Renewi
Annual Report 2017

Plain-text annual report

Renewi plc Annual Report and Accounts 2017 Waste no more _Renewi_ARA_17.indb 3 02/06/2017 11:15 Our vision is to be the leading waste-to-product company In February this year, we started something new. We created one of the world’s leading recycling companies – Renewi – born from the merger of two great companies. things underpin our offer: our Three ability locally; our to serve customers unrivalled product range; and our deep international knowledge and expertise. Our committed and passionate people deliver this service. They truly believe in what we do. They make us diffferent – and better. Our vision is to be the leading waste-to- product company. We protect the world by giving new life to used materials. We play an important role in the circular economy and we are a strong force in protecting the world from contamination. This is something we feel very proud about. OUR OFFER Unrivalled range of products and services Local service International expertise Passionate and committed people _Renewi_ARA_17.indb 4 02/06/2017 11:15 GROUP HIGHLIGHTS 2017* 90% £779m 27% Total revenues Increase in total revenues £36.5m 9% Trading profit Increase in trading profit Recycling and recovery rate 2.1p Final dividend per share DIVISIONAL HIGHLIGHTS 2017* Strategy  Return the division to attractive profitability levels  Drive cost efficiency through structural cost reduction together with procurement and continuous improvement initiatives  Invest in optimising our commercial effectiveness to take advantage of market opportunities  Streamline the portfolio to increase returns  Invest in environmental excellence and increasing treatment capacity  Expand the range of inputs requiring thermal treatment  Broaden commercial coverage and geographic footprint  Drive further synergies and productivity gains  Deliver sustained operational excellence under our current contracts  Ramp up operational performance in the BDR and Wakefield facilities following full service commencement  Successfully commission the Surrey and Derby facilities  Remain alert to opportunities to assist other potential customers without a current solution to their waste diversion requirements Achievements Commercial waste produced another strong performance in the year. Ongoing contributions from our self-help initiatives and portfolio management were reinforced by improving end markets. Hazardous waste also delivered a strong performace, despite continuing subdued oil and gas markets. Waterside volumes from ships and strong throughput on the soil cleaning line offset ongoing weakness in higher-priced, contaminated water volumes and lower sludge intake. Municipal had a very difficult year, primarily as a result of ongoing, off-take cost pressures. New managment is now in place and is making rapid progress in implementing a clear plan for recovery. COMMERCIAL HAZARDOUS MUNICIPAL * The definition and rationale for the use of non-IFRS measures are included on page 189. Operating loss on a statutory basis, after taking account of all non-trading and exceptional items, was £39.0m (2016: profit of £9.8m). _Renewi_ARA_17.indb 5 02/06/2017 11:15 Revenue £m 2017 2016 2015 2014 2013 Underlying profit before tax £m Revenue by division 779 615 601 633 612 2017 2016 2015 2014 2013 25.7 21.0 21.7 30.1 30.0 Total £779m HAZARDOUS COMMERCIAL MUNICIPAL VGG Achievements Financial highlights €414m Revenue €26.9m Trading profit +27% Percentage variance in trading profit €191m Revenue €23.1m Trading profit +9% Percentage variance in trading profit £203m Revenue £2.7m Trading loss £12m Fall in profits _Renewi_ARA_17.indb 6 02/06/2017 11:15 CONTENTS 02 Who we are We are the leading waste-to- product company 04 What we believe We believe waste is an ‘attitude’. It is not waste in our hands; it is an opportunity 1 2 3 06 What we do We give new life to used materials 4 10 CEO’s review Peter Dilnot reports on a year of solid performance and an exciting future Lift to see the highlights for the financial year 2016/17 Other sections Overview 08 Chairman’s statement 16 Capturing value 18 Integration progress 21 The next 12 months 22 The Executive Committee 24 Focus on the Commercial Division 28 Focus on the Hazardous Waste Division 32 Focus on the Municipal Division 36 Focus on the Monostreams Division Strategic report 40 CEO’s review (continued) 44 CFO’s review 52 Operating review 60 People: Engaging through integration 65 CSR: Fully aligned and ambitious 68 Risk and uncertainties Governance 76 Board of Directors 78 Corporate governance: Chairman’s introduction 79 Corporate governance report 82 Audit Committee report 86 Remuneration Committee: Chairman’s statement 88 Directors’ remuneration policy 94 Annual remuneration report 102 Other disclosures 105 Directors’ responsibilities statement 106 Auditors’ report Financial statements 114 Financial statements More information 190 Shareholder information 191 Company information 192 Glossary _Renewi_ARA_17.indb 1 02/06/2017 11:15 Annual Report and Accounts 2017 RENEWI plc 1 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWWho we are A strong leader in recycling We are one of the world’s leading recycling companies. Our vision is to be the leading waste-to-product company. This means we serve customers on both sides of the waste-to-product chain. Our purpose is to protect the world by giving new life to used materials. We provide manufacturers with secondary raw materials to create new products and we help our customers to meet their sustainability goals. Ultimately, we are a strong force in preserving the world’s limited resources and protecting them from contamination. This is something we feel proud about. We have more than 7,000 passionate and committed people working across over 250 sites in nine countries. They truly believe in what we do. 2 Annual Report and Accounts 2017 RENEWI plc Key facts and figures Environmental achievements 90% overall recycling and recovery rate 3m tonnes of carbon avoidance through recycling and recovery 15m tonnes of waste handled 172bn watt hours of green electricity produced – enough to power 40,000 homes Divisions Commercial Hazardous Municipal Monostreams Employees r e v o 7,000* 4,947 Commercial 958 Hazardous 702 Municipal 470 Monostreams Geographies Netherlands Belgium UK Germany France Portugal Canada Hungary Luxembourg * Data based on new merged and refined Renewi definitions, such as on status of fixed-term contract workers and similar. Annual Report and Accounts 2017 RENEWI plc 3 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWWhat we believe Waste no more In a world where resources are limited, the status of waste is changing. We believe ‘waste’ is an attitude. It is not waste in our hands: it is a product, an opportunity and a small part of our planet preserved. By giving new life to used materials, we play an important role in the circular economy – an economy that keeps resources in use for as long as possible through recycling and recovery. Above all, we are the pragmatic face of sustainability. 4 Annual Report and Accounts 2017 RENEWI plcWaste-to-product Our vision is to be the leading waste-to-product company – contributing to a sustainable society for all our key stakeholders: customers, employees, our local communities and, of course, our shareholders. What do we mean by waste-to-product? At Renewi, we exclusively focus on extracting value from waste rather than on its disposal through mass burn incineration or landfill. Of the 15 million tonnes of waste we handle a year, 90% is either recycled or used for energy recovery. We intend to build on that. We believe our unique waste-to-product approach addresses social and regulatory trends. It also offers the most capital-efficient solution to the effective recycling and management of waste. How it works – some examples by division INPUT PRODUCT OUTCOME RECYCLED Commercial Hazardous Municipal Monostreams Construction waste Plastic waste Contaminated soil, water and waste solvents Food and garden waste Mixed household waste Waste glass, wood and electricals Aggregates Plastic recyclate Clean water, soil and ash Compost Refuse-derived fuels Secondary raw materials New construction projects New plastic products Healthy land and waterways Fertile land and soil Energy production Consumer goods 97% Recycling rate at our flagship ATM facility  This is is by no means an exhaustive list. See pages 24–39 for more 96% Recycling and recovery rate at our Coolrec subsidiary Annual Report and Accounts 2017 RENEWI plc 5 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW What we do We turn one person’s waste into useful products for someone else. Waste no more. 6 Annual Report and Accounts 2017 RENEWI plcOur strategy The merger of Shanks and Van Gansewinkel has created one of the world’s leading waste-to- product companies. We now have a combined workforce of more than 7,000 people, enhanced geographical coverage and greater access to other markets. This all adds up to the scale, capability and resources to drive growth. Our four divisions – Commercial, Hazardous, Municipal and Monostreams – provide customers with an unrivalled range of recycling technologies and services. Each division has its own strategy to drive growth, based on market dynamics, competition and capital intensity. In addition, we have four over-arching Group- wide strategies. These are: drive margin expansion; invest in infrastructure; actively manage our portfolio; and deliver the benefits of the merger. By pursuing a clear strategy of active management, investment and expansion across our divisions, our aim is to be the leading waste-to-product company. Commercial Hazardous Municipal Monostreams Drive margin expansion Invest in infrastructure Actively manage the portfolio Deliver merger benefits  See page 12 for more about our strategy _Renewi_ARA_17.indb 7 02/06/2017 11:15 Annual Report and Accounts 2017 RENEWI plc 7 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW 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. 8 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 9 _Renewi_ARA_17.indb 8 02/06/2017 11:15 The fully integrated Renewi business has a compelling offering for customers 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. 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. 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. 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 non- executive 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 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 this 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 Chairman 8 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 9 _Renewi_ARA_17.indb 9 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW CEO’S REVIEW A NEW ERA We expect 2017/18 to be a successful year of transition and integration and believe that Renewi has an exciting future ahead INTRODUCTION A TRANSFORMATIONAL MERGER It is with great pleasure that we are reporting on the first set of financial results for Renewi plc. The creation of Renewi has brought together two of Europe’s leading recycling companies, Shanks and Van Gansewinkel (VGG), resulting in a waste-to- product business with an unrivalled range of recycling capabilities for commercial and municipal customers in its core Benelux markets and with further operations in Europe and North America. The merger of Shanks and VGG has taken place against a backdrop of modestly improving markets in the Benelux, representing over 80% of pro forma Group revenue, and a strong underlying performance from the Benelux businesses of both companies. This underlying progress in the year ended 31 March 2017 has been offset by very challenging market conditions and operational challenges in our Municipal Division, particularly in the UK. A recovery plan for this business is being implemented and key actions are already beginning to deliver improvements. Overall, Renewi is well positioned to deliver sustained growth and attractive returns going forward. Compelling strategic and commercial rationale The strategic and commercial rationale for the merger of Shanks and VGG is compelling. It brings together two similar businesses with complementary visions, organisations, product portfolios and geographic footprints. The merger will deliver significant synergies, yet is about more than just cost reduction: the new Group plays an important role in the growing circular economy to meet the increasing needs of its customers, regulators and society. Rebranding as Renewi The rebranding of Shanks and VGG to Renewi indicates to our stakeholders that we have completed a merger of equals and that we intend to create something new and better, drawing on the heritage and the strengths of both legacy organisations. The Renewi brand itself reflects our waste-to- product business model and our role at the centre of the circular economy. We have been encouraged by initial reactions to our new brand from both the market and from our people. Our vision and strategy Our vision is to be the leading waste-to- product company, a vision that has been retained from the former Shanks business. This differentiates Renewi as a company that does more than act as a collection service for waste generators and one that focuses on extracting value from waste, rather than on its disposal through mass burn incineration or landfill. Our vision positions us higher on the waste hierarchy in an area that is being driven by increasing environmental legislation, particularly in the European Union where we have the majority of our activities. We believe that our unique focus both addresses social and regulatory trends and offers the most capital-efficient solution to waste management. The name Renewi captures our purpose: we give new life to used materials. The circular arrows in the logo show how we represent something new at the centre of the circular economy. This positioning is important for society as we protect the world from contamination and we preserve the world’s finite raw materials by reintroducing former waste products into the supply chain. For us, waste is an attitude and the materials we receive are an opportunity to create new value. We are also uniquely placed for our customers: to help them meet their sustainability objectives in reducing waste produced or to provide them with the materials they need for their production processes. 10 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 11 _Renewi_ARA_17.indb 10 02/06/2017 11:15 Our new brand Van Gansewinkel Shanks A unique new logo The logo reflects our position at the centre of the circular economy. It captures our vision to bring new life to used materials. A new set of colours Our chosen colours represent the coming together of two fantastic companies, both leading names in recycling and sustainability. The colours also reference our commitment to protecting the natural world. A well-respected strapline Our “waste no more” strapline comes from Van Gansewinkel. Using it reflects our commitment to make the most of both businesses. It also represents our belief that “waste” is an attitude. It is not waste in our hands: it is a product, an opportunity, and a small part of our planet preserved. 10 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 11 _Renewi_ARA_17.indb 11 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCEO’S REVIEW CONTINUED  The new Monostreams Division focuses on specialist markets that make essential products of value in the circular economy – here the team is dismantling electrical equipment The “i” at the end of Renewi represents our commitment to innovate with new products, services and technologies. This will increase the range of products that can be brought back into economic use. The colours reflect the merger of the VGG blue and the Shanks green. We have retained the “Waste No More” strapline from VGG as this has strong brand equity and resonance in our markets. It also demonstrates continuity from VGG into the new organisation. Our strategy has remained consistent, with the addition of one new division – Monostreams – and one new overarching strategic initiative – to deliver the merger benefits. Each of our four core divisions have strategies to address opportunities in the specific markets that they serve. These divisional strategies are reinforced by four overarching strategies that apply across the Group. These are to: Drive margin expansion across the Group through self-help initiatives such as commercial effectiveness, continuous improvement and off-take management Invest in infrastructure through the cycle in areas where we are structurally advantaged and can deliver superior returns Manage our portfolio of assets and businesses, exiting those that are non-core or under- performing and redeploying capital into segments where we can deliver increased returns and growth Deliver merger benefits which include €40m of annual cost synergies in 2019/20. Our compelling offering to the market The creation of Renewi will improve the range of products and services we can offer to our combined customer base. As a result of the merger we also have an expanded geographical footprint across the whole of the Benelux and into new European countries. To ensure we retain customer intimacy while simultaneously gaining the benefits of our increased scale, we have carefully designed a target operating model that has local accountability coupled with strong divisional capabilities. This divisional operating model is further reinforced by Renewi’s broader international expertise, coordinated Group-wide margin expansion initiatives, and lean and effective central support functions. A new divisional structure As previously announced, we have created a new divisional structure that is both market- facing and customer-focused and which will allow best access to available synergies and growth opportunities. 12 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 13 _Renewi_ARA_17.indb 12 02/06/2017 11:15 The positive energy across the combined business has remained after the successful launch of the Renewi brand A NEW DIVISIONAL STRUCTURE The Commercial Waste Division The Hazardous Waste Division 63% The Commercial Waste Division, representing around 63% of Renewi’s pro forma revenues and operating in the Benelux, addresses the high volume waste segments of industrial & commercial, construction & demolition and municipal collection. The Division broadly comprises the former Shanks Commercial Division along with the former VGG Collection Division. This Division operates in markets that are showing signs of recovery and our focus is on margin expansion and on delivering the significant cost synergies. For operational reasons, the Belgian and Dutch Commercial operations are run separately, with certain common overheads, and we shall report on the progress of each country within the Commercial Waste Division going forwards. 12% The Hazardous Waste Division, representing around 12% of Renewi’s pro forma revenues and operating in the Netherlands and Germany, is broadly the former Shanks Hazardous Waste Division with the addition of Van Gansewinkel Industrial Services (VGIS). The VGIS industrial cleaning business is approximately one quarter of the size of Shanks’ Reym industrial cleaning business and the resulting integration is already well underway. We have a unique proposition in the market, providing a full-service offering to our customers. The Municipal Division The new Monostreams Division 14% The Municipal Division, representing around 14% of Renewi’s pro forma revenues, is unchanged from the Shanks Municipal Division and focuses on long-term contracts providing waste treatment solutions for local authority customers in the UK and Canada. 11% Finally, the new Monostreams Division, which operates in the Benelux, France, Germany, Hungary and Portugal, includes the three former businesses of the Recycling Division of VGG (Coolrec, Maltha and Minerals) together with the Dutch Orgaworld business from Shanks. The new division represents around 11% of Renewi’s pro forma revenues and focuses on specialist markets which produce valuable products for the emerging circular economy such as glass cullet, plastic chips/granulates and fertilisers. 12 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 13 _Renewi_ARA_17.indb 13 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCEO’S REVIEW CONTINUED DELIVERING OUR SYNERGY COMMITMENTS €m 2016/17 2017/18 €4m €12m 2018/19 €30m 2019/20 €40m Ensuring focus continues on delivering performance in a period of integration Throughout the integration process we are maintaining a consistent focus: keeping our people safe, serving our customers well and delivering our commitments. We have moved swiftly to ensure that the new organisation is well positioned to meet its plans for underlying growth. Executing our planned integration We are executing our carefully prepared integration plans at pace. The positive energy across the combined business has remained after the successful launch of the Renewi brand. We have created a new Executive Committee, combining talent and leadership from Shanks and VGG, reinforced by high quality new leaders from outside the business. The first phase of reorganisation has proceeded smoothly, with the creation of the Monostreams Division and the transfer of VGG Industrial Services to Hazardous Waste. We have also brought the Netherlands and Belgium Commercial legacy businesses together under unified Renewi leadership. Our organisation design based on the new ‘Target Operating Model’ is well underway and, subject to Works Council advice, we expect to put in place the next two layers of organisation beneath the Executive Committee before the summer. Other programmes to harmonise our finance and IT systems are also being developed. €30m in 2018/19 and €40m in 2019/20. Over €4m has been secured already and we are confident that we will meet our commitments. During this early period of integration we have been working on benefiting from the merger in the form of “quick wins”. We have made a number of these right across Renewi and some examples are listed below: } In the Netherlands Commercial Division we have combined our expertise with large tenders and we are exchanging containers on routes to improve our offering; } In the Belgium Commercial Division we have swapped outlets for combustible waste to benefit from lower transport costs and taxes; } In Hazardous Waste we are benefiting from the integration of Van Gansewinkel Industrial Services (VGIS) through greater productivity and less outsourcing; } In Municipal we are using our broader scale to negotiate better off-take terms; and } In our Monostreams Division we have identified potential benefits for commercial contracts. Delivering our synergy commitments While the strategic rationale for the merger is both broader and longer term than simply cost synergies, the delivery of the committed €40m of synergies underpins the expected value creation of the merger and will create a stronger and more cash generative enlarged business. We have detailed synergy delivery plans and are committed to delivering €12m of cost synergies in 2017/18, increasing to Addressing the issues in the Municipal Division The market conditions and operational challenges facing the Municipal Division have had a material impact on the profitability of the business and the future profit trajectory of these assets. We have responded decisively to these challenges with a recovery programme that will drive operational performance and increase the capability of the Division to improve its fuel off-take costs over time. We have also appointed experienced and high-calibre new management with the right skills and determination to drive the recovery programme. The key recovery initiatives are to: } Implement urgent plans to bring existing facilities up to full capacity and to maximise power generation. This will particularly focus on generating gas at Wakefield and Westcott Park and increasing throughput at BDR; } Adjust our operations to create higher quality fuels, focusing on Cumbria and East London (ELWA) where upgrades to fuel quality can increase access to the better-priced SRF market; } Negotiate off-take terms and secure better priced outlets across all our facilities for both refuse derived fuel (RDF), solid recovered fuel (SRF) and certain recyclates where appropriate; } Improve productivity and plant up- time by optimising maintenance and equipment reliability to reduce unplanned stoppages; } Negotiate improvements to local municipal contracts where possible; and } Bring the Surrey and Derby facilities into full operation. These initiatives are expected to improve underlying performance, although this will be offset, inter alia, by a reduced contribution from the Derby contract. Overall, the Division is expected to show a modest net improvement during this financial year and for this to continue steadily thereafter. POSITIVE FUTURE OUTLOOK Divisional prospects The Commercial Division is expected to make underlying commercial progress next year, albeit offset by some integration- related disruption which will slow the delivery of projects as the two business models are merged. We expect these factors to balance out and the delivery of the expected initial cost synergies in 2017/18 to drive overall progress in the year, with further progress in the following years as the full synergies are realised. The Hazardous Waste Division is also expecting to make progress during 2017/18, supported by an encouraging pipeline of 14 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 15 _Renewi_ARA_17.indb 14 02/06/2017 11:15 DIVISIONS: MEASURING FUTURE PERFORMANCE COMMERCIAL HAZARDOUS MUNICIPAL MONOSTREAMS To deliver growth through further implementation of self-help initiatives and through capturing market recovery } Implement new Target Operating Model across the division and move towards one way of working } Deliver synergy commitments while remaining focused on external markets and performance delivery } Increase margins through extension of commercial effectiveness programme. } Manage volatility in downstream markets, including wood off-take GROUP: To deliver growth through optimisation of new assets and waste flows To deliver recovery plan optimising assets and improving off-take costs To deliver growth through improving product quality and optimised operations GOALS 2017/18 } Secure strong incoming soil } Commission Surrey and Derby volumes and maintain current throughput levels } Secure new soil off-take options to de-risk future operations } Optimise waterside volumes and seek additional sludges } Manage Reym productivity and cost base to meet expected market demand projects on time } Improve operational performance of BDR and Wakefield contracts } Open new off-take contracts and markets at improved prices } Address challenges in less profitable contracts } Commission powder line at Dintelmond and continue to deliver growth through operational improvement } Increase margins at Coolrec through dynamic pricing and a focus on optimised product quality } Secure extension for Maasvlakte landfill } Drive growth in Orgaworld through improving end markets DRIVING MARGIN EXPANSION INVESTING IN INFRASTUCTURE MANAGING THE PORTFOLIO SYNERGY DELIVERY GOALS 2017/18 } Roll out Commercial Effectiveness (CE) programme into former VGG entities to increase margins } Maintain current Continuous Improvement (CI) initiatives in former Shanks entities and prepare for broader based roll out in FY19 } Ensure enlarged Group takes advantage of scale opportunities with regard to group-wide coordinated management of off-take disposal } Commission major remaining Municipal projects and improve performance of BDR and Wakefield } Complete expansion of chemical waste storage shed in Hazardous and begin renovation of soil treatment line } Begin reinvestment in ex-VGG logistics fleet in a targeted way, in line with acquisition model } Complete IT strategic roadmap to support integration and drive efficiency in the coming years } Continue to release value from under-performing or non-core assets to recycle capital } Remain alert for expansion opportunities through accretive M&A, exercising capital discipline } Deliver €12m of synergies in FY18 } Be on track to deliver €30m of synergies in FY19 and €40m in FY20 } Drive programmes to secure revenue synergies from cross-selling, waste internalisation and commercial effectiveness soil and water intake. No material recovery is expected in the oil and gas markets and we remain cautious on industrial cleaning activity levels. As outlined above, the Municipal Division is expected to deliver a modest improvement during 2017/18, reflecting some significant operational performance uplift from the recovery plan, offset by the end of the Derby interim services contract and the non- recurrence of certain central cost savings. The Monostreams Division is expected to make progress during 2017/18, with growth and operational improvement opportunities in all four of its operating businesses. Overall Having successfully completed the merger with VGG, our key priorities for the year ahead are to integrate our legacy businesses and to generate growth from strong underlying trading and successful synergy delivery. In parallel, we will fix the Municipal Division and build up momentum for sustained growth and earnings accretion in 2018/19. Whilst alert to macroeconomic developments, the Board remains confident that 2017/18 will be a year of good progress, in line with its expectations. Current trading for the year to date and the initial stages of the integration process support this view. the emerging circular economy, a market that is expected to grow rapidly in the coming years with the support of European Union and government legislation. Moreover, the fully integrated Renewi has a compelling offering for customers, combining local service, international expertise and an unrivalled breadth of products. This strong positioning, coupled with synergy delivery and the roll-out of our proven margin expansion initiatives across Renewi, will deliver sustainable growth, enhanced margins and attractive returns. Looking forward, our growth drivers remain strong. Renewi plays an important role in  Peter’s review continues on page 40 14 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 15 _Renewi_ARA_17.indb 15 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW ABOUT THE MERGER CAPTURING VALUE The strategic and commercial rationale for the merger of Shanks and Van Gansewinkel is compelling. The merger will deliver annual recurring synergies of €40 million by the third full year, yet it is about much more than just cost reduction. Renewi is uniquely positioned at the heart of the emerging circular economy to meet the growing needs of its customers, regulators and society. The below shows how we will capture the value from our merger. 