202.7

 

 

Net debt excluding UK PPP net debt (note 11)

659.9

 

 

 

 

 

 

 

The facility has been hedged with five cross currency swaps totalling €243.1m at fixed Euro interest rates of between 1.27% and 1.41% which expire between July 2022 and December 2022.

A €100m retail bond with a coupon of 4.23% was repaid in July 2019 and replaced by a €75m 5-year green retail bond with a coupon of 3.00%.  The remaining €100m green retail bond has a coupon of 3.65%.  All of our borrowings are now green financed.  As at 31 March 2020, 99% of our core net debt was fixed or hedged.

The Group operates a committed invoice discounting programme. The cash received for invoices sold at 31 March 2020 was €88.0m (March 2019: €68.2m).

The introduction of IFRS 16 on 1 April 2019 brought €177.3m of additional lease liabilities onto the balance sheet with an associated increase in assets.  Additional leases have been entered into during the year and mostly relating to the truck replacement programme.  Covenants on our main bank facilities remain on a frozen GAAP basis.

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 2020 this debt amounted to €90.0m (31 March 2019: €95.4m).

Treasury initiatives

 

During the year we issued a new €75m bond at 3% to 2024 and repaid the previous €100m 4.23% bond at maturity.  This completed our transition to become entirely Green financed across all our main banking facilities.  After the year end we adjusted the banking covenants of our facilities to reflect the potential impact from Covid-19.  We entered into various cross currency swaps during the year consistent with our hedging strategy to manage both interest cost and fix our exposure to interest rates across a large proportion of the variable rate borrowings.  We also extended the use of invoice discounting programme as we integrated the IT systems supporting the Commercial division.  We established and utilised additional Green leasing facilities to fund our ongoing investment in our Clean and Green Fleet increasing the proportion of Euro VI trucks substantially, which are right of use assets under IFRS 16.

 

PROVISIONS AND CONTINGENT LIABILITIES

Around 85% of the Group's provisions are long-term in nature, with the onerous contract provisions in the UK Municipal being utilised over 20 years and landfill provisions for many decades longer.  As referenced earlier the Group has completed its detailed triennial review of long-term discount rates this year which has resulted in a decrease of discount rates and an associated increase of €18m in the carrying value of provisions at 31 March 2020. The current provisions amount to €38m, including €4m for exceptional restructuring, €16m for Municipal onerous contracts and €5m for landfill related spend. Municipal cash outflows are expected to reduce in subsequent years. 

Details of contingent liabilities are set out in note 17 of the financial statements and the Group does not expect any of these to crystallise in the coming year. 

Retirement benefits

The Group operates a defined benefit pension scheme for certain UK employees which has been closed to new entrants since September 2002 and was closed to future benefit accrual on 30 November 2019.  At 31 March 2020, the scheme had moved into an accounting surplus of €16.0m (31 March 2019: €3.7m deficit).  The move into surplus was a result of a change in the scheme's investment strategy which led to a higher return on assets along with a decrease in the discount rate assumption and lower inflation.  During the year pension increase exchange exercises were actioned which resulted in a past service saving of €1.4m.  The latest actuarial valuation of the scheme was at 5 April 2018 and the future funding plan has been maintained at the current level of €3.5m per annum until February 2022.

There are also several defined benefit pension schemes for employees in the Netherlands and Belgium which had a retirement benefit deficit of €7.5m at 31 March 2020, a €0.7m decrease from 31 March 2019.

 

Consolidated Income Statement

For the year ended 31 March 2020

 

 

 

 

2020

 

2019

 

Note

 

 

Underlying

€m

Non-trading

 & exceptional items

€m

 

 

Total

€m

 

 

Underlying

m

Non-trading

 & exceptional items

€m

 

 

Total

€m

CONTINUING OPERATIONS

 

 

 

 

 

 

 

 

 

Revenue

3,4

 

1,775.4

-

1,775.4

 

1,780.7

-

1,780.7

Cost of sales

5

 

(1,467.5)

(72.2)

(1,539.7)

 

(1,470.4)

(51.3)

(1,521.7)

Gross profit (loss)

 

 

307.9

(72.2)

235.7

 

310.3

(51.3)

259.0

Administrative expenses

 

 

(220.3)

(43.5)

(263.8)

 

(224.8)

(90.8)

(315.6)

Operating profit (loss)

3,5

 

87.6

(115.7)

(28.1)

 

85.5

(142.1)

(56.6)

Finance income

6

 

9.7

2.2

11.9

 

12.4

-

12.4

Finance charges

6

 

(44.1)

-

(44.1)

 

(35.8)

(9.4)

(45.2)

Share of results from associates and joint ventures

 

 

0.9

-

0.9

 

0.4

-

0.4

Profit (loss) before taxation

 

 

