The Renewi group – formed by the merger of Shanks and Van Gansewinkel Groep (VGG) – has reported a loss in its municipal division in the face of austerity measures, poor performance or ”inappropriate” contracts.
But the company’s annual report says performance across the group during the financial year was in line with the board’s expectation, and there is an upbeat approach to prospects for the merged group.
The statement from chief executive Peter Dilnot said the municipal division, which operates in the UK and Canada, had a difficult year. Revenue grew 8% to £203m following the commissioning of two facilities at Wakefield and Barnsley, Doncaster and Rotherham (BDR), as well as construction activity in Surrey, Canada.
But the division recorded a trading loss for the year of £2.7m, following a profit in the year before of £9.4m, as a result of operational challenges at the two new sites and other cost pressures.
Dilnot said the drop in profit was mainly down to a fall in value of refuse-derived fuel and “exceptional charges”, including costs in restructuring the business.
He added that a new management team was making “rapid progress” in implementing a recovery plan.
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Dilnot (pictured) warned that PFI waste contracts in the UK were under pressure as a result of ”austerity measures, poor performance or because the contracts are inappropriate in the current market environment”.
“Within this unfavourable market background, our municipal division’s portfolio of assets has been vulnerable contractually to the volatile recovered fuel markets, rising incinerator gate fees and the weakness of sterling,” his statement said.
Renewi had previously acknowledged severe problems with the Derby private-public partnership, notably caused by the insolvency in 2016 of a core technology supplier to the contractor Interserve.
“Interserve is working hard to implement a recovery plan but there has been an unavoidable consequent delay to the project, and the facility is not expected to be fully operational until late in 2017-18. As the operator, rather than the constructor, the financial consequences for Renewi are limited and appropriate provisions for incremental costs have been taken as an exceptional item this year.”
Renewi expects the impact on its municipal division to reduce progressively because it is seeking longer-term contracts for its fuels.
Overall, Dilnot said it had been a “transformational year”, with the performance of the legacy Shanks business being in line with the board’s expectations.
“We have already built up positive momentum as Renewi and are on track with the execution of our merger plans. Looking forward, our position in the emerging circular economy, coupled with the benefits of the merger, will deliver sustainable growth, margin expansion and attractive returns.”
Referring to Brexit, Dilnot’s statement notes that the vote has caused uncertainties in the waste market.
“Through the Brexit process, we expect the export of waste from the UK to continue for some time because there is a strong economic incentive for both the Netherlands and the UK to do so.
“Longer term, we believe the impact on the Dutch market is likely to remain limited. This is because an ultimate reduction in UK imports was already expected due to the commissioning of incinerator capacity in the UK and also new waste imports into the Dutch incinerators are being identified to take up any vacated capacity.
“We also believe that the UK Government will continue to drive environmental policies that will encourage recycling after the exit from the EU.”