1 INTEGRATION MANAGEMENT OFFICE (IMO) WILL PROVIDE EXPERT SUPPORT The IMO is a nimble central spine, responsible for supporting our business leaders by setting the direction, and for enabling divisional/functional “change” capabilities with expertise and guidance. Example:  Creation of Monostreams Division, focused on specific end markets and led by a dedicated Managing Director 2 VALUE CAPTURE TEAM DELIVERS COORDINATION, GOVERNANCE AND COMPLIANCE Value capture includes cost, revenue and cash synergies. We are confident that the team we have appointed will deliver the appropriate support and momentum to help us to achieve our target of annualised €40m cost synergies to be delivered in financial year 2019/20. Examples:  Specialist advisers providing support to IT, Finance and Procurement  Clear tools and templates to control synergy delivery with good governance 3 EXECUTION IN THE LINE WITH SYNERGY TARGETS ALLOCATED INTO BUDGETS FOR ACCOUNTABILITY Each division has synergy targets within their budget, and with support from the Integration Management Office (IMO), are accountable for driving these synergies. Examples:  Integration managers and teams identified within core divisions  Divisional kick-off meetings to take ownership 4 VALUE CAPTURE PROCESSES ALIGNED WITH TARGET OPERATING MODEL (TOM) Major focus on value capture initially, aligned with the Target Operating Model (TOM), with close tracking mechanism throughout organisation. Example:  New target operating model will reduce cost and create one way of working 5 PROCESS TO CAPTURE ALL IDEAS AND DRIVE QUICK WINS We have started value capture plans at pace across Renewi. A number of quick wins have been secured in each division. Examples:  Commercial Division: Combined expertise for large industrial customers and large tender offers  Municipal Division: Using Renewi scale to negotiate improved UK off-take terms 6 SMALL PROJECTS WITH LOCAL IMPACT We are initially focusing on smaller value capture projects within the divisions which can have a local impact on our synergy targets. Examples:  Integration of VGIS into Hazardous Waste Division  Benefit from lower transport costs and taxes in Belgium, from swapping combustible waste outlets 16 RENEWI plc Annual Report and Accounts 2017 _Renewi_ARA_17.indb 16 02/06/2017 11:15 Van Gansewinkel STRONG IN RECYCLING OF GLASS AND ELECTRONIC GOODS We are the number one provider of glass recycling and trading of recycled glass “cullet” in Europe SPECIALISED IN COLLECTION A large collection fleet collecting waste across the Benelux €40m We will deliver annualised €40m cost synergies in financial year 2019/20 EXPERTISE IN LOGISTICS In-house logistics expertise OPERATING MODEL Brings strong common platforms and processes on which to build STRONG IN HAZARDOUS WASTE TREATMENT AND IN ORGANICS Specific expertise in treatment of hazardous waste such as soil, contaminated water, paints and solvents, and in organics, such as anaerobic digestion (AD) and composting 250 We now operate at more than 250 sites across nine countries, including the Benelux and Canada 7,000* As Renewi, we are now a family of over 7,000 employees, all dedicated to ‘waste no more’ SUCCESSFUL ROLLOUT OF POWERFUL SELF-HELP PROGRAMMES Continuous improvement and commercial effectiveness programmes embedded into majority of business SPECIALISED IN PROCESSING Deep knowledge of waste processing and recycling OPERATING MODEL Local service and remaining close to the customer * Data based on new merged and refined Renewi definitions, such as on status of fixed-term contract workers and similar. Shanks _Renewi_ARA_17.indb 17 02/06/2017 11:15 Annual Report and Accounts 2017 RENEWI plc 17 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWABOUT THE MERGER CONTINUED INTEGRATION PROGRESS After closing the deal on 28 February 2017, the hard work of integration began. This process is underpinned by our five guiding merger principles: FULL INTEGRATION UNDER A NEW BRAND We are integrating all businesses BUILD DEEP AND BROAD WASTE-TO-PRODUCT CAPABILITIES into one single, new, stronger company with a new brand that showcases our transformation internally and externally. Achievements:  New Renewi brand launched on Day 1  Positive reaction from our stakeholders  Brand to be rolled out as part of integration process We are creating value and we will achieve our synergy targets through generating economies of scale and expanding our offering to customers. Achievements:  A number of ‘quick wins’ already achieved by combining legacy knowledge and expertise  Geographical footprint and technology base broadened GO SLOW TO GO FAST We are conducting careful forward planning followed by rapid implementation; we are not disrupting business continuity. Achievements:  Working in close conjunction with Works Councils with positive support so far  Decisions made carefully and implemented at pace 2012 2016 23 June 2016 Brexit: the UK electorate votes to leave the EU 24 May 2016 News of the merger leaks and shares in Shanks Group plc are suspended  2012 VGG identified as #1 acquisition target  June 2013 VGG divest AVR, aligning it with Shanks’ strategy  H2 2014 VGG undergoes financial restructuring; aborted sale process  H1 2015 New management in place; ongoing cultivation  July 2015 VGG financial restructuring complete; Shanks CEO meets new shareholders  Q1 2016 Sale process restarted January 2017 Competition authority clearance received from Belgium £141m 10 November 2016 Shareholder approval received; £141m equity raised in London’s capital markets 7 July 2016 Heads of Terms signed, market updated and restarted trading 29 September 2016 Deal signed and financing in place. Former Shanks CEO Peter Dilnot describes it as a “transformational deal with a compelling industrial rationale” 18 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 19 _Renewi_ARA_17.indb 18 02/06/2017 11:15 MOVE TO ONE WAY OF WORKING, LEARNING FROM BOTH BUSINESSES We are leveraging the best of both legacy businesses. Achievements:  A number of ‘quick wins’ already achieved  Executive Committee and IMO focused on moving to one way of working and learning from both legacy businesses CULTIVATE A WINNING TEAM We want to retain the best people and develop our talent through culture and a positive employee experience. Achievements:  Engaging and communicating frequently with our teams  Executive Committee in place from Day 1  Divisional management teams being appointed FEBRUARY 2017 JANUARY 2018 May 2017 Belgium management team appointments made 28 February 2017  Completion: Renewi is born, kicking off a day of celebration across the Group  The Executive Committee (ExCom) is appointed  Monostreams Division is created  Van Gansewinkel Industrial Services (VGIS) is transferred to the Hazardous Waste Division 30 November 2017 We aim to have the management layers below the top two tiers in place 31 July 2017 We aim to have the top two levels of divisional management appointed 31 August 2017 The integration planning phase is due to complete 15 February 2017 Final competition authority clearance received from the Netherlands, following approval from Belgium in January 31 May 2017  100 days complete and associated action plans delivered  Integration team established and in place 18 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 19 _Renewi_ARA_17.indb 19 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWWe are executing our carefully prepared integration plans at pace to deliver benefits of scale and remain close to our customers 20 _Renewi_ARA_17.indb 20 02/06/2017 11:15 RENEWI plcAnnual Report and Accounts 2017ABOUT THE MERGER CONTINUED THE NEXT 12 MONTHS We have an important year ahead as we progress through the integration of our new company. We have five key areas of focus which are detailed below 1 Creation of new leadership team } Our new Executive Committee is a blend of strong leaders with proven international expertise and clear customer focus. } A careful selection process for leadership roles is underway to ensure we have the right people in the right places and with the right support. } We will take the very best of what made Shanks and Van Gansewinkel great, capturing the breadth of skills and experience from across both businesses. } It will take some months to complete all layers of our management and we are working hard to get the next two layers of leadership in place by the end of summer. Implementation of recovery plan in Municipal Division 5 } The Municipal Division has been impacted by very difficult market conditions. } Difficulties primarily are due to ongoing off-take cost pressures and operational ramp up challenges. } New management is now in place and making rapid progress in implementing the clear plan for recovery. } Operational and commercial improvements already underway. 2 Delivery of integration plan for new Target Operating Model (TOM) in Commercial Division } We are executing our carefully prepared integration plans at pace. } As part of these plans, we are implementing a new TOM in the Commercial Division. } Our aim is to deliver the benefits of scale whilst remaining close to our customers. } Organisation design to create the new TOM is well underway. 3 Delivery of value capture plan and €12m of cost synergies } Delivery of the committed €40m of cost synergies underpins the expected value creation of the merger. } We have detailed synergy delivery plans and are committed to delivering €12m of cost synergies in 2017/18, increasing to €30m by the end of 2018/19 and €40m by the end of 2019/20. } We have validated synergy models, put governance processes in place and our Value Capture team is in detailed ‘phase 2’ planning. } Over €4m has been secured already and we are confident that we will meet our commitments for the coming year and going forward. 4 First roll-out of commercial effectiveness and continuous improvement in combined Group } The commercial effectiveness (CE) and continuous improvement (CI) programmes have been at the heart of margin enhancement in the Netherlands. } Our CE initiative is focused on managing intake margin at the front end of the business. } The CI programme is all about “doing tomorrow better than today”, using lean tools to improve productivity. } Full roll-out will boost competitiveness, drive enhanced margins and deliver sustainable growth throughout Renewi over the short and medium term. _Renewi_ARA_17.indb 21 02/06/2017 11:15 Annual Report and Accounts 2017 RENEWI plc 21 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWWe have created a new Executive Committee combining talent and leadership from the former Shanks and Van Gansewinkel businesses, reinforced by high quality new leaders from outside the business. Peter Dilnot Chief Executive Officer Toby Woolrych Chief Financial Officer Geert Glimmerveen Integration Director Peter has been leading the business since he joined in 2012. He has previously held senior positions at Danaher Corporation and Boston Consulting Group and has also spent time as an officer in the British Armed Forces. Toby has been leading the finance function since he joined in 2012. Prior to this, he has held positions at a number of blue chip companies including Arthur Andersen, Johnson Matthey and Consort Medical. Before the merger, Geert had been leading the Netherlands Division at Van Gansewinkel for two years. He has over 10 years of experience working for blue chip companies, with extensive integration experience and specialty in strategy, operational excellence and continuous improvement. He also has consulting experience from his time at McKinsey & Company. THE EXECUTIVE COMMITTEE Francis Schröder HR Director George Slade IT Director Patrick Deprez Product Sales Director Gerhardt Vels Interim General Counsel Francis has extensive HR leadership experience from leading global organisations including FedEx International, TNT, TP Vision and Philips. She holds Masters degrees in Change Management from Vrije Universiteit and in Psychological and Social Science from the University of Amsterdam. She has significant integration experience from the merger between FedEx and TNT. Francis joins Renewi on 1 July. George came from the Shanks side of the business. For the last four years he has been Information Director, also leading a number of initiatives such as the commercial effectiveness and off-take projects. He has over 25 years of experience in blue chip companies in addition to integration experience in a range of sectors. 22 22 RENEWI plc RENEWI plc Annual Report and Accounts 2017 Patrick has been at Van Gansewinkel since 1998 and has 28 years of experience in the waste industry. He has actively merged external companies into Van Gansewinkel and brings strategy and market expertise, and deep knowledge of the circular economy to the team. Gerhardt has been working as General Counsel at Van Gansewinkel for two years and has 25 years of experience at a major law firm. He brings deep legal knowledge to the team and he also has integration experience. _Renewi_ARA_17.indb 22 02/06/2017 11:15 ABOUT OUR COMPANY Otto de Bont Managing Director, Netherlands Commercial Wim Geens Managing Director, Belgium Commercial Otto is new to the Renewi team, joining in May 2017. He has an impressive background with 26 years of experience at companies such as IBM, GE and UTC. He has integrated a number of companies on an international level. He brings strong management, strategy and commercial execution knowledge to the team. Wim has been with Van Gansewinkel for over 11 years, most recently as Director of Belgium, Luxembourg and France. He has integrated over 20 companies in his career. He brings a wealth of operational excellence, strategy, coaching and change management experience to the team. Jonny Kappen Managing Director, Hazardous Waste Jonny joined Shanks in 2000 and has 35 years of experience in Hazardous Waste both in the Netherlands and the Far East. He has run the Shanks Hazardous Waste Division for five years and brings operational grip and deep market, safety and compliance knowledge to the team. James Priestley Managing Director, Municipal James joined Shanks in November 2016, following 30 years of experience in blue chip companies such as Ford, BA and Tesco – and more recently in private equity portfolio companies. He brings extensive business turnaround and strategic transformation experience. Bas Blom Managing Director, Monostreams and Continuous Improvememt Bas was appointed to Renewi in February 2017 to lead the newly formed Monostreams Division. He has 26 years of experience in blue chip companies, including GE and SABIC. He has integrated a number of companies and brings strategic growth planning, continuous improvement and business operational execution skills to the team. _Renewi_ARA_17.indb 23 02/06/2017 11:15 Annual Report and Accounts 2017 RENEWI plc 23 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW ABOUT OUR COMPANY COMMERCIAL The Commercial Division represents around 63% of the revenue of Renewi. It provides a wide range of waste management solutions Renewi is market leader in the Benelux and collects and transports waste from households and businesses to sorting, treatment and processing facilities. We provide customers with cost-efficient waste management solutions whilst giving waste a second life as high-quality raw materials and energy. The commercial waste market covers the collection, sorting, treatment and ultimate disposal of waste materials from a range of sources. The market can be divided into three main sources of waste: Construction and Demolition (C&D), Industrial and Commercial (I&C), and Domestic. Renewi deploys part of its own sorting and recycling operations within this division for, amongst others things, paper, cardboard, wood, plastics, metals and C&D waste. Other specific recycling activities are clustered within the Monostreams Division. Our unique business model in this market is to focus on the value that we can recover from specific waste and material flows that we can upgrade during the sorting and treatment phases of the cycle. This also means that we apply our knowledge on material flows to collection methods and logistics solutions for specific customer segments and sectors. We generally collect a large part of our volumes ourselves to secure waste volumes, and we dispose only of the residues that we are unable to convert into a reusable product or recyclate. In this way, we ‘waste no more’ both environmentally and economically. Our general business model is set out in the graphic on page 26. Our Commercial Division operates in the Benelux. Our sites have a diverse profile in terms of the source of waste and customer segments, which affects its current financial performance and competitive strategy as outlined in the following sections. MARKETS The Commercial Division serves three main market segments across the Benelux. The I&C segment meets the needs of specific markets, sectors and businesses including production factories, offices, hospitals, retail, shops and restaurants. Waste streams are preferably collected in a pure form and separated at the source to ensure quality, such as segregated paper or plastic, food waste or glass. Within this sector there still is a significant flow of mixed waste. We develop programmes to further minimise this mixed waste stream by informing our customers of the positive impact of separation of waste, both economical and environmental, and we even provide communication programmes to boost our customers’ waste minimisation and separation. The I&C segment was challenged during 2011-15 by over-capacity in the Dutch 24 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 25 _Renewi_ARA_17.indb 24 02/06/2017 11:15 LEADERSHIP Otto de Bont Managing Director, Netherlands Commercial Wim Geens Managing Director, Belgium Commercial “We have an exciting opportunity to bring together two great companies to become stronger together. The unique expertise, specialism and knowledge in each legacy business has created an unrivalled portfolio. The industry is changing and we will adapt with it. We will build a strong and solid foundation for years to come, keeping what made both legacy companies great. We have good momentum and an exciting journey ahead. I am proud to lead a talented and committed team that is excited for the future.” “We have a number of opportunities and possibilities to become the leading waste-to-product company and to live our “waste no more” goals. Our privileged position of being a market leader gives us the exciting opportunity to shape, direct and professionalise the market. As we integrate our business we will be prioritising the implementation of our new TOM and ensuring we capture value from synergies. We will create added value for all of our stakeholders and make our organisation one which our people are happy to work for.” Our unique business model focuses on the value that we can recover from specific waste Renewi controls the service provision for a management fee. The municipal segment is fundamentally different to the activities of our Municipal Division because the contracts tend to be much shorter in duration and for collection only; in the Netherlands the waste remains the property of the municipality. The Commercial Division also operates in a number of niche segments, many of which are complementary to the principal segments outlined above. These include the collection, separation and aggregation for treatment of small packed hazardous waste such as batteries, paint and out-of- date pharmaceuticals, the collection of organic waste streams from restaurants, a wood chip manufacturing segment and two landfills. incinerator market and severe pricing competition. Market conditions have improved over the past 12-18 months, with the incinerators full and prices beginning to rise. These higher prices for incineration also have a positive effect on recycling as separation of waste becomes more financially viable for our customers. The introduction of dynamic pricing, so that movements in the value of the products we make are reflected in the gate fee we charge to take in waste, has reduced risk to the business operating model. The C&D segment is primarily served by the former Shanks businesses. C&D waste arises from residential, commercial or infrastructure construction. The construction market in the Netherlands, which had hit a 63-year low in 2014, has continued to recover well since then, with growth of 6.3% (according to CBS). Pricing remains relatively weak, with many of the major customers still experiencing low margins. The domestic segment provides “hands and wheels” services in door-to-door municipal collection. This can be through a direct service agreement or through a form of Public Private Partnership in which 24 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 25 _Renewi_ARA_17.indb 25 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW FOCUS ON COMMERCIAL COMMERCIAL BUSINESS MODEL COLLECT OR RECEIVE SORT PRODUCE DISPOSE Sorting lines Trommels Optical sorters Magnets Green waste Sludges Shredders Crushers Balers Incineration Pelletisers Composting Landfill Industrial & commercial Construction & demolition Municipal Food and supermarket Industrial fats Eddy current separators RECYCLATES AND PRODUCTS Paper Glass Solid recovered fuel Compost Wood chips Plastic Metal Aggregate ICOPOWER® pellets Green electricity Customers pay us to take their waste Customers purchase our products We minimise the cost of disposing of the residues STRATEGY The strategy of the Commercial Division is to deliver growth through the implementation of cost and revenue synergies, the implementation of self-help initiatives and through capturing market recovery. } Increase margins through extension of the commercial effectiveness programme across the combined division; } Roll out continuous improvement (CI) across additional master plants and ensure it is embedded in existing sites through a period of change; Goals for 2017/18: } Deliver an effective integration, } Manage volatility in downstream markets, including the wood segment; and bringing both businesses towards a common way of working in a new Target Operating Model (TOM) under a new leadership structure; } Further improve the overall recycling and recovery rate of the waste streams we collect from our customers. } Deliver cost synergies and optimise cross-selling and waste internalisation opportunities; Our businesses are managed separately in Belgium and the Netherlands, but work together closely to preserve synergies. Our strategy is to deliver growth through, among other things, self-help initiatives 26 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 27 _Renewi_ARA_17.indb 26 02/06/2017 11:15 SYNERGIES The Commercial Division is expected to be the key focus for the delivery of cost synergies as this is where the vast majority of the business overlap is found. Value capture can be identified in the following four key areas: } Revenue: the internalisation of waste treatment, the harmonisation of selling terms, cross-selling of goods and services, and the roll-out of the former Shanks commercial effectiveness programme to former VGG entities; } Direct cost: the benefit of reduced logistics cost through optimisation of inbound and outbound logistics flows, resulting in fewer trucks and reduced costs of transport. Additionally, the benefit of a streamlined footprint of waste sites, eliminating duplicated sites in certain locations and optimising the operational efficiency of our processing assets; } Scale: using the benefits of scale and the harmonisation of our supplier base to procure at a reduced cost, including the disposal of our residual waste and fuels to incineration and the sale of our recyclate products; and } Indirect cost: the benefit of a more streamlined management and support services structure. TECHNOLOGIES Sorting lines Trommels Crushers Composting Magnets Optical sorters Eddy current separators Balers PRODUCTS Paper Glass Recovered fuels Gas Plastic Metal ICOPOWER pellets Digestate/ compost Wood chips PRO FORMA FINANCIALS FY17 (UNAUDITED) Shanks VGG Adjustment Pro forma NL COMMERCIAL €m Revenue EBITDA EBITDA % Trading profit Trading profit % BE COMMERCIAL €m Revenue EBITDA EBITDA % Trading profit Trading profit % 270.0 42.6 15.8% 19.1 7.1% 144.2 15.2 10.5% 7.8 5.4% 468.1 36.2 7.7% 11.7 2.5% 278.2 39.7 14.3% 19.7 7.1% (47.0) (8.6) (3.7) - - - 691.1 70.2 10.2% 27.1 3.9% 422.4 54.9 13.0% 27.5 6.5% Basis of pro forma financials: } Pro forma information for the year ended 31 March 2017 as if the acquisition had occurred on 1 April 2016 } Shanks represents 12 months to March 2017 } VGG based on 12 months to March 2017 as extracted from management accounts for the year ended 31 December 2016 and 3 months to 31 March 2017 } Adjustments to reflect the new divisional structure and reporting segments from 1 April 2017: transfer of Orgaworld to Monostreams and VGIS to Hazardous Waste } EBITDA and Trading Profit before non-trading and exceptional items 26 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 27 _Renewi_ARA_17.indb 27 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWABOUT OUR COMPANY HAZARDOUS The Hazardous Waste Division is made up of three businesses: Reym, Van Gansewinkel Industrial Services (VGIS) and ATM Reym and VGIS are leading industrial cleaning companies in the Netherlands, promoting a Total Care solution (cleaning, transport and waste management) for heavy industry, petrochemical sites, oil and gas production (both on and offshore) and the food industry. Part of the collected waste streams are treated at our own ATM facility in Moerdijk. ATM is one of Europe’s largest sites for the treatment of contaminated soil and water, as well as for the disposal of a broad range of hazardous waste such as waste paints and solvents. In addition, there is a small specialist site at CFS Weert, which will also move under the management of Hazardous Waste in due course. CFS is a specialised chemical physical separation unit that can handle highly contaminated waters and sludges. The combination of both treatment sites gives the Hazardous Waste Division a leading position in the market. The business model is shown in the graphic on the opposite page. Reym and VGIS’s highly-experienced and trained cleaning teams use specialist equipment to deliver a reliable, cost- effective and above all safe cleaning process in a market where the cost of safety and quality is of paramount importance. ATM is a leader in water and soil treatment because of: the cost advantages provided by its fully integrated plant processes; its waterside location for the cleaning of ships; and its excellent record of compliance with the many environmental controls and permits required in the hazardous waste market. Smaller watery waste streams or more complex streams are treated by CFS. MARKETS The core market drivers for the Hazardous Waste Division are industrial activity in the Benelux, particularly in the oil and gas sectors and in the Rotterdam and Moerdijk region, coupled with construction and site remediation activity across Europe. We are a trusted party for the processing industry in complex and highly-intensive ‘stop and maintenance’ projects. The oil and gas sector represents over half of the revenues of the Hazardous Waste Division. As reported in the CEO’s review, the oil and gas market stabilised at low levels of activity following the declines of the previous year. This has maintained pressure on the productivity and profitability of the Reym and VGIS cleaning divisions, on sludge volumes into ATM and on the value of waste oils produced during treatment. Reductions in gas production in the northern Netherlands have exacerbated this. Actions taken in 2015/16 to rationalise capacity to meet the expected lower levels of demand proved to be effective. On a longer-term basis, activity in the Benelux has stabilised in the last year and Rotterdam has continued to remain busy with growth in waterside waste volumes during the year.  