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09.11.2023 08:01:52 - Renewi plc: Half-year report -8-
DJ Renewi plc: Half-year report
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Renewi plc (RWI)
Renewi plc: Half-year report
09-Nov-2023 / 07:00 GMT/BST
9 November 2023
Renewi plc
Half Year Results
for the six months ended 30 September 2023
Renewi plc ("Renewi", the "Company" or, together with its subsidiaries, the "Group") (LSE: RWI), the leading European
waste-to-product business, announces its results for the six months ended 30 September 2023 ("HY24" or the "period").
Financial Highlights - in line with guidance from 4 October 2023
-- Revenue of EUR937m and underlying EBIT1 of EUR50.7m (HY23: EUR952m and EUR75.2m respectively), reflects re-based
recyclate prices together with a subdued volume environment in certain commercial waste sectors and particularly
construction & demolition ("C&D")
-- Underlying EBITDA of EUR113.6m (HY23: EUR131.9m)
-- Statutory profit after tax of EUR35.3m (HY23: EUR53.4m) and basic EPS of 42 cents (HY23: 66 cents)
-- Net cash inflow from operating activities of EUR88.8m (HY23: EUR74.0m) due to improvements in working capital
-- Core net debt* to EBITDA of 2.1x (March 2023: 1.8x) with core net debt increased to EUR383.2m (March 2023:
EUR370.6m), in line with expectations
Strategic and Operational Highlights - strong actions in HY24
Margin focus:
-- Renewi 2.0 is now successfully completed and the programme has supported productivity in HY24
-- Additional actions to be implemented in H2 to reduce SG&A and other costs by EUR15m on an annual basis,
with capability and capacity retained
Portfolio actions:
-- As previously announced, strategic review of UK Municipal on track, targeted outcome in the first half of
2024
-- Strong Q2 performance in Mineralz & Water ("M&W"), following ramp-up of sand and gravel production, with
H2 expected to show sharply improved results, in line with the performance enhancement plan
Accelerated growth:
-- Successfully commissioned a hard plastics sorting facility in Acht, Netherlands which is expected to
achieve at least group hurdle returns over the course of 2024
-- The Group had a number of customer wins including the Dutch Ministry of Defence, TotalEnergies and
Custodial Institutions Agency
-- Renewi's Specialities business Maltha, continued to achieve record-breaking performance due to
operational enhancements and strategic investments. Coolrec maintained strong volumes in the period, though
plastics prices were lower
Current trading and outlook - on track to achieve full year expectations
-- Full year guidance unchanged from trading update of 4 October 2023
-- Revenue stable as a result of targeted commercial initiatives and structural drivers, including Vlarema 8
legislation, expected to support resilient H2 demand across Commercial Waste Belgium, M&W and the Specialities
businesses which will mitigate in part continued low levels of C&D activity in the Netherlands
-- Significantly stronger EBIT performance in H2 underpinned by continued M&W earnings recovery, the initial
contribution from SG&A cost actions, pricing and further productivity initiatives. Further benefits of our margin
and portfolio initiatives, together with stabilised recyclate prices and tailwinds generated by Renewi 2.0,
underpin confidence in good progress in FY25
Strategy in place to achieve sustainable improvements in margins and cash conversion in the medium term
-- Deliver >5% p.a. organic sales growth through growth initiatives, increased recycling conversion and
targeted market share gains
-- High single digit EBIT margins
-- Free cash flow generation at least 40% of EBITDA
-- ROCE of over 15%
-- Disciplined capital allocation strategy focused on attractive and sustainable shareholder value whilst
maintaining strong balance sheet as outlined at the Group's Capital Markets Event
Otto de Bont, Chief Executive Officer, said:
"Our first half performance was in line with our expectations and previous guidance from October. The period saw
recyclate prices reverting to more normalised levels, following the unprecedented Covid peak. Volumes mostly
stabilised, except in Construction and Demolition waste in the Netherlands. In response, we are taking strong action by
reducing our SG&A cost base by EUR15m on an annual basis.
"Alongside reducing costs, we continue to benefit from previous strategic actions. For example, Mineralz & Water have
ramped up production of sand and gravel in our soil cleaning business as of September and we expect to show sharply
improved results in H2. We continued to invest in future organic growth; at Maltha the operational enhancements enabled
the business to achieve a record-breaking performance in the period. Our Vlarema8 line in Ghent, Belgium started
ramp-up in H1 and we also commissioned our hard plastics sorting facility in Acht, Netherlands. All of these actions
will contribute to a stronger second half and our medium term strategic objectives. On the commercial front Renewi won
a number of significant customers as a result of our strong value proposition, such as the Dutch Ministry of Defence,
TotalEnergies and Custodial Institutions Agency.
"As announced in October, we are undertaking a strategic review of our UK Municipal business, with an outcome targeted
for the first half of 2024.
"As we look forward, our SG&A cost actions and benefits from Renewi 2.0 and the Mineralz & Water recovery are expected
to lead to higher profit and margin expansion in the second half of the year and we expect this to flow through to
FY25. Renewi's resilience and adept handling of price and cost dynamics have ensured a stable financial position and we
reconfirm our intention to resume dividend payments at the end of this financial year. As a company we are proud of the
critical role Renewi is playing in closing the loop to a circular economy and we look forward to continuing to enable
the decarbonisation of our world while delivering value to our shareholders."
The full text of the half year statement is set out below, together with detailed financial results and will be
available on the Company's website at www.renewi.com.
Virtual presentation
Renewi will host a virtual presentation at 10:30-11:30am CET today. Please register to attend the webcast here:
https://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=C3E612CF-DACD-4EBF-9046-3E245751FAEA&
LangLocaleID=1033.
Today's presentation will also be available on the website once the webcast has concluded https://www.renewi.com/en/
investors.
Results
HY24 HY23# % change
UNDERLYING NON-STATUTORY
STATUTORY
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1 The definition and rationale for the use of non-IFRS measures are included in note 18.
# Certain September 2022 values have been adjusted to reflect a prior year adjustment as referred to in note 2.
* Core net debt used for banking leverage calculations excludes the impact of IFRS 16 lease liabilities and UK PPP net debt.
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For further information:
Alex Le May / Richard Mountain investor.relations@renewi.com
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About Renewi
Renewi is a pure-play recycling company with a focus on extracting value from waste and used materials rather than disposal through incineration or landfill. The company also plays a key role in limiting resource scarcity through the creation of secondary materials, and by so doing addresses both social and regulatory trends and contributes to creating a cleaner, greener world.
Renewi's vision is to be the leading waste-to-product company in the world's most advanced circular economies. With a recycling rate of 64% which we believe to be among the highest in Europe, Renewi puts 7m tonnes of low carbon secondary materials back into reuse. This is a significant contribution to climate change mitigation and the circular economy. Our recycling protects virgin resources and avoids emissions of more than 2.5 million tonnes of CO2.
Renewi, which draws on innovation and the latest technology to turn waste into useful materials - paper, metals, plastics, glass, wood, building materials, compost and water - employs over 6,500 people who work on 154 operating sites in 5 countries across Europe and the UK. Renewi is recognised as a market leader in Benelux and a European leader in advanced recycling.
Visit our website for more information: www.renewi.com.
Chief Executive Officer's Statement
Overview
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As announced on October 4th, Renewi delivered performance broadly in line with the Board's expectations over the first half of FY24 against a backdrop of normalising recyclate prices and subdued economic activity. Year-on-year group revenue and underlying EBIT fell due to lower Commercial Waste volumes, particularly in C&D in the Netherlands and lower recyclate prices following Covid volume and price peaks. Most recyclate prices have now stabilised to levels around historic averages, with the majority of the decline, as well as ongoing inflationary pressures, being mitigated through pricing discipline and the margin benefits from the now completed Renewi 2.0 digitisation programme and other ongoing cost actions.
In Commercial Waste, inbound volumes stabilised in Belgium but continued to decline in the Netherlands during the first half, primarily due to ongoing demand weakness, especially from C&D customers. Pricing actions and cost savings have partially offset the impact of lower volumes, recyclate prices and cost inflation.
M&W's had a strong Q2 performance, following the ramp-up of throughput. The start of the year was impacted by pulling an annual maintenance stop into the first quarter, which is expected to benefit the division's results in the second half. Within Specialities, our glass recycling business, Maltha, continued to deliver strong performance, benefitting from the previously made operational enhancements. Coolrec maintained strong volumes, although was affected by lower plastics prices throughout the first half.
Further cost-cutting measures for our SG&A costs at both the divisional and central levels have been initiated in September 2023 and discussions are now being held with the relevant works councils. This initiative will result in a headcount reduction of 160 by 1 December 2023 with an expected cost to deliver of cEUR4-5m in year.
Group financial performance
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The underlying figures above are reconciled to statutory measures in note 3 in the consolidated financial statements.
Total revenues were down 2% to EUR937.1m and underlying EBIT was down 33% to EUR50.7m. Profit before tax decreased by EUR26.2m, to EUR45.4m, driven by the recyclate prices settling close to historical average levels, together with lower volumes in Commercial Waste. Ongoing inflationary pressures were offset by pricing discipline and ongoing cost actions. Earnings per share fell to 42 cents (HY23: 66 cents).
Outbound revenue from the sale of recycled materials decreased to EUR167.9m (HY23: EUR196.5m) driven by the lower recyclate prices.
A free cash outflow of EUR1.6m (HY23: EUR4.4m as adjusted for the prior year restatement as referred to in note 2) reflects the planned increase in replacement capital expenditure and interest and loan fees payments offset in part by a positive working capital performance. Total cash outflow was EUR15.9m, as a result of growth capex projects for Vlarema 8 and our hard plastics facility in Acht and extension of landfill rights in Mineralz. As expected, core net debt to EBITDA increased to 2.1x at 30 September 2023 from 1.8x at the end of March 2023. The Board's long-term target remains 2.0x. Liquidity headroom including core cash and undrawn facilities remained strong at EUR307m.
Divisional performance
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Period-on-period variance %
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The return on operating assets excludes all landfill related provisions. The underlying figures above are reconciled to statutory measures in notes 3 and 18 in the consolidated financial statements.
The Commercial Waste Division revenues at EUR693m were flat and underlying EBIT fell by 26% to EUR50.3m, representing an underlying EBIT margin of 7.3%.
Revenues in the Netherlands declined by 1% to EUR457.3m and underlying EBIT fell by 36% to EUR25.8m. Underlying EBIT margins decreased by 320bps to 5.6% and return on operating assets fell to 14.4%. Volumes in the Netherlands have been impacted by ongoing demand weakness particularly from C&D customers due to declines in permissions for new building work resulting from environmental quotas. The decrease in recyclate prices is partially mitigated through the dynamic pricing contracts in which price fluctuations are shared with customers, buffering the impact on Renewi's results by about 65% of the recyclate movement. The volume decreases and residual portion of the declining recyclate prices impacted underlying EBIT margin for the first half. In response to this, divisional and central cost and efficiency measures are being executed before the end of 2023. We continued to exercise strong pricing discipline, ensuring inflation was passed on to customers throughout the period.
In Commercial Waste Belgium, revenue increased marginally to EUR237.5m and underlying EBIT fell by 13% to EUR24.5m. Underlying EBIT margins decreased by 160bps to 10.3%. Belgium has also been impacted by the lower recyclate prices; however, volumes have stabilised in the recent months and were marginally ahead of prior year. Strong pricing and cost actions taken have kept margins close to target levels.
