Renewi plc has set aside up to £39 million for its ‘significantly delayed’ gasification facility in Derbyshire and is anticipating a financial impact from Brexit, it revealed in a trading update today (29 March).
As well as costs associated with delays to the Derbyshire plant, the company said that its contract with the East London Waste Authority (ELWA) has a ‘significant exposure’ to Brexit – which is likely to impact the financial performance of the work.
According to Renewi the majority of waste handled through the contract is exported as refused derived fuel to the Netherlands. “Transport costs have already increased in anticipation of cross-border friction and there is an elevated risk of increased diversion to landfill over the next two to three years,” the company said.
Consequently, Renewi’s board has decided to take a non-cash impairment of £4m in relation to the carrying value of its investment in the ELWA operating contract and expects to take an ‘onerous contract provision’ in the year ending 31 March 2019 of between £2m and £15m
On its Derbyshire gasification project, Renewi said that uncertainty around the ‘significantly behind plan’ facility have led to the decision to make a non-cash impairment of up to £39 million.
The waste treatment facility in Sinfin has been built and will be operated by Resource Recovery Solutions (RRS) Derbyshire, the partnership company set up between Shanks Waste Management (now Renewi) and Interserve on behalf of Derby city council and Derbyshire county council.
Interserve is the prime contractor for the construction and commissioning of the advanced gasification facility, but due to the recent insolvency of its holding company, commissioning of the plant is now ‘significantly behind plan’ Renewi said.
“Intensive discussions have been underway for several months between stakeholders regarding how best to commission the facility,” the company said.
It added: In view of the current uncertainty with the project, including the recent insolvency of Interserve’s holding company, we will make a non-cash impairment of up to £39m, comprising historic costs of £17m, and subordinated debt with accrued unpaid interest of £22m in the results of the year ending 31 March 2019.
In addition, the company said it will “make a provision against the £10m of delay damages owed to the Group” in case its efforts to secure recovery are unsuccessful. “The provision has no impact on the Group’s core net debt and leverage ratio,” Renewi added.
The facility is the flagship part of a long-term waste contract with the two authorities and includes a mechanical biological treatment (MBT) facility, a recycling plant and an energy from waste process (see letsrecycle.com story)
More broadly, Renewi said that trading has continued in line with its expectations, with a stronger fourth quarter, particularly in the commercial division in the Netherlands.
The statement said its integration activities remain on track to deliver cost synergies of €30m this year and €40m next year. Group core net debt is expected to be as forecast.