54.1

(113.5)

(59.4)

 

62.5

(151.5)

(89.0)

Taxation

5,7

 

(13.3)

12.2

(1.1)

 

(15.6)

28.0

12.4

Profit (loss) for the year from continuing operations

 

 

40.8

(101.3)

(60.5)

 

46.9

(123.5)

(76.6)

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

Profit (loss) for the year from discontinued operations

13

 

2.3

(18.9)

(16.6)

 

1.4

(22.5)

(21.1)

Profit (loss) for the year

 

 

43.1

(120.2)

(77.1)

 

48.3

(146.0)

(97.7)

Attributable to:

 

 

 

 

 

 

 

 

 

Owners of the parent

 

 

43.0

(120.9)

(77.9)

 

48.9

(141.7)

(92.8)

Non-controlling interests

 

 

0.1

0.7

0.8

 

(0.6)

(4.3)

(4.9)

 

 

 

43.1

(120.2)

(77.1)

 

48.3

(146.0)

(97.7)

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share attributable to owners of the parent (cent per share)

Continuing operations

8

 

5.1

(12.8)

(7.7)

 

5.9

(14.9)

(9.0)

Discontinued operations

8

 

0.3

(2.4)

(2.1)

 

0.2

(2.8)

(2.6)

 

 

 

5.4

(15.2)

(9.8)

 

6.1

(17.7)

(11.6)

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share attributable to owners of the parent (cent per share)

Continuing operations

8

 

5.1

(12.8)

(7.7)

 

5.9

(14.9)

(9.0)

Discontinued operations

8

 

0.3

(2.4)

(2.1)

 

0.2

(2.8)

(2.6)

 

 

 

5.4

(15.2)

(9.8)

 

6.1

(17.7)

(11.6)

 

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2020

 

 

2020

€m

2019

€m

Items that may be reclassified subsequently to profit or loss:

 

 

Exchange differences on translation of foreign subsidiaries

6.3

0.3

Fair value movement on cash flow hedges

(12.2)

2.1

Deferred tax on fair value movement on cash flow hedges

0.3

(0.2)

Share of other comprehensive income of investments accounted for using the equity method

0.2

0.2

 

(5.4)

2.4

 

 

 

Items that will not be reclassified to profit or loss:

 

 

Actuarial gain on defined benefit pension schemes

15.2

10.8

Deferred tax on actuarial gain on defined benefit pension schemes

(2.8)

(1.7)

 

12.4

9.1

 

 

 

Other comprehensive income for the year, net of tax

7.0

11.5

Loss for the year

(77.1)

(97.7)

Total comprehensive loss for the year

(70.1)

(86.2)

 

 

 

Attributable to:

 

 

Owners of the parent

(69.7)

(81.1)

Non-controlling interests

(0.4)

(5.1)

Total comprehensive loss for the year

(70.1)

(86.2)

 

 

 

Total comprehensive loss attributable to owners of the parent arising from:

 

 

Continuing operations

(53.1)

(60.1)

Discontinued operations

(16.6)

(21.0)

 

(69.7)

(81.1)

 

Consolidated Balance Sheet

As at 31 March 2020

 

 

Note

31 March

 2020

€m

31 March

 2019

€m

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

10

610.1

605.6

Property, plant and equipment

 

10

584.0

629.1

Right-of-use assets

 

10

206.9

-

Investments

 

 

15.6

15.9

Financial assets relating to PPP contracts

 

 

141.8

149.8

Trade and other receivables

 

 

3.1

0.5

Derivative financial instruments

 

16

2.1

0.1

Defined benefit pension scheme surplus

 

15

16.0

-

Deferred tax assets

 

 

37.2

38.6

 

 

 

1,616.8

1,439.6

Current assets

 

 

 

 

Inventories

 

 

20.7

26.0

Investments

 

 

8.1

5.9

Loans to associates and joint ventures

 

 

0.9

0.9

Financial assets relating to PPP contracts

 

 

6.0

6.0

Trade and other receivables

 

 

272.4

278.8

Derivative financial instruments

 

16

-

2.9

Current tax receivable

 

 

0.7

-

Cash and cash equivalents

 

 

194.5

50.4

 

 

 

503.3

370.9

Assets of disposal groups classified as held for sale

 

13

-

162.4

 

 

 

503.3

533.3

Total assets

 

 

2,120.1

1,972.9

Liabilities

 

 

 

 

Non-current liabilities

 

 

 

 

Borrowings - PPP non-recourse net debt

 

 

(87.2)

(92.6)

Borrowings - Other

 

 

(816.1)

(483.7)

Derivative financial instruments

 

16

(32.4)

(28.4)

Other non-current liabilities

 

 

(7.1)

(6.5)

Deferred tax liabilities

 

 

(46.9)

(56.1)