Commercial efforts offering segment specific value propositions led to significant new contract wins in both the Netherlands and Belgium, examples include the Dutch Ministry of Defence, TotalEnergies and Custodial Institutions Agency. In Belgium cooperation with secondary disposers to meet the Vlarema 8 regulation also led to early successes, resulting in turning the volume decline into modest but profitable growth.
Key growth investments have progressed well, with our plastics facility in Acht being fully commissioned with promising results. The facility has capacity to process 25kT of hard plastics per year and is expected to be fully operational early 2024. Given the high level of purity achieved, pricing for the recyclates produced will drive strong financial returns from this facility once fully operational.
Our advanced sorting facility in Ghent is fully operational, achieving targeted recycling rates. Enforcement of Vlarema 8 legislation is ramping up within Flanders, and with full enforcement expected in 2024 we will commence the construction of our advanced sorting facility in Puurs accordingly.
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The return on operating assets excludes all landfill related provisions. The underlying figures above are reconciled to statutory measures in notes 3 and 18 in the consolidated financial statements.
The M&W division saw revenues decrease by 5% to EUR88.4m and underlying EBIT fall by EUR1.1m to EUR1.5m. The performance in the first half reflected the pull forward of annual maintenance stops originally scheduled for the second half. Throughput was increased from 35 to 50 tonnes per hour in September and there was a continued good performance at the waterside and pyro installations.
We continue to improve the quality and consistency of our sand and filler products to provide high quality products for the construction industry. End of waste certification was achieved for gravel, opening up the offtake market to any customer. Although certification for sand is still pending, a commercial agreement has been reached for the offtake of 200kT of sand, signalling its continued recovery.
We also continue to work with off takers to place our 0.6mT residual TGG stocks with shipping started under the offtake contract confirmed earlier in the year.
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Underlying EBIT includes utilisation of EUR6.1m (HY23: EUR4.2m) 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 18 in the consolidated financial statements.
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The Specialities Division saw revenue down by 4% at EUR178.7m impacted by the termination of the Derby UK Municipal contract in the first half last year. Underlying EBIT declined by EUR1m to EUR10.3m (HY23: EUR11.3m). Our glass recycling business, Maltha, continued delivering record performance with revenue of EUR40.8m up 26% from the prior year and underlying EBIT margin of 14.5%, up 430bps due to operational improvements. Coolrec has enjoyed continued strong volumes resulting in revenue up by 3% to EUR45.1m although underlying EBIT margin was impacted by lower plastics prices. The UK Municipal business showed stable operational performance in expectations in the first half.
Markets and strategy
Sustainability is at the heart of what we do
Our goal has always been to breathe new life into used materials and our aspiration is to become the leading waste-to-product company within Europe. Over the course of the first half, we continued to achieve significant progress in solidifying our position as a leader within the circular economies where we operate.
Over the period our recycling rate declined from 63.6% at March to 62.4% at September driven by cessation of certain activities during FY23 together with lower C&D volumes in Commercial. However, industry accolades throughout the first half of the year have further underlined our pioneering efforts in sustainable innovation and our significant contribution to the circular economy. We are honoured to have received the prestigious Trends Impact Award, a leading business award in Belgium, recognising our exemplary role in driving the circular economy forward. Furthermore, we are delighted to continue our collaborative project with Electrolux and were honoured to receive the Plastics Recycling Europe Award, acknowledging our achievement in creating the first fridge made entirely from recycled plastics.
Our strategy for long-term profitable growth
As set out in 2021, we have committed to three pillars of value creation; circular innovations, M&W recovery and Renewi 2.0 which are together expected to deliver a profitability increase of EUR60m by FY26. As previously announced the Renewi 2.0 programme, which was focused on making the customer-facing part of the company simpler and more efficient is widely complete and has supported productivity in HY24. The final cost of implementing Renewi 2.0 is expected to remain around EUR28m with the EUR20m run rate of benefits to be delivered during the current financial year. Circular innovations and M&W recovery have now become an integral component of our top-line growth and margin initiatives.
For M&W, operational plans are in place to deliver profitability improvements. We have converted our soil treatment business to produce building products, like sand and gravel, instead of cleaned soil. With the first customers in place to take these building products to produce concrete, we started to increase our throughput volume from 35 to 50 tonnes, boosting profitability. To complete the recovery we will further increase our throughput and quality over the coming period.
We have a clear business strategy to deliver long-term growth in both margins and volumes. Our strategy is focused on three key areas outlined as follows: 1. Top-line growth of 5% per annum: Supported by our commercial offerings and customer segment approach, wehave established specific strategies to foster organic top-line growth. In addition to our revenue being closelylinked to inflation through contract indexation and underpinned by dynamic regulatory and social change, we willexpand our market share by delivering superior value and service to our customers, further developing our recyclingcapabilities and elevating the quality of secondary material production. 2. Sustainable improvement in margins: We have implemented a set of immediate measures aimed at boostingefficiency by simplifying the organisation and optimising administrative procedures. These endeavours will bereinforced by our digital strategy, focused on enhancing customer-centric processes, digitising internal operationsand elevating asset management capabilities. The successful execution of these initiatives is anticipated to leadto lasting improvements in profit margins, supporting our goal of achieving a high single-digit percentage EBITmargin. 3. Improving Cash Conversion: We will increase our ability to generate free cash flow, with the clearobjective of achieving a conversion rate of 40% of EBITDA by the end of FY26. This will be accomplished byeliminating legacy cash outflow, reducing exceptional costs and optimising asset utilisation, which, in turn, willresult in decreased capital expenditures. This improved cash generation capacity will allow for a capitalallocation policy encompassing both growth-focused investments and enhanced returns for shareholders.
Our capital allocation policy has been reset to reflect our ongoing disciplined approach to capital, prioritising shareholder returns and investing in growth:
-- Ordinary dividend to be reinstated with a final dividend for the financial year ending 31 March 2024, anda progressive policy targeting sustainable growth whilst maintaining cover of 3.0-4.0x underlying earnings
-- Investment of 30% of free cash flow annually in capex for growth projects with return hurdle rates of atleast 16% (pre-tax)
-- In the medium term, disciplined M&A and supplemental returns to shareholders (including potential sharebuybacks) will be considered for excess capital, after organic investment requirements
-- Long-term core debt leverage target of 2.0x EBITDA is reiterated
Outlook
Whilst we are mindful of the current challenging macroeconomic backdrop, our full year expectations are unchanged from the guidance provided in the trading update of 4 October 2023.
Targeted commercial initiatives and structural drivers, including Vlarema 8 legislation, are expected to support resilient demand in the near term across Commercial Waste Belgium, M&W and the Specialities businesses, which will mitigate, in part, continued low levels of C&D activity in the Netherlands over the second half. We anticipate the Dutch construction market will revert to growth by late 2024 or early 2025.
We continue to expect a significantly stronger EBIT performance in second half, underpinned by continued M&W earnings recovery, the initial contribution from additional SG&A cost actions, effective pricing and further productivity initiatives. Further benefits of our margin and portfolio initiatives, together with stabilised recyclate prices and tailwinds generated by Renewi 2.0, underpin confidence in further progress in FY25.
In the longer term we remain confident that, with regulation driving increasing demand for recycled materials, Renewi is well positioned for growth in its markets and to serve customers profitably as the circular economy develops and the market for low carbon secondary materials evolves.
FINANCE REVIEW
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The underlying figures above are reconciled to statutory measures in notes 3 and 18 in the consolidated financial statements.
FY24 revenues and underlying EBIT were down 2% and 33% respectively impacted by lower recyclates pricing compared to last year of EUR13m and lower volumes of EUR15m particularly in Commercial Netherlands. Cost inflation was mitigated by pricing discipline and cost savings including additional benefits from Renewi 2.0. Depreciation charge was higher by EUR4m in the period principally as a result of the impact of higher spend including the delivery of trucks in the last half of FY23. Interest charges were higher given the impact of additional borrowings entered into in the second half of FY23, increased interest rates and loan fee amortisation charges as referenced below. The level of exceptional and non-trading items in the current year was a credit of EUR14.1m as described below, resulting in a statutory profit for the period of EUR35.3m compared to EUR53.4m last year.
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. Total non-trading and exceptional items excluding tax were a credit of EUR14.1m in the period (HY23: EUR10.0m). Given the increase in Government bond yields from March 2023, discount rates used for long-term landfill and onerous contract provisions have been increased, resulting in a non-cash credit of EUR17.1m. This item is recorded as non-trading and exceptional due to size and nature in line with our policy. As previously reported, we have accounted for the cost of the Renewi 2.0 programme as exceptional due to its size and nature. As announced for the March 2023 year end, the programme of activity was largely complete and will deliver its full run rate benefits in FY24. In the six months to September 2023 there was a further EUR1.0m of spend with a similar level expected in the next six months as the project is finally closed. Further details of other items are provided in note 5 to the consolidated interim financial statements.
Operating profit after taking account of all non-trading and exceptional items was EUR64.1m (HY23: EUR83.6m).
Net finance costs
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Net finance costs excluding exceptional items increased with EUR6.2m to EUR19.8m (HY23: EUR13.6m), as a result of the impact of additional fixed rate borrowings in the second half of FY23, increased interest rates, the level of borrowings on the revolving credit facility and a non-cash write off of EUR1m of unamortised loan fees following the August 2023 renewal of the EUR400m revolving credit facility. Further details are provided in note 6 to the consolidated interim financial statements.
Taxation
Total taxation for the period was a charge of EUR10.1m (HY23: EUR18.2m). The effective tax rate on underlying profits at 27.1% (HY23: 26.5%) is based on the estimate of the full year effective tax rate. A tax charge of EUR1.6m is attributable to the non-trading and exceptional items of EUR14.1m as a number of items are not subject to tax.
Looking forward, we anticipate the underlying tax rate to remain around 27%. Due to items disallowed for tax in both the Netherlands and Belgium, our effective tax rate is higher than the nominal rates in the countries where we operate.
The Group statutory profit after tax, including all non-trading and exceptional items, was EUR35.3m (HY23: EUR53.4m).
Earnings per share (EPS)
Underlying EPS excluding non-trading and exceptional items was 27 cents per share, a decline of 29 cents given the lower profits and higher tax rate in the current period. Basic EPS was 42 cents per share compared to 66 cents per share in the prior year.
CASH FLOW PERFORMANCE
The funds flow performance table is derived from the statutory cash flow statement and reconciliations are included in note 18 in the consolidated financial statements. The table shows the cash flows from an adjusted free cash flow to total cash flow. The adjusted free cash flow measure focuses on the cash generation excluding the impact of historical liabilities relating to Covid-19 tax deferrals, settlement of ATM soil liabilities, spend relating to the UK PPP onerous contracts and other items including exceptional cash spend. Free cash flow represents the cash available to fund growth capital projects, pay dividends and invest in acquisitions.
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Free cash flow/EBITDA conversion -1.4% -3.3%
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Free cash flow conversion is free cash flow as a percentage of underlying EBITDA. The non-IFRS measures above are reconciled to statutory measures in note 18 in the consolidated financial statements. September 2022 values for repayments of obligations under lease liabilities and UK Municipal contracts have each been adjusted by EUR0.4m to reflect the prior year adjustment as referred to in note 2.
Adjusted free cash flow was marginally ahead in the period at EUR24.1m (HY23: EUR22.2m) despite the EBITDA decline and increased replacement capex and interest payments which have been offset by a favourable movement on working capital in the period across both payables and receivables.
