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Chairman's statement

Welcome to Renewi

The transformational merger between Shanks and Van Gansewinkel Groep has resulted in one of the world’s leading recycling companies.

Creating Renewi: a transformational year for our business

Our business took a great step forward in 2016/17, more than doubling in size through the merger with Van Gansewinkel Groep (VGG). Bringing the two complementary companies together is in line with our strategy, strengthening our position at the centre of the circular economy. We intend to use our position as one of the world’s leading recycling companies to offer a broad range of high-quality service to our customers, and by doing so efficiently to provide a strong return to shareholders.

A transformation on this scale, together with our ambition to use the combined strengths to improve our business, warranted a relaunch of the company with the new name, Renewi. It signifies our ability to meet the sustainability needs of our customers, supplying new materials back into the manufacturing supply chain.

Our pro forma Group business in the Benelux, comprising over 80% of our revenues, performed well, with encouraging growth in both trading profit and in margin in the Commercial and Hazardous Waste Divisions. Very challenging market conditions and operational challenges resulted in a poor performance from the Municipal Division, on which more follows.

A constant focus on value creation

The Board approached the merger with a sharp focus on building long-term shareholder value, aware that the risks inherent in a major transaction require an appropriate reward. VGG was our key acquisition target for a number of years, and we waited patiently for the right time to acquire the business at a value which we believe represents a good deal for shareholders. We were pleased to construct the transaction such that the shareholders of VGG could become shareholders in the new company, aligning themselves with the shareholders of Shanks for long-term success. In particular, we spent time carefully assessing the €40m of cost synergies that underpin the delivery of significant shareholder accretion.

An opportunity to move to the next level

Looking forward, we believe we must improve every aspect of what we do in order to win over the longterm. This includes improving safety, customer service, environmental performance and productivity. We believe that the merged business can do all of these things better than either could alone, enhancing our important role in the circular economy.

The businesses are highly complementary: VGG is specialised in collection, Shanks in processing; VGG is strong in recycling of glass and electronic goods, Shanks is strong in organic and in hazardous waste treatment; VGG has expertise in logistics while Shanks has been successfully rolling out powerful self-help programmes in the form of commercial effectiveness and continuous improvement. The Shanks operating model is all about remaining close to the customer, while the VGG operating model brings strong common platforms and processes on which to build. The Board therefore believes that the combined Group has the opportunity to deliver sustained growth based on enhanced geographic, product and service coverage in addition to the benefits arising from the delivery of the cost synergies.

Building a new leadership platform

The merger has also created the opportunity to build a new leadership team, engaging the most talented leaders from both entities, supplemented by a small number of new hires to bring fresh talent from outside our companies and indeed from outside our industry.

We are delighted that Peter Dilnot will continue to lead the combined Group, supported by Toby Woolrych as CFO. The new Executive Committee represents a blend of over 130 years of waste experience combined with broad industrial experience from blue chip entities such as Danaher and General Electric. The Board is confident that the new team has the range of skills and experience necessary for success.

Addressing the challenges in the Municipal Division

In an otherwise successful year, the performance of the Municipal Division was disappointing. Adverse market dynamics have placed significant pressure on operating margins as costs at the back end of the process have increased sharply with no contractual ability to pass these costs on to the municipal customers. In addition, there have been challenges in the building and commissioning of new facilities. The Board and executive management have acted decisively to address these challenges, introducing new divisional management and putting in place a detailed improvement plan to mitigate the headwinds and to improve performance. Although this recovery plan will take time to deliver in full, the Board believes that the Division will deliver an improved performance in the next year.

Corporate Governance

The Board is committed to the highest standards of corporate governance. Details of our processes and approach, including those relating to the role and effectiveness of the Board, and compliance with the UK Governance Code, are set out in the Governance section on pages 76 to 105 of our Annual Report.

At our AGM this year we will be seeking approval of the Directors’ Remuneration Policy. This remains broadly in line with that last approved by shareholders in 2014, details of which are set out in the Directors’ Remuneration Report on pages 86 to 101 of our Annual Report.

The Board and its associated committees have been particularly busy over the past year, engaging closely with management in the execution of the merger in order to ensure good governance is in place. Examples include the involvement of the Board in the creation of the Renewi remuneration policies for the new executive committee, the selection of senior leaders, the role of the Audit Committee in reviewing the approach to the new control and reporting framework of Renewi and the management of risk through periodic review of risk registers.

Board changes

On 3 January 2017, Allard Castelein was appointed to the Board as a nonexecutive director. Allard is currently Chief Executive of the Port of Rotterdam and brings to the Board a wealth of experience as a senior leader in Dutch industry. He has joined the Remuneration, Audit and Nomination Committees.

We announced on 25 May 2017 that Eric van Amerongen and Stephen Riley will be stepping down from the Board and will not be seeking re-election at the Annual General Meeting. Both of them have been on the Board for 10 years and have played important roles in the evolution of the business over that time, culminating with the merger with VGG this year. I thank both of them for their significant contributions and wish them well for the future. Eric will be replaced as Senior Independent Director by Jacques Petry and as Chairman of the Remuneration Committee by Allard Castelein. We expect to recruit one further non-executive director during the course of the year and a search is underway.

EPS and dividend

Underlying basic earnings per share for the year reduced as expected to 3.7 pence (2016: 4.2 pence as adjusted for the rights issue) as a result of the 3 for 8 Rights Issue in November 2016 and the consideration shares issued on completion of the merger in February 2017. I am pleased to confirm that we will be recommending an unchanged final dividend, adjusted for the bonus factor of the rights issue, of 2.1 pence per share, payable on 28 July 2017 to shareholders on the register on 30 June 2017. The Board intends to maintain this level of dividend through the integration period until the dividend is back with the range of 2.0 to 2.5 times cover. Once this is the case a progressive dividend policy can be resumed.

Summary and outlook

Looking forward, we believe that the future for Renewi is exciting. The business is well positioned at the heart of the emerging circular economy, a market that is expected to grow in the coming years with the support of EU and national government legislation. The Board has considered the impact of Brexit and will integrate planning for it into our future strategy. More detail on the impact of Brexit is included in the CEO’s Review, on page 40 of our Annual Report.

The fully integrated Renewi business has a compelling offering for customers, combining local service, international expertise and an unrivalled breadth of products. The full roll out of self-help capabilities in commercial effectiveness and continuous improvement will also boost competitiveness and drive enhanced margins. The delivery of the committed cost synergies is additionally expected to drive strong earnings growth and cash generation.

On behalf of the Board, I welcome all the employees of former Shanks and Van Gansewinkel to Renewi and thank them for their commitment over the past year of change.

I also thank our shareholders for their ongoing support for the Board and the management team as we set about reaping the benefits of our transformational merger.

Colin Matthews