Continued on page 30 28 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 29 _Renewi_ARA_17.indb 28 02/06/2017 11:15 LEADERSHIP Jonny Kappen Managing Director, Hazardous Waste “By integrating the new Hazardous Waste Division we have an even stronger team to help maximise opportunities and solve challenges. We are focused on operational grip, full compliance and on broadening and enhancing our Total Care concept. We are doing this in a changing environment, both in terms of the market and internally as we progress through integration. Delivering value for our customers and the circular economy is our top priority as well as having happy customers and happy people!” W E I V R E V O T R O P E R C I G E T A R T S E C N A N R E V O G S T N E M E T A T S L A I C N A N I F N O I T A M R O F N I E R O M HAZARDOUS WASTE BUSINESS MODEL CUSTOMER CLEAN TRANSPORT PRODUCE DISPOSE Industrial cleaning generates contaminated water Heavy industry (Petrochemical) Industry & Shipping Industry & Government Construction & Government Contaminated water Paint & solvent waste Bio water treatment Pyrolysis Cleaned water Inert ash Contaminated soil Gasification Thermal treatment Clean soil GROWING REGULATION 28 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 29 _Renewi_ARA_17.indb 29 02/06/2017 11:15 FOCUS ON HAZARDOUS The new site in Rotterdam that opened mid 2015, provides a perfect base for the Total Care solutions that we provide to our established customer base in this important industrial area. The volume of contaminated soil requiring treatment in Europe has continued to be affected by the budgetary constraints of governments. This results in a continued downward pressure on volumes available and hence on pricing. However, our long-term pipeline remains sound, with many sites earmarked for brownfield redevelopment. Short-term decreases in the volume of soil available are offset by increased volumes of tar-containing asphalt grit (TAG) as a result of a successful industry lobbying campaign to have this material, produced during road surface replacement, treated within the Netherlands, rather than being exported. We have also opened up new market opportunities and technologies, such as the use of ultrasonic cleaning which has seen a strong level of demand in the past year. STRATEGY VALUE CAPTURE The strategy of the Hazardous Waste Division is to continue to grow in target markets while retaining current levels of returns. Specifically, the strategy is to: } Invest in environmental excellence and increasing treatment capacity; } Expand the range of inputs requiring thermal treatment; } Broaden commercial coverage and geographic footprint; } Integrate VGIS into Reym in a planned and efficient manner; } Drive further synergies, rationalise and optimise fleet and drive productivity gains; and } Optimise the use of specific technology from ATM and CFS. Value capture in the Hazardous Waste Division will primarily come through the integration of VGIS into Reym. Productivity is key in the industrial cleaning segment so the increased size and scope of the cleaning activities will allow for optimised capacity planning and reduced sub-contracting of labour and plant. In addition, a number of the Reym and VGIS sites are very closely located across the Netherlands. Over time we intend to consolidate the sites to reduce cost without affecting the geographic footprint of the division. Our Reym industrial cleaning business has highly experienced and trained cleaning teams who use specialist equipment  PRO FORMA FINANCIALS FY17 (UNAUDITED) HAZARDOUS €m Revenue EBITDA EBITDA % Trading profit Trading profit % Shanks VGG Adjustment Pro forma 191.2 35.6 18.6% 23.1 12.1% - - - 27.1 2.0 7.4% 0.8 3.0% 218.3 37.6 17.2% 23.9 10.9% Basis of pro forma financials: } Pro forma information for the year ended 31 March 2017 as if the acquisition had occurred on 1 April 2016 } Shanks represents 12 months to March 2017 } VGG based on 12 months to March 2017 as extracted from management accounts for the year ended 31 December 2016 and 3 months to 31 March 2017 } Adjustments to reflect the new divisional structure and reporting segments from 1 April 2017: transfer of VGIS from VGG Commercial Netherlands } EBITDA and Trading Profit before non-trading and exceptional items 30 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 31 _Renewi_ARA_17.indb 30 02/06/2017 11:15 TECHNOLOGIES Thermal treatment High pressure Ultrasonic Scrubbing Vacuum Chemical Gasification Biological Detonation Separation PRODUCTS Cleaned water Clean soil Inert ash We are a trusted party for the processing industry in complex and highly-intensive stop and maintenance projects 30 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 31 _Renewi_ARA_17.indb 31 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWMUNICIPAL The Municipal Division operates waste treatment facilities for UK and Canadian city and county councils under long-term contracts, typically 25 years. Such contracts are established primarily to divert waste from landfill in a cost-effective and sustainable way In the UK, the capital cost of the infrastructure we operate is financed with non-recourse bank debt and in the case of PFI contracts, is also supported by central government funding. Both PFI and PPP contracts are underpinned by guaranteed revenues and tonnages from the associated council. The business model is shown in the graphic opposite. In a typical PFI or PPP contract, a special purpose vehicle (SPV) is created to finance the construction of the treatment assets and a club of banks provides the funding. During the build phase Renewi may or may not be the main construction contractor. On completion and commissioning of the assets, Renewi will generally inject up to 20% of the invested capital of the SPV in the form of subordinated debt, which then earns a return of around 12% pre-tax. Once operational, there are two potential income streams from the PFI or PPP contract. The first is the income for treatment of the waste under the operating contract, which is signed with the Municipal Division as the supplier. The operating contract provides guaranteed volumes under agreed terms, typically with some form of price indexation. However, the contracts are not linked to the variable cost of the disposal of processed off-take and changes in this market have resulted in severe margin pressure as described on the following pages. The second income stream is the interest from the subordinated debt and ultimately a dividend stream from the SPV.  Continues on page 35 The Municipal Division secures its input waste under long-term contracts 32 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 33 _Renewi_ARA_17.indb 32 02/06/2017 11:15 ABOUT OUR COMPANYLEADERSHIP James Priestley Managing Director, Municipal “The potential for improvement in our division excites me – our main challenge is the breadth of what we have to do. Our focus is to motivate our empowered and accountable teams to deliver our commitments. I am looking forward to our business turnaround, especially our people feeling proud of what they have achieved and being able to celebrate their success.” MUNICIPAL BUSINESS MODEL COLLECT OR RECEIVE SORT PRODUCE DISPOSE Sorting lines Trommels Shredding In-vessel composting Local Authorities in UK and Canada Magnets Optical sorters Anaerobic digestion Mechanical biological INPUT RECYCLATES PRODUCTS Incineration Landfill Black bag waste Dry recyclate Paper Glass Solid recovered fuel Green electricity Green waste Food waste Plastic Metal Refuse derived fuel Digestate/ compost 32 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 33 _Renewi_ARA_17.indb 33 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWFOCUS ON MUNICIPAL  The picking line at our Wakefield facility 34 RENEWI plc Annual Report and Accounts 2017 _Renewi_ARA_17.indb 34 02/06/2017 11:15 Annual Report and Accounts 2017 RENEWI plc 35 The Municipal Division has historically sold the majority of its interest in its SPVs, following commissioning, to a third party; so this is currently a minor part of our income. However, we maintain an open stance on our ownership of current and future SPV stakes. In Canada, the facilities are generally funded from our own balance sheet, supported by long-term contracts. In some cases, the customer may provide some funding support. MARKETS The bidding and building process for major waste treatment PFI/PPP opportunities in the UK is largely complete, with only our Derby project still under construction. However, some councils are still seeking a solution to their waste diversion needs, quite possibly through contracting spare capacity in existing PFI/PPP assets. The Canadian market is still in a growth phase, with many municipalities yet to invest in the infrastructure required to divert waste, especially organic waste, from landfill. Renewi has a good overview of the pipeline of potential opportunities in Canada and into parts of the US but is not currently actively bidding on new contracts. We are currently completing the construction of a flagship organic processing plant in Surrey (Vancouver). This facility will convert food waste into bio-fuel to power the city’s fleet of waste collection vehicles. We expect to commission the plant in this financial year. The Municipal Division, having secured its input waste under long-term contract, then competes in a number of downstream markets, in particular with regard to the provision of solid recovered fuels (SRF) to cement manufacturers and refuse derived fuels (RDF) to energy from waste companies. A proportion of these disposal routes is secured under long- term agreements. However, the older contracts have generally not fully secured their disposal and the current market has become very challenging. The demand for SRF derived from municipal waste has declined sharply, while the cost of disposing of RDF has increased very significantly from a low of around €40 per tonne to a current market price of around €80 per tonne, with additional costs of around £11 per tonne to provide baled rather than loose product. The decline of Sterling against the Euro from around €1.45 to €1.17 has also further significantly increased the cost of disposal for the Municipal Division (although this is more than offset by the increased value in Sterling of the Group’s overwhelmingly Euro-denominated profits). The Municipal Division also operates two commercial Anaerobic Digestion (AD) facilities – one accounted for as a joint venture. The Westcott Park facility in Oxfordshire, which is wholly owned, has experienced difficulties in securing organic waste streams with an over-capacity of AD facilities in the area. On the other hand, the Zero Waste Scotland initiative has resulted in a sharp increase in the supply of source segregated organic waste in the Edinburgh/ Glasgow area resulting in positive results for our Energen Biogas joint venture. STRATEGY The core strategy of the Municipal Division is to deliver an urgent and detailed recovery plan, including to: } Deliver sustained operational excellence at full capacity under our current contracts; } Ramp up operational performance in the BDR and Wakefield facilities following full service commencement; } Negotiate off-take terms and find new outlets; } Improve productivity and plant uptime; } Successfully commission the Surrey and Derby facilities; and } Renegotiate local municipal contracts for mutual benefit, where possible. TECHNOLOGIES Sorting lines Trommels Shredding In-vessel composting Magnets Optical sorters Anaerobic digestion Mechanical biological PRODUCTS Paper Glass Solid recovered fuel Green electricity Plastic Metal Refuse derived fuel Digestate/ compost 34 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 35 _Renewi_ARA_17.indb 35 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW ABOUT OUR COMPANY MONOSTREAMS The Monostreams Division was created when the merger of Shanks and Van Gansewinkel completed in February 2017. The division comprises four businesses: Coolrec, Minerals, Orgaworld and Maltha These businesses produce materials from waste streams in specific end markets such as glass, electrical and electronic equipment, organics and minerals. Our resulting products are used in markets such as food and beverage packaging, electrical and electronics, healthcare, energy, soil fertiliser, and building and construction in Europe. Coolrec is a recycler of electrical and electronic equipment, including segregating plastics and both ferrous and non-ferrous materials. It has eight sites across Belgium, Netherlands, Germany and France with the majority of customers on long-term MONOSTREAMS BUSINESS MODEL INPUT OUTPUT Coolrec Fridges Washing machines Electronics Plastics Plastics Metals Minerals Soil Ashes Clean soil Aggregate Landfill locations Orgaworld Food waste Green waste Digestate/ compost Green electricity Maltha Car windscreens Bottles Windows Glass cullet Sheet glass Isolation materials 36 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 37 _Renewi_ARA_17.indb 36 02/06/2017 11:15 The Monostreams Division produces materials from waste streams in specific end markets supplier contracts. Coolrec has innovative partnerships with OEMs like Philips and Miele to bring used products back into the value chain and has introduced dynamic pricing to mitigate raw material price volatility. The Minerals business provides unique landfill services to manage specialist waste streams such as NORM waste. We are expanding the Minerals business further to create building materials from bottom ash (the ash left over after incineration of waste) and have partnerships with producers of building materials to turn cleaned materials into products like concrete tiles. The Orgaworld business has transferred from the Netherlands Commercial Division. Orgaworld is an innovative leader in organic waste treatment and is a producer of green electricity and soil enhancing materials. It had five facilities in the Netherlands, primarily based on composting and anaerobic digestion technology. Maltha is a glass recycling specialist, focused primarily on recycling flat and container glass into “cullet” and glass powder for reuse in the glass industry. LEADERSHIP Bas Blom Managing Director, Monostreams “The Monostreams Division is at the centre of our purpose – giving new life to used materials. Our division is unique as we make such a diverse range of products to help our customers to achieve their sustainability goals and to fuel the circular economy. We are aiming to use self-help initiatives such as continuous improvement to deliver operational excellence and accelerate growth this year. Safety will always be our top priority – it is important that we all get home safely at the end of each day.” 36 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 37 _Renewi_ARA_17.indb 37 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWFOCUS ON MONOSTREAMS  The Minerals business partially generates revenues from sustainable mineral raw material made from the bottom ash released in waste-to-energy plants 33% of the Maltha group is owned by Owens-Illinois, a world leader in packaging glass. Maltha has sites in the Netherlands, Belgium, France, Portugal and Hungary. MARKETS Each of our distinct end markets in the Monostreams Division has its own market drivers, making it a diverse division. The Coolrec business processes end-of- life electrical and electronic goods. Input volumes have been relatively stable over the past years and the business can benefit from changes in environmental legislation and incentive schemes to drive additional recycling, and also from technology changes which affect the content of inbound used materials. The business is highly exposed to the value of the materials that it recycles, particularly non-ferrous metals, many of which are at historic lows in the cycle and which may recover with time. The Minerals business partially generates revenues from specialist materials requiring landfill. These materials have few other disposal options and so input volumes are secure, so long as there is landfill capacity and permits in place. The building materials from the bottom ashes business has good growth prospects as many bottom ashes from incinerators are not yet being recycled. Indeed, the Dutch government has signed a green deal with the sector to recover 50% of bottom ashes in 2017 and 100% in 2020. Inbound volumes in Orgaworld are relatively mature and are secured on long- term contracts, many of which have been recently renewed. Legislation changes have caused us to stop processing used nappies. Capacity has been replaced by a Our distinct end markets in Monostreams make it a diverse division 38 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 39 _Renewi_ARA_17.indb 38 02/06/2017 11:15 new input of sludges, which has helped to improve profitability. Capacity changes in the food waste treatment market have seen input pricing improve for the sourcing of food waste, to the benefit of the Orgaworld Amsterdam (Greenmills) anaerobic digestion facility. Our Maltha glass recycling business sources waste flat and container glass across Europe. Supply has been stable, although pricing has been under pressure. The cullet and powders produced are sold to leading glass manufacturers, including our partner Owens-Illinois, where demand is currently relatively strong for high purity products. STRATEGY The core strategy of the Monostreams Division is to deliver profitable growth from the existing businesses and operational footprint. This will include driving operational improvement and commercial gains. Longer term we will assess opportunities to develop returns from up or downstream extensions, geographical expansions and additions of other in- and/ or outbound products. Goals for 2017/18: } Extend the Minerals Maasvlakte landfill operating permit; } Deliver operational recovery plan in Coolrec to restore margins; } Deliver operational recovery in Maltha, particularly in Heijningen; } Sustain Orgaworld returns, while further expanding volumes and margins; } Create an integrated operating model for Monostreams Division to capture strategic opportunities and improve efficiency; and } Create growth with projects using innovation as competitive advantage, based on a strategic external focus. VALUE CAPTURE Synergy opportunities in the Monostreams Division are relatively limited due to the specialist nature of these standalone businesses. Opportunities for best practice and technology sharing, efficient overhead deployment and cross-selling of services as well as value stream alignment with the broader Renewi family are expected to deliver modest gains. TECHNOLOGIES AND PRODUCTS Glass recycling: waste glass back into cullet WEEE recycling into metals and plastics Anaerobic digestion Forz: a safe and clean secondary raw material as filler for concrete Composting PRO FORMA FINANCIALS FY17 (UNAUDITED) VGG Shanks Pro forma Coolrec Minerals Maltha Orgaworld MONOSTREAMS €m Revenue EBITDA EBITDA % Trading profit Trading profit % 77.8 6.9 8.9% 3.9 5.0% 46.7 10.5 48.8 5.8 22.5% 11.9% 6.4 13.7% 1.5 3.1% 19.9 6.6 33.2% 2.9 14.6% 193.2 29.8 15.4% 14.7 7.6% Basis of pro forma financials: } Pro forma information for the year ended 31 March 2017 as if the acquisition had occurred on 1 April 2016 } Shanks represents 12 months to March 2017 } VGG based on 12 months to March 2017 as extracted from management accounts for the year ended 31 December 2016 and 3 months to 31 March 2017 } EBITDA and Trading Profit before non-trading and exceptional items 38 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 39 _Renewi_ARA_17.indb 39 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCEO’S REVIEW CONTINUED  Peter’s statement continued from p15 A SOLID PERFORMANCE We delivered a robust performance during a transformational year ACTIVELY MANAGING THROUGH MARKET UNCERTAINTIES Market and macroeconomic background The Brexit vote and significant weakening of Sterling during the year resulted in a material positive translation of our Euro-denominated earnings, slightly offset by a negative profit impact on the Municipal Division. More generally, Renewi experienced stable or modestly improving market volumes, pricing and recyclate income across its Benelux businesses during 2016/17. However, some of these positive trends for our Commercial Division had a negative impact on our Municipal Division. The Belgian and Dutch economies both grew modestly during the year, with small increases in waste volumes. There was stronger growth in our key Dutch construction market, where mixed C&D waste volumes increased 11.3% in a second consecutive year of growth, again driven primarily by a recovery in the challenged residential sector. Dutch and neighbouring German incinerators continued to be largely full in 2016/17, with limited spot capacity available and generally higher prices for contract renewals or extensions. This trend is expected to continue for the next two or three years, with waste flows from neighbouring European Union countries, as well as from the UK, making up shortfalls in the domestic supply of waste. The rising incinerator prices have underpinned improved inbound waste pricing for recyclers in the Dutch market, supporting modest price recovery in the Commercial Division. However, the same price increases, exacerbated by the weakening of Sterling, have had a material negative impact on the profitability of our smaller Municipal Division. The global commodities markets also stabilised and showed some recovery after the sharp falls in the second half of 2015/16. Metal prices increased steadily in the second half of 2016/17 and paper prices were also particularly strong. In contrast, supply/demand imbalance in the wood market has caused the income received on sale of wood chips to fall sharply, even becoming a cost at times, with corresponding pressure on profits from this waste stream. Energy prices also showed some recovery with increased revenue for the Group from electricity derived from our bio-gas production plants. As expected, the oil and gas market remained subdued through most of 2016/17. Demand for industrial cleaning services and the consequent supply of highly contaminated waters and sludges for treatment at our ATM facility remained at low levels. The PFI sector in the UK has continued to face significant challenges for market participants. An increasing number of PFI contracts across the country have come under pressure as a result of austerity measures, poor performance or because the contracts are inappropriate in the current market environment. Within this unfavourable market background, our Municipal Division’s portfolio of assets has been vulnerable contractually to the volatile recovered fuel markets, rising incinerator gate fees and the weakness of Sterling. The unexpected outcome of the Brexit vote on 23 June 2016 has created some uncertainties in the waste market. The short-term impact has been limited to the flow through of a weakened Sterling on our results, both transactional and reported. Through the Brexit process, we expect the export of waste from the UK to continue for some time, as there is a strong economic incentive for both the Netherlands and the UK to do so. Longer term, we believe the impact on the Dutch market is likely to remain limited. This is because an ultimate reduction in UK imports was already expected due to the commissioning of incinerator capacity in the UK and also new waste imports into the Dutch incinerators Peter Dilnot Chief Executive Officer are being identified to take up any vacated capacity. Providing that there is no significant degradation in Dutch incinerator utilisation and pricing, the impact of Brexit on our Benelux Divisions is therefore likely to be limited. We also believe that the UK Government will continue to drive environmental policies that will encourage recycling after the exit from the European Union. We further expect the impact on our Municipal Division to reduce progressively as we are de-risking the operating model by seeking to agree longer term contracts for the fuels that we produce. TRADING IN 2016/17: DELIVERING OUR COMMITMENTS Group performance As previously announced, we have reported the combined business of VGG as one business unit for the purposes of the 2016/17 financial year, given that we owned the business for just one month. Going forward, Renewi will report in the new four division structure as set out on page 7. Total underlying revenues grew by 27% to £779m at reported currency or 14% at constant currency. On a like-for-like basis excluding VGG, revenue growth was 15% at reported currency. Trading profit at £36.5m was up by 9% on the prior year at reported currency or down 9% at constant currency. On a like-for-like basis excluding VGG, trading profit fell by 2% at reported currency. Underlying earnings per share fell by 12% to 3.7p (2016: 4.2p as adjusted for the bonus factor) as a result of a higher taxation rate as the prior year benefits do not repeat. Exceptional items totalled £87.1m (2016: £23.5m) as previously advised, reflecting the transaction and initial synergy delivery costs of the merger in addition to charges reflecting the market and operational challenges in Municipal. Commercial Waste produced another strong performance in the year, growing Some of the team celebrating Day 1 of Renewi  40 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 41 _Renewi_ARA_17.indb 40 02/06/2017 11:15 trading profit by 27% at constant currency to €26.9m on revenues that grew by 2% to €414m. Margins increased by 130bps to 6.5%. The Netherlands increased trading profit strongly by 39% to €19.1m, while Belgium also grew profits for the first time in five years, increasing by 5% to €7.8m. Ongoing contributions from our successful self-help initiatives and portfolio management were reinforced by improving end markets. Hazardous Waste also delivered a strong performance despite continuing subdued oil and gas markets. Revenues increased by 3% at constant currency to €191m and trading profit increased by 9% to €23.1m. Margins increased by 70bps to 12.1%. Waterside volumes from ships and strong throughput on the soil cleaning line offset ongoing weakness in higher-priced contaminated water volumes and lower sludge intake. As previously reported, Municipal, which operates in the UK and Canada, had a difficult year. Revenue grew by 8% at constant currency to £203m as a result of the full year effect of commissioning the Wakefield and Barnsley, Doncaster and Rotherham (BDR) facilities and construction activity in Surrey, Canada. However, the Division recorded a trading loss for the year of £2.7m at constant currency (2016: profit of £9.4m), primarily as a result of ongoing off-take cost pressures as outlined in the market section above. There were also operational challenges getting to full optimisation with the two new sites. The second half showed a deterioration on the first half, primarily as a result of recovered fuel pricing and mix and a number of exceptional charges have been recorded. New management are in place and making rapid progress in implementing the plan for recovery, with operational and commercial improvements already being secured. 