Replacement capital spend at EUR41.4m was slightly ahead of last year and in line with expectations. In addition, EUR18.7m of new leases or modifications have been entered into which are reported as right-of-use assets with a corresponding lease liability. These leases include the continuation of the truck replacement programme, property lease renewals or extensions and other assets. Growth capital spend of EUR15.9m includes further spend on the Vlarema 8 advanced sorting investments in Belgium and plastics sorting at Acht in the Netherlands. This level of growth spend is lower than originally planned given slight delays at the second and third sites for advanced sorting in Belgium, as full enforcement of the new regulation is ramping up.
The higher cash outflow relating to interest includes the settlement of EUR2.6m of fees relating to the recent renewal of the Group revolving credit facility. Tax payments were slightly lower in the current period given the timing of settlements in the prior year.
Looking at the three legacy components that are shown below adjusted free cash flow, there has been a further EUR9.7m repayment on Dutch Covid-19 tax deferrals as expected. The remaining balance of EUR20m will be settled over the next 12 months. Cash spend for placement of TGG soil stocks has remained limited in the first six months and there has been no change in the cost accrual for the remaining disposal of these historical balances. Cash outflow on UK PPP contracts was EUR9.8m, slightly higher than the prior year albeit lower than anticipated.
The acquisitions net of disposals inflow of EUR1.6m included the sale of an entity acquired with the Renewi Westpoort acquisition in September 2023. Other cash flows include funding for the closed UK defined benefit scheme and the funding of the Renewi Employee Share trust.
Net cash inflow from operating activities increased from EUR74.0m in the prior period to EUR88.8m in the current year. A reconciliation to the underlying cash flow performance as referred to above is included in note 18 in the consolidated interim financial statements.
INVESTMENT PROJECTS
Expenditure in FY24
The Group's long-term expectations for replacement capital expenditure remain around 80% of depreciation. FY24 full year replacement capital spend is expected to be around EUR80m. In addition, a further EUR10m of IFRS 16 lease investments are anticipated in the second half.
Expenditure on the circular innovation pipeline will continue in the coming months, however timing for the advanced sorting investments in Belgium for Vlarema 8 has been slightly postponed with the FY24 full year spend now expected to be around EUR30m.
Return on assets
The Group return on operating assets excluding debt, tax and goodwill decreased to 26.4% at September 2023 from 36.9% at March 2023 given the lower profits in the last six months. The Group post-tax return on capital employed at September 2023 was 8.1% compared to 10.6% at March 2023.
Treasury and cash management
Core net debt and leverage ratios
Core net debt excludes IFRS 16 lease liabilities and the net debt relating to the UK PPP contracts which is non-recourse to the Group and secured over the assets of the special purpose vehicles. Core net debt was in line with management expectations at EUR383.2m (March 2023: EUR370.6m) which resulted in a net debt to EBITDA ratio of 2.1x, comfortably within our covenant limit of 3.5x. Liquidity headroom including core cash and undrawn facilities remains strong at EUR307m, a slight reduction from March as a result of the increase in net debt.
Debt structure and strategy
All our core borrowings of bonds and loans are green financed. As of 30 September 2023, 81% of our net debt excluding UK PPP non-recourse net debt was on a fixed rate.
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In August 2023 the Group completed the renewal of its revolving credit facility, part of its Euro denominated multicurrency green finance facility. The size of the revolving credit facility ("RCF") remains unchanged at EUR400m and is for an initial five-year term to 2028 with two one-year extension options to 2030 together with a EUR150m accordion option to increase the facility subject to lender approval at that time. Interest remains based on Euribor plus a margin grid based on leverage and green sustainability metrics performance. Financial covenants remained unchanged and will be tested semi-annually at September and March.
There is sufficient headroom in the RCF to settle on maturity EUR15m of European private placement funds in December 2023 and green retail bonds of EUR75m in July 2024.
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The introduction of IFRS 16 on 1 April 2019 brought additional lease liabilities onto the balance sheet with an associated increase in assets. Covenants on our main bank facilities remain on a frozen GAAP basis and exclude IFRS 16 lease liabilities. The Group has complied with its banking covenants during the period. The Group operates a committed invoice discounting programme. The cash received for invoices sold at September 2023 was EUR106.3m (March 2023: EUR84.7m).
Debt borrowed in the special purpose vehicles (SPVs) created for the financing of UK 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 on PPP borrowings were fixed by means of interest rate swaps at contract inception. At September 2023 this net debt amounted to EUR63.6m (March 2023: EUR69.3m).
PROVISIONS AND CONTINGENT LIABILITIES
Around 88% of the Group's provisions are long-term in nature, with the onerous contract provisions against the PPP contracts being utilised over the remaining term of up to 17 years and landfill provisions for many decades longer. The provisions balance classified as due within one year amounts to EUR39m, including EUR3m for restructuring, EUR18m for onerous contracts, EUR10m for landfill related spend and EUR8m for environmental, legal and others. Further details are provided in note 13 to the consolidated interim financial statements.
Retirement benefits
The Group has a closed UK defined benefit pension scheme and at 30 September 2023, the scheme had an accounting deficit of EUR6.9m (March 2023: EUR4.3m). The change in the year was due to lower returns on pension scheme assets which were only partly offset by an increase in the discount rate assumption on scheme liabilities. The latest triennial actuarial valuation of the scheme was completed at 5 April 2021 and the future funding plan has been maintained at the current level of EUR3.5m per annum until December 2024. There are also several defined benefit pension schemes for employees in the Netherlands and Belgium which had a retirement benefit deficit of EUR5.0m at 30 September 2023 (March 2023: EUR5.0m).
PRINCIPAL RISKS AND UNCERTAINTIES
Renewi operates a risk management framework to identify, assess and control the most serious risks facing the Group. The 2023 Annual Report (pages 86 to 99) provides a discussion of the Group's principal risks and uncertainties. The Board believes that the key risks and associated mitigation strategies have not changed in the period.
Renewi continues to monitor the impact of the ongoing high inflationary environment pressures, fluctuations in recyclate prices and the economic uncertainty arising from geopolitical events. Cybercrime is an increasing risk for all businesses, and we have been investing to further strengthen our capabilities. All of these potential risks are actively reviewed and managed at the Board and in our executive management teams.
GOING CONCERN
The Directors have adopted the going concern basis in preparing these consolidated interim financial statements after assessing the Group's principal risks. Further details of the modelling and scenarios prepared are set out in note 2 of the financial statements. Having considered all the elements of the financial projections and applying appropriate sensitivities, the Directors confirm they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and to meet its covenants.
STATEMENT OF THE DIRECTORS' RESPONSIBILITIES
The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted for use in the UK, and that the interim management report includes a fair review of the information required by DTR 4.2.7 R and DTR 4.2.8 R, namely:
-- an indication of important events that have occurred during the first six months and their impact on thecondensed set of financial statements, and a description of the principal risks and uncertainties for the remainingsix months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related-partytransactions described in the last Annual Report.
A list of current Directors is maintained on the Renewi plc website: www.renewi.com.
===
Otto de Bont Annemieke den Otter
Chief Executive Officer Chief Financial Officer
8 November 2023 8 November 2023 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.
Consolidated Interim Income Statement (unaudited)
First half ended 30 September 2023
===
joint ventures
Attributable to:
First half First half
===
Consolidated Interim Statement of Comprehensive Income (unaudited)
First half ended 30 September 2023
===
First half First half
Items that may be reclassified subsequently to profit or loss:
Items that will not be reclassified to profit or loss:
Attributable to:
Owners of the parent 35.8 63.8
===
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DJ Renewi plc: Half-year report -6-
===
===
Consolidated Interim Balance Sheet (unaudited)
As at 30 September 2023
===
Restated*
30 September 31 March
30 September
Note 2023 2023
2022
EURm EURm
EURm
Assets
Non-current assets
Current assets
Liabilities
Non-current liabilities
Current liabilities
Issued capital and reserves attributable to the owners of the parent
===
*The comparatives have been restated due to a prior period adjustment as explained in note 2 Basis of preparation.
Consolidated Interim Statement of Changes in Equity (unaudited)
First half ended 30 September 2023
===
capital premium reserve
Other comprehensive (loss) income:
accounted for using the equity method
Other comprehensive income (loss):
accounted for using the equity method
===
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===
Other comprehensive income (loss):
accounted for using the equity method
===
*The comparatives have been restated due to a prior period adjustment as explained in note 2 Basis of preparation.
Consolidated Interim Statement of Cash Flows (unaudited)
First half ended 30 September 2023
===
Restated*
First
2023/24
2022/23
EURm
EURm
Investing activities
disposed of
received
Financing activities
===
*The comparatives have been restated due to a prior period adjustment as explained in note 2 Basis of preparation.
Notes to the Consolidated Financial Statements
1. General information
Renewi plc is a public limited company listed on the London Stock Exchange 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
This condensed set of consolidated interim financial statements for the six months ended 30 September 2023 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted for use in the UK. They should be read in conjunction with the 2023 Annual Report and Accounts, which have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. The 2023 Annual Report and Accounts are available from the Company's website www.renewi.com.
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These primary statements and selected notes comprise the unaudited consolidated interim financial statements of the Group for the six months ended 30 September 2023 and 2022, together with the audited results for the year ended 31 March 2023. These interim financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The comparative figures as at 31 March 2023 have been extracted from the Group's statutory Annual Report and Accounts for that financial year, but do not constitute those accounts. Those statutory accounts for the year ended 31 March 2023 were approved by the Board of Directors on 25 May 2023 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
The Board of Directors approved, on 8 November 2023, these consolidated interim financial statements which have been reviewed by BDO LLP but not been audited.
Going concern
The Directors have adopted the going concern basis in preparing these consolidated interim financial statements after assessing the Group's principal risks including an assessment of the impact of the ongoing high inflationary environment and economic uncertainty arising from geopolitical events.
The Directors have carried out a comprehensive assessment of the Group's ability to continue as a going concern. This assessment has involved the review of medium-term cash flow and covenant modelling over an 18-month period to 31 March 2025. This includes expectations on the future economic environment as well as other principal risks associated with the Group's ongoing operations. The assessment includes a base case scenario setting out the Directors' current expectations of future trading and a plausible but severe downside scenario to assess the potential impact on the Group's future financial performance. The key judgement in both scenarios is the level of economic disruption caused by ongoing geopolitical events.
The downside scenario includes significantly weaker macroeconomic conditions leading to a volume decline below the forecast economic outlook in all our territories in the remainder of the current year and into FY25. Other downsides include a significant decline in recyclate prices from the current levels to below long-term averages and operational downtime in some of our plants. These factors reduce FY24 underlying EBIT by 17% and FY25 underlying EBIT by 29% compared to the base case. No mitigating actions have been applied to our downside modelling as they are not necessary to avoid any breach of covenants or shortfall in liquidity.
In the base case and downside scenarios the Group has sufficient liquidity and headroom in its existing facilities and no covenants are breached at any of the forecast testing dates.
In addition, a reverse stress test calculation has been undertaken to consider the points at which the covenants may be breached. Underlying EBIT in FY25 would need to reduce by 46% compared to the base case. In the opinion of the Directors there is no plausible scenario or combination of scenarios that we consider to be remotely likely that would generate this result.
Having considered all the elements of the financial projections, sensitivities and mitigating actions, the Directors confirm they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and to meet all banking covenants.
