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Renewi takes £73m hit from municipal contracts
Renewi is taking a £73m hit from impairments and provisions against expected losses from onerous municipal contracts, but there will be no material impact on the waste-to-product group's cash flow or banking covenants.
The FTSE 250 company, formerly known as Shanks, on Friday announced that it had increased provisions on the contracts after completing a review of its UK municipal division and taking action to manage its portfolio of UK assets.
Renewi will exit a loss-making PFI operating contract at Dumfries & Galloway and the facility at Westcott Park, which management said would simplify and de-risk the UK municipal portfolio, but result in £9m and £16m of extra costs respectively.
Onerous contract provisions were increased £27m in respect of the Barnsley, Doncaster and Rotherham PFI operating contract and another £27m for the Wakefield PFI contracts. Management said this reflected prudent recognition of expected future losses over the remaining lives of the contracts.
On the upside, an exceptional credit of £8m has been realised in relation to costs recovered at Wakefield and an improved position at Cumbria.
Further to the trading update on 12 February 2018, underlying trading in the municipal division "is on track for the current financial year" management said.
"Good operational progress is being made against the recovery plans, except for the slower future recovery in respect of the Wakefield contract for the reasons outlined above. The overall impact of the actions announced today will underpin the expected recovery in the UK municipal division for the year ending 31 March 2019.
"The board remains confident that the group will deliver a trading performance for the year ending 31 March 2018 in line with its expectations."
Looking forward, based on current market conditions and the delivery of ongoing recovery plans, directors do not anticipate any further exceptional charges in respect of the UK municipal assets.