27% Commercial Waste produced a strong performance in the year, growing trading profit by 27% to €26.9m €7.8m Our Commercial Waste Division in Belgium grew profits for the first time in five years, by 5% to €7.8m €23.1m Hazardous Waste delivered a strong performance, increasing profit by 9% to €23.1m 40 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 41 _Renewi_ARA_17.indb 41 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCEO’S REVIEW CONTINUED 25% Our green electricity production is up by more than 25% €84m During the one month of ownership in March, VGG delivered revenues of €84m, up 16% on the prior year  Our Commercial Waste Division performed strongly in the year During our one month of ownership in March 2017, VGG delivered revenues of €84m, up 16% on the prior year, and trading profit of €4.5m which was significantly up on the same period last year. As previously reported, VGG turned around its performance during 2016, delivering a strong improvement of 23% in EBITDA to €91m for the 12 months to December 2016 on the back of commercial effectiveness and cost reduction activities. Strong cash management has continued through the year. We delivered an underlying free cash flow of £23.1m (2016: £56.8m) which was down on the prior year due to increased spend on replacement capital and the non-repeat of favourable inflows from the sale of receivables in Netherlands and Belgium last year. Our core net debt at 31 March 2017 was better than expected at £424m, representing a multiple of 2.8 times pro forma EBITDA, comfortably within our covenant level of 3.5x. Implementing our strategy We have three overarching strategic self-help initiatives, the success of which has been an important part of the strong performance in our Commercial and Hazardous Waste divisions. These three initiatives drive margin expansion by addressing the key areas of our business model: intake, processing and disposal. Our progress offsets inflationary cost pressures and other headwinds and allows us to maximise opportunities to increase margins where possible. Our commercial effectiveness initiative is focused on managing intake margin at the front end of the business, particularly in our Commercial Division. Our sales force has shifted its emphasis towards margin from volume, focusing on profitable segments and exiting from loss-making contracts. New tools for managing both pricing and sales force activity have allowed us to more effectively manage market changes, such as new taxes or movements in recyclate prices. 42 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 43 _Renewi_ARA_17.indb 42 02/06/2017 11:15 Sustainability and CSR are at the heart of our vision Our continuous improvement (CI) programme made good progress in 2016/17, despite some inevitable merger related activities. The roll-out of ‘lean conversion’ has continued to include Icova, Van Vliet Contrans, Mont St Guibert and Seraing (Liege) with potential annualised savings of around €3m being identified. The introduction of CI at our ATM facility is planned for 2017/18, and, in advance of that, targeted progress was made with underlying operational improvement programmes, such as the reduction of chemical usage during treatment. The ATM facility has also secured the highest level BRZO standard to ensure operations meet stringent quality and safety standards. Our off-take initiative has continued to ensure that we optimise the flows and the revenues arising from our recyclates, recovered fuels and other products across the Group. Successes have included co-ordinated management of a volatile market for waste wood to minimise negative impacts on the Group and the opening up of Belgian solid recovered fuel (SRF) opportunities for our Municipal Division. Looking forward, Renewi will build on the strong capabilities from Van Gansewinkel in this area and will have a Product Sales Department with leadership reporting into the Chief Executive Officer as a member of the Executive Committee. Focus on commissioning new assets As reported last year, our focus for the deployment of capital into infrastructure has been shifting from the construction of large new sites to the commissioning of the sites already underway. The focus for future investment is also primarily in new or improved production capabilities in existing facilities (to increase capacity or quality and to reduce cost) rather than building new sites. The new Vliko facility for Commercial Waste Netherlands was commissioned on time and on budget in October 2016 and is performing well. In the Hazardous Waste Division we are expanding our storage capacity for packed chemical waste, a project that is on track for completion in quarter two of 2018. The Theemsweg facility in Hazardous Waste also performed strongly in its first year, exceeding our expectations. In contrast, and as previously reported, the first full year in production of our Wakefield and BDR facilities in the UK was challenging from an operational perspective and the related recovery plan is detailed below. We have two remaining greenfield sites under construction. Construction of our new bio-gas facility in Surrey, Canada is largely complete, we have started commissioning and we are working through completion matters with the constructors with a view to receiving first waste later this year, slightly behind schedule. This is a flagship project for the City of Surrey under which bio-gas extracted from the city’s organic waste will be used to operate the city’s waste collection fleet in a closed loop. The Derby PPP facility has experienced major challenges, as previously reported, as a result of the insolvency during 2016 of a core technology supplier to the EPC contractor Interserve plc. Interserve is working hard to implement a recovery plan but there has been an unavoidable consequent delay to the project and the facility is not expected to be fully operational until late in 2017/18. As the operator, rather than the constructor, the financial consequences for Renewi are limited and appropriate provisions for incremental costs have been taken as an exceptional item this year. Portfolio management for improved returns In addition to the merger with VGG, we have continued to invest in growth opportunities and to exit those activities which are non- core or where we are unable to generate acceptable returns. During 2016/17, we sold our low margin Smink Groundworks business to a local operator, while we acquired and integrated the commercial waste activities of the City of Leiden into our Vliko facility. Delivering responsibly Sustainability and corporate social responsibility (CSR) are at the heart of our vision to be a leading waste-to-product company. In 2015 Shanks laid out a five year programme for CSR with a broad range of targets. Van Gansewinkel had also set itself stretching CSR targets. In many areas these targets are compatible, and where possible we have already set ourselves merged objectives to 2020. As our performance shows, we are making progress. Our lost time accident frequency has improved by more than 5% over the year, our green electricity production is up by more than 25% and our total carbon avoidance exceeds 3 million tonnes. This is only the beginning and Renewi will launch a full set of CSR targets during 2017 to reflect the ambitions and capabilities of the combined Group. Peter Dilnot Chief Executive Officer 42 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 43 _Renewi_ARA_17.indb 43 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW CFO’S REVIEW GROWING FROM A STRONG FOUNDATION The strength of our combined Group, and our plans for growth through synergy gains and investment, will help to build on increases in underlying revenue and trading profit Toby Woolrych Chief Financial Officer Overall Group underlying revenue increased by 27% in 2016/17 to £779.2m. Excluding the one month of trading from Van Gansewinkel Groep (VGG), revenue increased by 4% at constant currency to £715.4m. Trading profit on continuing businesses, before non-trading and exceptional items, increased by 9% to £36.5m at reported rates (9% decrease at constant currency). For the post-merger period of March 2017, VGG generated a trading profit of £3.9m on revenue of £71.5m. Non-trading and exceptional items excluded from pre-tax underlying profits Deal-related } Merger related transaction and To enable a better understanding of underlying performance, certain items are excluded from trading profit and underlying profit due to their size, nature or incidence. Total non-trading and exceptional items from continuing operations amounted to £87.1m (2016: £23.5m). These items are explained further in note 4 to the financial statements and include: integration costs of £38.2m (2016: £0.8m) which include all deal related fees and the costs of the arrangement of the new financing facility } Amortisation of intangible assets acquired in business combinations of £2.1m which has increased due to the VGG merger and the identification of intangibles as part of the fair value exercise (2016: £1.8m) GROUP SUMMARY REVENUE YEAR ENDED TRADING PROFIT YEAR ENDED Continuing operations Mar 17 £m Mar 16 £m Variance reported % Variance % CER Mar 17 £m Mar 16 £m Variance reported % Variance % CER* Commercial Hazardous Municipal Group central services 347.6 160.2 207.6 – 297.3 136.2 187.7 – 17% 18% 11% 715.4 621.2 15% 2% 3% 8% 4% VGG Inter-segment revenue 71.5 (7.7) – (6.4) Total 779.2 614.8 27% 14% *CER= at constant exchange rate Revenue in 2016 excludes the impact of the non-trading item of £1.0m 22.6 19.3 (2.6) (6.7) 32.6 3.9 – 36.5 47% 24% N/A 4% -2% 27% 9% N/A 4% -19% 15.4 15.6 9.4 (7.0) 33.4 – – 33.4 9% -9% 44 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 45 For the post-merger period of March 2017, Van Gansewinkel generated a trading profit of £3.9m on revenue of £71.5m Trading profit margins1 £m 2017 2016 2015 2014 2013 4.5 5.4 5.7 7.2 6.2 Return on operating assets1 % 2017 2016 2015 2014 2013 10.9 12.0 12.2 15.1 11.4 1 All values quoted are for Shanks legacy businesses only Municipal–related } As previously advised, Municipal UK onerous contract provisions of £28.2m (2016: £5.0m) include increases relating to Cumbria and D&G contracts given market changes in the year and new provisions against Barnsley, Doncaster and Rotherham (BDR), Wakefield and Derby commissioning } Impairment of assets of £9.2m (2016: £nil), principally plant and equipment at the Westcott Park anaerobic digestion facility and other UK Municipal intangible assets } Other items of £6.9m (2016: £4.9m) including contractual issues in Municipal UK caused by delays at the Derby contract due to the insolvency of a major contractor, incremental third party and waste disposal costs at Wakefield following on from the subcontractor insolvency in the prior year and incremental costs relating to the East London fire in 2014 that could not be claimed from the insurers Other } Restructuring charges and associated costs of £2.4m (2016: £2.4m) relating to the previously announced close out of structural cost reduction programmes started in the prior year; } Portfolio management activity net loss of £0.1m (2016: £8.7m) following the sale of the groundworks business in Netherlands and the Industrial Cleaning business in Wallonia along with disposals of surplus land and other assets; and } Financing fair value measurements of £nil (2016: credit of £0.1m). The operating loss on a statutory basis, after taking account of all non-trading and exceptional items, was £39.0m (2016: profit of £9.8m). Net finance costs Net finance costs, excluding the change in the fair value of derivatives and exceptional deal related finance charges, were £0.6m lower year on year at £12.8m. Given the equity fundraising early in the second half of the year and the delayed completion of the merger, lower borrowing levels have resulted in reduced interest charges. The decline in finance income is driven by the disposal of 49.99% of the equity in the Wakefield SPV in March 2016 which has resulted in equity accounting for our remaining interest as a joint venture. There is a corresponding reduction in the level of interest charge for PFI/PPP non- recourse net debt. Share of results from associates and joint ventures The significant increase year on year is attributable to the strong performance from our joint venture in the anaerobic digestion facility in Scotland following recent investments and positive operational performance. Loss before tax Loss before tax from continuing operations on a statutory basis, including the impact of non-trading and exceptional items, was £61.4m (2016: £2.5m). Taxation Taxation for the year on continuing operations was a credit of £0.5m (2016: charge of £1.5m). The effective tax rate on underlying profits has increased to 23.0%, as a result of the change in mix of profits 44 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 45 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCFO’S REVIEW CONTINUED with higher profits in the Netherlands and Belgium. It should be noted that the underlying tax charge in the prior year included a £2.2m credit from the recognition of tax losses in Belgium as a result of greater certainty of utilisation following the restructuring completed as part of the sale of the Industrial Cleaning business. Excluding this credit the effective tax rate on underlying profits was 21.4% in the prior year. There is a tax credit of £6.4m arising on the non-trading and exceptional items of £87.1m as a significant proportion of these are non-taxable. Looking forward, we anticipate an underlying tax rate of around 25%, reflecting increasing profits in regions with relatively higher tax rates. The Group statutory loss after tax and including all discontinued and exceptional items was £61.4m (2016: £3.9m). Earnings per share (EPS) Underlying EPS from continuing operations, which excludes the effect of non-trading and exceptional items, decreased by 12% to 3.7p per share (2016: 4.2p as adjusted for the equity raise). As noted above, the tax charge in the prior year benefited from increased deferred tax recognition in Belgium which has not been repeated this year. Basic EPS from continuing operations was a loss of 11.3p per share compared to a loss of 0.9p per share (as adjusted) in the prior year. Dividend The Board is recommending a final dividend per share of 2.1p. This final dividend and the total dividend for the year of 3.05p represent an unchanged dividend after adjusting for the bonus factor of the rights issue. Subject to shareholder approval, the final dividend will be paid on 28 July 2017 to shareholders on the register on 30 June 2017. Total dividend cover, based on earnings before non-trading and exceptional items from continuing operations, is 1.2 times (2016: 1.3 times). Discontinued operations The loss from discontinued operations of £0.5m (2016: profit of £0.1m) relates to the UK solid waste activities. Cash flow performance A summary of the total cash flows in relation to core funding is shown in the table below. CASH FLOW March 17 £m March 16 £m EBITDA Working capital movement and other Net replacement capital expenditure Interest and tax Underlying free cash flow Growth capital expenditure UK PFI funding Canada Municipal funding VGG acquisition: Net cash out Deal related fees Other acquisitions and disposals Equity raise (net of costs) Dividends paid Restructuring spend Other Net core cash flow Free cash flow conversion 80.4 (4.3) (38.2) (14.8) 23.1 (4.2) (20.1) (19.6) (277.9) (19.2) (3.3) 136.4 (15.1) (1.9) (17.8) (213.0) 63% 68.2 24.8 (18.6) (17.6) 56.8 (9.9) (53.9) (10.3) – – 27.8 – (13.7) 2.6 (15.2) (21.0) 172% All numbers above include both continuing and discontinued operations. Free cash flow conversion is underlying free cash flow as a percentage of trading profit. Net core cash flow reconciles to the movement in net debt of £227.3m in note 30 to the financial statements after taking into account movements in PFI/PPP non-recourse net debt, amortisation of loan fees and foreign exchange The Board is recommending a final dividend per share of 2.1p Free cash flow conversion decreased year on year as a result of the higher level of replacement capital spend and the non- repeat of the working capital benefit from the sale of certain trade receivables in Belgium and Hazardous Waste in the prior year. Replacement capital spend included the final build out of the Vliko relocation project and a number of compliance and catch up projects across all Divisions. The ratio of replacement capital spend to depreciation increased from 52% last year to 85% this year, as the prior year was favourably impacted by the receipt of proceeds from the sale of the old Vliko site with the cash being spent in this financial year. The growth capital expenditure of £4.2m related to spend on operator enhancements for Municipal contracts and which is classified as an intangible asset. This included investment in balers to enable the business to access broader recovered fuel markets. The scheduled £17.5m subordinated debt funding into the Derby project was made on 31 March 2017. The Canada Municipal funding reflects the construction spend on the Surrey facility. The VGG acquisition net outflow includes the total monies paid to the vendors including the settlement of vendor funding together with the finance leases and cash acquired. The other acquisition and disposal spend includes the deferred consideration from the March 2016 sale of 49.99% of the equity in the Wakefield SPV completed in August and other disposals net of the acquisition in August of the commercial waste activities of the City of Leiden. The prior year inflow reflected the Wakefield PFI sub-debt divestment. The “Other” category includes the funding for the closed UK defined benefit pension scheme, the onerous contract provision spend in UK Municipal and other non- trading cash flows. 46 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 47  Our Renewi employees celebrate Day 1 in the Netherlands SOURCES AND USES OF FUNDS Sources Net rights issue and placing funds Equity issued to vendors Increase in debt financing Uses Equity issued to vendors Consideration paid to vendors Repayment of VGG Syndicated loan €m 156 212 212 580 212 29 339 580 THE VGG MERGER Sources and uses of funds The transaction was valued at €440m on a cash-free debt-free basis when the deal was agreed in principle in May 2016, although this increased with our share price to €488m at close on 28 February 2017. Inclusive of the cash acquired in VGG, the total transaction cost was €580m. Future reporting units As noted in the CEO’s Statement, we will report from 1 April 2017 on four trading divisions: Commercial Waste (disclosing Belgium and Netherlands operations separately), Hazardous Waste, Municipal (disclosing UK and Canada operations separately) and Monostreams (disclosing the four main business units separately). Value capture targets Value capture includes cost, revenue and cash synergies of which we have only quantified cost as it is separable and reportable. We remain confident we can deliver €40m of ongoing cost synergies over the first three full years of ownership. We expect to deliver €12m in 2017/18 increasing to €30m in 2018/19 and €40m in 2019/20. Cash costs to achieve the €40m synergies are expected to be approximately €50m. Non-cash costs arising from site closures, for example, have not yet been calculated. } €12m from direct savings such as site closures and route optimisation; } €8m from scale savings such as improved procurement costs; and } €20m from indirect cost savings in management and overheads. In addition, we believe there is an opportunity for revenue synergies in the form of cross-selling of services, internalisation of waste treatment and the deployment of our commercial effectiveness initiative into VGG. The benefits from these activities will be hard to distinguish from underlying trading and so will not be reported on separately as a synergy. Cash synergies will include better effective utilisation of trucks, thereby postponing capital investment, and optimised treasury operations. Transaction and integration costs We have grouped the costs relating to the transaction into three segments: } Transaction costs: relating to the acquisition and related financing; } Value capture costs: relating to the delivery of the €40m cost synergies; and } Integration costs: relating to the The cost synergies are expected to arise from three main areas: successful merger and integration of the two businesses. 46 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 47 _Renewi_ARA_17.indb 47 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCFO’S REVIEW CONTINUED Transaction costs have been incurred in full and amount to £35.6m. These include advisers’ fees, financing costs and other deal related expenditure. The total costs are slightly higher than originally expected primarily due to the length of time taken to complete the transaction and the complexity of the anti-trust filings. Costs of £5.1m have been taken to equity as they were directly attributable to the equity raise with the balance of £30.5m accounted for as non-trading and exceptional items in the appropriate line items of the Income Statement. Value capture costs include the costs of site closures, redundancies and other reorganisation costs. They are forecast to total €50m and will be accounted for in the year incurred as non-trading and exceptional items. £4.5m (€5.3m) was incurred in 2016/17 and we expect the split of future costs to be approximately €20m in 2017/18, €20m in 2018/19 and €5m in 2019/20. Integration costs include advisers’ fees, the transitional costs arising from merging the two organisations and certain IT and rebranding costs that cannot be capitalised. These are expected to total €22m, with £2.9m (€3.4m) incurred in 2016/17 and we expect approximately a further €11m in 2017/18, €6m in 2018/19 and €2m in 2019/20. Both value capture and integration costs will be reported as non-trading and exceptional costs in subsequent periods. Finally, we expect to incur some integration- related capital investment. This is expected to include investment in rebranding of around €12m over two years (signage, truck respraying, etc.), up to €45m over three years in truck replacements within the relatively older VGG fleet, and an investment in new IT platforms for growth for the merged business. Purchase price accounting The merger has been accounted for in accordance with IFRS 3 (Revised) Business Combinations which requires a full fair value exercise for the assets and liabilities acquired as at 28 February 2017. This exercise is provisional at this stage as permitted under accounting standards. The review has resulted in a step down in value of trucks and other tangible assets of over €20m, the recognition of acquisition intangibles of €52m, alignment of discount rates for long-term landfill provisioning and the recognition of appropriate legal and tax provisions. Given that the completion date fell so close to the year end, we have not been able to undertake a full valuation of all real estate assets acquired and these have been included at their original book value in the acquired balance sheet. A full valuation exercise will be performed in the coming months and any adjustment reported as part of the September 2017 reporting. The step down in the value of property, plant and equipment will result in reduced depreciation charges in VGG of c€2m which is mostly attributable to the Netherlands operations. INVESTMENT ACTIVITIES AND PERFORMANCE Investment programme The Group has a stated strategy of investing in sustainable waste management infrastructure with a target pre-tax trading profit return of 15–20% on fully operational assets (post-tax return of 12–15%). At 31 March 2017, the fully operational proportion of the investment portfolio delivered a pre-tax return of 17.4% (2016: 19.5%). The portfolio as a whole delivered a pre- tax return of 13.1% (2016: 16.1%). Going forward we shall cease reporting on this metric which related to legacy Shanks only. The investment in the Municipal programme has continued with progress in construction at the Canadian plant in Surrey and delays at Derby following the insolvency of a principal contractor. For the year ended 31 March 2017, the PFI financial assets increased by £20.2m to £178.8m due to further construction spend in Surrey net of repayments on other contracts. There will be further modest investments in the Surrey plant in the new financial year. Construction is largely complete and we have started commissioning and are working through completion matters with the constructors with a view to receiving first waste later this year, slightly behind schedule. The investment on the Derby contract is not reflected in financial assets as we hold our interest in this contract in a joint venture.  