Prior year restatement
As reported in the Annual Report and Accounts for 31 March 2023, the Group undertook a more in depth analysis of the UK Municipal contract with East London Waste Authority (ELWA) as the contract is due to expire in December 2027. The contract is loss-making and therefore an onerous contract provision (OCP) has been recorded. At inception of this contract on 28 November 2003, a subsidiary of the Group entered a headlease arrangement for one location under the contract and then subleased it to ELWA Limited, an associate, on terms which mirrored the terms of the headlease. Prior to the disposal of the subsidiary in 2004 the headlease and sublease were novated to Renewi UK Services Limited (RUKS), a subsidiary of the Group. Upon adoption of IFRS 16 Leases from 1 April 2019, the Group accounted for the headlease as a right-of-use asset with the rental expense recorded as a repayment of the lease liability. The rental income from ELWA Limited was included within the cash flows used to measure the OCP.
During March 2023, external legal advice received clarified further the legal position in relation to the commercial substance of the lease arrangements. The legal advice stated that it is more likely than not that the sublease to ELWA Limited has taken effect as an assignment of the headlease by operation of law. The practical effect of this is the former subsidiary and ELWA Limited are directly liable for the headlease and that the novation in 2004 to RUKS was invalid. Accordingly, the Group determined that it was not appropriate to recognise the headlease as a right-of-use asset and the lease income should not have been included in the cash flows used to measure the OCP. The Group therefore concluded that the prior treatment was an error and that it was appropriate to restate the 1 April 2021 balance sheet which was actioned in the 2023 Annual Report and Accounts.
For the September 2023 condensed set of consolidated interim financial statements, it is appropriate to restate the 30 September 2022 Balance Sheet and Statement of Cash Flows. The impact on the 30 September 2022 balance sheet is a reduction in lease liabilities of EUR8.8m (of which EUR8.1m is non-current and EUR0.7m is current) with an increase in OCP of EUR5.1m (of which EUR4.1m is non-current and EUR1.0m is current) resulting in an impact of EUR3.6m on retained earnings and EUR0.1m on the exchange reserve. The related right-of-use asset was fully impaired therefore there is no impact on the net book value. However, as a result of the derecognition, cost and accumulated depreciation and impairment have both been reduced by EUR8.9m as at 1 April 2021 and 31 March 2022. The Income Statement impact for the six months ended 30 September 2022 is not material and therefore has not been restated. The impact on the Cash Flow Statement for the six months ended 30 September 2022 is to reduce the cash inflow from operating activities by EUR0.4m and reduce the cash outflow in financing activities by EUR0.4m. Earnings per share and alternative performance measures for the six months ended 30 September 2022 are not affected as a result of this correction.
The impact of the above restatements on the relevant line items in the Consolidated Balance Sheet and Statement of Changes in Equity is presented below:
===
Balance Sheet extract
Liabilities
Non-current liabilities
Current liabilities
Issued capital and reserves attributable to the owner of the parent
===
Adoption of new and revised accounting standards
The following accounting standards, amendments and interpretations became effective during the period but the application of these standards and interpretations had no material impact on the amounts reported in these condensed interim consolidated financial statements:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
-- Definition of Accounting Estimates (Amendments to IAS 8)
-- IFRS 17 Insurance contracts
-- Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
-- International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12)
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===
Renewi plc (RWI)
Renewi plc: Half-year report
09-Nov-2023 / 07:00 GMT/BST
9 November 2023
Renewi plc
Half Year Results
for the six months ended 30 September 2023
Renewi plc ("Renewi", the "Company" or, together with its subsidiaries, the "Group") (LSE: RWI), the leading European
waste-to-product business, announces its results for the six months ended 30 September 2023 ("HY24" or the "period").
Financial Highlights - in line with guidance from 4 October 2023
-- Revenue of EUR937m and underlying EBIT1 of EUR50.7m (HY23: EUR952m and EUR75.2m respectively), reflects re-based
recyclate prices together with a subdued volume environment in certain commercial waste sectors and particularly
construction & demolition ("C&D")
-- Underlying EBITDA of EUR113.6m (HY23: EUR131.9m)
-- Statutory profit after tax of EUR35.3m (HY23: EUR53.4m) and basic EPS of 42 cents (HY23: 66 cents)
-- Net cash inflow from operating activities of EUR88.8m (HY23: EUR74.0m) due to improvements in working capital
-- Core net debt* to EBITDA of 2.1x (March 2023: 1.8x) with core net debt increased to EUR383.2m (March 2023:
EUR370.6m), in line with expectations
Strategic and Operational Highlights - strong actions in HY24
Margin focus:
-- Renewi 2.0 is now successfully completed and the programme has supported productivity in HY24
-- Additional actions to be implemented in H2 to reduce SG&A and other costs by EUR15m on an annual basis,
with capability and capacity retained
Portfolio actions:
-- As previously announced, strategic review of UK Municipal on track, targeted outcome in the first half of
2024
-- Strong Q2 performance in Mineralz & Water ("M&W"), following ramp-up of sand and gravel production, with
H2 expected to show sharply improved results, in line with the performance enhancement plan
Accelerated growth:
-- Successfully commissioned a hard plastics sorting facility in Acht, Netherlands which is expected to
achieve at least group hurdle returns over the course of 2024
-- The Group had a number of customer wins including the Dutch Ministry of Defence, TotalEnergies and
Custodial Institutions Agency
-- Renewi's Specialities business Maltha, continued to achieve record-breaking performance due to
operational enhancements and strategic investments. Coolrec maintained strong volumes in the period, though
plastics prices were lower
Current trading and outlook - on track to achieve full year expectations
-- Full year guidance unchanged from trading update of 4 October 2023
-- Revenue stable as a result of targeted commercial initiatives and structural drivers, including Vlarema 8
legislation, expected to support resilient H2 demand across Commercial Waste Belgium, M&W and the Specialities
businesses which will mitigate in part continued low levels of C&D activity in the Netherlands
-- Significantly stronger EBIT performance in H2 underpinned by continued M&W earnings recovery, the initial
contribution from SG&A cost actions, pricing and further productivity initiatives. Further benefits of our margin
and portfolio initiatives, together with stabilised recyclate prices and tailwinds generated by Renewi 2.0,
underpin confidence in good progress in FY25
Strategy in place to achieve sustainable improvements in margins and cash conversion in the medium term
-- Deliver >5% p.a. organic sales growth through growth initiatives, increased recycling conversion and
targeted market share gains
-- High single digit EBIT margins
-- Free cash flow generation at least 40% of EBITDA
-- ROCE of over 15%
-- Disciplined capital allocation strategy focused on attractive and sustainable shareholder value whilst
maintaining strong balance sheet as outlined at the Group's Capital Markets Event
Otto de Bont, Chief Executive Officer, said:
"Our first half performance was in line with our expectations and previous guidance from October. The period saw
recyclate prices reverting to more normalised levels, following the unprecedented Covid peak. Volumes mostly
stabilised, except in Construction and Demolition waste in the Netherlands. In response, we are taking strong action by
reducing our SG&A cost base by EUR15m on an annual basis.
"Alongside reducing costs, we continue to benefit from previous strategic actions. For example, Mineralz & Water have
ramped up production of sand and gravel in our soil cleaning business as of September and we expect to show sharply
improved results in H2. We continued to invest in future organic growth; at Maltha the operational enhancements enabled
the business to achieve a record-breaking performance in the period. Our Vlarema8 line in Ghent, Belgium started
ramp-up in H1 and we also commissioned our hard plastics sorting facility in Acht, Netherlands. All of these actions
will contribute to a stronger second half and our medium term strategic objectives. On the commercial front Renewi won
a number of significant customers as a result of our strong value proposition, such as the Dutch Ministry of Defence,
TotalEnergies and Custodial Institutions Agency.
"As announced in October, we are undertaking a strategic review of our UK Municipal business, with an outcome targeted
for the first half of 2024.
"As we look forward, our SG&A cost actions and benefits from Renewi 2.0 and the Mineralz & Water recovery are expected
to lead to higher profit and margin expansion in the second half of the year and we expect this to flow through to
FY25. Renewi's resilience and adept handling of price and cost dynamics have ensured a stable financial position and we
reconfirm our intention to resume dividend payments at the end of this financial year. As a company we are proud of the
critical role Renewi is playing in closing the loop to a circular economy and we look forward to continuing to enable
the decarbonisation of our world while delivering value to our shareholders."
The full text of the half year statement is set out below, together with detailed financial results and will be
available on the Company's website at www.renewi.com.
Virtual presentation
Renewi will host a virtual presentation at 10:30-11:30am CET today. Please register to attend the webcast here:
https://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=C3E612CF-DACD-4EBF-9046-3E245751FAEA&
LangLocaleID=1033.
Today's presentation will also be available on the website once the webcast has concluded https://www.renewi.com/en/
investors.
Results
HY24 HY23# % change
UNDERLYING NON-STATUTORY
Revenue EUR937.1m EUR952.0m -2% Underlying EBITDA1 EUR113.6m EUR131.9m -14% Underlying EBIT1 EUR50.7m EUR75.2m -33% Underlying EBIT1. margin 5.4% 7.9% -2.5pps Adjusted free cash flow1 EUR24.1m EUR22.2m Free cash flow1 EUR(1.6)m EUR(4.4)m Free cash flow/EBITDA conversion1 -1.4% -3.3% Return on capital employed1 8.1% 12.2% Core net debt* EUR383.2m EUR387.7m
STATUTORY
Revenue EUR937.1m EUR952.0m -2% Operating profit EUR64.1m EUR83.6m -23% Profit before tax EUR45.4m EUR71.6m -36% Profit for the period EUR35.3m EUR53.4m -34% Basic EPS (cents per share) 42c 66c -36% Cash flow from operating activities EUR94.7m EUR81.9m Total net debt (including IFRS 16 leases) EUR687.9m EUR687.6m
===
1 The definition and rationale for the use of non-IFRS measures are included in note 18.
# Certain September 2022 values have been adjusted to reflect a prior year adjustment as referred to in note 2.
* Core net debt used for banking leverage calculations excludes the impact of IFRS 16 lease liabilities and UK PPP net debt.
===
For further information:
FTI Consulting Renewi plc +44 203 727 1340 Anne Metz, Director of Investor Relations FTI_RWI@FTIconsulting.com +31 6 4167 9233
Alex Le May / Richard Mountain investor.relations@renewi.com
===
About Renewi
Renewi is a pure-play recycling company with a focus on extracting value from waste and used materials rather than disposal through incineration or landfill. The company also plays a key role in limiting resource scarcity through the creation of secondary materials, and by so doing addresses both social and regulatory trends and contributes to creating a cleaner, greener world.
Renewi's vision is to be the leading waste-to-product company in the world's most advanced circular economies. With a recycling rate of 64% which we believe to be among the highest in Europe, Renewi puts 7m tonnes of low carbon secondary materials back into reuse. This is a significant contribution to climate change mitigation and the circular economy. Our recycling protects virgin resources and avoids emissions of more than 2.5 million tonnes of CO2.
Renewi, which draws on innovation and the latest technology to turn waste into useful materials - paper, metals, plastics, glass, wood, building materials, compost and water - employs over 6,500 people who work on 154 operating sites in 5 countries across Europe and the UK. Renewi is recognised as a market leader in Benelux and a European leader in advanced recycling.
Visit our website for more information: www.renewi.com.
Chief Executive Officer's Statement
Overview
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As announced on October 4th, Renewi delivered performance broadly in line with the Board's expectations over the first half of FY24 against a backdrop of normalising recyclate prices and subdued economic activity. Year-on-year group revenue and underlying EBIT fell due to lower Commercial Waste volumes, particularly in C&D in the Netherlands and lower recyclate prices following Covid volume and price peaks. Most recyclate prices have now stabilised to levels around historic averages, with the majority of the decline, as well as ongoing inflationary pressures, being mitigated through pricing discipline and the margin benefits from the now completed Renewi 2.0 digitisation programme and other ongoing cost actions.
