DJ Renewi plc: Half-year report
Renewi plc (RWI) Renewi plc: Half-year report 09-Nov-2021 / 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.
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9 November 2021
STRONG FIRST HALF PERFORMANCE, WITH FURTHER INCREASE IN MANAGEMENT'S EXPECTATIONS FOR YEAR ENDING 31 MARCH 2022
Renewi plc (LSE: RWI), the leading international waste-to-product business, announces its results for the six months ended 30 September 2021.
Financial Highlights
-- Revenue up 11% to EUR916m, driven by Covid recovery and ongoing stronger recyclate prices
-- Underlying EBITDA1 up by 43% to EUR126.6m; underlying EBIT1 up by 125% to EUR63.8m driven by CommercialWaste; Commercial Waste EBIT margin increased by 470bp to 9.6%
-- Statutory profit of EUR37.1m (2020: EUR3.5m)
-- Core net debt* reduced to EUR336m (March 2021: EUR344m), representing net debt to EBITDA of 1.82x, within our2x leverage target two years ahead of expectations
-- Management expectations for the full year ending 31 March 2022 further increased
Market and Strategic Highlights
-- Regulation continues to support our business model, including increased incineration taxes in Belgianregions and the Vlarema 8 legislation in Flanders
-- Increased demand for recyclates, combined with shorter-term supply constraints, has led to current higherrecyclate prices; longer term outlook is for sustained value from secondary materials
-- As detailed in the Group's recent Capital Markets Event, our investments in circular innovations areexpected to deliver an additional EUR20m of EBIT by the end of 2025. Further projects remain under development
-- The Renewi 2.0 programme remains on track to deliver EUR20m of savings by FY24 and is currently deliveringrun rate benefits of EUR4.0m
-- ATM has shipped over 400k tonnes, representing 31% of legacy TGG stocks, and outlets for secondaryconstruction materials are developing. As previously indicated, low intake of inbound contaminated soil will delaythe full ATM profit recovery
Sustainability
-- Our business enables a circular economy: sustainability is core to our business strategy and Renewicontributes to the net avoidance of over 3 million tonnes of CO2 per annum
-- Newly committed innovation projects expected to underpin our target to increase the Group's recyclingrate by 10 percentage points to 75% and avoidance of a further 0.5 million tonnes of CO2 per annum
1The definition and rationale for the use of non-IFRS measures are included in note 17.
* Core net debt used for banking leverage calculations excludes the impact of IFRS 16 lease liabilities and UK PPP net debt.
Otto de Bont, Chief Executive Officer, said:
"Renewi delivered a strong performance in the first half of FY22, with underlying EBIT 125% above prior year and 69% above the pre-Covid first half of FY20. We have successfully retained some of the structural cost savings made in response to the Covid-19 pandemic and these, combined with volume recovery and ongoing strong recyclate prices, have contributed to the significant increase in margins and profits. Following this strong first half, the Board is further increasing its full year expectations, which assume a moderation of recyclate prices in the second half as well as a reduced throughput at ATM.
"Our business model is essential to enable advanced circular economies to achieve their carbon reduction targets. By recycling more we reduce incineration and assist our customers in reducing their carbon footprint as they replace virgin materials with our high-quality secondary materials. We therefore expect to see long-term accretive growth opportunities across our markets as we add more value to the waste we collect and process."
Results
Sep 21 Sep 20 % change Sep 192 UNDERLYING NON-STATUTORY Revenue EUR915.6m EUR821.4m +11% EUR850.7m Underlying EBITDA1 EUR126.6m EUR88.5m +43% EUR91.2m Underlying EBIT1 EUR63.8m EUR28.3m +125% EUR37.8m Underlying profit before tax1 EUR50.4m EUR15.3m +229% EUR20.2m Underlying EPS1 (cents per share) 47c 15c +213% Adjusted free cash flow1 EUR25.9m EUR33.7m Free cash flow1 EUR14.2m EUR77.9m Core net debt* EUR336m EUR381m STATUTORY Revenue EUR915.6m EUR821.4m Operating profit EUR58.2m EUR17.0m Profit before tax EUR44.7m EUR4.4m Profit for the period EUR37.1m EUR3.5m Basic EPS (cents per share) 46c 5c Cash flow from operating activities EUR75.5m EUR133.9m Total net debt* EUR648m EUR684m
1 The definition and rationale for the use of non-IFRS measures are included in note 17.
2 September 2019 values are for ongoing businesses only and exclude the results for the Canada and Reym activities which were sold during FY20.
