Renewi prioritises spending on renewal

Recycling company Renewi (RWI) has opened up the throttle on growth, putting its balance sheet into spending mode while times are good. Its performance for the 12-months to 31 March shows it is already making good use of its high market share in Belgium and the Netherlands; both countries in which tightening recycling rules are rewarding incumbency and spending power, given the high costs of new plants and processing lines. 

At the same time, recycled material (recyclate) prices climbed last year, which helped Renewi almost double its operating profit in the period to €134mn (£114mn). The company also charged the waste producers more as its own costs rose. All these pricing factors added around €45mn to the operating profit out of the €60mn year-on-year improvement, according to chief executive Otto de Bont. 

Renewi has not brought back the dividend given the growth priority. At the same time as its 2022 numbers, the company also announced the €67mn acquisition of Dutch competitor Paro. 

De Bont said capital spending was bringing about plenty of benefits in terms of margin: “we are converting more and more of the waste to recyclates, which means we bring less waste to incinerators or landfill”, which in turn cuts costs and means the company can sell more product. The commercial division – which provides the lion’s share of sales and profits – saw its operating profit margin climb from 6.2 per cent to 10 per cent. 

Broker Arden forecasts the dividend to come back in the current financial year. At the same time, analyst Colin Smith said capital spending would likely “surge” this year. 

Also outlined in the 2022 results was a plan to expand into both ‘tier one’ recycling countries like Denmark and Sweden, and even a second tier country like the UK, those grades being how Renewi categorises its end markets. 

The last crossing of the Channel was not hugely successful – the books still bear the scars of contracts with councils. “In [the] UK municipal [segment] we continue to operate the loss-making contracts within the aggregate provisions taken in previous years,” Renewi said. 

Of course all these plans have a price. Renewi has long had an unwieldy set of liabilities. Net debt – not including non-recourse borrowings – at just over €303mn gives a leverage figure of 1.4 times, down from 2.2 times a year ago. This is less unwieldy than before but could still come down. The growth strategy does match the increased focus on a ‘circular economy’ in Europe and Renewi is well-placed to keep benefiting. Buy. 

Last IC View: Buy, 745p, 16 Dec 2021