Provisions

 

14

(252.4)

(215.9)

Defined benefit pension schemes deficit

 

15

(7.5)

(11.9)

 

 

 

(1,249.6)

(895.1)

Current liabilities

 

 

 

 

Borrowings - PPP non-recourse net debt

 

 

(2.8)

(2.8)

Borrowings - Other

 

 

(38.3)

(118.7)

Derivative financial instruments

 

16

(5.6)

(4.4)

Trade and other payables

 

 

(534.3)

(518.6)

Current tax payable

 

 

(16.5)

(17.9)

Provisions

 

14

(37.7)

(55.4)

 

 

 

(635.2)

(717.8)

Liabilities of disposal groups classified as held for sale

 

13

-

(40.5)

 

 

 

(635.2)

(758.3)

Total liabilities

 

 

(1,884.8)

(1,653.4)

Net assets

 

 

235.3

319.5

Equity

 

 

 

 

Share capital

 

 

99.5

99.5

Share premium

 

 

473.6

473.6

Exchange reserve

 

 

(11.6)

(17.9)

Retained earnings

 

 

(327.6)

(236.7)

Equity attributable to owners of the parent

 

 

233.9

318.5

Non-controlling interests

 

 

1.4

1.0

Total equity

 

 

235.3

319.5

 

Consolidated Statement of Changes in Equity

For the year ended 31 March 2020

 

 

 

Share

capital

€m

Share

premium

€m

Exchange reserve

€m

Retained earnings

€m

Non-controlling interests

€m

Total

equity

€m

 

 

 

 

 

 

 

Balance at 31 March 2019

99.5

473.6

(17.9)

(236.7)

1.0

319.5

Change in accounting policy (note 19)

-

-

-

(7.5)

-

(7.5)

Restated total equity at 1 April 2019

99.5

473.6

(17.9)

(244.2)

1.0

312.0

(Loss) profit for the year

-

-

-

(77.9)

0.8

(77.1)

Other comprehensive income (loss):

 

 

 

 

 

 

Exchange gain on translation of foreign subsidiaries

-

-

6.3

-

-

6.3

Fair value movement on cash flow hedges

-

-

-

(11.5)

(0.7)

(12.2)

Actuarial gain on defined benefit pension schemes

-

-

-

15.2

-

15.2

Tax in respect of other comprehensive income items

-

-

-

(2.0)

(0.5)

(2.5)

Share of other comprehensive income of investments accounted for using the equity method

-

-

-

0.2

-

0.2

Total comprehensive income (loss) for the year

-

-

6.3

(76.0)

(0.4)

(70.1)

 

 

 

 

 

 

 

Share-based compensation

-

-

-

1.2

-

1.2

Non-controlling interest capital injection

-

-

-

-

0.8

0.8

Dividends paid

-

-

-

(8.6)

-

(8.6)

Balance as at 31 March 2020

99.5

473.6

(11.6)

(327.6)

1.4

235.3

 

 

 

 

 

 

 

Balance at 1 April 2018

99.5

473.6

(18.2)

(124.7)

6.1

436.3

Loss for the year

-

-

-

(92.8)

(4.9)

(97.7)

Other comprehensive income (loss):

 

 

 

 

 

 

Exchange gain on translation of foreign subsidiaries

-

-

0.3

-

-

0.3

Fair value movement on cash flow hedges

-

-

-

2.3

(0.2)

2.1

Actuarial gain on defined benefit pension schemes

-

-

-

10.8

-

10.8

Tax in respect of other comprehensive income items

-

-

-

(1.9)

-

(1.9)

Share of other comprehensive income of investments accounted for using the equity method

-

-

-

0.2

-

0.2

Total comprehensive income (loss) for the year

-

-

0.3

(81.4)

(5.1)

(86.2)

 

 

 

 

 

 

 

Share-based compensation

-

-

-

0.8

-

0.8

Movement on tax arising on share-based compensation

-

-

-

(0.6)

-

(0.6)

Own shares purchased by the Employee Share Trust

-

-

-

(3.4)

-

(3.4)

Dividends paid

-

-

-

(27.4)

-

(27.4)

Balance as at 31 March 2019

99.5

473.6

(17.9)

(236.7)

1.0

319.5

The exchange reserve comprises all foreign exchange differences arising since 1 April 2005 from the translation of the financial statements of non-Euro denominated operations as well as from the translation of liabilities that hedge the Group's net investment in foreign operations. The cumulative translation loss of €1.9m in relation to the Canadian operations has been recycled through the Income Statement in the year ended March 2020 with further detail in note 13.