* Core net debt used for banking leverage calculations excludes the impact of IFRS 16 lease liabilities and UK PPP net debt.
The results for both this year and the prior years are reported applying IFRS 16. Where appropriate, we also disclose certain metrics on an IAS 17 basis as this is of particular relevance for the calculation of leverage for the Group's banking covenants.
For further information: Paternoster Communications Renewi plc +44 20 3012 0241 +44 7976 321 540 Tom Buchanan Adam Richford, Head of Investor Relations +44 20 3012 0241 +44 7773 813 180 Ben Honan Michelle James, Communications
Notes: 1. A copy of this announcement is available on the Company's website, (www.renewi.com) 2. Renewi will hold an online analyst presentation at 9.30 a.m. GMT / 10.30 a.m. CET today 3. Webcast: https://live.sommedia.nl/renewic-ir-2021 4. Today's results presentation will also be available on the website Forward-looking statements
Certain statements in this announcement constitute "forward-looking statements". Forward-looking statements may sometimes, but not always, be identified by words such as "will", "may", "should", "continue", "believes", "expects", "intends" or similar expressions. These forward-looking statements are subject to risks, uncertainties and other factors which, as a result, could cause Renewi plc's actual future financial condition, performance and results to differ materially from the plans, goals and expectations set out in the forward-looking statements. Such statements are made only as at the date of this announcement and, except to the extent legally required, Renewi plc undertakes no obligation to revise or update such forward-looking statements.
Chief Executive Officer's Statement
Overview
Renewi delivered a strong performance in the first half of FY22, with underlying EBIT 125% above prior year and 69% above the pre-Covid first half of FY20. We have successfully retained some of the structural cost savings made in response to the Covid-19 pandemic and these, combined with volume recovery and ongoing strong recyclate prices, have contributed to the significant increase in margins and profits. We are also particularly pleased to have achieved our target of reducing leverage below 2x while at the same time increasing our investment in growth projects.
We remain confident our three strategic value drivers - our innovation pipeline, recovery of earnings at ATM, and the Renewi 2.0 programme - will deliver significant additional earnings over the next years as well as the longer term. Our business model is essential to enable advanced circular economies to achieve their circularity and consequent carbon reduction targets. We continue to see positive structural growth drivers as the Dutch and Belgian regional governments progressively tax carbon emitters, incentivise recycling over incineration, and promote the use of secondary materials. We therefore expect to see long-term accretive growth opportunities across our markets as we continue to assist our customers to recycle more and to use our high-quality secondary materials.
Group financial performance
Group Summary Revenue Underlying EBIT
Sep 21 Sep 20 Variance Sep 21 Sep 20 Variance
EURm EURm % EURm EURm %
Commercial Waste 670.6 595.0 13% 64.7 29.4 120%
Mineralz & Water 93.6 90.4 4% 4.0 2.3 74%
Specialities 168.0 149.4 12% 1.7 - N/A
Group central services - - (6.6) (3.4) -94%
Inter-segment revenue (16.6) (13.4) - -
Total 915.6 821.4 11% 63.8 28.3 125%
The underlying figures above are reconciled to statutory measures in note 3 in the consolidated financial statements.
Group revenue was up by 11% to EUR916m and underlying EBIT increased by 125% to EUR63.8m. Underlying profit before tax increased by 229% to EUR50.4m. Underlying earnings per share increased by 213% to 47 cents (2020: 15 cents).
