Unlike a lot of firms, international waste-to-product company Renewi (RWI) – which was formed from the merger between Shanks Group and Van Gansewinkel Group in 2017 – has emerged from the pandemic in better shape than it started.

First half turnover at its ongoing operations, which exclude the Canada municipal business sold in September last year and the Reym business sold in October 2019, was down just 3% despite the downturn in European economic activity.

After extensive lockdown measures in the first quarter, volumes at its Belgian commercial waste operations had recovered to 91% of last year’s levels in the second quarter ended in September and 97% of last year’s levels in the Netherlands, beating management expectations.

The Minerals and Waste division, which includes the ATM hazardous waste business, actually grew its volumes, revenues and profits, treating more contaminated soil and creating more new products for the construction industry.

At the same time, group cost savings of €10 million during the first half beat estimates, so full year efficiencies are now expected to be above the firm’s earlier target of €15 million.

However it is the company’s progress on cash flow generation and debt reduction which really catches the eye. Thanks to a big reduction in exceptional costs to just €8.1 million against €58 million last year, and the deferral of some taxes, free cash flow soared 89% in the first half to €97.8 million, allowing the firm to reduce what it calls its core net debt from €514 million to €381 million.

As chief financial officer Toby Woolrich explained, the underlying business was always attractive to investors, ‘but our debt was too high, there were too many “exceptional costs” for integrating the businesses and for UK PFI contracts, and not enough free cash flow – that’s all changed’.

After three years, the business is integrated and costs are being brought down sharply. At the same time, Renewi has a market-leading brand and a three-pronged plan to increase underlying pre-tax profits by €60 million over the next three to five years.

The aim is to recover €20 million of ‘lost’ earnings at ATM, where progress is already under way: to improve efficiency through the tech-led Renewi 2.0 programme; and to develop new products such as bio-LNG where the firm is already working with global energy giant Royal Dutch Shell (RDSB).

With management now forecasting full year earnings ‘materially ahead’ of its previous expectations, analysts at Investec and Peel Hunt have raised their price targets to 50p and 49p respectively.

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