In Commercial Waste, inbound volumes stabilised in Belgium but continued to decline in the Netherlands during the first half, primarily due to ongoing demand weakness, especially from C&D customers. Pricing actions and cost savings have partially offset the impact of lower volumes, recyclate prices and cost inflation.
M&W's had a strong Q2 performance, following the ramp-up of throughput. The start of the year was impacted by pulling an annual maintenance stop into the first quarter, which is expected to benefit the division's results in the second half. Within Specialities, our glass recycling business, Maltha, continued to deliver strong performance, benefitting from the previously made operational enhancements. Coolrec maintained strong volumes, although was affected by lower plastics prices throughout the first half.
Further cost-cutting measures for our SG&A costs at both the divisional and central levels have been initiated in September 2023 and discussions are now being held with the relevant works councils. This initiative will result in a headcount reduction of 160 by 1 December 2023 with an expected cost to deliver of cEUR4-5m in year.
Group financial performance
===
Group Summary Revenue Underlying EBIT HY24 HY23 Variance HY24 HY23 Variance EURm EURm % EURm EURm %
Commercial Waste 693.3 694.4 0% 50.3 68.4 -26% Mineralz & Water 88.4 93.3 -5% 1.5 2.6 -42% Specialities 178.7 186.3 -4% 10.3 11.3 -9% Group central services - - (11.4) (7.1) -61% Inter-segment revenue (23.3) (22.0) - - Total 937.1 952.0 -2% 50.7 75.2 -33%
===
The underlying figures above are reconciled to statutory measures in note 3 in the consolidated financial statements.
Total revenues were down 2% to EUR937.1m and underlying EBIT was down 33% to EUR50.7m. Profit before tax decreased by EUR26.2m, to EUR45.4m, driven by the recyclate prices settling close to historical average levels, together with lower volumes in Commercial Waste. Ongoing inflationary pressures were offset by pricing discipline and ongoing cost actions. Earnings per share fell to 42 cents (HY23: 66 cents).
Outbound revenue from the sale of recycled materials decreased to EUR167.9m (HY23: EUR196.5m) driven by the lower recyclate prices.
A free cash outflow of EUR1.6m (HY23: EUR4.4m as adjusted for the prior year restatement as referred to in note 2) reflects the planned increase in replacement capital expenditure and interest and loan fees payments offset in part by a positive working capital performance. Total cash outflow was EUR15.9m, as a result of growth capex projects for Vlarema 8 and our hard plastics facility in Acht and extension of landfill rights in Mineralz. As expected, core net debt to EBITDA increased to 2.1x at 30 September 2023 from 1.8x at the end of March 2023. The Board's long-term target remains 2.0x. Liquidity headroom including core cash and undrawn facilities remained strong at EUR307m.
Divisional performance
===
Commercial Waste Revenue Underlying EBIT Operating profit HY24 HY23 HY24 HY23 HY24 HY23
Netherlands Commercial 457.3 459.7 25.8 40.3 25.7 40.3 Belgium Commercial 237.5 236.3 24.5 28.1 24.1 28.2 Intra-segment revenue (1.5) (1.6) - - - - Total (EURm) 693.3 694.4 50.3 68.4 49.8 68.5
Period-on-period variance %
Netherlands Commercial -1% -36% -36% Belgium Commercial 1% -13% -15% Total 0% -26% -27%
Underlying Return on EBIT margin operating assets HY24 HY23 HY24 HY23
Netherlands Commercial 5.6% 8.8% 14.4% 24.3% Belgium Commercial 10.3% 11.9% 34.4% 51.8% Total 7.3% 9.9% 19.4% 29.9%
===
The return on operating assets excludes all landfill related provisions. The underlying figures above are reconciled to statutory measures in notes 3 and 18 in the consolidated financial statements.
The Commercial Waste Division revenues at EUR693m were flat and underlying EBIT fell by 26% to EUR50.3m, representing an underlying EBIT margin of 7.3%.
Revenues in the Netherlands declined by 1% to EUR457.3m and underlying EBIT fell by 36% to EUR25.8m. Underlying EBIT margins decreased by 320bps to 5.6% and return on operating assets fell to 14.4%. Volumes in the Netherlands have been impacted by ongoing demand weakness particularly from C&D customers due to declines in permissions for new building work resulting from environmental quotas. The decrease in recyclate prices is partially mitigated through the dynamic pricing contracts in which price fluctuations are shared with customers, buffering the impact on Renewi's results by about 65% of the recyclate movement. The volume decreases and residual portion of the declining recyclate prices impacted underlying EBIT margin for the first half. In response to this, divisional and central cost and efficiency measures are being executed before the end of 2023. We continued to exercise strong pricing discipline, ensuring inflation was passed on to customers throughout the period.
In Commercial Waste Belgium, revenue increased marginally to EUR237.5m and underlying EBIT fell by 13% to EUR24.5m. Underlying EBIT margins decreased by 160bps to 10.3%. Belgium has also been impacted by the lower recyclate prices; however, volumes have stabilised in the recent months and were marginally ahead of prior year. Strong pricing and cost actions taken have kept margins close to target levels.
Commercial efforts offering segment specific value propositions led to significant new contract wins in both the Netherlands and Belgium, examples include the Dutch Ministry of Defence, TotalEnergies and Custodial Institutions Agency. In Belgium cooperation with secondary disposers to meet the Vlarema 8 regulation also led to early successes, resulting in turning the volume decline into modest but profitable growth.
Key growth investments have progressed well, with our plastics facility in Acht being fully commissioned with promising results. The facility has capacity to process 25kT of hard plastics per year and is expected to be fully operational early 2024. Given the high level of purity achieved, pricing for the recyclates produced will drive strong financial returns from this facility once fully operational.
Our advanced sorting facility in Ghent is fully operational, achieving targeted recycling rates. Enforcement of Vlarema 8 legislation is ramping up within Flanders, and with full enforcement expected in 2024 we will commence the construction of our advanced sorting facility in Puurs accordingly.
===
Mineralz & Water HY24 HY23 Variance EURm EURm %
Revenue 88.4 93.3 -5% Underlying EBIT 1.5 2.6 -42% Underlying EBIT margin 1.7% 2.8% Operating profit 9.5 11.0 -14% Return on operating assets -0.9% 7.3%
===
The return on operating assets excludes all landfill related provisions. The underlying figures above are reconciled to statutory measures in notes 3 and 18 in the consolidated financial statements.
The M&W division saw revenues decrease by 5% to EUR88.4m and underlying EBIT fall by EUR1.1m to EUR1.5m. The performance in the first half reflected the pull forward of annual maintenance stops originally scheduled for the second half. Throughput was increased from 35 to 50 tonnes per hour in September and there was a continued good performance at the waterside and pyro installations.
We continue to improve the quality and consistency of our sand and filler products to provide high quality products for the construction industry. End of waste certification was achieved for gravel, opening up the offtake market to any customer. Although certification for sand is still pending, a commercial agreement has been reached for the offtake of 200kT of sand, signalling its continued recovery.
We also continue to work with off takers to place our 0.6mT residual TGG stocks with shipping started under the offtake contract confirmed earlier in the year.
===
Specialities HY24 HY23 Variance EURm EURm %
Revenue 178.7 186.3 -4% Underlying EBIT 10.3 11.3 -9% Underlying EBIT margin 5.8% 6.1% Operating profit 17.0 10.5 62% Return on operating assets 31.5% 35.8%
===
Underlying EBIT includes utilisation of EUR6.1m (HY23: EUR4.2m) 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 18 in the consolidated financial statements.
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DJ Renewi plc: Half-year report -3-
The Specialities Division saw revenue down by 4% at EUR178.7m impacted by the termination of the Derby UK Municipal contract in the first half last year. Underlying EBIT declined by EUR1m to EUR10.3m (HY23: EUR11.3m). Our glass recycling business, Maltha, continued delivering record performance with revenue of EUR40.8m up 26% from the prior year and underlying EBIT margin of 14.5%, up 430bps due to operational improvements. Coolrec has enjoyed continued strong volumes resulting in revenue up by 3% to EUR45.1m although underlying EBIT margin was impacted by lower plastics prices. The UK Municipal business showed stable operational performance in expectations in the first half.
Markets and strategy
Sustainability is at the heart of what we do
Our goal has always been to breathe new life into used materials and our aspiration is to become the leading waste-to-product company within Europe. Over the course of the first half, we continued to achieve significant progress in solidifying our position as a leader within the circular economies where we operate.
Over the period our recycling rate declined from 63.6% at March to 62.4% at September driven by cessation of certain activities during FY23 together with lower C&D volumes in Commercial. However, industry accolades throughout the first half of the year have further underlined our pioneering efforts in sustainable innovation and our significant contribution to the circular economy. We are honoured to have received the prestigious Trends Impact Award, a leading business award in Belgium, recognising our exemplary role in driving the circular economy forward. Furthermore, we are delighted to continue our collaborative project with Electrolux and were honoured to receive the Plastics Recycling Europe Award, acknowledging our achievement in creating the first fridge made entirely from recycled plastics.
Our strategy for long-term profitable growth
As set out in 2021, we have committed to three pillars of value creation; circular innovations, M&W recovery and Renewi 2.0 which are together expected to deliver a profitability increase of EUR60m by FY26. As previously announced the Renewi 2.0 programme, which was focused on making the customer-facing part of the company simpler and more efficient is widely complete and has supported productivity in HY24. The final cost of implementing Renewi 2.0 is expected to remain around EUR28m with the EUR20m run rate of benefits to be delivered during the current financial year. Circular innovations and M&W recovery have now become an integral component of our top-line growth and margin initiatives.
For M&W, operational plans are in place to deliver profitability improvements. We have converted our soil treatment business to produce building products, like sand and gravel, instead of cleaned soil. With the first customers in place to take these building products to produce concrete, we started to increase our throughput volume from 35 to 50 tonnes, boosting profitability. To complete the recovery we will further increase our throughput and quality over the coming period.
We have a clear business strategy to deliver long-term growth in both margins and volumes. Our strategy is focused on three key areas outlined as follows: 1. Top-line growth of 5% per annum: Supported by our commercial offerings and customer segment approach, wehave established specific strategies to foster organic top-line growth. In addition to our revenue being closelylinked to inflation through contract indexation and underpinned by dynamic regulatory and social change, we willexpand our market share by delivering superior value and service to our customers, further developing our recyclingcapabilities and elevating the quality of secondary material production. 2. Sustainable improvement in margins: We have implemented a set of immediate measures aimed at boostingefficiency by simplifying the organisation and optimising administrative procedures. These endeavours will bereinforced by our digital strategy, focused on enhancing customer-centric processes, digitising internal operationsand elevating asset management capabilities. The successful execution of these initiatives is anticipated to leadto lasting improvements in profit margins, supporting our goal of achieving a high single-digit percentage EBITmargin. 3. Improving Cash Conversion: We will increase our ability to generate free cash flow, with the clearobjective of achieving a conversion rate of 40% of EBITDA by the end of FY26. This will be accomplished byeliminating legacy cash outflow, reducing exceptional costs and optimising asset utilisation, which, in turn, willresult in decreased capital expenditures. This improved cash generation capacity will allow for a capitalallocation policy encompassing both growth-focused investments and enhanced returns for shareholders.