 

Consolidated Statement of Cash Flows

For the year ended 31 March 2020

 

 

2020

€m

2019

€m

Loss before tax

 

(59.4)

(89.0)

Finance income

 

(11.9)

(12.4)

Finance charges

 

44.1

45.2

Share of results from associates and joint ventures

 

(0.9)

(0.4)

Operating loss from continuing operations

 

(28.1)

(56.6)

Operating loss from discontinued operations

 

(15.8)

(21.0)

Amortisation and impairment of intangible assets

 

12.8

31.9

Depreciation and impairment of property, plant and equipment

 

74.8

99.5

Depreciation and impairment of right-of-use assets

 

42.8

-

Exceptional loss on disposal of subsidiaries/remeasurement of assets held for sale

 

56.2

42.0

Gain on disposal of property, plant and equipment

 

(1.7)

(2.3)

Exceptional loss allowance of loans to associates and joint ventures

 

-

20.4

Exceptional gain on disposal of joint venture

 

(1.4)

(11.1)

Outflows in respect of PPP arrangements under the financial asset model

 

(0.2)

(1.7)

Capital received in respect of PPP financial assets

 

0.1

8.6

Exceptional gain on disposal of subsidiaries

 

-

(0.3)

Exceptional charge on reassessment of discount rates for long term provisions

 

17.9

-

Net decrease in provisions

 

(2.8)

(16.9)

Exceptional past service cost in relation to defined benefit pension schemes

 

(1.4)

(0.1)

Payment related to committed funding of the defined benefit pension scheme

 

(3.5)

(3.4)

Other non-cash items

 

(0.1)

(2.2)

Share-based compensation

 

1.2

0.8

Operating cash flows before movement in working capital

 

150.8

87.6

Decrease in inventories

 

5.0

0.1

Increase in receivables

 

(5.7)

(5.3)

Increase in payables

 

17.7

4.4

Cash flows from operating activities

 

167.8

86.8

Income tax paid

 

(10.1)

(13.2)

Net cash inflow from operating activities

 

157.7

73.6

Investing activities

 

 

 

Purchases of intangible assets

 

(6.7)

(5.7)

Purchases of property, plant and equipment

 

(77.8)

(101.8)

Proceeds from disposals of property, plant and equipment

 

11.1

8.1

Acquisition of subsidiary, net of cash acquired

 

(3.8)

-

Acquisition of business assets

 

(2.6)

(0.1)

Proceeds from disposal of subsidiaries, net of cash disposed of and disposal costs paid

 

88.2

7.4

Purchase of associates and joint ventures

 

(1.7)

(3.8)

Net receipt of deferred consideration

 

0.3

0.3

Purchase of other short-term investments

 

(2.4)

(5.9)

Proceeds from disposal of joint venture

 

-

20.2

Dividends received from associates and joint ventures

 

0.6

0.7

Net repayment of loans granted to associates and joint ventures

 

-

1.6

Outflows in respect of PPP arrangements under the financial asset model

 

(1.7)

(1.4)

Capital received in respect of PPP financial assets

 

4.7

4.4

Finance income

 

10.9

11.7

Net cash inflow (outflow) from investing activities

 

19.1

(64.3)

Financing activities

 

 

 

Finance charges and loan fees paid

 

(37.9)

(29.4)

Investment in own shares by the Employee Share Trust

 

-

(3.4)

Capital injection from non-controlling interest

 

0.8

-

Dividends paid

 

(8.6)

(27.4)

Proceeds from retail bonds

 

75.0

-

Repayment of retail bonds

 

(100.0)

-

Proceeds from bank borrowings

 

78.3

40.3

Repayment of PPP net debt

 

(2.9)

(0.6)

Repayments of obligations under leases*

 

(38.5)

(11.8)

Net cash outflow from financing activities

 

(33.8)

(32.3)

Net increase (decrease) in cash and cash equivalents

 

143.0

(23.0)

Effect of foreign exchange rate changes

 

1.1

0.4

Cash and cash equivalents at the beginning of the year

 

50.4

73.0

Cash and cash equivalents at the end of the year

 

194.5

50.4

*Repayments of obligations under leases of €38.5m includes €1.8m in relation to assets of disposal groups classified as held for sale during the year which have now been disposed of, €0.5m in relation to discontinued operations which have now been disposed of and €36.2m as set out in note 11. Included in the €38.5m is €29.7m in relation to additional leases arising upon the adoption of IFRS 16.

 

Notes to the Consolidated Financial Statements

 

1. General information

 

Renewi plc is a public limited company listed on the London Stock Exchange and from 30 January 2020 with a secondary listing on Euronext Amsterdam. Renewi plc 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 2020 are extracted from but do not constitute the statutory financial statements for that year. The figures and financial information are audited. The Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows for the year ended 31 March 2019 and the Consolidated Balance Sheet as at 31 March 2019 have been derived from the full Group accounts published in the Annual Report and Accounts 2019. These 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 2020 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 2019.  The IFRS accounting policies have been applied consistently to all periods presented and throughout the Group for the purpose of the consolidated financial statements.

