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Research: Industrials
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.
Written by
Renewi |
Near-term flexibility, long-term growth strategy |
FY20 results |
Industrial support services |
4 June 2020 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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
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Research: Financials
ProCredit (PCB) has extensive experience in supporting small and medium-sized enterprises (SMEs) in emerging economies (coupled with a strong environmental, social and governance (ESG) profile), with a focus on Southeastern (SEE) and Eastern Europe (EE) and banking operations in Ecuador. Its in-depth, impact-oriented relationships with SME borrowers (93% of loan book at end-Q120), prudent credit risk management and solid capital base (CET-1 ratio of 14.0% at end-Q120) should help reduce the impact of macro headwinds. We forecast PCB’s ROE to increase from c 7% in FY19 to 10% by FY24, driven by solid loan book growth after FY20e (c 9% pa), which can be achieved with the existing capital base. This should be assisted by limited growth in operating expenses due to a lean branch network and digital platform.