Our capital allocation policy has been reset to reflect our ongoing disciplined approach to capital, prioritising shareholder returns and investing in growth:
-- Ordinary dividend to be reinstated with a final dividend for the financial year ending 31 March 2024, anda progressive policy targeting sustainable growth whilst maintaining cover of 3.0-4.0x underlying earnings
-- Investment of 30% of free cash flow annually in capex for growth projects with return hurdle rates of atleast 16% (pre-tax)
-- In the medium term, disciplined M&A and supplemental returns to shareholders (including potential sharebuybacks) will be considered for excess capital, after organic investment requirements
-- Long-term core debt leverage target of 2.0x EBITDA is reiterated
Outlook
Whilst we are mindful of the current challenging macroeconomic backdrop, our full year expectations are unchanged from the guidance provided in the trading update of 4 October 2023.
Targeted commercial initiatives and structural drivers, including Vlarema 8 legislation, are expected to support resilient demand in the near term across Commercial Waste Belgium, M&W and the Specialities businesses, which will mitigate, in part, continued low levels of C&D activity in the Netherlands over the second half. We anticipate the Dutch construction market will revert to growth by late 2024 or early 2025.
We continue to expect a significantly stronger EBIT performance in second half, underpinned by continued M&W earnings recovery, the initial contribution from additional SG&A cost actions, effective pricing and further productivity initiatives. Further benefits of our margin and portfolio initiatives, together with stabilised recyclate prices and tailwinds generated by Renewi 2.0, underpin confidence in further progress in FY25.
In the longer term we remain confident that, with regulation driving increasing demand for recycled materials, Renewi is well positioned for growth in its markets and to serve customers profitably as the circular economy develops and the market for low carbon secondary materials evolves.
FINANCE REVIEW
===
Financial Performance HY24 HY23 Variance EURm EURm %
Revenue 937.1 952.0 -2% Underlying EBITDA 113.6 131.9 -14% Underlying EBIT 50.7 75.2 -33% Operating profit 64.1 83.6 -23%
Underlying profit before tax 31.3 61.6 -49% Non-trading & exceptional items 14.1 10.0 Profit before tax 45.4 71.6 Total tax charge for the period (10.1) (18.2) Profit for the period 35.3 53.4
Organic annual revenue growth -2% 4% Underlying EBIT margin 5.4% 7.9% Free Cash Flow/EBITDA conversion -1.4% -3.3% Return on capital employed 8.1% 12.2%
===
The underlying figures above are reconciled to statutory measures in notes 3 and 18 in the consolidated financial statements.
FY24 revenues and underlying EBIT were down 2% and 33% respectively impacted by lower recyclates pricing compared to last year of EUR13m and lower volumes of EUR15m particularly in Commercial Netherlands. Cost inflation was mitigated by pricing discipline and cost savings including additional benefits from Renewi 2.0. Depreciation charge was higher by EUR4m in the period principally as a result of the impact of higher spend including the delivery of trucks in the last half of FY23. Interest charges were higher given the impact of additional borrowings entered into in the second half of FY23, increased interest rates and loan fee amortisation charges as referenced below. The level of exceptional and non-trading items in the current year was a credit of EUR14.1m as described below, resulting in a statutory profit for the period of EUR35.3m compared to EUR53.4m last year.
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. Total non-trading and exceptional items excluding tax were a credit of EUR14.1m in the period (HY23: EUR10.0m). Given the increase in Government bond yields from March 2023, discount rates used for long-term landfill and onerous contract provisions have been increased, resulting in a non-cash credit of EUR17.1m. This item is recorded as non-trading and exceptional due to size and nature in line with our policy. As previously reported, we have accounted for the cost of the Renewi 2.0 programme as exceptional due to its size and nature. As announced for the March 2023 year end, the programme of activity was largely complete and will deliver its full run rate benefits in FY24. In the six months to September 2023 there was a further EUR1.0m of spend with a similar level expected in the next six months as the project is finally closed. Further details of other items are provided in note 5 to the consolidated interim financial statements.
Operating profit after taking account of all non-trading and exceptional items was EUR64.1m (HY23: EUR83.6m).
Net finance costs
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Net finance costs excluding exceptional items increased with EUR6.2m to EUR19.8m (HY23: EUR13.6m), as a result of the impact of additional fixed rate borrowings in the second half of FY23, increased interest rates, the level of borrowings on the revolving credit facility and a non-cash write off of EUR1m of unamortised loan fees following the August 2023 renewal of the EUR400m revolving credit facility. Further details are provided in note 6 to the consolidated interim financial statements.
Taxation
Total taxation for the period was a charge of EUR10.1m (HY23: EUR18.2m). The effective tax rate on underlying profits at 27.1% (HY23: 26.5%) is based on the estimate of the full year effective tax rate. A tax charge of EUR1.6m is attributable to the non-trading and exceptional items of EUR14.1m as a number of items are not subject to tax.
Looking forward, we anticipate the underlying tax rate to remain around 27%. Due to items disallowed for tax in both the Netherlands and Belgium, our effective tax rate is higher than the nominal rates in the countries where we operate.
The Group statutory profit after tax, including all non-trading and exceptional items, was EUR35.3m (HY23: EUR53.4m).
Earnings per share (EPS)
Underlying EPS excluding non-trading and exceptional items was 27 cents per share, a decline of 29 cents given the lower profits and higher tax rate in the current period. Basic EPS was 42 cents per share compared to 66 cents per share in the prior year.
CASH FLOW PERFORMANCE
The funds flow performance table is derived from the statutory cash flow statement and reconciliations are included in note 18 in the consolidated financial statements. The table shows the cash flows from an adjusted free cash flow to total cash flow. The adjusted free cash flow measure focuses on the cash generation excluding the impact of historical liabilities relating to Covid-19 tax deferrals, settlement of ATM soil liabilities, spend relating to the UK PPP onerous contracts and other items including exceptional cash spend. Free cash flow represents the cash available to fund growth capital projects, pay dividends and invest in acquisitions.
===
Funds flow performance HY24 HY23 EURm EURm
Underlying EBITDA 113.6 131.9 Working capital movement 5.2 (26.0) Movement in provisions and other (4.2) (3.9) Net replacement capital expenditure (41.4) (35.0) Repayments of obligations under lease liabilities (25.4) (22.8) Interest and loan fees (17.8) (14.1) Tax (5.9) (7.9) Adjusted free cash flow 24.1 22.2 Deferred Covid taxes (9.7) (9.9) Offtake of ATM soil (1.0) (1.1) UK Municipal contracts (9.8) (7.1) Renewi 2.0 and other exceptional spend (1.6) (2.2) Other (3.6) (6.3) Free cash flow (1.6) (4.4) Growth capital expenditure (15.9) (16.0) Acquisitions net of disposals 1.6 (60.1) Total cash flow (15.9) (80.5)
Free cash flow/EBITDA conversion -1.4% -3.3%
===
Free cash flow conversion is free cash flow as a percentage of underlying EBITDA. The non-IFRS measures above are reconciled to statutory measures in note 18 in the consolidated financial statements. September 2022 values for repayments of obligations under lease liabilities and UK Municipal contracts have each been adjusted by EUR0.4m to reflect the prior year adjustment as referred to in note 2.
Adjusted free cash flow was marginally ahead in the period at EUR24.1m (HY23: EUR22.2m) despite the EBITDA decline and increased replacement capex and interest payments which have been offset by a favourable movement on working capital in the period across both payables and receivables.
Replacement capital spend at EUR41.4m was slightly ahead of last year and in line with expectations. In addition, EUR18.7m of new leases or modifications have been entered into which are reported as right-of-use assets with a corresponding lease liability. These leases include the continuation of the truck replacement programme, property lease renewals or extensions and other assets. Growth capital spend of EUR15.9m includes further spend on the Vlarema 8 advanced sorting investments in Belgium and plastics sorting at Acht in the Netherlands. This level of growth spend is lower than originally planned given slight delays at the second and third sites for advanced sorting in Belgium, as full enforcement of the new regulation is ramping up.
The higher cash outflow relating to interest includes the settlement of EUR2.6m of fees relating to the recent renewal of the Group revolving credit facility. Tax payments were slightly lower in the current period given the timing of settlements in the prior year.
Looking at the three legacy components that are shown below adjusted free cash flow, there has been a further EUR9.7m repayment on Dutch Covid-19 tax deferrals as expected. The remaining balance of EUR20m will be settled over the next 12 months. Cash spend for placement of TGG soil stocks has remained limited in the first six months and there has been no change in the cost accrual for the remaining disposal of these historical balances. Cash outflow on UK PPP contracts was EUR9.8m, slightly higher than the prior year albeit lower than anticipated.
The acquisitions net of disposals inflow of EUR1.6m included the sale of an entity acquired with the Renewi Westpoort acquisition in September 2023. Other cash flows include funding for the closed UK defined benefit scheme and the funding of the Renewi Employee Share trust.
Net cash inflow from operating activities increased from EUR74.0m in the prior period to EUR88.8m in the current year. A reconciliation to the underlying cash flow performance as referred to above is included in note 18 in the consolidated interim financial statements.
INVESTMENT PROJECTS
Expenditure in FY24
The Group's long-term expectations for replacement capital expenditure remain around 80% of depreciation. FY24 full year replacement capital spend is expected to be around EUR80m. In addition, a further EUR10m of IFRS 16 lease investments are anticipated in the second half.
Expenditure on the circular innovation pipeline will continue in the coming months, however timing for the advanced sorting investments in Belgium for Vlarema 8 has been slightly postponed with the FY24 full year spend now expected to be around EUR30m.
Return on assets
The Group return on operating assets excluding debt, tax and goodwill decreased to 26.4% at September 2023 from 36.9% at March 2023 given the lower profits in the last six months. The Group post-tax return on capital employed at September 2023 was 8.1% compared to 10.6% at March 2023.
Treasury and cash management
Core net debt and leverage ratios
Core net debt excludes IFRS 16 lease liabilities and the net debt relating to the UK PPP contracts which is non-recourse to the Group and secured over the assets of the special purpose vehicles. Core net debt was in line with management expectations at EUR383.2m (March 2023: EUR370.6m) which resulted in a net debt to EBITDA ratio of 2.1x, comfortably within our covenant limit of 3.5x. Liquidity headroom including core cash and undrawn facilities remains strong at EUR307m, a slight reduction from March as a result of the increase in net debt.
Debt structure and strategy
All our core borrowings of bonds and loans are green financed. As of 30 September 2023, 81% of our net debt excluding UK PPP non-recourse net debt was on a fixed rate.
===
Debt Structure Sep 23 Mar 23 Variance EURm EURm EURm
Belgian Green retail bonds (200.0) (200.0) - Green RCF (125.4) (102.5) (22.9) Other Green loans (105.0) (105.0) - Gross borrowings before lease liabilities (430.4) (407.5) (22.9) IAS 17 lease liabilities and other (7.3) (9.1) 1.8 Loan fees 3.3 2.3 1.0 Core cash 51.2 43.7 7.5 Core net debt (as per covenant definitions) (383.2) (370.6) (12.6) IFRS 16 lease liabilities (241.1) (245.8) 4.7 Net debt excluding UK PPP net debt (624.3) (616.4) (7.9) UK PPP restricted cash balances 23.2 19.0 4.2 UK PPP non-recourse debt (86.8) (88.3) 1.5 Total net debt (687.9) (685.7) (2.2)
===
In August 2023 the Group completed the renewal of its revolving credit facility, part of its Euro denominated multicurrency green finance facility. The size of the revolving credit facility ("RCF") remains unchanged at EUR400m and is for an initial five-year term to 2028 with two one-year extension options to 2030 together with a EUR150m accordion option to increase the facility subject to lender approval at that time. Interest remains based on Euribor plus a margin grid based on leverage and green sustainability metrics performance. Financial covenants remained unchanged and will be tested semi-annually at September and March.