 

Going concern

 

As detailed in the CEO and CFO reviews, in relation to the Covid-19 pandemic our business is an essential service, in the front line of maintaining vital services to hospitals, businesses and communities and has been able to maintain all required services and protect our employees in recent times. There has been an adverse impact to volumes coming into our commercial divisions in particular in the last weeks of March and during April and May. We have undertaken revised modelling for the new financial year and beyond to reflect these changes and have taken cost and cash actions to preserve liquidity even in an extended crisis. The Group has recently announced that amendments to our banking covenants until September 2021 have been secured as a result of the impact of Covid-19. Having assessed the revised forecasts and the principal risks and other matters in connection with the viability statement, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these consolidated financial statements.

 

Covid-19

 

Management used judgement to determine the expected impact on financial instruments as a result of the Covid-19 pandemic. Management have adjusted the future cash flows of cash generating units when undertaking impairment reviews, specifically with regard to a reduction in input volumes, reassessment of costs and a deferral of non-urgent maintenance and capital expenditure. In addition the expected impact of Covid-19 has been taken into account when assessing the recoverability of deferred tax assets.

 

Changes in accounting policies

 

The Group adopted IFRS 16 Leases from 1 April 2019 and has applied the modified retrospective approach. The comparative information has not been restated however the reclassifications and adjustments on the opening Balance Sheet on 1 April 2019 have been recognised and disclosed. The accounting policies, judgements, impact and practical expedients taken in relation to right-of-use assets and lease liabilities are detailed in note 19. 

 

The Group also adopted IFRIC 23 Uncertainty over income tax treatments, no changes were needed to the Groups tax provisions as at the initial application date of 1 April 2019.

 

2. Basis of preparation - continued

 

The Group has elected to early adopt the Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform (IBOR) issued in September 2019 and EU endorsed on 15 January 2020. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting period or were designated thereafter. The amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform and set out triggers for when the relief will end which include the uncertainty arising from interest rate benchmark reform no longer being present. The reliefs mean that this reform should not generally cause the termination of hedge accounting and the Group has no plans to discontinue hedge accounting during the period solely due to this IBOR related uncertainty. However, any hedge ineffectiveness will continue to be recorded in the Income Statement as a non-trading item. The Group has limited exposure to changes in the GBP LIBOR benchmark with a notional principal amount of €243.1m of forward cross-currency interest rate swaps and €104.7m of interest rate swaps relating to PPP contracts. The Group's transition programme anticipates that the areas of greatest change will be amendments of the contractual terms of LIBOR referenced interest rate swaps and cross-currency interest rate swaps and their related cashflows. In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Group has therefore assumed that these future cash payments are not altered by IBOR. The Group has also determined that the hedged GBP LIBOR risk component is not separately identifiable at hedge designation.

 

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 the date of approval of these financial statements, there are no IFRSs or IFRS IC interpretations not yet effective that would be expected to have a material impact on the Group and there were no other new IFRSs or IFRS IC interpretations which were early adopted by the Group.

 

Exchange Rates

 

The most significant currency for the Group is Sterling with the closing rate on 31 March 2020 of €1:£0.884 (2019: €1:£0.862) and an average rate for the year ended 31 March 2020 of €1:£0.872 (2019: €1:£0.895).

 

Underlying business performance

 

The Group uses alternative performance measures as we believe these measures provide additional useful information on the underlying trends, performance and position of the Group. These underlying 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. 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. These measures are not intended to be a substitute for, or superior to, GAAP measurements of profit. A full list of alternative performance measures and non-IFRS measures together with reconciliations are set out in note 18.

 

Non-trading and exceptional items

 

Items classified as non-trading and exceptional are disclosed separately due to their size or incidence to enable a better understanding of performance. These include, but are not limited to, significant impairments, significant restructuring of the activities of an entity including employee associated severance costs, acquisition and disposal related transaction costs, integration costs, synergy delivery costs, significant fires, onerous contracts arising from restructuring activities or if significant in size, profit or loss on disposal of properties or subsidiaries as these are irregular, the change in fair value of non-hedged derivatives, ineffectiveness of derivative financial instruments, the impact of changing the discount rate on provisions and amortisation of acquisition intangibles. 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. A full listing of those items presented as non-trading and exceptional is shown in note 5.

 

3. Segmental reporting

The Group's chief operating decision maker is considered to be the Board of Directors. The Group's reportable segments are 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 and are set out below:

 

Commercial Waste

Collection and treatment of commercial waste in the Netherlands and Belgium.

Hazardous Waste

Treatment of hazardous waste in the Netherlands and industrial cleaning until 31 October 2019.

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, Hungary and Portugal.

