Renewi offloads 'unpredictable' UK municipal arm to Biffa

(Sharecast News) - Renewi is to quit the UK market after it struck a deal with British waste management firm Biffa. The European recycling specialist said the sale would "significantly" de-risk its balance sheet, as its current "unpredictable" UK municipal liabilities would be replaced by more competitively-priced debt financing.

It would also increase free cash flow by between €15m and €20m per year, it said, and help increase the earnings before interest and tax margin by "at least" 50 basis points.

Otto de Bont, chief executive, called the sale a "transformational milestone, which marks the beginning of new chapter for Renewi".

Michael Topham, chief executive of Biffa, said: "The addition of UK municipal's five contracts to our existing contracts further establishes our reputation as a trusted provide of complex, long-term waster treatment contracts to local government."

Renewi UK's business comprises of five bespoke legacy contacts to process municipal waste for a number of geographically disparate local authorities.

However, all of the long-running contracts are all either break-even or loss-making and cannot be terminated or renegotiated.

Under the terms of the deal, Renewi will pay Biffa an unspecified "nominal" cash consideration as well as carrying out pre-completion capitalisation of the business of around €125m.

When offset against the reduction of liabilities of €89m, that equates to a net cost of around €57m to Renewi and a total cash impact of €154m.

News of the deal came as Renewi posted results for the year to 31 March showing a 1% dip in revenues from continuing operations, to €1.7bn. Operating profits fell 31% to €97.6m while basic earnings per share fell to 53 cents from 104 cents.

Looking to the current year, Renewi said it expected to return to revenue growth and forecast a "significant" margin improvement.

The company first announced it would look to exit the UK market following a review of the business last autumn.

As at 0845 BST, Renewi's London-listed shares were down 2% at 621p.