LONDON, UK: Renewi plc (LSE: RWI.L), a leading European waste-to-product company, has entered into a binding agreement to sell UK Municipal operations to Biffa Limited, a leading UK-wide integrated waste management business.
Renewi’s CEO, Otto de Bont: “The sale of UK Municipal to Biffa is a transformational milestone which marks the beginning of a new chapter for Renewi. The exit of UK Municipal will immediately improve our cashflow and profit margins, and enable us to drive sustainable growth.
We will now fully focus on growing in Europe’s most attractive and advanced recycling markets. Biffa’s financial position, operational expertise, and presence in the UK municipal landscape make them the right new home for our UK Municipal business and we are confident this transaction benefits all stakeholders.”
Biffa’s CEO, Michael Topham: “The addition of UK Municipal’s five contracts to our existing contracts in West Sussex, Leicester and Somerset further establishes our reputation as a trusted provider of complex, long-term waste treatment contracts to local governments.
Our combined expertise will position us well for the future as we seek to help local governments deliver their net zero targets. We look forward to welcoming the Renewi UK team to Biffa and to working with our new customers in due course.”
The transaction will be effectuated through a combination of a nominal cash consideration payable to Biffa and pre-completion capitalisation of UK Municipal. The Capitalisation ensures UK Municipal’s ability to fulfil its future contractual obligations.
Capitalisation is expected to be approximately £125m1 (€146m2) on completion which, when offset against the reduction of liabilities of €89m, equates to a net cost of c. €57m to Renewi and a total cash impact of €154m, including transaction costs.
Core net debt / EBITDA immediately following the transaction is expected to be approximately 2.9x, falling to our target of 2.0x in the medium-term, with improved margins and cash generation driving accelerated deleveraging.
The transaction will be funded through the existing revolving credit facility, supplemented by a €120m bridge facility.
The Divestment provides UK Municipal customers, employees and other stakeholders with strong strategic backing from a respected scale operator in the UK market. The transaction is expected to complete before 31 December 2024, subject to receipt of a limited suite of regulatory and other consents.
Renewi’s core strategy is focused on growth in commercial and industrial waste in the Benelux region and expanding its Specialities businesses, Maltha, Coolrec and Mineralz & Water. UK Municipal comprises five highly bespoke legacy contracts to process municipal waste for a geographically disparate group of local authorities across England and Scotland, the longest dated of which run until the 2040s. As the Group’s only operations in the United Kingdom, it has limited operational or strategic synergy with the rest of the Group. The contracts were entered into more than 10 years ago, by a Renewi predecessor; they are break-even or structurally loss-making and, in the absence of a legislative shift or significant changes in market conditions, can be neither prematurely terminated nor renegotiated by Renewi. In this context, Renewi publicly announced the strategic review of UK Municipal in September 2023.
Biffa emerged as the most attractive buyer in a competitive process due to the terms of its offer, as well as its strong financial position, expertise in operations, and established presence in the UK municipal landscape. Renewi believes UK Municipal customers, employees and other stakeholders including councils, lenders and regulators will benefit from the transfer of ownership to Biffa.
Completion of the Divestment is anticipated before the end of the calendar year and is subject to receipt of a limited number of regulatory and other consents. Renewi will be working collaboratively with Biffa to secure these consents in a constructive manner. Following completion, Renewi will support the smooth transition of the business to Biffa through various transitional service arrangements.
The Divestment concludes addressing legacy aspects of Renewi’s portfolio and will allow the Group to prioritise resources towards the strategic initiatives where it anticipates the strongest growth, financial performance and shareholder returns.
As a result of the provisioning that has been necessary with respect to UK Municipal, the Divestment is not expected to materially impact the Group’s statutory profitability metrics – however the deconsolidation of €180m of low margin revenue is expected to improve Group EBIT margins by c. 50bps. More detailed financial impacts can be found in the Group’s FY24 financial results published today, in which UK Municipal will be classified as an asset held for sale.
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