Continues on page 50 We believe that there is opportunity for revenue synergies in the form of cross-selling of services Our Commercial Waste Division provides secondary raw materials for the circular economy  48 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 49 _Renewi_ARA_17.indb 48 02/06/2017 11:15 48 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 49 _Renewi_ARA_17.indb 49 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCFO’S REVIEW CONTINUED The Group’s underlying expectation for replacement capital remains around 75- 80% of depreciation, however 2017/18 is a year of catch up and the ratio is expected to be c90%. This level may from time to time be supplemented with larger scale replacement projects. Over the next two to three years we expect to spend €5m on a new stone crushing line near Rotterdam, €2m to complete a new packed chemicals warehouse in Hazardous Waste, €15m to replace and upgrade major components of Hazardous Waste’s soil treatment line and €2m for the digestate dryer at Roeselare. As noted earlier in this report, we also expect some rebranding capital investment and some additional catch-up investment in trucks. Growth capital expenditure is likely to be limited to around £5m, being investments in Hazardous Waste. Group return on assets For the legacy Shanks businesses only, the Group return on operating assets (excluding debt, tax and goodwill) from continuing operations decreased from 12.0% at 31 March 2016 to 10.9% at 31 March 2017. The Group post-tax return on capital employed was 5.5% compared with 6.3% at 31 March 2016 for the legacy Shanks businesses only. TREASURY AND CASH MANAGEMENT Core net debt and gearing ratios The net core cash outflow of £213.0m along with an adverse exchange effect of £16.5m on the translation into Sterling of the Group’s Euro and Canadian Dollar denominated debt and loan fee amortisation has resulted in a core net debt increase to £423.9m which was slightly lower than expected due to the timing of transaction related payments and despite the £17.5m scheduled equity injection into the Derby project at the end of March. This represents a covenant leverage ratio of 2.8 times net debt:EBITDA which is well within our banking limits of 3.5x. Debt structure and strategy At the time of the announcement of the merger on 29 September 2016, the Group entered into a new five year €600m multi- currency facility with a syndicate of banks, comprising both a term and revolving credit facility. Some €575m of the facility, including the whole term loan and part of the revolving credit facility mature in five years on 29 September 2021 (in each case subject to two one year extension options). The remaining €25m of the revolving credit facility matures in two years on 29 September 2018. At the end of March 2017, £279.2m was drawn at an initial margin of 2.15%. The new facility has been hedged with a €125m interest rate cap and two cross currency swaps totalling £75.0m at fixed Euro interest rates of 2.2%. The Group also has two retail bonds each of €100m due for repayment in July 2019 and June 2022 with an annual coupon of 4.23% and 3.65% respectively. Following the merger the Group has £45.2m of finance leases and £216.4m of guarantees. Debt borrowed in the special purpose vehicles (SPVs) created for the financing of UK PFI/PPP programmes is separate from the Group core debt and is secured over the assets of the SPVs with no recourse to the Group as a whole. Interest rates are fixed by means of interest rate swaps at contract inception. At 31 March 2017 this debt amounted to £87.1m (31 March 2016: £91.1m). Directors’ valuation of PFI/PPP portfolio The Directors’ PFI/PPP valuation was established a number of years ago to demonstrate the value primarily from assets not yet built or commissioned. It comprised a valuation of the UK Municipal Division’s operating contracts, which can be seen in the divisional trading performance upon commissioning, and also the value of financial investments in the SPVs used to fund the contracts and into which the company has often invested in the form of subordinated debt and equity. The Directors consider that with almost all assets now commissioned there is no benefit to continuing to provide a valuation of the operating contracts, a valuation which is in any case subject to volatility in the current market environment. However, there is still a purpose in providing a valuation of the financial assets, the benefits of which are not easily assessed from the financial statements. As at 31 March 2017 the Directors believed that these amounted to £45m (2016: £30m). The Group has a stated strategy of investing in sustainable waste management infrastructure Retirement benefits The Group operates a defined benefit pension scheme for certain UK employees which is closed to new entrants. At 31 March 2017, the net retirement benefit deficit relating to the UK scheme was £15.5m compared with £8.8m at 31 March 2016. The increase in the deficit reflected the fall in the yield on corporate bonds which resulted in a lower discount rate of 2.6% at March 2017 compared to 3.5% at March 2016. The most recent actuarial valuation of the scheme was carried out at 5 April 2015 and a funding plan of £3.1m per annum for a further five years has been agreed with the trustees. VGG also operates a number of defined benefit pension schemes for employees in the Netherlands and Belgium which had a net retirement benefit deficit of £6.1m at 31 March 2017. Toby Woolrych Chief Financial Officer 50 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 51 _Renewi_ARA_17.indb 50 02/06/2017 11:15 MEASURING OUR PERFORMANCE 2016/17 We have defined key performance metrics based on delivering our divisional strategies. Trading margins % Return on operating assets % 2017 2016 2015 2014 2013 Project hours at Reym Hours M 2017 2016 2015 2014 2013 Revenue1 £M 2017 2016 2015 2014 2013 6.5 5.2 4.5 6.4 5.4 1.2 1.5 1.6 1.6 1.5 186.8 173.9 156.6 152.6 131.9 2017 2016 2015 2014 2013 ATM soil volumes Tonnes M 2017 2016 2015 2014 2013 Margin1 % 2017 2016 2015 2014 2013 12.8 9.6 7.2 9.5 7.3 1.2 1.2 1.0 0.9 0.8 -1.8 5.1 7.2 7.3 9.6 Commercial Hazardous Municipal 1 Excluding Surrey construction 50 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 51 _Renewi_ARA_17.indb 51 02/06/2017 11:15 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWOPERATING REVIEW We delivered a strong performance across our divisions during 2016/17 except for Municipal. The division had a more challenging time and robust recovery plans are being executed 52 52 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 53 _Renewi_ARA_17.indb 52 02/06/2017 11:15 RENEWI plcAnnual Report and Accounts 2017The Minerals business continued to trade well in line with expectations. Progress towards the extension of the permit at the key Maasvlakte landfill continues to be encouraging. Coolrec, a leading recycler of electrical and electronic goods, also traded well and has shown growth on the prior year. Stronger volumes of fridges were supported by recovering metal prices which are an important source of income for the business. Performance for year ended 31 March 2017 The following table sets out pro forma VGG revenue and EBITDA for the 12-month period to March 2017 and 2016 for the historic VGG operating segments. The significant year on year increase in the Collections Division reflects the sharp focus on margin improvement and the top line revitalisation initiatives, recovery in recyclate and materials prices and the benefits of ongoing cost management with improvements across both Netherlands and Belgium. It should be noted that up to €7m of this profit improvement is believed to include one-off items that will not recur in 2017/18. In the Recycling Division, Maltha, the glass recycling business, sales and operational activities increased following the rebuild of the Heijningen facility. OPERATING REVIEW FOR THE YEAR ENDED 31 MARCH 2017 As noted earlier, the performance of the acquired Van Gansewinkel Groep (VGG) business is reported as a single operating unit for 2016/17 given that the business was only owned for the month of March. In 2017/18 the Group will report the four division structure as previously announced and set out above. VGG Performance in the month of March 2017 VGG delivered a strong performance in the first month following completion of the merger. Revenues in March were up by 16% on the prior year to €83.7m, with a significant growth in trading profit to €4.5m. The Collection Division, now part of the Renewi Commercial Division, had a strong month, significantly boosted by two additional working days compared to the prior year. At Maltha, the glass recycling business, underlying profitability is showing signs of recovery. A new glass powder production line is being installed at the key Heijningen facility and is expected to drive future growth. VGG FINANCIAL PERFORMANCE REVENUE (UNAUDITED) YEAR ENDED EBITDA (UNAUDITED) YEAR ENDED Mar 17 Mar 16 Variance Variance % Mar 17 Mar 16 Variance Variance % 746.3 173.3 (17.9) 901.7 716.1 158.1 (16.9) 857.3 30.2 15.2 (1.0) 44.4 4% 10% 5% 75.9 23.2 (6.7) 92.4 59.8 21.3 (6.6) 74.5 16.1 1.9 (0.1) 17.9 27% 9% 24% EBITDA MARGIN 10.2% 13.4% 10.2% 8.4% 13.5% 8.7% Collections Recycling Others Total €m Collections Recycling Total 52 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 53 _Renewi_ARA_17.indb 53 02/06/2017 11:16 EBITDA is shown as this was the measure used by VGG prior to acquisition. The results above have been extracted from management accounts for the years ended 31 December 2015 and 2016 and the three months ended 31 March 2017. MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCOMMERCIAL WASTE Divisional strategy The Commercial Division’s strategy is to restore profitability to attractive levels, primarily through the active implementation of operational self-help initiatives, supplemented by targeted investments and portfolio management. Financial performance The Commercial Division again performed strongly in 2016/17, delivering 27% trading profit growth to €26.9m on revenues, up by 2% to €414.2m. Trading margin increased by 130bps to 6.5% and the return on operating assets rose to 12.8%. Revenues in the Netherlands grew by 6% to €270.0m and trading profit by 39% to €19.1m. Trading margins improved by 170bps to 7.1%. Return on operating assets increased by 320bps to 10.7%, bringing the tax-adjusted return above the company’s WACC for the first time since 2012. All regions showed both revenue and profit growth, with a second year of strong performance in the Northern Region and a profit increase of 86% from the Organics segment. Volumes were up by an encouraging 11%, although this included a large one-off bulk contract for soil & sludges. Underlying construction waste volumes were up by around 10% and commercial waste volumes by around 6%. Recyclate revenues were also broadly flat over the year, with a weak first half offset by recovering prices in the second half. Belgium revenues fell by 6% to €144.2m and trading profit grew by 5% to €7.8m in line with expectations. In achieving this performance, the business managed to offset over €2.5m in lost trading profit as a result of the closure of its major wood dust customer. The core collection and treatment business performed well and the Ghent plant delivered significantly increased volumes of solid recovered fuel (SRF) into the local market. Profitability of the landfill continued to decline as expected, with volumes being reduced to extend its remaining life into 2019. €12m The key investment in the year was the €12m Vliko and Kluivers depot at Zoeterwoude in the Netherlands €414m The Commercial Division performed strongly in 2016/17, delivering revenues up by 2% to €414m COMMERCIAL FINANCIAL PERFORMANCE REVENUE YEAR ENDED TRADING PROFIT YEAR ENDED Mar 17 Mar 16 Variance Variance % Mar 17 Mar 16 Variance Variance % Netherlands Commercial Waste Belgium Commercial Waste Total €m Total £m (at average rate) 270.0 144.2 414.2 347.6 253.6 152.8 406.4 297.3 16.4 (8.6) 7.8 50.3 6% -6% 2% 17% 19.1 7.8 26.9 22.6 13.7 7.4 21.1 15.4 5.4 0.4 5.8 7.2 39% 5% 27% 47% TRADING MARGIN Netherlands Commercial Waste Belgium Commercial Waste Total 7.1% 5.4% 6.5% 5.4% 4.8% 5.2% The return on operating assets for Belgium excludes all landfill related provisions. RETURN ON OPERATING ASSETS 10.7% 24.6% 12.8% 7.5% 19.8% 9.6% 54 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 55 _Renewi_ARA_17.indb 54 02/06/2017 11:16 OPERATING REVIEW CONTINUED  Our Commercial Division at work Operational review The Commercial Waste Division delivered this strong financial performance due to a further year of delivery of core strategic programmes, coupled with strong local operational management. The commercial effectiveness programme was at the heart of the further margin enhancement in the Netherlands. The division again managed to ensure that a dynamic pricing environment, with volatile recyclate prices and increasing incinerator gate fees, resulted in margins that were preserved and, where possible, enhanced through exiting loss-making contracts and a determined focus on profitable segments. Commercial effectiveness was also important in Belgium where a new national organisation structure was able to increase the co-ordination of commercial activities across the business. Continuous improvement (CI) was also important in both the Netherlands and Belgium. The CI programme in our Dutch Commercial Division has been further rolled out in 2016/17. We have implemented lean tools in 60% of our sites to help the business to optimise their processes. The targeted savings have been realised; for example, we achieved between 10% and 20% efficiency improvement on certain targeted processes and between 2% and 5% on the logistics activities. We still see further potential here and continue to roll-out CI throughout our combined business in 2017/18. In Belgium, we introduced lean management techniques to Mont St Guibert and Seraing (Liege), identifying up to €3m of potential benefits across Belgium. With increasing volumes, but pricing still highly competitive, CI is important to improve productivity and to ensure that assets are maximised. The organics segment in the Netherlands provides a good example of the combination of commercial and operational effectiveness. A change in regulations meant that the front end composition of some of the waste taken in needed to change. New waste inputs were sourced and adjusted operation of the composting tunnels resulted in an improvement in profitability. Additionally, the Greenmills AD facility in Amsterdam generated increased returns on the back of improved process up- time and improving electricity prices. Capital investment in the Commercial Division remained tightly controlled during 2016/17, with some additional investments planned for 2017/18 as a result of the improving market conditions. The key investment in the year was the commissioning on time and on budget of the new €12m Vliko and Kluivers depot at Zoeterwoude in the Netherlands. It was built to replace a site at Leiderdorp that was badly damaged by fire in 2014. The facility has been built using the latest sustainability techniques and with lean operations in mind from the outset. The combination of rerouting waste streams and logistics savings from the relocation will result in an attractive return on the net investment. Additional investment was completed in the renovation of the Biocel AD facility and the installation of a new food depackaging line. Small scale portfolio management also continued despite the merger. In June 2016 we sold our non-core Smink Groundworks business to a local operator along with a parcel of un-needed land. In August 2016 we acquired the commercial waste activities of the City of Leiden; the 1,500 customers acquired were integrated with our new Vliko site within weeks of the acquisition, with a retention rate greater than 90%. 54 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 55 _Renewi_ARA_17.indb 55 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWHAZARDOUS WASTE Divisional strategy The Hazardous Waste Division’s strategy is to grow through increasing capacity to treat additional volumes that will be sourced through market growth, and expanding both geographically and the range of products that can be treated through our assets. Financial performance Hazardous Waste delivered a strong performance in 2016/17 given the relative weakness of the core oil and gas market. Revenues increased by 3% to €191.2m and trading profit by 9% to €23.1m. Margins increased by 70bps to 12.1%, and the return on assets increased by 360bps to 26.3%. Reym saw revenues remain flat during the year in a tough market, with growth in Total Care contract services replacing higher margin cleaning revenues. Nevertheless, careful capacity management enabled the business to deliver trading profit growth despite the weaker input mix. Revenues at ATM increased by 6%, with strong soil, water and packed chemical waste throughput and no material recurrence of the operational contamination that impacted the prior year. Operational review ATM, our hazardous waste treatment site, has an advantaged location and cost position with regard to its soil and water treatment processes, which has therefore  Our ATM facility in the Netherlands 56 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 57 _Renewi_ARA_17.indb 56 02/06/2017 11:16 OPERATING REVIEW CONTINUEDHAZARDOUS FINANCIAL PERFORMANCE REVENUE YEAR ENDED TRADING PROFIT YEAR ENDED Mar 17 Mar 16 Variance Variance % Mar 17 Mar 16 Variance Variance % Total €m Total £m (at average rate) 191.2 160.2 185.9 136.2 5.3 24.0 3% 18% 23.1 19.3 21.2 15.6 1.9 3.7 9% 24% TRADING MARGIN RETURN ON OPERATING ASSETS Total 12.1% 11.4% 26.3% 22.7% €15m During 2017/18 ATM is expected to start a three-year €15m refurbishment and upgrade of the TRI soil processing line €23.1m Hazardous Waste delivered a strong performance, increasing trading profit by 9% to €23.1m been the focus of investment to increase capacity and capability. End markets remained subdued during the year but were in line with our expectations and we were able to operate the plant at close to capacity. plant so during the year we entered into a joint venture with local partners to source a large shared storage facility for salt water so that increased volumes can be taken in according to customer demand and processed over time. The soil processing line operated well during the course of the year. Supply of TAG (tar-containing asphalt grit) was strong and imports of relatively high priced European soil offset ongoing weakness in domestic soil availability. The market to dispose of the cleaned soil has become more challenging during the year and contains a potential risk to future margins. Management has a range of projects underway to ensure that multiple disposal options remain available. The waterside also delivered a strong year with increased volumes and a better mix driving improved average pricing. Record numbers of ships were cleaned at the jetty in March 2017 following investment in additional capacity during the previous year. Supply of sludges and heavily contaminated waters remained subdued as a result of the oil and gas market, but there was strong growth in the supply of salt water for treatment. The ATM facility can only process a certain proportion of salt water along with fresh water through the The packed chemical waste, or pyro, line at ATM also had a strong year with encouraging volume growth at stable prices. A new storage shed is under construction that will increase capacity after it is completed late in 2017/18. The Reym business performed well in the face of an ongoing trough in the oil and gas market and customer demand remained both subdued, especially offshore and in the northern region, and volatile, impacting productivity. Management had anticipated a challenging year as oil prices fell during 2015/16 and had reduced capacity to face a contracting market. This capacity management, along with a strong focus on cost control, allowed the business to deliver a recovery in profitability despite the conditions. During 2017/18, ATM is expected to start a three-year €15m programme of refurbishment and upgrading of the TRI soil processing line to maintain capacity and meet tightening emission requirements. 56 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 57 _Renewi_ARA_17.indb 57 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW  Baled paper ready for recycling in Wakefield MUNICIPAL Divisional strategy The Municipal Division’s strategy is to deliver a recovery plan to restore profitability, lost as a result of adverse market dynamics, and to ensure the successful completion and commissioning to full operational capability of its new assets both under construction or recently commissioned. Financial performance Municipal revenues grew by 8% at constant currency to £203.2m and the business reported a trading loss of £2.7m at constant currency (2016: profit of £9.4m). The UK business reported revenues up by 7% to £174.8m, mainly due to annual RPI increases and a full year from the Barnsley, Doncaster and Rotherham (BDR) contract which started late in the first quarter last year. The UK business made a trading loss of £4.2m (2016: profit of £7.8m). The key drivers of the decline in trading profit, as previously reported, were margin pressure in the recovered fuels market, the sensitivity of the legacy business model to market shifts, and specific operational optimisation issues. The older PFI contracts, ELWA, Cumbria and D&G, have a legacy structure of being exposed, at the back end of the business, to material changes in the costs of disposal of the recovered fuels SRF and RDF or to income made from recovered recyclates. As described in the Chief Executive’s Statement, both the solid recovered fuel (SRF) and refuse derived fuel (RDF) markets have experienced significant challenges over the past year and these worsened rather than improved in the second half. The cost of some RDF contracts has doubled from a lowest point of €40 per tonne to current rates of around €80 per tonne, at an exchange rate that has moved adversely by over 20% during the past 18 months. The business additionally has to incur material further costs of baling and transporting waste in order to open up alternative disposal options. Market challenges have additionally impacted the Westcott Park anaerobic digestion (AD) facility which has experienced a severe lack of available organic feedstock. Challenges getting to full optimisation have been experienced at the two new facilities of BDR and Wakefield, the latter largely in the area of the AD segment of the site where, as previously reported, a key contractor became insolvent during the final months of construction during 2015/16. and a number of improvement initiatives have been implemented to partially offset these challenges. New management has been put in place, including James Priestley as the Managing Director for the Municipal Division. A detailed improvement plan has been prepared and is being implemented, comprising the following key elements: } Plans to get to full capacity and power generation at pace; } Shift operations to create higher quality fuels and recyclates; } Negotiate off-take terms and find new outlets; } Improve productivity and plant uptime; and } Renegotiate local municipal contracts where possible. The Canadian business reported revenues up by 17% at constant currency to £28.4m which is all attributable to increased construction revenue relating to the Surrey contract. Trading profit was down by 15% at constant currency to £1.7m. Underlying performance in the Canada business was relatively robust for most of the year. However, the London plant experienced operational difficulties during the last quarter that had a negative impact on trading profit of around £0.5m. The plant has returned to normal operation as at the start of the new financial year. At ELWA, the refinement hall at its flagship Frog Island facility was recommissioned in the second quarter following an extensive rebuild as a result of a fire in August 2014. However, the market for the SRF produced by Frog Island remained subdued and shipments are not expected to resume until 2017/18. ELWA has also been particularly exposed to the changing RDF prices and the currency impact of exporting to continental Europe. An investment in significant baling capacity will open up new markets over time. Challenges in the SRF market also impacted D&G and Cumbria during the year, although both are accounted for as onerous contracts. Operational review – UK The UK business was significantly impacted by a broad range of challenges during 2016/17 The new Wakefield and BDR facilities continued to experience challenges getting to full optimisation during the 58 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 59 _Renewi_ARA_17.indb 58 02/06/2017 11:16 OPERATING REVIEW CONTINUEDThe bio-fuel facility in Surrey, Canada, has made good construction progress year. The Wakefield anaerobic digestion (AD) facility has ongoing issues where we had to step in at a late stage last year due to the insolvency of the main contractor. These challenges mean that the facility is not yet producing electricity from bio- gas, which has a significant impact on the operating economics of the plant. A detailed improvement plan is underway with full gas production expected by the middle of 2017/18. The new BDR facility, the largest of the mechanical biological treatment (MBT) plants built to date, has also experienced challenges getting to full optimisation in its first full year of operation. These have been addressed in a systematic fashion, including a brief closure in December to address a latent defect and upgrade certain areas of the facility. As noted in the Chief Financial Officer’s Review, charges for onerous contract provisions have been recorded. The anaerobic digestion market has continued to show a wide disparity of performance based on geographic and regulatory factors. Energen Biogas, our 50% joint venture in Scotland, delivered another year of strong revenue and profit growth based on good availability of volumes due to the Zero Waste Scotland policy. Investments in the past two years to increase capacity and provide a gas-to-grid capability are generating strong returns. In contrast, our Westcott Park facility in Oxfordshire is operating in an area of food waste scarcity with low prices and a lack of available volumes to maintain full capacity. Operationally the facility is performing well and a shift in market dynamics through government policy or competitor withdrawals would transform performance. As a result of current market conditions, we have revised our future expectations of trading performance which has led to an impairment of the carrying value of the asset by £6m. The Derby facility has been impacted by the previously reported insolvency of a major contractor and technology supplier to Interserve plc, the EPC contractor for the Derby project. This insolvency has caused a material delay of up to a year to the project which had been due to commission in March 2017. Most other aspects of the construction are on time and on budget and we have been working with Interserve to commission the plant as soon as possible. The financial impact of the delay has been limited to £1.7m liquidated damages, as previously disclosed, plus a further £1.7m of exceptional costs relating to the commissioning of the plant now an onerous contract as a result of the delay. Some £17.5m of subordinated debt was injected into the SPV on schedule on 31 March 2017. Operational review – Canada Our Ottawa and London plants delivered consistently through the year until the final quarter when the London plant experienced operational issues relating to the bacteria in the composting process. The reduced throughput impacted profitability by around £0.5m but is resolved and all tunnels are in full production. The innovative bio-fuel facility in Surrey, Canada has made good construction progress during the year and is largely complete. We have started commissioning and we are working through completion matters with the constructors with a view to receiving first waste later this year, slightly behind schedule. MUNICIPAL FINANCIAL PERFORMANCE REVENUE YEAR ENDED TRADING PROFIT YEAR ENDED Mar 17 Mar 16 Variance Variance % Mar 17 Mar 16 Variance Variance % 11.3 4.2 – 15.5 19.9 7% 17% 8% 11% (4.2) 1.7 (0.2) (2.7) (2.6) 7.8 2.0 (0.4) 9.4 9.4 (12.0) (0.3) 0.2 (12.1) (12.0) N/A -15% N/A N/A UK Municipal Canada Municipal Bid costs Total £m (at constant currency) Total £m (at average rate) UK Municipal Canada Municipal* Total* 174.8 28.4 – 203.2 207.6 163.5 24.2 – 187.7 187.7 TRADING MARGIN -2.4% 9.5% -1.8% 4.8% 14.4% 5.1% *For comparability, the Canadian trading margin excludes Surrey construction revenue and profits All numbers for Canada are shown at a constant exchange rate 58 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 59 _Renewi_ARA_17.indb 59 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWPEOPLE ENGAGING THROUGH INTEGRATION Our people are at the heart of both the successes at Shanks and the turnaround at Van Gansewinkel. Our goal now is to engage them through our integration, building a winning team at Renewi Maintaining focus during the transaction Earlier this year, Shanks merged with Van Gansewinkel to create Renewi. Whilst the deal did not complete until the end of February 2017, news of the potential merger leaked in May 2016. Due to this, we simultaneously communicated the merger news internally. Whilst the prospect of a large-scale merger was an exciting project for the majority of our people, it did pose a significant risk of distraction and even loss of key people. Effective, frequent and informative communication was key to maintain engagement and focus. Prior to the deal being formally signed, on 29 September 2016, we communicated with our people via internal announcements and manager briefings. We were able to tell people what we knew and also advise when we expected to be able to communicate further. After the deal signing it became apparent that a more frequent channel of communication was required. In October we launched the first in a series of bi-weekly merger bulletins. The one-page updates provided information in an easily digestible manner and meant that we were able to keep our people updated with progress about the merger. We provided meetings with our leaders with the opportunity for them to suggest their ideas on integration, ask questions and raise concerns. We also provided our leaders with training to understand how to manage change. Each form of communication, whether written or verbal, always contained three key messages – to stay safe, focus on our customers and deliver our results. The outcome of our approach was meeting our expectations, high levels of energy, positive feedback and retaining our leaders. Delivering a complex integration programme Bringing together Shanks and Van Gansewinkel is an integration which predominantly involves our people based in the Benelux. Due to the size and scale of the merger, as well as the involvement of the Works Councils, it has been paramount to plan and execute carefully. We started discussions with relevant Works Councils, in the Netherlands and Belgium, long before the deal closed. Early and constructive engagement with both Works Councils and Unions has been very important throughout the process to deliver any required organisational changes in a smooth and negotiated manner and in full compliance with good employment practice. In the Netherlands, the Works Councils have strong rights regarding corporate activities and restructuring plans. We received positive Works Council advice for the transaction itself, its financing and for our top team structure, plus we were also able to agree a new Social Plan. The Works Councils from ex-Shanks and ex-Van Gansewinkel agreed to create a single temporary Central Works Council to make engagement easier and the process more efficient. Detailed organisation design is well underway to create a team aligned with the new Target Operating Model (TOM). We aim to engage and involve the people affected to help refine this design. Maintaining engagement through change Change is inevitable after a large-scale merger and it has been a priority to ensure that we recognise the uncertainty that change can bring. It has been important for us to strike a balance between planning our integration carefully and ensuring we bring our people on the journey with us. We have created a five-step approach to maintain engagement throughout the period of change: 60 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 61 _Renewi_ARA_17.indb 60 02/06/2017 11:16 1 ENGAGING OUR TEAMS People don’t resist change: they resist being changed. We engage our leaders and people in change processes so they can help to shape the new organisation. This has included listening sessions, leadership team calls and training for our leaders. 