Renewi hikes expectations after 'very strong' third quarter

Waste-to-product company Renewi reported “very strong” third quarter trading in an update on Friday, announcing a material upgrade in its expectations for the year.

The London-listed firm said overall trading for the three months ended 31 December was strong, driven by continuing high recyclate prices.

As a result, Renewi said it now expected underlying EBIT to be at least €120m for the 12 months ending 31 March, up from €73m in the 2021 financial year.

The company said its commercial waste division had continued to perform “very well” in the third quarter, with recyclate prices consistently at high levels year-on-year, more than offsetting softening volumes, particularly in Covid-impacted sectors such as hospitality and later cycle construction.

“Recyclate prices have been driven by positive supply and demand factors and high commodity prices as well as by an increasing demand for secondary materials,” the board said in its statement.

“Volumes in the Netherlands and Belgium in the third quarter were 91% and 93% of prior year respectively.

“While labour markets have tightened, this has not to date materially impacted costs or operational effectiveness.”

Renewi said its ‘Mineralz and Water’ division performed in line with its revised expectations, with Mineralz and the waterside of ATM performing well, offsetting lower volumes and increased disposal costs on the soil treatment line.

In November, the Dutch National Institute for Public Health and the Environment (RIVM) published a report to evaluate the environmental standards for secondary mineral products, including thermally cleaned soil and bottom ashes from incinerators amongst others.

It concluded the current legislation was not effective, with amendments to be brought forward, which Renewi said should bring “much-needed clarity” to that particular area of secondary materials.

The firm’s specialities division performed in line with expectations, with ongoing benefits from recyclate prices and a strong performance at Coolrec.

UK municipal trading was benefitting from recyclate prices, offset by costs from a fire in Cumbria in November.

“We have continued to make good progress with our circular innovation investments, with construction contracts now awarded or in late negotiations for the Flemish advanced sorting lines and for the new plastics line at Acht,” the board said.

“Commissioning of both the bio-LNG and new food waste handling hall in Amsterdam is progressing well.

“The Renewi 2.0 programme remains on track to deliver its target net benefit of €5m for the year.”

The company said its cash performance was strong, with core net debt pre-IFRS 16 lease liabilities as at 31 December totalling €301m, representing a reduction of €35m since 30 September, while the leverage ratio reduced to 1.52x from 1.82x over the same period.

Looking ahead, Renewi said the continuing strong performance in the third quarter, supported by confidence that recyclate prices would continue to be robust in the fourth quarter, had led to its further upgrade to expectations for the year ending 31 March.

It said recyclate margins were expected to contribute around €40m of additional EBIT for the full year, compared to the prior year.

“Whilst in the short term we are alert to the macroeconomic environment, inflationary pressures and to recyclate prices, we remain confident in the medium and long-term outlook for the business.

“Our strategic growth programme, driven by our Innovation pipeline, is on track to deliver significant additional earnings over the next three years and beyond, as is our internal Renewi 2.0 digitisation and simplification programme.

“While ATM's recovery has been delayed, as reported at the interims, we expect it will generate material additional earnings in the medium term as well.”

Renewi said its business model was designed to enable “advanced circular economies” to achieve carbon reduction targets, meet consumer needs and corporate ESG goals such as secondary material content targets.

“We continue to see positive structural growth drivers as the Dutch and Belgian regional governments progressively tax carbon emitters, incentivise recycling over incineration, and promote the use of secondary materials.

“We consistently see long-term growth opportunities across our markets as we assist our customers to recycle more and to use our high-quality secondary materials.”

At 1052 GMT, shares in Renewi were up 0.61% at 661p.