Municipal

Operation of waste management facilities under long-term municipal contracts in the UK.

Group central services

Head office corporate function.

The Commercial Waste reportable segment includes the Netherlands Commercial Waste and Belgium Commercial Waste operating segments which have been aggregated and reported as one reportable segment as they operate in similar markets in relation to the nature of the products, services, processes and type of customer.

 

The profit measure the Board of Directors uses to evaluate performance is underlying EBIT. The Group accounts for inter-segment trading on an arm's length basis.

 

Revenue

 

 

 

2020

€m

2019

€m

Netherlands Commercial Waste

 

786.0

764.7

Belgium Commercial Waste

 

439.1

430.8

Intra-segment

 

(1.5)

(1.1)

Commercial Waste

 

1,223.6

1,194.4

 

 

 

 

 

 

Hazardous Waste

 

 

 

173.0

211.3

 

 

 

 

 

 

Monostreams

 

 

 

213.6

213.3

 

 

 

 

 

 

Municipal

 

 

 

197.2

195.2

 

 

 

 

 

 

Inter-segment revenue

 

(32.0)

(33.5)

Total revenue from continuing operations

 

1,775.4

1,780.7

 

Results

 

2020

€m

2019

€m

Netherlands Commercial Waste

 

56.0

53.2

Belgium Commercial Waste

 

33.9

33.3

Commercial Waste

 

89.9

86.5

 

 

 

 

Hazardous Waste

 

12.0

7.0

 

 

 

 

Monostreams

 

14.5

12.9

 

 

 

 

Municipal

 

(2.8)

0.8

 

 

 

 

Group central services

 

(26.0)

(21.7)

 

 

 

 

Total underlying EBIT

 

87.6

85.5

Non-trading and exceptional items (note 5)

 

(115.7)

(142.1)

Total operating loss from continuing operations

 

(28.1)

(56.6)

Finance income

 

9.7

12.4

Finance charges

 

(44.1)

(35.8)

Finance income - non trading and exceptional items

 

2.2

-

Finance charges - non trading and exceptional items

 

-

(9.4)

Share of results from associates and joint ventures

 

0.9

0.4

Loss before taxation and discontinued operations

 

(59.4)

(89.0)

 

4. Revenue

 

 The following tables show the Group's continuing revenue by type of service delivered and by primary geographic markets:

 

 

Commercial Waste

Hazardous Waste

Monostreams

Municipal

Inter-segment

Total

Revenue by type of service

€m

€m

€m

€m

€m

€m

2020

 

 

 

 

 

 

Inbound

1,037.2

94.6

79.0

185.9

(27.8)

1,368.9

Outbound

116.8

5.4

131.8

4.8

(2.4)

256.4

On-Site

39.2

72.9

-

-

(0.2)

111.9

Other

30.4

0.1

2.8

6.5

(1.6)

38.2

Total revenue

1,223.6

173.0

213.6

197.2

(32.0)

1,775.4

2019

 

 

 

 

 

 

Inbound

969.2

91.5

71.7

167.3

(23.5)

1,276.2

Outbound

151.5

4.1

138.9

5.9

(2.2)

298.2

On-Site

44.2

115.7

-

-

(6.3)

153.6

Other

29.5

-

2.7

22.0

(1.5)

52.7

Total revenue

1,194.4

211.3

213.3

195.2

(33.5)

1,780.7

 

 

Commercial Waste

Hazardous Waste

Monostreams

Municipal

Inter-segment

Total

Revenue by geographic market

€m

€m

€m

€m

€m

€m

2020

 

 

 

 

 

 

Netherlands

785.1

173.0

116.0

-

(30.2)

1,043.9

Belgium

438.5

-

64.7

-

(1.8)

501.4

UK

-

-

-

197.2

-

197.2

France

-

-

22.7

-

-

22.7

Other

-

-

10.2

-

-

10.2

Total revenue

1,223.6

173.0

213.6

197.2

(32.0)

1,775.4

2019

 

 

 

 

 

 

Netherlands

764.0

211.3

113.9

-

(31.2)

1,058.0

Belgium

430.4

-

62.6

-

(2.3)

490.7

UK

-

-

-

195.2

-

195.2

France

-

-

24.2

-

-

24.2

Other

-

-

12.6

-

-

12.6

Total revenue

1,194.4

211.3

213.3

195.2

(33.5)

1,780.7

Revenue recognised at a point in time amounted to €1,611.8m (2019: €1,576.8m) with the remainder recognised over time. The majority of the Commercial, Municipal and Monostreams revenue is recognised at a point in time, whereas for Hazardous Waste the majority is recognised over time.

 

5. 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.