2 OVER-COMMUNICATING Communicate, communicate, communicate! Silence can create rumours and unsettle people. We communicate frequently through a variety of channels: screens in the workplace, videos, merger bulletins and face to face. Even when there is not much new to say, we keep communicating so that people feel they are up to date with progress. 5 TRAINING OUR LEADERS TO MANAGE CHANGE We have started and will continue to help our leaders understand the emotional and practical impacts of a changing environment – on themselves and their people. Training in this area has helped them to lead their teams effectively and in a positive and supportive way. MAINTAINING ENGAGEMENT THROUGH CHANGE 4 BEING OPEN AND TRANSPARENT Through open and honest dialogue, we build trust that we are acting and will act with integrity and fairness as we undertake this merger of equals. We have used this approach in all of our communications, no matter the audience or the channel. 3 CONTROLLING THE CONTROLLABLES We encourage our people to concentrate on what they can control – keeping people safe, delivering our results and focusing on our customers. This approach brings a sense of control when other decisions are outside of scope. Keeping this new “business as usual” approach also keeps our focus on our core business. 60 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 61 _Renewi_ARA_17.indb 61 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWGENDER DIVERSITY 15% of our workforce is female 13% of our Board members are female We benefit enormously from our diverse workforce; we all learn from each other Building a winning team From the outset, we have promoted our merger as a “merger of equals” and it has been a key integration principle throughout the transaction. This means that we have always planned to take the very best of what made Shanks and Van Gansewinkel great and leverage it at Renewi. The two legacy businesses are highly complementary and it has been important for us to capture the breadth of skills and experience from across both businesses. Our new Executive Committee is a blend of strong leaders with proven international expertise and clear customer focus. There is a mix of Shanks and Van Gansewinkel leaders, together with some newly recruited leaders with impressive blue-chip experience. This mix means we are able to capitalise on the knowledge and skillsets from both leadership teams. We have a clearly defined vision to be the “leading waste-to-product company” and a strong purpose to “give new life to used materials”. These statements, underpinned by our “waste no more” strapline, provide a solid foundation and a clear path for our business. We have defined a set of leadership characteristics and aim to lead our people with an open mindset. This means that our leaders listen and learn from others around them, are positive and engaged, committed to great teamwork and operate with high levels of integrity. A careful selection process is underway to ensure we have the right people in the right places and with the right support. It will take some months to complete all layers of our management and we are working hard to get our new teams in place. We are following our integration principles and are aiming for our first two layers of divisional managment to be in place by the end of the summer. We will work together closely as a combined team to deliver the benefits of the merger. There are so many opportunities for us to be “better together”! For example, we are already processing more combined volumes, sharing transport routes and selling services together. We have also started an important initiative to improve machinery safety, especially ‘lock-off’ processes, right across all Renewi sites. Our ethics Renewi is an equal opportunities employer and full and fair consideration is given to applications from, the continuing employment of, and career development and training of disabled people. This report does not contain information about any policies of the business in relation to human rights, since it is not considered necessary for an understanding of the development, performance or position of Renewi’s activities. We benefit enormously from our diverse workforce. Our people come with different backgrounds and from a wide range of cultures, creating a vibrant workforce where we can all learn from one another. The importance of diversity, equality and non- discrimination is highlighted in our Code of Conduct. Around 15% of our workforce is female, with approximately 1,029 women employed. We currently have one female on our Board. During the year Renewi reviewed its policies concerned with combating the possibility of human trafficking and slavery in any of its businesses or supply chains. In compliance with the Modern Slavery Act 2015, Renewi plc’s statement on this matter is considered and approved by the Board on an annual basis and can be found on the website.  WWW.RENEWI.COM/MODERN-SLAVERY-STATEMENT We are working hard to get our new teams in place  62 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 63 _Renewi_ARA_17.indb 62 02/06/2017 11:16 PEOPLE CONTINUEDOur values We appreciate the importance of values – they should outline what matters most to us, how we operate and what differentiates us from our competitors. Our new values will come to life and grow as we work together. We want to ensure that our values are owned and felt throughout the organisation, rather than being created in the boardroom. In the coming months, our newly formed leadership team will craft our values together with input from the broader Renewi workforce. Once they have been determined, we will communicate them clearly and ensure they continue to guide us in the way we manage our business and engage with each other and our customers. 62 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 63 _Renewi_ARA_17.indb 63 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCASE STUDY DAY 1: A DAY TO REMEMBER! On the 28 February 2017, Van Gansewinkel and Shanks joined forces to create something new: Renewi. We had one chance to get Day 1 right and give all of our 7,000 employees a great first day at Renewi. The primary objective was to generate excitement, engage people with the new brand and embed our vision to be “the leading waste-to-product company”. After months of planning and detailed logistics, we launched Day 1 using a range of channels. Each site was given the flexibility to celebrate the day in their own way, using the materials and framework provided. Our leaders gave their teams a presentation about our new company and what to expect in the future. Every employee was given a welcome pack with some branded keepsakes and a brochure introducing our new company. Legacy branded flags were removed and new Renewi flags were raised in flag raising ceremonies across our estate. Our teams were even able to enjoy a branded cupcake and a drink out of limited edition Renewi mugs! The new Executive Committee team toured our flagship sites to meet our teams and support local leaders in delivering the presentations and answering questions. What they saw made us all proud and confident that we are now, better together! Footage of the celebrations is captured here: renewi.com/video-gallery The start of something new: Pictures from our Day 1 celebrations across Renewi sites  64 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc PB _Renewi_ARA_17.indb 64 02/06/2017 11:16 PEOPLE CONTINUEDCORPORATE SOCIAL RESPONSIBILITY (CSR) FULLY ALIGNED AND AMBITIOUS Strong CSR cultures at Shanks and Van Gansewinkel have allowed us to maximise our CSR performance at Renewi As merger partners, Shanks and Van Gansewinkel were fully aligned in their ambitions to be sustainable companies. We reported on the same sustainability indicators and set comparable sustainability targets independently. Our in-house CSR experts from both businesses also realised quickly that their data collection systems were compatible and that we could obtain accurate and complete information from existing processes. This is why it has been possible, so early post-merger, to produce a set of fully merged key CSR performance indicators. Our CSR activities focus on three key areas: care for the environment, the health and safety of our people; and building strong relationships with our host communities. ALIGNED WITH SUSTAINABILITY Care for the environment forms a large part of our CSR activities. Our vision is to be the leading waste-to-product company. This means we focus exclusively on extracting value from waste rather than on its disposal through mass burn incineration or landfill. We believe our unique approach helps to improve the environmental footprint of our customers and addresses demands from regulators and society at large for a cleaner, greener, more sustainable way of living. Our waste-to-product philosophy is a reflection of our belief that ‘waste’ is a state of mind. It is not waste in our hands; it is a product, an opportunity and a small part of our planet preserved. Our waste management activities contribute to sustainability in three key ways: } Last year, we recycled or recovered 90% of the 15 million tonnes of waste that our sites handled. By giving new life to used materials, we limit the environmental damage caused by the production of virgin raw material and contribute to solutions for climate change through our secondary raw materials } We produced more than 172 billion watt hours of green electricity in 2016/17 – enough to power 40,000 homes. Through the production of waste-derived fuels to generate green electricity, we are helping to reduce the use of fossil fuels } Our recycling and recovery activities result in more than 3 million tonnes of carbon avoidance a year 90% Recycling and recovery rate, up from 74% in 2010 172bn watt hours of green electricity generated – enough to power 40,000 homes OUR RECYCLING AND RECOVERY PERFORMANCE 2015/16 2016/17 Total waste handled at sites (million tonnes) Amount of materials recycled (million tonnes)1 Amount of materials recovered for energy production from waste (million tonnes)2 Total materials recycled and recovered for energy production (million tonnes) Recycling as % of total waste handled Recycling and recovery as % of total waste handled 14.28 9.69 3.16 12.85 68% 90% 14.78 10.25 3.07 13.31 69% 90% 1. Recycling is materials given a ‘second life’ for reprocessing into new goods/materials. Recovery is waste used for energy production such as production of waste derived fuels, bio-mass, etc. 2. Includes water recovery and moisture loss during treatment for some technologies employed. PB RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 65 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCORPORATE SOCIAL RESPONSIBILITY CONTINUED Alongside our commitment to sustainability, we take our responsibility to our people and society very seriously EMISSIONS FROM OUR ACTIVITIES (CO2 equivalent ‘000 tonnes)1 Process based emissions Emissions from anaerobic digestion and composting Emissions from hazardous waste treatment Emissions from landfill Emissions from mechanical biological treatment (MBT) Transport based emissions Fuel used by waste transport vehicles Business travel (cars, trains, flights etc) Energy use emissions Electricity used on sites and in offices Gas used on sites and in offices Fuel used on sites for plant and equipment/heating Total emissions from significant sources 2015/16 2016/17 105 295 97 24 126 8 96 15 30 796 109 304 93 22 120 8 103 17 28 805 OUR CARBON AVOIDANCE PERFORMANCE 2015/16 2016/17 (CO2 equivalent ‘000 tonnes)1 Renewable energy generated Waste derived fuels produced and sold Materials separated for re-use/recycling Energy from waste used on site as a fuel Total potential avoided emissions 49 848 1,656 334 2,887 63 874 1,788 349 3,075 1. Figures rounded to nearest 1,000 tonnes – totals may reflect rounding. Some data based on carbon ‘factors’. These vary from country to country and are periodically updated, such as by Government agencies GREENHOUSE GAS EMISSIONS AND AVOIDANCE INTENSITY RATIOS Amount greenhouse gases emitted (CO2 equivalent ’000 tonnes) per unit of revenue (£m) Amount greenhouse gases avoided by our activities (CO2 equivalent ’000 tonnes) per unit of revenue (£m) 2015/16 2016/17 0.61 2.22 0.56 2.16 RESPONSIBLE IN OUR ACTIONS Alongside our commitment to environmental sustainability, we take our responsibility towards our people and society seriously. Our people are crucial to the success of Renewi. Their dedication and commitment to our ‘waste no more’ ethos is one of the key reasons why our customers choose to work with us. This is why the health, safety, wellbeing and engagement of our people are top priorities for Renewi. This starts with making sure our people go home safely every day. Shanks and Van Gansewinkel both brought strong safety cultures to Renewi, which is why we performed well on our safety objectives for 2016/17, despite focus being diverted to the merger. Our lost time injury frequency improved by 5% over the year. The number of near misses raised by our employees rose by 20% during the same period and the rate we closed these out at improved by 26%. For us, safety is a way of life. BEING GOOD NEIGHBOURS Our relationship with society is also critical, both at a macro and micro level. In terms of the big picture, our commitment to recycling and recovering waste contributes to society’s quest for a more sustainable future. To carry out this work, we need the support of our customers and our host communities. That support needs to be earned: from customers, by providing a high standard of service at all times; and from communities, by being a good and considerate neighbour. For Renewi, building and sharing our expertise in sustainability is a key part of building good relations with society. We do this by investing in innovation. In 2016/17, we focused on building our expertise in gasification technologies – a green way of converting waste into synthetic gas, which can then be used to generate electricity. Our new plant in Derby will make use of this technology and we are also participating in a Netherlands-based project that is exploring ways of using gasification to convert waste into methanol. (You can read more about these initiatives in our CSR Report, available at renewi.com/ our-responsibilities.) 66 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 67 CSR OBJECTIVES TO 2020: DEVELOPMENT FOLLOWING THE MERGER ENVIRONMENT PEOPLE SOCIETY Waste no more Carbon Energy Safety Employees Inclusive employer Community Customers Recycling and recovery rate Carbon prevention Operation energy efficiency >3 day accident rate Employee engagement Female employees Improve feedback Customer satisfaction 95% +10% Recycling rate Green electricity production Transport energy efficiency 75% +60% ? ? -25% Lost time injury frequency Sickness absence -25% ? ? ? 25% Disadvantaged jobseekers Local initiatives Net promoter score ? ? Sharing expertise Number of innovation projects ? ? 20 Stakeholder dialogues ? KEY AREAS FOR OBJECTIVES Data and definitions exist already in ex- VGG and ex-Shanks which are compatible, and objectives compatible. Proposed objectives for publication in 2017 CSR Report are shown based on ex-VGG and ex-Shanks previous objectives. Data exists already in ex-VGG and ex- Shanks which are compatible. However either definition requires some work and/or a decision needs to be made whether or at what level an objective can be set for publication in 2017 CSR Report. Work needs to be done on data and/ or definitions. As a result setting an objective for publication in 2017 CSR Report is not feasible. But, an objective could be set for publication in 2018 CSR Report if required. SETTING OUR CSR OBJECTIVES To ensure we live up to our sustainability ambitions and our responsibilities, both to our people and to society, we set ourselves objectives and measure our progress towards achieving them. Shanks and Van Gansewinkel had set CSR objectives, to be achieved by 2020. The data and definitions that exist for many of these objectives are compatible and, in these instances, we are committed to pursuing those objectives to 2020. These objectives include increasing our recycling and recovery of the waste we handle by 5% to 95%, reducing our accident rate by 25% and increasing the number of innovation projects we participate in by 20. Other objectives are equally important and need to be set. However, differences in the way Shanks and Van Ganswinkel defined and collected data on these objectives need to be reconciled before we can set meaningful targets. Areas affected by this process include achieving greater transport energy efficiency, helping disadvantaged jobseekers and improving dialogue with our stakeholders. We want to ensure the objectives we set are stretching and realistic. For this reason, as we move through the merger integration process, we will spend time defining and collecting data on these areas and aim to have a clearer set of objectives to state and work towards in 2018/19. The graphic above outlines our desired CSR objectives and highlights which ones we will work towards achieving in 2017/18 and which ones will require further development. CONSISTENT ACROSS OUR SCOPE Our commitment to the environment, our people and society extends across all of our countries of operation and throughout all of our divisions. This means the CSR objectives we set for ourselves apply to all our activities, no matter where they are.  Read more about our CSR performance and goals in our CSR report, available on www.renewi.com KEY FACTS AND FIGURES Belgium Canada France Germany Hungary Luxembourg Netherlands Portugal UK Number of operating sites1 Operating sites with recycling/recovery2 Operational landfill sites Number collection and transport trucks 46 20 2 702 2 2 - - 5 5 - - 2 1 - 15 1 1 - - 1 1 - 3 114 53 3 1,888 1 1 - - 36 36 2 23 1. Active operating sites. Does not include offices and other non-operational sites 2. Some sites include more than one operation, such as a landfill with an in-vessel composting plant on it. In these cases the site is noted as having recycling/recovery Renewi Total 208 120 7 2,631 66 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 67 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW RISK AND UNCERTAINTIES We have made good progress against our 2016/17 objectives on day-to-day risk management, with an additional focus on our recent merger INTEGRATED RISK MANAGEMENT Change brings risk, and it also brings opportunity. Good risk management is critical to ensuring that the risks associated with change are mitigated, and that the opportunities presented can be taken. Since our last annual report, we have doubled in size as a company, significantly expanded our geographical reach and added substantially to our portfolio of sustainable waste management technologies. Our recent merger has therefore been a major focus for additional risk management review. We have responded by clearly segregating duties so that most executives focus on normal business. We have also maintained our detailed monthly review processes, unaltered by the transaction. Environmental regulation continues to tighten in some of the countries we operate in, resulting in growth opportunities but also an increased focus on management and reporting, coupled with a need for investment to meet more stringent standards. Our teams of experienced and knowledgeable internal specialists are key to good risk management in these areas. The property and business interruption insurance market for waste management facilities continues to harden, posing premium and capacity pressures. We have made, and continue to make, improvements in our fire risk management to mitigate these pressures. The challenges being faced by our UK PFI operations illustrate that whilst our recent merger was one major risk management event during the year, material risks can emerge within our existing operations as well as from change. We are reviewing the lessons to be learnt from our UK PFI operations and will use them to improve our risk management. Our challenge now is to integrate our new merged businesses, deliver the committed value capture upsides, target the opportunities presented, and grow our new merged company. Integrated and good quality risk management will be critical to achieving this. Extensive due diligence was undertaken prior to our merger, comprising our internal dedicated due diligence team, supported by extensive skilled external advice. Risks from a wide range of areas were investigated, from contractual risks and commercial issues to environmental permit risks and liabilities. Each was quantified and the results of due diligence fed into the transaction process, and used as preparation for integration. Where practical direct mitigation measures were put in place, and where not practical indirect mitigation such as insurance and other risk transfer mechanisms were used. Our focus now is to exercise good risk management during integration to ensure we deliver the value capture and other benefits of integration. The extensive risk management we undertook throughout the due diligence and transaction stages in our merger provide a firm foundation on which to build. One key risk identified early in our merger process was a loss of focus on our day-to- day business. We continue to face volatile economic and market conditions. The continuing reduction in oil prices affects our ability to sell recovered oil waste, and commodity market fluctuations can result in less demand for our recycled and recovered products. Economic conditions have also historically affected the volume of waste being collected and treated, although there are signs of improvement. OUR RISK FRAMEWORK Our merger presents wider risks and opportunities. However, the practice of good risk management remains constant. The core elements of our risk management framework remain, although they will be developed throughout our integration journey, and include: } Our schedule of matters reserved for the Board and our strict adherence to it. This ensures that all significant issues affecting strategy, structure, viability and financing are properly managed by the Directors; } Our risk management framework. This ensures that each of our businesses identifies the risks it faces and their importance, designs and implements effective mitigations to control key risks and that these mitigations are monitored and remain effective. The output of this process is a summary of all our significant strategic, operational, financial and compliance risks, our mitigating controls and the action plans necessary to reduce risks to a level aligned with our risk appetite. These are reviewed by both divisional management, our Risk Committee, Audit Committee and the Board to ensure the appropriateness of the risks identified and the effectiveness of the controls and actions reported; } Embedded risk management systems that are part of our day-to-day operations. These underpin the effectiveness of our risk management processes by involving a wide audience in risk systems, such as divisional registers, to ensure all risks are considered and ranked appropriately and that mitigations are informed and practical; } Enhanced risk assessment for all major capital requests. This ensures we allocate funds in a risk aware manner to maximise the value of our investments and minimise the risk of under-performance; and } Review of key risks at each divisional review meeting which ensures that we monitor our key risks and mitigations at an appropriate level. It also supports risk management as an embedded feature of our decision-making process. 