There is sufficient headroom in the RCF to settle on maturity EUR15m of European private placement funds in December 2023 and green retail bonds of EUR75m in July 2024.
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The introduction of IFRS 16 on 1 April 2019 brought additional lease liabilities onto the balance sheet with an associated increase in assets. Covenants on our main bank facilities remain on a frozen GAAP basis and exclude IFRS 16 lease liabilities. The Group has complied with its banking covenants during the period. The Group operates a committed invoice discounting programme. The cash received for invoices sold at September 2023 was EUR106.3m (March 2023: EUR84.7m).
Debt borrowed in the special purpose vehicles (SPVs) created for the financing of UK 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 on PPP borrowings were fixed by means of interest rate swaps at contract inception. At September 2023 this net debt amounted to EUR63.6m (March 2023: EUR69.3m).
PROVISIONS AND CONTINGENT LIABILITIES
Around 88% of the Group's provisions are long-term in nature, with the onerous contract provisions against the PPP contracts being utilised over the remaining term of up to 17 years and landfill provisions for many decades longer. The provisions balance classified as due within one year amounts to EUR39m, including EUR3m for restructuring, EUR18m for onerous contracts, EUR10m for landfill related spend and EUR8m for environmental, legal and others. Further details are provided in note 13 to the consolidated interim financial statements.
Retirement benefits
The Group has a closed UK defined benefit pension scheme and at 30 September 2023, the scheme had an accounting deficit of EUR6.9m (March 2023: EUR4.3m). The change in the year was due to lower returns on pension scheme assets which were only partly offset by an increase in the discount rate assumption on scheme liabilities. The latest triennial actuarial valuation of the scheme was completed at 5 April 2021 and the future funding plan has been maintained at the current level of EUR3.5m per annum until December 2024. There are also several defined benefit pension schemes for employees in the Netherlands and Belgium which had a retirement benefit deficit of EUR5.0m at 30 September 2023 (March 2023: EUR5.0m).
PRINCIPAL RISKS AND UNCERTAINTIES
Renewi operates a risk management framework to identify, assess and control the most serious risks facing the Group. The 2023 Annual Report (pages 86 to 99) provides a discussion of the Group's principal risks and uncertainties. The Board believes that the key risks and associated mitigation strategies have not changed in the period.
Renewi continues to monitor the impact of the ongoing high inflationary environment pressures, fluctuations in recyclate prices and the economic uncertainty arising from geopolitical events. Cybercrime is an increasing risk for all businesses, and we have been investing to further strengthen our capabilities. All of these potential risks are actively reviewed and managed at the Board and in our executive management teams.
GOING CONCERN
The Directors have adopted the going concern basis in preparing these consolidated interim financial statements after assessing the Group's principal risks. Further details of the modelling and scenarios prepared are set out in note 2 of the financial statements. Having considered all the elements of the financial projections and applying appropriate sensitivities, the Directors confirm they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and to meet its covenants.
STATEMENT OF THE DIRECTORS' RESPONSIBILITIES
The Directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted for use in the UK, and that the interim management report includes a fair review of the information required by DTR 4.2.7 R and DTR 4.2.8 R, namely:
-- an indication of important events that have occurred during the first six months and their impact on thecondensed set of financial statements, and a description of the principal risks and uncertainties for the remainingsix months of the financial year; and
-- material related-party transactions in the first six months and any material changes in the related-partytransactions described in the last Annual Report.
A list of current Directors is maintained on the Renewi plc website: www.renewi.com.
===
Otto de Bont Annemieke den Otter
Chief Executive Officer Chief Financial Officer
8 November 2023 8 November 2023 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.
Consolidated Interim Income Statement (unaudited)
First half ended 30 September 2023
===
First half 2023/24 First half 2022/23 Non-trading Non-trading Total Total Note Underlying & exceptional Underlying & exceptional items EURm items EURm EURm EURm EURm EURm
Revenue 3,4 937.1 - 937.1 952.0 - 952.0 Cost of sales 5 (764.1) 14.1 (750.0) (766.2) 4.9 (761.3) Gross profit 173.0 14.1 187.1 185.8 4.9 190.7 Administrative expenses 5 (122.3) (0.7) (123.0) (110.6) 3.5 (107.1) Operating profit 3 50.7 13.4 64.1 75.2 8.4 83.6 Finance income 5,6 5.1 0.7 5.8 4.9 1.6 6.5 Finance charges 5 (24.9) - (24.9) (18.5) - (18.5) Share of results from associates and 0.4 - 0.4 - - -
joint ventures
Profit before taxation 3 31.3 14.1 45.4 61.6 10.0 71.6 Taxation 5,7 (8.5) (1.6) (10.1) (16.3) (1.9) (18.2) Profit for the period 22.8 12.5 35.3 45.3 8.1 53.4
Attributable to:
Owners of the parent 21.3 12.5 33.8 44.3 8.1 52.4 Non-controlling interests 1.5 - 1.5 1.0 - 1.0 22.8 12.5 35.3 45.3 8.1 53.4
First half First half
Earnings per share Note 2023/24 2022/23 cents cents
Basic 8 42 66 Diluted 8 42 66 Underlying basic 8 27 56 Underlying diluted 8 27 56
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Consolidated Interim Statement of Comprehensive Income (unaudited)
First half ended 30 September 2023
===
First half First half
2023/24 2022/23 EURm EURm
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign subsidiaries (1.1) 2.4 Fair value movement on cash flow hedges 8.2 13.4 Deferred tax on fair value movement on cash flow hedges (2.1) (1.8) Share of other comprehensive income of investments accounted for using the equity method 0.1 0.4 5.1 14.4
Items that will not be reclassified to profit or loss:
Actuarial loss on defined benefit pension schemes (4.1) (4.0) Deferred tax on actuarial loss on defined benefit pension schemes 1.0 1.0 (3.1) (3.0)
Other comprehensive income for the period, net of tax 2.0 11.4 Profit for the period 35.3 53.4 Total comprehensive income for the period 37.3 64.8
Attributable to:
Owners of the parent 35.8 63.8
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Non-controlling interests 1.5 1.0 Total comprehensive income for the period 37.3 64.8
===
Consolidated Interim Balance Sheet (unaudited)
As at 30 September 2023
===
Restated*
30 September 31 March
30 September
Note 2023 2023
2022
EURm EURm
EURm
Assets
Non-current assets
Goodwill and intangible assets 10 638.6 635.3 636.3 Property, plant and equipment 10 620.1 580.1 617.9 Right-of-use assets 10 245.2 232.9 253.1 Investments 26.5 15.5 14.8 Loans to associates and joint ventures 0.2 0.2 0.2 Financial assets relating to PPP contracts 122.2 127.2 123.4 Derivative financial instruments 15 4.3 4.4 1.2 Defined benefit pension scheme surplus 14 - 4.5 - Other receivables 3.7 4.3 3.7 Deferred tax assets 35.3 35.0 35.6 1,696.1 1,639.4 1,686.2
Current assets
Inventories 25.9 26.7 25.2 Investments - 10.7 10.9 Loans to associates and joint ventures 0.9 0.6 0.8 Financial assets relating to PPP contracts 7.4 7.7 7.6 Trade and other receivables 273.2 290.0 289.6 Derivative financial instruments 15 2.2 4.3 0.4 Current tax receivable 1.5 0.9 1.5 Cash and cash equivalents - including restricted cash 11 74.4 58.9 62.7 385.5 399.8 398.7 Assets classified as held for sale 10 0.6 1.5 0.6 386.1 401.3 399.3 Total assets 2,082.2 2,040.7 2,085.5
Liabilities
Non-current liabilities
Borrowings 11 (620.0) (697.2) (681.6) Derivative financial instruments 15 (0.5) (0.3) (2.6) Other non-current liabilities (22.0) (25.3) (34.7) Defined benefit pension schemes deficit 14 (11.9) (4.6) (9.3) Provisions 13 (280.1) (287.0) (298.2) Deferred tax liabilities (46.7) (46.4) (46.4) (981.2) (1,060.8) (1,072.8)
Current liabilities
Borrowings 11 (142.3) (49.3) (66.8) Derivative financial instruments - (0.6) (1.9) Trade and other payables (500.6) (507.3) (521.8) Current tax payable (35.9) (31.5) (31.2) Provisions 13 (38.3) (40.6) (43.7) (717.1) (629.3) (665.4) Total liabilities (1,698.3) (1,690.1) (1,738.2) Net assets 383.9 350.6 347.3
Issued capital and reserves attributable to the owners of the parent
Share capital 99.8 99.5 99.8 Share premium 474.1 473.8 474.1 Exchange reserve (13.3) (12.3) (12.2) Retained earnings (188.3) (218.4) (224.5) 372.3 342.6 337.2 Non-controlling interests 11.6 8.0 10.1 Total equity 383.9 350.6 347.3
===
*The comparatives have been restated due to a prior period adjustment as explained in note 2 Basis of preparation.
Consolidated Interim Statement of Changes in Equity (unaudited)
First half ended 30 September 2023
===
Restated* Restated* Non- Restated* Share Share Exchange Retained controlling Total
capital premium reserve
earnings interests equity EURm EURm EURm EURm EURm EURm
Balance at 1 April 2023 99.8 474.1 (12.2) (224.5) 10.1 347.3 Profit for the period - - - 33.8 1.5 35.3
Other comprehensive (loss) income:
Exchange loss on translation of foreign subsidiaries - - (1.1) - - (1.1) Fair value movement on cash flow hedges - - - 8.2 - 8.2 Actuarial loss on defined benefit pension schemes - - - (4.1) - (4.1) Tax in respect of other comprehensive income items - - - (1.1) - (1.1) Share of other comprehensive income of investments - - - 0.1 - 0.1
accounted for using the equity method
Total comprehensive (loss) income for the period - - (1.1) 36.9 1.5 37.3 Share-based compensation - - - 1.2 - 1.2 Movement on tax arising on share-based compensation - - - (0.2) - (0.2) Own shares purchased by the Employee Share Trust - - - (1.7) - (1.7) Balance as at 30 September 2023 99.8 474.1 (13.3) (188.3) 11.6 383.9
Balance at 31 March 2022 - as reported 99.5 473.8 (15.0) (227.1) 7.0 338.2 Impact of prior year adjustment (note 2) - - 0.1 3.6 - 3.7 Balance at 31 March 2022- restated - - (14.9) (223.5) 7.0 341.9 Impact of adopting amendments to IAS 37 - - 0.2 (53.4) - (53.2) Balance at 1 April 2022 99.5 473.8 (14.7) (276.9) 7.0 288.7 Profit for the year - - - 62.9 3.7 66.6
Other comprehensive income (loss):
Exchange gain on translation of foreign subsidiaries - - 2.5 - - 2.5 Fair value movement on cash flow hedges - - - 3.7 - 3.7 Actuarial loss on defined benefit pension schemes - - - (15.5) - (15.5) Tax in respect of other comprehensive income items - - - 4.5 - 4.5 Share of other comprehensive income of investments - - - 0.3 - 0.3
accounted for using the equity method
Total comprehensive income for the year - - 2.5 55.9 3.7 62.1 Dividend paid to non-controlling interests - - - - (0.6) (0.6)
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Share-based compensation - - - 2.7 - 2.7 Movement on tax arising on share-based compensation - - - (0.9) - (0.9) Proceeds from exercise of employee options 0.3 0.3 - - - 0.6 Own shares purchased by the Employee Share Trust - - - (5.3) - (5.3) Balance as at 31 March 2023 99.8 474.1 (12.2) (224.5) 10.1 347.3
Balance at 31 March 2022 - as reported 99.5 473.8 (15.0) (227.1) 7.0 338.2 Impact of prior year adjustment (note 2) - - 0.1 3.6 - 3.7 Balance at 31 March 2022 - restated - - (14.9) (223.5) 7.0 341.9 Impact of adopting amendments to IAS 37 - - 0.2 (53.4) - (53.2) Balance at 1 April 2022 99.5 473.8 (14.7) (276.9) 7.0 288.7 Profit for the period - - - 52.4 1.0 53.4
Other comprehensive income (loss):
Exchange gain on translation of foreign subsidiaries - - 2.4 - - 2.4 Fair value movement on cash flow hedges - - - 13.4 - 13.4 Actuarial loss on defined benefit pension schemes - - - (4.0) - (4.0) Tax in respect of other comprehensive income items - - - (0.8) - (0.8) Share of other comprehensive income of investments - - - 0.4 - 0.4
accounted for using the equity method
Total comprehensive income for the period - - 2.4 61.4 1.0 64.8 Share-based compensation - - - 1.2 - 1.2 Movement on tax arising on share-based compensation - - - (0.6) - (0.6) Own shares purchased by the Employee Share Trust - - - (3.5) - (3.5) Balance as at 30 September 2022 - restated* 99.5 473.8 (12.3) (218.4) 8.0 350.6
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*The comparatives have been restated due to a prior period adjustment as explained in note 2 Basis of preparation.