 

 

2020

€m

2019

€m

Merger related costs:

 

 

 

Synergy delivery costs - cash

 

13.3

32.1

Synergy delivery costs - non-cash

 

0.7

12.1

Integration costs - cash

 

2.3

12.5

Integration costs - non-cash

 

-

0.1

 

 

16.3

56.8

 

 

 

 

Portfolio management activity:

 

 

 

Loss on disposal of subsidiaries/prior year remeasurement of assets held for sale

 

37.3

19.5

Acquisition of 100% of shares in a joint venture

 

(1.4)

-

Prior year disposals

 

(2.2)

(11.0)

2017 merger related

 

(3.9)

0.2

 

 

29.8

8.7

 

 

 

 

UK Municipal contract issues

 

25.9

64.3

 

 

 

 

Other changes in long-term provisions

 

33.0

-

 

 

 

 

Other items:

 

 

 

ATM soil issues

 

3.1

6.5

Restructuring charges

 

2.7

-

Income relating to fires

 

(0.1)

(0.5)

IAS 19 Employee benefits pensions net credit

 

(1.4)

(0.1)

 

 

4.3

5.9

 

 

 

 

Exceptional finance charges - Derby contract issues

 

-

5.0

Ineffectiveness on cash flow hedges

 

(2.2)

4.3

Change in fair value of derivatives at fair value through profit or loss

 

-

0.1

Amortisation of acquisition intangibles

 

6.4

6.4

Non-trading and exceptional items in loss before tax (continuing operations)

 

113.5

151.5

Tax on non-trading and exceptional items

 

(9.8)

(12.4)

Exceptional tax credit

 

(2.4)

(15.6)

Non-trading and exceptional items in loss after tax (continuing operations)

 

101.3

123.5

Discontinued operations

 

18.9

22.5

Total non-trading and exceptional items in loss after tax

 

120.2

146.0

 

The above non-trading and exceptional items include the following:

 

Merger related costs

Due to the significance of the merger of Shanks Group and Van Gansewinkel Groep (VGG) in 2017 and the associated synergy delivery projects, these costs are considered to be exceptional. Synergy delivery costs of €14.0m (2019: €44.2m) and integration costs of €2.3m (2019: €12.6m) were incurred as the Group executes merger plans for generating value. Synergy delivery costs include non-cash impairments of €0.7m relating to the simplification of the range of products at Coolrec and the prior year cost of €12.1m principally related to the restructuring of the Monostreams glass operations in the Netherlands. The total cost of €16.3m (2019: €56.8m) was split €4.0m (2019: €29.5m) in cost of sales and €12.3m (2019: €27.3m) in administrative expenses.

 

Portfolio management activity

The Municipal Canada sale completed in September 2019 and is shown as a discontinued operation. The sale of the Hazardous Waste Reym industrial cleaning business completed in October 2019 with a loss on disposal of €37.3m (2019: €19.5m loss on remeasurement) and further details are set out in note 12.

 

In November 2019 the Group acquired the 50% holding in AP4 Terra B.V. from the joint venture partner and this resulted in a profit of €1.4m and further details are set out in note 12.

 

5. Non-trading and exceptional items - continued

 

The credit for prior year disposals of €2.2m relates to the release of a warranty provision for a UK disposal as it is now no longer required. The prior year credit of €11.0m includes the profit on the sale of the Group's share in the UK joint venture, Energen Biogas and the profit on sale of transferring 50% of a Hazardous Waste ATM subsidiary to a joint venture net of initial fees relating to the disposal process for the Canada and Reym businesses.

 

The 2017 merger related credit of €3.9m (2019: €0.2m charge) includes a final warranty settlement relating to the 2017 merger of VGG, a release of provisions in relation to pre-merger legal matters net of further legal and other advisory transaction costs incurred. These are considered exceptional as part of the overall total transaction costs.

 

The total cost of €29.8m (2019: €8.7m) was all recorded in administrative expenses.

 

UK Municipal contract issues

The UK Municipal contract issues of €25.9m (2019: €64.3m) relate to the ELWA contract which has become onerous from 1 January 2020 as a result of a new Dutch tax on the import of burnable waste which has and will continue to increase off-take costs until new outlets can be found together with an expected impact of Brexit which will increase haulage and tariff costs. This charge is split between an onerous contract provision of €15.5m and impairment of €10.4m of right-of-use assets. In the prior year €59.3m was reflected in relation to the UK Municipal Derby contract including a provision against the original subordinated debt investment of €20.4m along with impairment of goodwill and other intangible assets of €14.9m, onerous contract provision of €7.6m to cover ongoing losses and termination costs, a loss allowance against €11.6m of unpaid delay damages and acceleration of a prepayment of €4.8m. The contract was subsequently terminated in August 2019. In addition the prior year charge included a €1.8m onerous contract provision increase and €4.1m of impairments of contract right intangibles and plant and equipment relating to the ELWA contract net of a release of a provision of €0.9m for the Elstow contract. The charge of €25.9m (2019: €64.3m) was split €25.9m (2019: €9.4m) in cost of sales and €nil (2019: €54.9m) in administrative expenses.