68 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 69 _Renewi_ARA_17.indb 68 02/06/2017 11:16 Five objectives of our risk management framework: Identify and evaluate our universe of potential risks to allow the creation and management of registers of risks faced by the Group. Know what risks we face Maintain and improve a system of internal controls to manage risks in decision making, contract management and financial transactions. Control systemic risk Know what risk we want to accept Manage a risk strategy in which the tolerance and appetite of the Group for differing levels and types of risk is clearly understood. Ensure that management is trained in the effective identification, assessment and management of risk. Train our people in risk management Manage or mitigate our risks Ensure that all identified key risks are effectively mitigated or, where appropriate, transfer risks through insurance. OUR RISK RESPONSIBILITIES AND ARCHITECTURE Our operating divisions and business unit management have responsibility for the assessment and management of risk. This applies equally to both of our merged companies. Our Risk Committee supports how we manage risk through information, frameworks, policy, strategy and processes. Reporting through our Audit Committee and Executive Committee ensures the identification and communication of critical risks, and that key risks are brought to the attention of the Board. The decisions of the Board and their risk appetite are cascaded back through our risk architecture to ensure that the approach to risk appetite and tolerance are aligned and consistent across all of our activities. Risk management responsibilities RENEWI PLC BOARD Independent review Audit Committee Executive Committee Risk reporting Risk Committee Risk: } Information } Audit } Architecture Operating divisions Business unit management Risk: } Assessment } Management } Responsibility 68 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 69 _Renewi_ARA_17.indb 69 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWRISK AND UNCERTAINTIES CONTINUED OUR PROGRESS AGAINST 2016 OBJECTIVES AND THE FUTURE In our 2016 Annual Report we outlined a series of improvements we had already made in our risk management processes. We also committed to further actions in 2016/17. Despite the resources and effort we have devoted to risk management and our recent merger, progress has still been made on our day-to-day risk management. A synopsis of this progress is shown below. What we said we would do in 2016/17 How we did What we plan to do in 2017/18 Use our new web-based risk tool to provide coherent reporting of performance and mitigation progress, including to the highest levels in our divisions and at Group-level Implement routine guest spots into our Risk Committee agenda for senior divisional management to present on their key risks, allowing our Risk Committee to comment on these and share knowledge across the Group Roll out the business continuity plan framework across our smaller sites Divisional risk registers were uploaded to our web-based risk tool in 2016 Through our new integrated Risk Committee, produce revised and new divisional risk registers aligned with our new company, and upload these to our web-based risk tool Guest spots at our Risk Committee commenced in 2016, and included presentations from our UK operations director and external insurance brokers Continue the approach of guest spots to ensure we consider the whole of our risk universe with input from both internal and external sources Business continuity framework rolled out across all Shanks operations and completed in late 2016 Review quality of business continuity planning across our larger company Continue to upgrade our fire systems at additional key sites, in co-operation with our insurers to ensure high standards are met Upgrades in fire systems being progressed at 11 key sites, with a projected spend estimated at some £11m over three years, with further improvements being planned Integrate existing fire system standards into one high-quality package for our larger company Investigate how our risk management ConnectUs community can be adapted to provide an induction for employees in risk management Key risk policies and guidance uploaded during 2016 to our ConnectUs risk management community to allow easy access by all employees Monitor the level of retained risk associated with our property and business interruption insurance ready to be implemented as required Retained property and business interruption insurance risk level maintained in 2016/17 The tool is being tested to collate audit outcomes Integrate existing risk management policies, incorporating the best from both merged companies to provide high quality policies and processes in our larger company. Ensure easy access to these policies by all employees Conduct series of deep-dive studies of key insurance covers during 2017 to ensure best risk approach for our larger merged company at 2018 insurance renewals. Investigate alternative retained risk mechanisms Investigate use of web-based risk tool as an audit tracking and reporting package across our larger company Make enhanced use of our web-based risk tool, entering audit outcomes into it and tracking audit action progress across the Group and reporting on progress Allocate divisional ‘leaders and administrators’ for our new web-based risk tool to allow our divisions full access and use of the tool Develop and enhance this risk management community on ConnectUs, adding to its content and accessibility Divisional leaders and administrators for our web-based risk tool were allocated in 2016 and given access to the system Reallocate leaders in line with new and revised divisional risk registers reflecting our new merged divisional structure Our risk management ConnectUs community was opened to all employees during 2016, and additional information included Investigate options for risk management knowledge sharing via ICT systems in our larger company 70 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 71 _Renewi_ARA_17.indb 70 02/06/2017 11:16 KEY RISKS AND MITIGATIONS Our key risks are outlined in the heat diagram on the right and in the table on the following pages. For 2017 our key risks have been discussed in detail by both our newly reformed Risk Committee and senior leaders, and include revisions to risk rating and additions as a result of our recent merger. The heat diagram has been commented on by our Audit Committee. The final version has been approved by the Board. t c a p m I Key risks 1 Input volumes 2 Input pricing competition 3 Output pricing 4 Output recyclate/recovered product volumes 5 Investment and growth – cash risk 6 Investment and growth – financing risk 7 Environmental permit risk 8 Health and safety risk 9 ICT failure 10 Talent development/leadership 11 Long-term contracts 12 Fire and business continuity 13 Operational failure 14 Project execution 15 Changes in law and policy 16 Integration risks A description of each risk can be found in the table below. 6 7 4 15 1 9 13 16 8 14 5 10 2 11 3 12 Likelihood Overarching key risks All risk levels shown in the heat diagram are with the current level of mitigation. In previous annual reports we have shown risk direction. For this year we have revised our key risk register in line with our larger estate, and will recommence indicating risk direction for our 2018 report. SUMMARY OF KEY RISKS Reference numbers are consistent with those used in the heat diagram (above) Key risk Key mitigation Commentary 1 Input volumes That incoming waste volumes in the market may fall 2 Input pricing competition That market pricing may put pressure on our margins • Strong reporting of incoming waste volumes across the Group for rapid response to market changes • Continued investment to secure new waste streams and volumes • Market-facing customer-focused organisation • Major capital deployed only if backed by long-term contracts • Constant reporting and monitoring of price via operational systems • Cost management, both structural and operational, to deliver cost leadership in core markets • Use of long-term contracts, where appropriate • Effective commercial organisations to maximise margins • Targeted price increases Our larger company handles in excess of 14 million tonnes of waste a year. Our wider geographical spread provides access to more markets. Our combined waste management technology offering gives us greater client attractiveness. Value capture from our recent merger provides an opportunity to reduce costs and increase price competitiveness. Set against this, macro-economic pressures remain, although in some markets is improving. 70 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 71 _Renewi_ARA_17.indb 71 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWRISK AND UNCERTAINTIES CONTINUED Key risk Key mitigation Commentary 3 Output pricing That the value we receive for recycled and recovered product falls 4 Output recyclate/recovered product volumes That the volumes of products we place to market falls 5 Investment and growth – cash risk That funding sources are available, but that cash generation is insufficient to allow access to funding 6 Investment and growth – financing risk That funding is not available 7 Environmental permit risk That our environmental permits to operate are restricted or removed 8 Health and safety risk That we incur reputational loss, or civil and criminal costs • Focus on improving product quality • Maximise off-take pricing leverage, where appropriate • Cost control to offset impact of lost revenue • Sustainable technologies used align with market needs and international and national policy • Renegotiation of long-term and fixed price off-take contracts where appropriate • Investment in technologies which fit with market needs for products • Experienced employees dedicated to product off-take markets • Diversity of product off-takers to spread risk • Quality control systems in place to ensure quality of products is as required • Continuous improvement of cash control • Continuing portfolio management • Reinvest only where profitable • Good budget control on capital projects • Good balance of leased and owned assets • Diverse range of financing options and timings • Good quality external advice • Strong relations with investors • Good management reputation and planning • Effective management of all environmental matters arising • Environment management systems and regular inspections and audits in place • Monthly environmental issues reporting across all levels of organisation • Experienced and competent environmental specialist employees in place • Community environmental engagement performance in place as key business objective • Top agenda item on all management meetings • Corporate Health and Safety Manager and competent internal specialists in place • Defined and tracked health and safety priorities plan in place • Active engagement with regulators • Safety leadership programme in place • Coherent targets in place for accident, near-miss and other key safety performance parameters Pressure from commodity markets remains, with falling or stagnant prices for some recyclates and recovered products. Set against this our larger company allows better access to some markets, such as for recovered waste fuels, which we are already starting to exploit. As for output pricing, commodity market pressure has increased over the year. Our larger company presents the opportunity to offset this risk with wider market access and diversity. Value capture and efficiencies from merger present the opportunity to maximise cash generation. Strict control of integration costs is part of planning and implementation of our merger. Market confidence in our merger is high. Critical ongoing mitigation is to deliver on our commitments to value capture and effective integration. Pressure on environmental permits through increasingly strict regulation has grown over recent years. Internal management of compliance through competent specialists is recognised as key in both merged companies. The wider scale of our combined Group reduces potential impact at individual sites by ability to move wastes across more operations. Both merged companies have competent internal specialists in place. A merged Renewi safety priorities plan has been produced, and initiatives such as on machinery safety have already commenced. Combined reporting of performance is in place and sharing of best practice across our wider estate has commenced. 72 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 73 _Renewi_ARA_17.indb 72 02/06/2017 11:16 Key risk Key mitigation Commentary 9 ICT failure That ICT failure causes business interruption or loss 10 Talent development/leadership That we lack the required management capabilities 11 Long-term contracts That we enter into long-term contracts at disadvantageous terms or we rely on a small number of large contracts 12 Fire and business continuity planning Business interruption and other costs as the result of a disaster such as fire 13 Operational failure Operational failure at a key facility leading to business interruption and other costs • Business continuity planning in place for ICT and tested • Assessment of ICT resilience conducted by insurers with high-quality result • IT Director in place to deliver ICT leadership • Development of greater centralisation of ICT systems to allow common risk approach • Continued investment in upgraded systems and infrastructure • Performance appraisal process in place • First-class talent mapping and development process • Leadership programmes in place • HR Director and divisional teams to ensure good HR leadership • Engagement surveys in place • Key objectives set for absence management and employee development • Strict Board controls on entering into major contracts • Selective bidding on contracts • Detailed risk assessment and due diligence on contracts • Tight controls and reviews on build programmes to ensure on track • Effective insurance programmes supported by experienced brokers • Improvements in fire control through fire control standards • Fire risk survey process in place including engagement with insurers, and with competent external advice • Business continuity planning in place at all major sites • Mechanical breakdown insurance in place for at-risk facilities and reviewed on a regular basis for adequacy • Highly-experienced operational teams with in-depth knowledge of processes • Regular annual and other shutdowns at key facilities to ensure they remain well invested and maintained • Business continuity planning includes breakdown risk and mitigation measures ICT was a key focus during due diligence pre-merger, with structured planning for integration in place. The merging of both companies’ systems presents the opportunity to upgrade and implement best practice as a critical underpinning to gaining value capture and effective integration. Effective and considered integration processes to ensure leakage of talent minimised are in place, with a clear road map towards our new operating model. A planned and structured approach to Works Councils to ensure smooth integration is in place. Opportunities are presented by the larger potential talent pool in our wider merged company. Developments and performance in UK PFI operations have underscored the importance of this risk. A strict authorisation matrix was put in place from day one of our merger, including contract authorisation. A review of failings in UK PFIs underway, with learnings to be spread across the company. Waste management continues to be an unpopular sector with property and business interruption insurers, resulting in premium and capacity pressures. Planned upgrades in fire systems at key sites are underway, with an estimated spend in excess of £11m over three years. Our larger company allows the opportunity to explore alternative risk retention mechanisms. Resilience at our major unique facilities remains our concentration, with high- quality maintenance and lifecycle programmes in place. Across our general recycling and recovery plants, our larger company provides greater flexibility to divert wastes and retain value internally in the event of breakdown. 72 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 73 _Renewi_ARA_17.indb 73 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWRISK AND UNCERTAINTIES CONTINUED Key risk Key mitigation Commentary 14 Project execution That we fail to deliver our investment and cost reduction programmes 15 Changes in law and policy Adverse impacts from changes in law and policy, including environmental, tax and similar legal and policy regimes 16 Integration risks That integration of the two companies is ineffective and/or fails to deliver anticipated synergies • Strong financial oversight of project costs and effective capital authorisation processes • Strong due diligence of potential opportunities to ensure returns • Regular senior management review of all programmes including post-investment reviews • Use of skilled and trained project management teams • Fixing of contractual costs, where possible • Horizon scanning by competent internal specialist to ensure adverse changes planned for and managed, and potential opportunities captured • Alignment of business model with national and international policy and law towards more sustainable waste management practices • Comprehensive and in-depth due diligence prior to merger • Use of competent external advisors where required • Clear integration plan with road map to successful integration in place • Dedicated Integration Director in place, with competent internal team • Clear targets in place for integration performance communicated to all key staff A clear and strict authorisation matrix, including projects, was put in place from day one of our merger. Continuing oversight of current major projects through the integration process via allocation of resources is in place. Delivery of our integration project to achieve projected value capture is key (see integration risks below). Our business model is in line with society’s needs for sustainable waste management. Many changes in law and policy provide opportunities for Renewi. Potentially adverse changes are planned for and managed. The potential impacts of a disparate approach in the UK, in particular in environmental policy, following Brexit is being tracked. We have a clear vision of where value capture from our merger lies, and a clear plan to achieve it. Our new dedicated Integration Director sits on our Executive Committee to allow direct involvement in decision making at top level. Clear reporting for value capture performance and tracking against integration plan is in place. Fraud risk To mitigate the exposure to losses arising from fraud committed on the Group or by Group employees, robust internal controls and financial procedures are reviewed and tested regularly. FINANCIAL RISKS The Group takes action to insure or hedge against the most material financial risks. Details of our key policies for control of financial risks are: Interest rate risk The Group has continued to limit its exposure to interest rate risk by entering into fixed rate retail bonds and interest rate swaps for PFI/PPP projects that fix a substantial proportion of floating rate debt. At the end of March 2017, circa 78% of core borrowings were on fixed terms. For all long-term PFI contracts, interest rate swaps for the duration of the contracts are entered into as part of financial close of the project. Foreign exchange risk The Group is exposed to foreign exchange risk for movements between the Euro, Canadian Dollar and Sterling. The majority of the Group’s subsidiaries conduct their business in their respective functional currencies. Hedging agreements, such as forward exchange contracts, are in place to minimise known currency transactional exposures. The Group does not hedge its foreign currency exposures on the translation of profits into Sterling. Assets denominated in Euros and Canadian Dollars are hedged by borrowings in the same currency to manage translational exposure. Trade credit risk Trade credit risk is the risk of financial loss where counterparties are not able to meet their obligations. The Group has implemented the setting and monitoring of appropriate customer credit limits. Credit limits and outstanding receivables are reviewed monthly. The Group has a policy to ensure that any surplus cash balances are held by financial institutions, meeting minimum acceptable credit ratings. 74 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 75 _Renewi_ARA_17.indb 74 02/06/2017 11:16 Integrating our Risk Committee Our Risk Committee is a critical component of our risk management architecture. The Committee produces and proposes risk management processes and policies for consideration and approval by our Audit Committee, creates the frameworks through which our operations can exercise practical risk management, and is the focal point for activities such as divisional and top-level key risk registers. Within two weeks of our merger we reconstituted our Risk Committee to include our larger company. Within three weeks our new Risk Committee began merging and refining both companies’ existing top-line key risks registers, adding key risks from integration and exploring the wider risk universe we face. At its first formal meeting in early April our new Committee refined and reviewed this top-line key risks register for our Audit Committee to review. A summary of this combined Group register is given in the heat diagram and table starting on page 71. Our Risk Committee continues to consist of internal senior people from a wide spectrum of specialisms from finance and operations to environmental permitting, insurance and health and safety disciplines. This broad composition ensures we capture all of our potential risks and can rank them effectively no matter what risk area they fall into. Future tasks for our integrated new Risk Committee include the merging of existing risk policies, frameworks and processes to ensure good practice from both merged companies is captured, developing our divisional key risks registers so they are aligned with our new operating structure and activities, and producing the structures which will allow us to practise effective risk management in our larger merged company. Toby Woolrych Risk Committee Chair The Risk Committee creates the frameworks through which our operations can exercise practical risk management VIABILITY STATEMENT In accordance with provision C.2.2 of the 2014 UK Corporate Governance Code, the Board has assessed the prospects of the Group over a longer period than 12 months and has adopted a period of three years for the assessment. The scenario modelling has been based on the combined Group following the merger. The Board’s strategic planning horizon is five years. However, the first three years of the plan were selected for the testing given that this horizon is key for integration following the recent merger with VGG and the delivery of merger benefits. The Board assessed the principal risks to the business as set out in the preceding pages and agreed that a total of seven severe but plausible risk scenarios should be explicitly modelled. The scenario modelling included further deterioration in the macro-economic environment, underperformance on a major contract, the impact of Brexit, and slower and more costly delivery of merger benefits. For each scenario the Group identified the appropriate mitigation steps it would take to reduce the risk. These mitigations include the identification of structural cost programmes, business continuity and commercial effectiveness plans. The Group’s liquidity and financial headroom have all been assessed and incorporated within the risk scenario modelling. Based on the consolidated financial impact of the sensitivity analysis and associated mitigating actions that are either in place or could be implemented, it has been demonstrated that the Group maintained adequate headroom during the different scenarios. Based on the results of this analysis, the Directors confirm they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of assessment. 74 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 75 _Renewi_ARA_17.indb 75 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWTHE BOARD OF DIRECTORS The Board is committed to maintaining a sound governance framework through which the strategy and objectives of the Group are set and monitored. The non-executive directors bring considerable international experience to the Board across a number of sectors and play a full role in constructively challenging and developing strategic proposals Colin Matthews CBE, FREng Chairman Eric van Amerongen Senior Independent Director Jacques Petry, MBA Non-Executive Director Stephen Riley, B.Eng, PhD Non-Executive Director Appointed: March 2016 and appointed as Chairman in April 2016. He is also Chairman of the Nomination Committee and a member of the Remuneration Committee. Skills and experience: Colin currently chairs Highways England Company Limited, formerly the Highways Agency. In his executive career he has been Chief Executive Officer of Heathrow Airport, Hays plc and Severn Trent plc. He has also been Managing Director of Transco and Engineering Director of British Airways. Earlier he worked in the motor industry in Japan and the UK, in strategy consulting and for General Electric in the UK, France and Canada. He has also served as a Non-Executive Director for Mondi plc and Severn Trent plc. Colin is a Fellow of the Royal Academy of Engineering and was awarded the CBE in 2014 for his services to aviation. Colin is a Non- Executive Director of Johnson Matthey plc. Appointed: February 2007 and appointed as Senior Independent Director in July 2007. He is also Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees. Eric will be retiring as a Director of the Company at the conclusion of the 2017 AGM. Skills and experience: Eric has wide-ranging European business experience, including in the telecoms, defence and publishing sectors. He holds a number of non-executive and advisory positions. Until January 2008 Eric was a Non- Executive Director of Corus Group plc, a position he held for seven years. Eric is Vice Chairman of the Supervisory Boards of BT Nederland BV and Thales Nederlands BV and also a Supervisory Board Member of ANWB BV, Royal Wegener NV and Essent NV. Eric was appointed as Chairman of the Supervisory Board of Shanks Netherlands Holdings BV in October 2016. Colin is considered by the Board to be independent. Eric is considered by the Board to be independent. Appointed: September 2010 and will be appointed as Senior Independent Director at the conclusion of the AGM. He is also a member of the Audit, Remuneration and Nomination Committees. Appointed: March 2007. He is a member of the Audit, Remuneration and Nomination Committees. Stephen will be retiring as a Director of the Company at the conclusion of the 2017 AGM. Skills and experience: Jacques is currently Chairman of energy provider Albioma, having held the position of both Chairman and CEO until 1 June 2016. He was Chairman and Chief Executive of SITA and its parent company, Suez Environnement. In 2005 he was appointed Chief Executive of Sodexo Continental Europe and South America. Since 2007 he has advised corporate and financial sponsors, specialising in Infrastructure and Environmental Services investments worldwide. He has extensive global non-executive and executive experience. Jacques is considered by the Board to be independent. Skills and experience: Stephen is a chartered engineer, having graduated with a First-Class Honours degree in Mechanical Engineering from Liverpool University before completing a PhD. He joined International Power in 1985, going on to hold senior positions in two UK power stations and becoming Managing Director of their Australian operations. From 2004 to 2011 he was a Director of International Power plc, resigning from that Board following the amalgamation of International Power and GDF SUEZ, now ENGIE. Stephen remained as CEO and President of GDF SUEZ Energy UK-Turkey until his retirement at the end of 2015. In January 2017 he was appointed to the Board of Cubico Sustainable Investments Holdings Limited. Stephen is considered by the Board to be independent. 