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Near-term flexibility, long-term growth strategy

Renewi 4 June 2020 Update
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Renewi

Near-term flexibility, long-term growth strategy

FY20 results

Industrial support services

4 June 2020

Price

26.25p

Market cap

£210m

€1.12/£

Core group ongoing net debt
(ex-PPP/PFI finance and IFRS 16 leases, €m) at end March 2020

457

Shares in issue

800.1m

Free float

98.8%

Code

RWI

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

1.4

(29.4)

(18.6)

Rel (local)

(8.5)

(25.1)

(9.4)

52-week high/low

45.0p

18.1p

Business description

Renewi is a waste-to-product company with operations primarily in the Netherlands, Belgium and the UK and was formed from the merger between Shanks Group and Van Gansewinkel Group in 2017. Its activities span the collection, processing and resale of industrial, hazardous and municipal waste.

Next events

AGM

16 July 2020 (TBC)

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

FY20 ended on a positive note strategically for Renewi, with two non-core disposals and resumption of soil shipments by ATM. COVID-19 began to have an impact at the year-end, but cost reduction/cash preservation measures together with amended banking covenants allow financial flexibility. A strategy refresh (Renewi 2.0) provides investors with a roadmap for future business development focusing on core business strengths. Our estimates are temporarily suspended and are under review.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/18

1,760.3

63.0

5.9

3.46

5.0

11.8

03/19

1,780.7

63.1

6.0

1.68

4.9

5.7

03/20

1,775.4

54.3

5.4

0.51

5.4

1.7

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. FY20 is on an IFRS 16 basis.

FY20 earnings lower, core net debt reduced

Renewi’s ongoing businesses grew revenue by 2% and, although underlying EBIT was 10% lower (l-f-l, IAS 17 basis), this was slightly better than our January estimate. Divisionally, Commercial Waste and Monostreams both improved their EBIT contributions in FY20 but were outweighed in aggregate by weaker ATM and UK Municipal outturns, together with higher group central costs following one-off items in the prior year. PBT on the same IAS 17/pre-IFRS 16 basis was down 23% y-o-y. Exceptional charges of c €120m were in line with previous guidance. Positive underlying cash flow, supplemented by disposal proceeds, left year-end pre-IFRS 16 core net debt of €457m, 3x EBITDA. Net cash inflow was c €24m better than we had anticipated, primarily due to a stronger working capital performance and tighter capex spend. IFRS 16 leases were €203m (versus c €165m at the half-year stage).

Financial headroom covering COVID-19 trading risk

The 29 May COVID-19 update noted a small trading impact at the end of FY20 (c €4m) with an expected Q121 EBIT impact of around €20m (in context, H120 EBIT was c €45m). The trading impact on each of Renewi’s businesses has been variable with the Netherlands – the largest revenue territory – appearing to be least affected, while the UK lockdown has reduced revenues slightly. ATM has been relatively unaffected thus far after resuming soil shipments at the end of FY20. Renewi has an agreed relaxation to its banking covenants, which now allow for net debt up to 6x EBITDA in H221, reducing back to 3.5x by September 2021. Renewi stated that operational measures taken include c €60m annual cost savings (initially c €40m), while liquidity headroom of c €250m was in place at the end of March (previously c €200m).

Renewi 2.0 frames strategic focus

A refreshed strategy (Renewi 2.0) has been announced, intended to capitalise on favourable long-term recycling drivers in markets in which the company has leading positions to deliver long-term profitable growth through investment and improved business efficiency. Financially, c €20m annual cost benefits are expected to be generated by the end of FY23, with a cash spend of c €40m to achieve this.

Exhibit 1: Financial summary

m's

2018

2018

2019

2020

March

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Euros

Euros

Euros

Revenue

 

 

1,565.7

1,760.3

1,780.7

1,775.4

Cost of Sales

 

 

(1,276.9)

(1,419.2)

(1,470.4)

(1,467.5)

Gross Profit

 

 

288.8

341.1

310.3

307.9

EBITDA

 

 

156.9

176.3

179.7

167.1

Operating Profit (before GW and except.)