 

Other changes in long-term provisions

Other changes in long-term provisions includes an increase in provisions of €17.9m due to the reduction in discount rates, principally landfill related and onerous contracts, as a result of the fall in Government bond yields. As announced in March 2020, on 6 February the European Commission announced its decision to initiate a formal investigation in which it alleges that the Walloon Region of Belgium provided state aid to the Group in relation to the Cetem Landfill. An adverse judgement would require the Walloon Region to seek repayment from the Group. While we are vigorously defending the case, we have considered it appropriate at this stage to recognise a provision of €15.1m which has been based on the most likely outcome from our legal advisers. The charge of €33.0m is all recorded in cost of sales.

 

Other items

The charge for ATM soil issues of €3.1m (2019: €6.5m) relates to the soil offset market issue and includes additional costs of logistics, off-site storage, testing and legal advice. These issues are now resolved and no further exceptional charges are expected.

 

Other restructuring of €2.7m (2019: €nil) includes advisor fees relating to Renewi 2.0, a project to enhance margins and efficiencies through digitisation and optimising internal processes.

 

The net credit in income relating to fires of €0.1m (2019: €0.5m) was the result of final insurance settlements relating to significant fires in the Commercial division in prior years.

 

The IAS 19 Employee benefits net credit of €1.4m (2019: €0.1m) relates to a past service credit for the UK defined benefit pension scheme which was closed to future benefit accrual during the year together with a reduction in liabilities as a result of pension increase exchange exercises. The prior year credit included a past service charge of €2.0m for the UK defined benefit pension scheme as a result of the impact of the 2018 Court ruling for guaranteed minimum pension equalisation along with a curtailment gain of €2.1m which arose as the principal Dutch legacy VGG defined benefit pension scheme was closed.

 

The total charge of €4.3m (2019: €5.9m) was split €2.9m (2019: €6.0m) in cost of sales and €1.4m (2019: €0.1m credit) in administrative expenses.

 

Items recorded in finance charges and finance income

The exceptional finance charges in the prior year include a €5.0m loss allowance against the interest receivable on the subordinated debt in relation to the Derby UK Municipal contract as described above. The €2.2m credit (2019: €4.3m charge) for ineffectiveness on cash flow hedges is principally in relation to the Cumbria PPP project interest rate swaps as a result of a revised repayment programme for the PPP non-recourse debt.

 

Amortisation of acquisition intangibles

Amortisation of intangible assets acquired in business combinations of €6.4m (2019: €6.4m) is all recorded in cost of sales.

 

5. Non-trading and exceptional items - continued

 

Exceptional tax credit

The exceptional tax credit of €2.4m (2019: €15.6m) relates to a release of provisions in relation to pre-merger tax issues in Belgium and the Netherlands and changes in tax rates in the UK and the Netherlands. The prior year credit related to the change in tax rates in Belgium and the Netherlands and the recognition of tax losses in the Netherlands and further details are given in note 7.

 

Discontinued operations

The sale of the Canadian disposal group was completed on 30 September 2019 which resulted in a loss on disposal of €18.9m (2019: €22.5m loss on remeasurement) and further details are set out in note 13. As a result of uncertainty of receipt, the contingent proceeds from this disposal will only be recognised once more certain.

 

6. Net finance charges

 

 

 

 

2020

€m

2019

€m

Finance charges

 

 

 

 

Interest payable on borrowings

 

 

18.5

16.3

Interest payable on PPP non-recourse net debt

 

 

7.8

7.8

Lease interest*

 

 

6.4

0.8

Unwinding of discount on provisions (note 14)

 

 

7.7

8.4

Interest charge on the retirement benefit schemes

 

 

0.2

0.6

Amortisation of loan fees

 

 

1.3

0.8

Other finance costs

 

 

2.2

1.1

Total finance charges before non-trading and exceptional items

 

 

44.1

35.8

Finance income

 

 

 

 

Interest receivable on financial assets relating to PPP contracts

 

 

(9.5)

(9.5)

Unwinding of discount on deferred consideration receivable

 

 

(0.2)

(0.2)

Interest receivable on other loans and receivables

 

 

-

(2.7)

Total finance income before non-trading and exceptional items

 

(9.7)

(12.4)

Non-trading and exceptional items

 

 

 

 

Change in fair value of derivatives at fair value through profit or loss

 

 

-

0.1

Ineffectiveness on cash flow hedges

 

 

(2.2)

4.3

Exceptional finance charges

 

 

-

5.0

Non-trading and exceptional items

 

 

(2.2)

9.4

Net finance charges