Consolidated Interim Statement of Cash Flows (unaudited)
First half ended 30 September 2023
===
Restated*
First
half First Note half
2023/24
2022/23
EURm
EURm
Profit before tax 3 45.4 71.6 Finance income 6 (5.8) (6.5) Finance charges 6 24.9 18.5 Share of results from associates and joint ventures (0.4) - Operating profit 3 64.1 83.6 Amortisation and impairment of intangible assets 10 6.3 4.0 Depreciation and impairment of property, plant and equipment 10 34.8 34.1 Depreciation and impairment of right-of-use assets 10 25.7 23.3 Net gain on disposal of property, plant and equipment, intangible assets (0.9) (2.6) Portfolio management and provision movements in non-trading and exceptional items (18.2) (11.9) Net decrease in provisions (11.8) (11.2) Payment related to committed funding of the defined benefit pension schemes (1.8) (1.8) Share-based compensation 1.2 1.2 Operating cash flows before movement in working capital 99.4 118.7 Increase in inventories (0.6) (4.0) Decrease (increase) in receivables 13.0 (11.7) Decrease in payables (17.1) (21.1) Cash flows from operating activities 94.7 81.9 Income tax paid (5.9) (7.9) Net cash inflow from operating activities 88.8 74.0
Investing activities
Purchases of intangible assets (10.3) (6.1) Purchases of property, plant and equipment (50.3) (49.6) Proceeds from disposals of property, plant and equipment 3.3 4.7 Acquisition of subsidiary, net of cash acquired - (53.5) Disposals of subsidiary and business assets net of acquisition of business assets and cash 12 1.6 0.4
disposed of
Net movements in associates and joint ventures (0.1) (1.0) Outflows in respect of PPP arrangements under the financial asset model net of capital 2.7 2.9
received
Finance income 5.5 5.3 Net cash outflow from investing activities (47.6) (96.9)
Financing activities
Finance charges and loan fees paid (23.3) (19.4) Investment in own shares by the Employee Share Trust (1.7) (3.5) Repayment of retail bonds - (100.0) Proceeds from bank borrowings 11 189.7 303.2 Repayment of bank borrowings 11 (166.6) (132.6) Repayment of PPP debt 11 (2.7) (5.4) Repayment of obligations under lease liabilities 11 (25.4) (22.8) Net cash (outflow) inflow from financing activities (30.0) 19.5 Net increase (decrease) in cash and cash equivalents 11.2 (3.4) Effect of foreign exchange rate changes 11 0.5 (1.3) Cash and cash equivalents at the beginning of the period 11 62.7 63.6 Cash and cash equivalents at the end of the period 11 74.4 58.9
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*The comparatives have been restated due to a prior period adjustment as explained in note 2 Basis of preparation.
Notes to the Consolidated Financial Statements
1. General information
Renewi plc is a public limited company listed on the London Stock Exchange 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
This condensed set of consolidated interim financial statements for the six months ended 30 September 2023 has been prepared in accordance with the Disclosure and Transparency Rules of the United Kingdom Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted for use in the UK. They should be read in conjunction with the 2023 Annual Report and Accounts, which have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006. The 2023 Annual Report and Accounts are available from the Company's website www.renewi.com.
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These primary statements and selected notes comprise the unaudited consolidated interim financial statements of the Group for the six months ended 30 September 2023 and 2022, together with the audited results for the year ended 31 March 2023. These interim financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The comparative figures as at 31 March 2023 have been extracted from the Group's statutory Annual Report and Accounts for that financial year, but do not constitute those accounts. Those statutory accounts for the year ended 31 March 2023 were approved by the Board of Directors on 25 May 2023 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
The Board of Directors approved, on 8 November 2023, these consolidated interim financial statements which have been reviewed by BDO LLP but not been audited.
Going concern
The Directors have adopted the going concern basis in preparing these consolidated interim financial statements after assessing the Group's principal risks including an assessment of the impact of the ongoing high inflationary environment and economic uncertainty arising from geopolitical events.
The Directors have carried out a comprehensive assessment of the Group's ability to continue as a going concern. This assessment has involved the review of medium-term cash flow and covenant modelling over an 18-month period to 31 March 2025. This includes expectations on the future economic environment as well as other principal risks associated with the Group's ongoing operations. The assessment includes a base case scenario setting out the Directors' current expectations of future trading and a plausible but severe downside scenario to assess the potential impact on the Group's future financial performance. The key judgement in both scenarios is the level of economic disruption caused by ongoing geopolitical events.
The downside scenario includes significantly weaker macroeconomic conditions leading to a volume decline below the forecast economic outlook in all our territories in the remainder of the current year and into FY25. Other downsides include a significant decline in recyclate prices from the current levels to below long-term averages and operational downtime in some of our plants. These factors reduce FY24 underlying EBIT by 17% and FY25 underlying EBIT by 29% compared to the base case. No mitigating actions have been applied to our downside modelling as they are not necessary to avoid any breach of covenants or shortfall in liquidity.
In the base case and downside scenarios the Group has sufficient liquidity and headroom in its existing facilities and no covenants are breached at any of the forecast testing dates.
In addition, a reverse stress test calculation has been undertaken to consider the points at which the covenants may be breached. Underlying EBIT in FY25 would need to reduce by 46% compared to the base case. In the opinion of the Directors there is no plausible scenario or combination of scenarios that we consider to be remotely likely that would generate this result.
Having considered all the elements of the financial projections, sensitivities and mitigating actions, the Directors confirm they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and to meet all banking covenants.
Prior year restatement
As reported in the Annual Report and Accounts for 31 March 2023, the Group undertook a more in depth analysis of the UK Municipal contract with East London Waste Authority (ELWA) as the contract is due to expire in December 2027. The contract is loss-making and therefore an onerous contract provision (OCP) has been recorded. At inception of this contract on 28 November 2003, a subsidiary of the Group entered a headlease arrangement for one location under the contract and then subleased it to ELWA Limited, an associate, on terms which mirrored the terms of the headlease. Prior to the disposal of the subsidiary in 2004 the headlease and sublease were novated to Renewi UK Services Limited (RUKS), a subsidiary of the Group. Upon adoption of IFRS 16 Leases from 1 April 2019, the Group accounted for the headlease as a right-of-use asset with the rental expense recorded as a repayment of the lease liability. The rental income from ELWA Limited was included within the cash flows used to measure the OCP.
During March 2023, external legal advice received clarified further the legal position in relation to the commercial substance of the lease arrangements. The legal advice stated that it is more likely than not that the sublease to ELWA Limited has taken effect as an assignment of the headlease by operation of law. The practical effect of this is the former subsidiary and ELWA Limited are directly liable for the headlease and that the novation in 2004 to RUKS was invalid. Accordingly, the Group determined that it was not appropriate to recognise the headlease as a right-of-use asset and the lease income should not have been included in the cash flows used to measure the OCP. The Group therefore concluded that the prior treatment was an error and that it was appropriate to restate the 1 April 2021 balance sheet which was actioned in the 2023 Annual Report and Accounts.
For the September 2023 condensed set of consolidated interim financial statements, it is appropriate to restate the 30 September 2022 Balance Sheet and Statement of Cash Flows. The impact on the 30 September 2022 balance sheet is a reduction in lease liabilities of EUR8.8m (of which EUR8.1m is non-current and EUR0.7m is current) with an increase in OCP of EUR5.1m (of which EUR4.1m is non-current and EUR1.0m is current) resulting in an impact of EUR3.6m on retained earnings and EUR0.1m on the exchange reserve. The related right-of-use asset was fully impaired therefore there is no impact on the net book value. However, as a result of the derecognition, cost and accumulated depreciation and impairment have both been reduced by EUR8.9m as at 1 April 2021 and 31 March 2022. The Income Statement impact for the six months ended 30 September 2022 is not material and therefore has not been restated. The impact on the Cash Flow Statement for the six months ended 30 September 2022 is to reduce the cash inflow from operating activities by EUR0.4m and reduce the cash outflow in financing activities by EUR0.4m. Earnings per share and alternative performance measures for the six months ended 30 September 2022 are not affected as a result of this correction.
The impact of the above restatements on the relevant line items in the Consolidated Balance Sheet and Statement of Changes in Equity is presented below:
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30 September 30 September 2022 Restatement 2022
Balance Sheet extract
(previously reported) EURm (restated) EURm EURm Total assets 2,040.7 - 2,040.7
Liabilities
Non-current liabilities
Borrowings (705.3) 8.1 (697.2) Provisions (282.9) (4.1) (287.0) Other (76.6) - (76.6) (1,064.8) 4.0 (1,060.8)
Current liabilities
Borrowings (50.0) 0.7 (49.3) Provisions (39.6) (1.0) (40.6) Other (539.4) - (539.4) (629.0) (0.3) (629.3) Total liabilities (1,693.8) 3.7 (1,690.1) Net assets 346.9 3.7 350.6
Issued capital and reserves attributable to the owner of the parent
Retained earnings (222.0) 3.6 (218.4) Exchange reserve (12.4) 0.1 (12.3) Other equity 573.3 - 573.3 338.9 3.7 342.6 Non-controlling interests 8.0 - 8.0 Total equity 346.9 3.7 350.6
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Adoption of new and revised accounting standards
The following accounting standards, amendments and interpretations became effective during the period but the application of these standards and interpretations had no material impact on the amounts reported in these condensed interim consolidated financial statements:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
-- Definition of Accounting Estimates (Amendments to IAS 8)
-- IFRS 17 Insurance contracts
-- Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
-- International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12)
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| Name | WKN | Börse | Kurs | Datum/Zeit | Diff. | Diff. % | Geld | Brief | Erster | Schluss | |
|---|---|---|---|---|---|---|---|---|---|---|---|
 |
RENEWI LS 1, | A3CRFF | Frankfurt | 7,930 | 03.06.24 08:07:21 | +0,410 | +5,45% | 7,620 | 7,910 | 7,930 | 7,520 |