69.1

82.5

85.5

87.6

Net Interest

 

 

(14.2)

(15.0)

(14.4)

(18.5)

Other Finance

 

 

(5.1)

(7.1)

(8.4)

(15.7)

JV/Associates

 

 

2.3

2.6

0.4

0.9

Intangible Amortisation

 

 

(5.8)

(6.7)

(6.4)

(6.4)

Non-trading & exceptional items

 

 

(95.7)

(108.4)

(145.1)

(107.1)

Profit Before Tax (Edison norm)

 

52.1

63.0

63.1

54.3

Pension net finance costs

 

 

(0.6)

(0.7)

(0.6)

(0.2)

Profit Before Tax (Renewi norm)

 

51.5

62.3

62.5

54.1

Profit Before Tax (statutory)

 

 

(50.0)

(52.8)

(89.0)

(59.4)

Tax - headline

 

 

2.6

1.4

12.4

(1.1)

Profit After Tax (norm)

 

 

39.1

47.2

47.5

41.0

Profit After Tax

 

 

(47.4)

(51.5)

(76.6)

(60.5)

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

799.9

799.9

796.7

794.6

EPS - Edison norm (p/c) FD

 

 

4.9

5.9

6.0

5.4

EPS - Renewi norm (p/c) FD

 

 

4.8

5.4

6.0

5.4

EPS - (p/c)

 

 

(5.9)

(6.8)

(11.7)

(9.8)

Dividend per share (p/c)

 

 

3.05

3.46

1.68

0.51

 

 

 

 

 

 

 

Gross Margin (%)

 

 

18.4

19.4

17.4

17.3

EBITDA Margin (%)

 

 

10.0

10.0

10.1

9.4

Operating Margin (before GW and except.) (%)

4.4

4.7

4.8

4.9

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

Fixed Assets

 

 

1,456.3

1,669.2

1,439.6

1,616.8

Intangible Assets

 

 

606.3

699.3

605.6

610.1

Tangible Assets (inc RoU assets)

 

 

623.0

710.8

629.1

790.9

Investments

 

 

227.0

259.1

204.9

215.8

Current Assets

 

 

366.2

418.0

533.3

503.3

Stocks

 

 

23.3

26.6

26.0

20.7

Debtors

 

 

279.0

318.4

456.9

288.1

Cash

 

 

63.9

73.0

50.4

194.5

Current Liabilities

 

 

(545.8)

(631.0)

(758.3)

(635.2)

Creditors

 

 

(532.9)

(616.3)

(639.6)

(618.4)

Short term borrowings

 

 

(12.9)

(14.7)

(118.7)

(16.8)

Long Term Liabilities

 

 

(894.3)

(1,019.9)

(895.1)

(1,249.6)

Long term borrowings

 

 

(489.7)

(558.9)

(483.7)

(634.9)

Other long-term liabilities

 

 

(404.6)

(461.0)

(411.4)

(614.7)

Net Assets

 

 

382.4

436.3

319.5

235.3

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

Operating Cash Flow

 

 

128.4

143.6

86.8

167.8

Net Interest

 

 

(16.9)

(19.1)

(17.7)

(27.0)

Tax

 

 

(6.7)

(7.6)

(13.2)

(10.1)

Net Capex

 

 

(81.2)

(92.3)

(99.4)

(73.4)

Acquisitions/disposals

 

 

(4.1)

(4.8)

22.7

81.0

Equity Financing

 

 

0.6

0.6

(2.7)

0.6

Dividends

 

 

(24.4)

(27.6)

(27.4)

(8.6)

Net Cash Flow

 

 

(4.3)

(7.3)

(50.9)

130.3

Opening core net debt/(cash)

 

 

423.9

492.7

500.0

552.0

IFRS 16 lease capital repayments

 

 

0.0

0.0

0.0

(38.5)

Other

 

 

(10.5)

(0.0)

(1.1)

3.0

Closing core net debt/(cash)

 

 

438.7

500.0

552.0

457.2

Closing PPP/PFI non-recourse net debt

 

82.9

94.6

95.4

90.0

IFRS 16 lease finance

 

 

 

 

 

202.7

Source: Company, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Renewi and prepared and issued by Edison, in consideration of a fee payable by Renewi. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Renewi and prepared and issued by Edison, in consideration of a fee payable by Renewi. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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