The business delivered a positive adjusted free cash-flow of EUR25.9m (2020: EUR33.7m). There was a net cash outflow of EUR1.9m (2020: inflow of EUR67.7m, which included the EUR55m benefit of deferred payroll and other taxes in the Netherlands). Core net debt/EBITDA reduced to 1.82x at 30 September 2021, achieving the Board's target of leverage below 2x two years ahead of expectations.
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DJ Renewi plc: Half-year report -2-
The Board is keeping the dividend under review, taking into account the Group's ongoing investments in growth projects, current trading and longer-term outlook.
Commercial Waste Revenue Underlying EBITDA Underlying EBIT
Sep 21 Sep 20 Sep 21 Sep 20 Sep 21 Sep 20
Netherlands Commercial 442.3 396.8 71.1 50.3 43.2 21.1
Belgium Commercial 228.9 198.5 38.1 22.6 21.5 8.3
Intra-segment revenue (0.6) (0.3) - - - -
Total (EURm) 670.6 595.0 109.2 72.9 64.7 29.4
Period on period variance %
Netherlands Commercial 11% 41% 105%
Belgium Commercial 15% 69% 159%
Total 13% 50% 120%
Return on Underlying Underlying
operating assets EBITDA margin EBIT margin
Sep 21 Sep 20 Sep 21 Sep 20 Sep 21 Sep 20
Netherlands Commercial 22.6% 12.0% 16.1% 12.7% 9.8% 5.3%
Belgium Commercial 38.5% 21.3% 16.6% 11.4% 9.4% 4.2%
Total 26.0% 14.1% 16.3% 12.3% 9.6% 4.9%
The return on operating assets for Belgium excludes all landfill related provisions. The underlying figures above are reconciled to statutory measures in notes 3 and 17 in the consolidated financial statements.
The Commercial Division increased revenues by 13% to EUR671m and underlying EBIT by 120% to EUR64.7m, representing an EBIT margin of 9.6%. Return on operating assets increased to a strongly accretive 26%.
In the Netherlands, revenue increased by 11% to EUR442.3m and underlying EBIT increased by 105% to EUR43.2m. Volumes were broadly flat on the prior year and were around 3% below pre-Covid levels. Compared to prior year, there was a small recovery in commercial volumes offset by the expected contraction in construction and bulky waste. Inbound revenues increased by 3% and outbound revenues by 78%, reflecting the strength of recyclate prices and a corresponding reduction in inbound revenue from our customers with whom we have dynamically priced contracts. As reported at our last results, paper/cardboard and ferrous metal prices have been particularly strong; the outlook for recyclates is discussed later in this review. Around two thirds of the uplift in earnings was attributable to extra margin on recyclates, supported by continuing tight control of costs.
In Belgium, revenue increased by 15% to EUR228.9m and underlying EBIT by 159% to EUR21.5m. Core volumes increased by 13% compared to the prior year and recyclates by 8%, although these volumes also remain around 7% below pre-Covid levels. This strong volume recovery reflected the very challenging first quarter drop in the prior year. Volume recovery contributed the majority of the increase in underlying EBIT, supported also by the strong recyclate prices and ongoing operational cost savings.
Mineralz & Water Sep 21 Sep 20 Variance
EURm EURm %
Revenue 93.6 90.4 4%
Underlying EBITDA 11.0 10.0 10%
Underlying EBITDA margin 11.8% 11.1%
Underlying EBIT 4.0 2.3 74%
Underlying EBIT margin 4.3% 2.5%
Return on operating assets 4.6% 11.7%
The return on operating assets excludes all landfill related provisions. Earnings recovery at ATM was more than offset by the integration of a former joint venture which increased assets and included significant one-off charges in the second half last year which read through into the return on operating asset calculation. The underlying figures above are reconciled to statutory measures in notes 3 and 17 in the consolidated financial statements.
The Mineralz & Water Division made underlying progress and saw revenues increase by 4% to EUR93.6m and underlying EBIT increase by 74% to EUR4.0m. The contaminated soil processing line successfully increased throughput to 55% of capacity with no impact on product quality of the filler, sand and gravel. Over 0.4m tonnes out of 1.3m tonnes of clean thermally treated soil ("TGG") stocks have now been shipped, clearing space on the site and reducing external storage costs. We anticipate shipping a further 250k tonnes in the second half. Other activities in the Division remained in line with expectations.
Specialities Sep 21 Sep 20 Variance
EURm EURm %
Revenue 168.0 149.4 12%
Underlying EBITDA 7.9 4.5 76%
Underlying EBITDA margin 4.7% 3.0%
Underlying EBIT 1.7 - N/A
Underlying EBIT margin 1.0% 0.0%
Return on operating assets 17.9% 1.8%
Underlying EBIT includes utilisation of EUR0.5m (2020: EUR6.1m) from onerous contract provisions. The return on operating assets excludes the UK Municipal business. The underlying figures above are reconciled to statutory measures in notes 3 and 17 in the consolidated financial statements.
The Specialities Division grew revenues by 12% to EUR168m and delivered an underlying EBIT of EUR1.7m. Coolrec continued to perform strongly, benefiting from operational improvements and strong recyclate prices. Maltha recovered well from a Covid impacted prior period. UK Municipal saw the benefits of high recyclate prices offset by higher Council volumes, some of which are loss-making, and an accounting adjustment in one contract.
Markets and strategy
Continuing positive developments in our end markets
COP26 is challenging the world to take the necessary steps to avoid catastrophic increases in global temperatures by the end of the century. Production of more secondary materials to reduce virgin material use and the associated carbon emissions is a requirement for success in meeting these goals. Becoming more circular and cutting virgin materials use by 28% within nine years could lead to a reduction in global greenhouse gas emissions by 39% according to the Circularity Gap Report.
Recycling plays a key part in enabling a circular economy by converting waste back into secondary materials and is therefore set to be supported by fiscal and regulatory governmental policy. Recycling, like most markets, needs balanced supply and demand.
Supply is stimulated by banning or taxing landfill and incineration to create an environment in which sorting and processing to produce recyclates is economically competitive. This is already in place in the Benelux and has been further strengthened in Flanders by the recent announcement to double the incineration tax to EUR25 per tonne. Next generation stimulation of supply is fundamental to Vlarema 8 legislation in Flanders which comes into effect in January 2023. Vlarema 8 effectively introduces the mandatory pre-sorting of waste to remove recyclates before residues are incinerated, and this legislation is the key driver of our decision to build three large state-of-the-art sorting lines in Flanders.
Demand is stimulated by setting targets for minimum recycled content for government tenders, or indeed simply mandating certain levels of recycled content in all materials. For example, the Netherlands has a longstanding policy commitment to be 50% circular by 2030, and Belgium has very similar circularity ambitions in both Flanders and Wallonia. This is further backed by trends in consumer demand where a sustainable solution appeals to a growing segment of the customer universe. These targets have led us to predict that recyclates will over time become scarce materials and that prices should consequently rise from the long-term lows that we saw in March 2020, and that these prices may ultimately decouple from trading at a discount to virgin materials. The last twelve months have seen sustained increases in the selling prices for most key recyclates, including paper, metals and plastics. In the shorter term, we forecast some moderation of pricing towards the long-term average levels, as temporary imbalances in supply and demand attributable to Covid are resolved.
Looking forward, legislators are considering further action, including carbon taxes, minimum recycled content levels and producer responsibility for the management of closed loops. All these measures will help to accelerate the transition to increased recycling rates and, critically, increased demand for secondary materials. While progress is being made, we believe that it will have to accelerate significantly if governments wish to meet their own recycling and circularity targets.
Our unchanged strategy for long-term profitable growth
Our purpose is to protect the world 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 company that focuses on reuse: supplying high-quality secondary materials, which we believe is the best way to extract value from waste. We are a key player in the rapidly emerging circular economy and a pioneer among companies that collect our society's waste to find new uses for it.
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