76 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 77 _Renewi_ARA_17.indb 76 02/06/2017 11:16 Marina Wyatt, MA, FCA Non-Executive Director Allard Castelein, MD Non-Executive Director Peter Dilnot, B.Eng Chief Executive Officer Toby Woolrych, MA, ACA Chief Financial Officer Appointed: February 2012. Appointed: August 2012. Skills and experience: Toby began his career at Arthur Andersen where he qualified as a chartered accountant before becoming Finance Director of Medicom International Ltd, a medical publishing company, in 1992. He then joined Johnson Matthey plc as Corporate Development Manager in 1997, going on to become Divisional Finance Director and then Managing Director of one of Johnson Matthey’s global speciality chemicals business units. From 2005 to 2008, he was the Chief Financial Officer and Chief Operating Officer at Acta SpA, a renewable energy company, before joining Consort Medical plc as Group Finance Director. Skills and experience: Prior to joining Renewi, Peter was a senior executive at Danaher Corporation, a leading global industrial business listed on the NYSE. He held a number of progressive general management roles including President Danaher Middle East, Group President Emerging Markets, and President EMEA and Asia of its Gilbarco Veeder-Root subsidiary. Before Danaher, Peter spent seven years at the Boston Consulting Group (BCG) in London and Chicago, working with industrial and pharmaceutical clients and was a leader in BCG’s global Sales & Marketing Practice. Peter’s earlier career, after graduating from RMA Sandhurst, was spent as an officer in the British Armed Forces. He originally trained as an Army helicopter pilot and saw active service with both NATO and the UN. Appointed: April 2013. Chair of the Audit Committee and a member of the Remuneration and Nomination Committees. Skills and experience: Marina is a Fellow of the Institute of Chartered Accountants and is currently the Chief Financial Officer at UBM plc. Following nine years with Arthur Andersen in London and the US, she then joined Psion plc as its Group Controller and became Group Finance Director in 1996. In 2002 she was appointed Chief Financial Officer of Colt Telecom plc and joined TomTom as its Chief Financial Officer in September 2005, where she remained until taking up her current position at UBM plc in September 2015. Marina is a Member of the Supervisory Board at Lucas Bols N.V. Marina is considered by the Board to be independent. Appointed: January 2017. Allard will become Chairman of the Remuneration Committee from the conclusion of the AGM. He is also a member of the Audit and Nomination Committees. Skills and experience: Allard is currently President and Chief Executive Officer of the Port of Rotterdam, having been appointed in 2014. He qualified as a medical doctor before pursuing a career in the Energy sector, holding a number of senior positions at Shell. Over more than 25 years he amassed extensive experience within the industry, culminating in becoming the Vice President Environment for Royal Dutch Shell in 2009. Allard also holds a number of Supervisory Board positions including those at Isala Klinieken, Rotterdam Partners, Sohar Industrial Port Company and the Ronald McDonald House Sophia Rotterdam. He is a senior member of several Dutch trade organisations including Logistiek Nederland, Economische Programmaraad Zuidvleugel and the General Council of the Confederation of Netherlands Industry and Employers. Allard is considered by the Board to be independent. 76 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 77 _Renewi_ARA_17.indb 77 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWCORPORATE GOVERNANCE REPORT CHAIRMAN’S INTRODUCTION We remain committed to achieving the highest standards of legal compliance, environmental protection and safety Colin Matthews Chairman On behalf of the Board, I am pleased to present our Corporate Governance Report and confirm our compliance with the UK Corporate Governance Code for the year ended 31 March 2017. We believe that both the Board collectively and directors individually have a responsibility to set and demonstrate high standards of corporate governance. The following pages outline the structures, processes and procedures by which the Board ensures that these high standards are maintained throughout the Group. The non-executive directors, all of whom the Company regard as independent, bring considerable international experience to the Board across a number of sectors. They play a full role in constructively challenging and developing strategic proposals, as well as chairing and being members of Board committees. The executive directors implement Board strategy, with a view to driving margin expansion, investing in infrastructure and actively managing the portfolio of businesses, all to deliver profitable growth and increased returns. In particular the Board ensures that the Group as a whole remains committed to achieving the highest standards of legal compliance, environmental protection and safety. The Board is required to confirm that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy. The Audit Committee has again assisted the Board in this regard throughout the year. This Committee has also provided support and guidance in connection with the viability statement disclosure requirements of the UK Corporate Governance Code. At this year’s AGM we will be seeking approval of the Directors’ Remuneration Policy, it being three years since the policy was last approved by shareholders. Though broadly in line with the 2014 policy, there are some changes which, following consultation with our largest shareholders and institutional bodies, are set out in the Directors’ Remuneration Report on pages 86 to 101. We were very pleased in November 2016 to win two awards in the capital markets space. After several years as a nominee, we were winner of Best Use of Digital in the Small Cap segment at the IR Society Awards. Specific mention was made of our use of the website to update investors on the Van Gansewinkel merger process. We were also winners of the Golden Bridge award for Anglo-Belgian trade. These prestigious awards are sponsored by KBC Bank and the Chamber of Commerce to recognise and stimulate business between the UK and Belgium. Colin Matthews Chairman OUR CORPORATE GOVERNANCE REPORTING MANAGEMENT FRAMEWORK RENEWI PLC BOARD Principal Board Committees AUDIT REMUNERATION NOMINATION Executive Management Specialist Committees RISK Divisional Management EXECUTIVE COMMITTEE OPERATING DIVISIONS SAFETY, HEALTH AND ENVIRONMENT COMMITTEE* *Additional reporting line to Renewi plc Board 78 78 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 79 _Renewi_ARA_17.indb 78 02/06/2017 11:16 CORPORATE GOVERNANCE REPORT Renewi continues to comply fully with the UK Corporate Governance Code The Board fully supports the principles of good corporate governance. This report, together with the Directors’ Remuneration Report on pages 86 to 101, explains how the Group has applied and complied fully with the provisions of the UK Corporate Governance Code in force for the year to 31 March 2017. The Board The Board comprises the Chairman, a further five independent non-executive directors, the Chief Executive Officer and Chief Financial Officer. The Chairman, who is independent, has primary responsibility for running the Board. The Chief Executive Officer is responsible for the operations of the Group and for the development of strategic plans and initiatives for consideration by the Board. The formal division of responsibilities between the Chairman and the Chief Executive Officer has been agreed by the Board and documented, a copy of which is available on the Group’s website. The non-executive directors bring a wide range of experience to the Group and are considered by the Board to be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. The non-executive directors make a significant contribution to the functioning of the Board, thereby ensuring that no individual or group dominates the decision- making process. Non-executive directors are not eligible to participate in any of the Company’s share option or pension schemes. The Chairman also meets and communicates regularly with the non- executive directors without the presence of the executive directors. Jacques Petry will take over as Senior Independent Director from Eric van Amerongen, who will be retiring at the 2017 Annual General Meeting. The Senior Independent Director will be available to shareholders should they have concerns which contact through the normal channels of Chairman, Chief Executive Officer or Chief Financial Officer has failed to resolve or where such contact is inappropriate. The table on the right details the number of formal Board meetings held in the year and the attendance record of each director. The calendar of meetings of the Board and its committees for 2016/17 is shown in the table below. Board governance There is a formal schedule of matters reserved specifically for the Board’s decision. These include approval of financial statements, strategic policy, acquisitions and disposals, capital projects over defined limits, annual budgets and new borrowing facilities. The Board meets Director Board meetings Colin Matthews (Chairman) Allard Castelein Peter Dilnot Jacques Petry Stephen Riley Eric van Amerongen Toby Woolrych Marina Wyatt 11 (11) 1 (3) 11 (11) 11 (11) 8 (11) 11(11) 11 (11) 11 (11) Bracketed figures indicate maximum potential attendance of each director. Allard Castelein was appointed to the Board on 3 January 2017. regularly, having met 16 times during the year inclusive of an additional five meetings held to consider the merger with Van Gansewinkel Groep BV to create Renewi plc. The Board is provided with appropriate information in a timely manner to enable it to discharge its duties effectively. All directors have access to the Company Secretary, whose role includes ensuring that Board procedures and regulations are followed. In addition, directors are entitled, if necessary, to seek independent professional advice in connection with their duties at the Company’s expense. THE CALENDAR OF MEETINGS OF THE BOARD AND ITS COMMITTEES FOR 2016/17 April May June July Aug Sept Oct Nov Dec Jan Feb Mar Board Audit Committee Remuneration Committee Nomination Committee Shareholder (AGM/EGM) ˜ ˜š ˜š ˜ š ˜š ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜š ˜ ˜˜ ˜ ˜ ˜ ˜ ˜ In addition, 27 duly authorised Board Committee meetings, comprising at least two directors, were held during the year, ten of which were held in connection with the Van Gansewinkel transaction. ˜ Scheduled Board meeting š Additional Board meeting in connection with the Van Gansewinkel transaction. 78 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 79 _Renewi_ARA_17.indb 79 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW CORPORATE GOVERNANCE REPORT CONTINUED In recognition of the importance of their stewardship responsibilities, the first standing item of business at every scheduled Board meeting is the consideration of the Safety, Health and Environmental report. Other regular reports include those from the Chief Executive Officer and Chief Financial Officer covering business performance, markets and competition, investor and analyst updates as well as progress against strategic objectives and capital expenditure projects. All directors are required to notify the Company on an ongoing basis of any other commitments and, through the Company Secretary, there are procedures for ensuring that the Board’s powers for authorising directors’ conflicts of interest are operated effectively. The work of the Board is further supported by three formal Committees (Audit, Remuneration and Nomination). In addition, while not a Committee with specific powers of its own delegated by the Board, the Chief Executive Officer is assisted in the performance of his duties by the Executive Committee. This Committee meets monthly and comprises the Chief Executive Officer and Chief Financial Officer, the Divisional Managing Directors and Corporate Function Directors. In addition there are specialist committees covering Risk, Safety, Health and Environment. In reviewing the Group’s overall corporate governance arrangements, the Board continues to give due consideration to balancing the interests of customers, shareholders, employees and the wider communities in which the Group operates. Board induction and professional development On appointment, directors are given an introduction to the Group’s operations, including visits to principal sites and meetings with operational management. Specific training requirements of directors are met either directly or by the Company through legal/regulatory updates. Non- executive directors also have access to PricewaterhouseCoopers’ non-executive database and course programme. There is a rolling programme of holding Board meetings at different Group locations in order to review local operations, with a focus on health and safety during site visits. Board evaluation Performance evaluation of the Board, its Committees and directors during the year was accomplished by structured meetings conducted by the Chairman with individual directors. The evaluation of the Chairman was undertaken by the non-executive directors, led by the Senior Independent Director. The process was designed to cover the key aspects of Board and Board Committee effectiveness and directors’ performance. Given the dynamic circumstances associated with the merger, the Board determined that it was inappropriate to undertake an externally facilitated evaluation during the year but that consideration would now be given to such an exercise in recognition of best practice and Corporate Governance Code compliance for FTSE 250 companies. The Board identified three specific areas upon which to focus in the coming year: } further strategic analysis of the market and technology drivers of the circular ecomony, specifically in the Benelux markets in which Renewi operates; } greater exposure for members of the Executive Committee to the Board through formal presentations and site visit opportunities; and } refreshing talent reviews and succession plans for senior executives throughout the combined business. As part of the evaluation it was also determined that the Board and its Committees continued to operate effectively during the year and that each director continued to demonstrate commitment to their role and perform effectively. The Board was therefore able to recommend the election and re-election of the directors standing at the forthcoming AGM. Nomination Committee The Nomination Committee is chaired by Colin Matthews. The Committee also comprised throughout the year of the non- executive directors: Eric van Amerongen, Stephen Riley, Jacques Petry, Marina Wyatt and Allard Castelein. The Committee is formally constituted with written terms of reference which are available on the Group’s website. It met three times in 2016/17 and is responsible for making recommendations to the Board on the appointment of Directors and succession planning. It also reviews organisation and resourcing plans for the purpose of providing assurance that appropriate processes are in place to ensure a sufficient supply of competent executive and senior management. BALANCE OF NON- EXECUTIVE AND EXECUTIVE DIRECTORS 1 5 2 NON-EXECUTIVE CHAIRMAN EXECUTIVE DIRECTORS INDEPENDENT NON-EXECUTIVE DIRECTORS LENGTH OF TENURE OF CHAIRMAN AND NON- EXECUTIVE DIRECTORS 2 1 3 0-4 YEARS 5-7 YEARS 8-10 YEARS BACKGROUND/ EXPERIENCE OF CHAIRMAN AND NON- EXECUTIVE DIRECTORS 1 2 2 1 TRANSPORT ENERGY WATER/WASTE TELECOMS/MARKETING 80 80 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 81 _Renewi_ARA_17.indb 80 02/06/2017 11:16 During the year, the Committee worked closely with recruitment consultants to undertake a search for a Benelux-based non-executive director with requisite skills and experience to supplement those already covered by existing Board members, culminating in the appointment of Allard Castelein in January 2017. It is expected that one further non-executive director will be appointed during the year. Any new director appointed to the Board is subject to election by shareholders at the first opportunity after their appointment. All non-executive directors are required under the Company’s Articles of Association to stand for re-election at each AGM. In accordance with best corporate governance practice, the executive directors also stand for re-election at each AGM. The Committee at the current time has not determined to set a specific female Board member quota. Appointments to the Board and throughout the Group continue to be based on the diversity of contribution and required competencies, irrespective of gender, age, nationality or any other personal characteristic. However, in recognition of both the Lord Davies and Hampton-Alexander Reviews on female representation, the Board continue to closely monitor all aspects of diversity in recruitment and promotions across the workforce. Statistical employment data for the Group can be found in the Corporate Social Responsibility Report available on the Group website and summary details in the People section on page 60. Appointments to the Board continue to be based on the diversity of contribution solely comprised of non-executive directors: Eric van Amerongen, Colin Matthews, Stephen Riley, Jacques Petry, Marina Wyatt and Allard Castelein. The Committee, which is chaired by Eric van Amerongen, formulates the Company’s Remuneration Policy and the individual remuneration packages for executive directors. The Committee also determines the remuneration of the Group’s senior management and that of the Chairman. During the year, the Committee was involved in the development of the new Remuneration Policy, set out on pages 88 to 93. The new Policy will replace that approved at the 2014 AGM and will be put forward for shareholder approval at the 2017 AGM. The Committee recommends the remuneration of the non-executive directors for determination by the Board. In exercising its responsibilities, the Committee has access to professional advice, both internally and externally, and may consult the Chief Executive Officer about its proposals. The Directors’ Remuneration Report on pages 86 to 101 contains particulars of Directors’ remuneration and their interests in the Company’s shares. the Group’s website. The Committee is solely comprised of non-executive directors: Stephen Riley, Jacques Petry, Eric van Amerongen, Allard Castelein and Marina Wyatt who chairs the Committee. As required under the UK Corporate Governance Code, Marina Wyatt has current and relevant financial experience. She is a chartered accountant and currently holds the position of Chief Financial Officer at UBM Plc. In addition, the Board consider that the Audit Committee as a whole has competence relevant to the waste-to-product sector. The Chairman, the executive directors and representatives from the external auditors PricewaterhouseCoopers LLP are regularly invited to attend meetings. The Committee also has access to the external auditors’ advice without the presence of the executive directors. The Audit Committee Report on pages 82 to 85 sets out the role of the Committee and its main activities during the year. Other information Other information, necessary to fulfil the requirements of the Corporate Governance Statement, relating to the Company’s share capital structure and the appointment and powers of the directors, can be found in the Other Disclosures section on pages 102 to 104. Remuneration Committee The Remuneration Committee met six times in the year and is formally constituted with written terms of reference which are available on the Group’s website. The Committee is Audit Committee The Audit Committee met four times in the year and is formally constituted with written terms of reference which are available on Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings Director Director Director Marina Wyatt (Chair) Allard Castelein Jacques Petry Stephen Riley Eric van Amerongen 4 (4) 1 (2) 3 (4) 3 (4) 4 (4) Eric van Amerongen (Chair) Allard Castelein Colin Matthews Jacques Petry Stephen Riley Marina Wyatt 6 (6) 1 (2) 6 (6) 5 (6) 6 (6) 5 (6) Colin Matthews (Chair) Allard Castelein Jacques Petry Stephen Riley Eric van Amerongen Marina Wyatt 3 (3) 0 (1) 3 (3) 2 (3) 3 (3) 3 (3) Bracketed figures indicate maximum potential attendance of each director. Allard Castelein was appointed to the Board and the above Committees on 3 January 2017. 80 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 81 _Renewi_ARA_17.indb 81 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWAUDIT COMMITTEE REPORT On behalf of the Board I am pleased to present the Audit Committee Report for the year ended 31 March 2017 The primary objective of the Audit Committee is to assist the Board in fulfilling its corporate governance responsibilities relating to the Group’s corporate reporting, risk management and internal controls and any other matters referred to it by the Board. This covers:  Monitoring the integrity of the financial statements including annual and half yearly reports  Reviewing and challenging the consistency of and changes to significant accounting policies, the methods used to account for significant or unusual transactions and appropriate estimates and judgements  Keeping under review the adequacy and effectiveness of internal financial controls and internal control and risk management systems  Reviewing the adequacy of procedures for detecting fraud and ensuring that appropriate arrangements are in place to allow for company employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters  Monitoring and review of the effectiveness of the internal audit function in the context of the overall risk management system  The appointment, terms of engagement, effectiveness, objectivity and independence of the external auditors and the nature and scope of the audit  The development and implementation of policy on the engagement of the external auditor to supply non-audit services Committee Chair Marina Wyatt Committee Members Jacques Petry, Stephen Riley, Eric van Amerongen, Allard Castelein (appointed 3 January 2017) Terms of Reference www.renewi.com/audit At their May 2016 meeting, the Committee considered corporate governance compliance, taxation and the 2016 financial statements. The November meeting was concerned primarily with the interim results and a review of internal control developments. An extra meeting was held in February 2017, prior to the completion of the VGG merger, to consider all matters relating to the merger including planning for the year end audit, the purchase price accounting exercise, accounting policy alignment topics, the process for the risk framework for the combined Group and the scenario planning for the viability statement. The March 2017 meeting considered all other year end accounting matters and treatments, the external audit plan and preparation of the 2017 financial statements along with the review of updated authority levels and treasury policy for the combined Group. During the year the Committee was also responsible for agreeing the approach and framework to assist the Board in their preparation of the viability statement as required by provision C.2.2 of the UK Corporate Governance Code. This included reviewing the Company’s principal risks and the methodology for stress testing those risks against modelled scenarios. The Group’s viability statement on page 75 confirms the Board’s reasonable expectation that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 31 March 2020. Accounting policies and issues In carrying out its duties, the Committee reviewed and made recommendations in respect of the full year and interim financial statements with a particular focus on the appropriateness of the Group’s accounting policies and practices, material areas in which significant judgements have been applied and compliance with financial 82 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 83 _Renewi_ARA_17.indb 82 02/06/2017 11:16 Marina Wyatt Chair of the Audit Committee reporting standards and relevant financial and governance reporting requirements. The significant accounting issues considered by the Committee during the year were:  Acquisition accounting. Following the acquisition of VGG on 28 February 2017 a full purchase price allocation review has been undertaken to assess the fair value of assets and liabilities acquired including any separately identifiable intangible assets and goodwill. For the assessment of intangibles a number of assumptions and estimates have been made in preparing the future cash flows, including customer attrition rates and growth rates for existing customer revenues. We engaged KPMG to assist us with these processes. In addition the review also considered the alignment of accounting policies across the combined Group. The Committee has reviewed the papers and supporting documentation prepared by management and concluded that the provisional fair value is appropriate. Given the timing of the acquisition, it was determined that the real estate value should be stated at book value and an external market appraisal will be undertaken in the new financial year.  Revenue recognition. In particular, the Committee has continued to assess revenue recognition with regard to long- term municipal contracts and also in our principal Hazardous Waste activity where revenue is recognised as processing occurs. The enhanced controls and processes introduced last year following on from the revenue recognition error have been re-confirmed.  Impairment. A number of significant assumptions have to be made when preparing cash flow projections including long-term growth rates, discount rates and future profitability. The Committee has reviewed the papers and supporting documentation prepared by management and concluded that the only significant impairment required this year relates to the Westcott Park anaerobic digestion plant as a result of market impacts and lower volumes. With regard to goodwill balances the appropriate level of disclosures for any reasonably possible changes in assumptions have been included in the financial statements.  Presentation of non-trading and exceptional items. The Group discloses non-trading and exceptional items separately due to their size or incidence to enable a better understanding of performance. This is a key judgemental area which has been subject to recent pronouncements on quantum and presentation from the Financial Reporting Council. Based on a review of the supporting papers and calculations from management, the Committee considers that these items have been appropriately classified.  Landfill and other liability provisioning. Landfill provisions due to their nature are judgemental as they are subject to a number of factors including changes in legislation and uncertainty over timing of payments. The acquisition of VGG included significant landfill-related provisions, with a different estimate of the period of liability and discount rate. The Committee has reviewed the papers submitted by management and has determined that the closing balances were appropriate.  Accounting for onerous contracts in Municipal. Given the long-term nature of these contracts, these provisions are judgemental. The Committee has discussed and reviewed management papers and has concluded that the appropriate level of provisions were reflected in the balance sheet as at 31 March 2017.  Accounting for various tax related matters including the level of provisions. The most significant judgements in 2016/17 related to the inclusion of tax balances relating to the merger and the recognition of deferred tax assets. The Committee received verbal and written reports from senior management and the external auditors, and the balances recognised at March 2017 were considered appropriate. The Committee is satisfied that the judgements made by management are reasonable and the appropriate disclosures in relation to key judgements and estimates have been included in the financial statements. Fair, balanced and understandable The Committee has assisted the Board in their consideration as to whether the Annual Report and Accounts are fair, balanced and understandable, such that shareholders are provided with the necessary information to assess the Group’s performance, business model and strategy. Having reviewed the results of the year end internal verification and approval processes at their meeting in May 2017, the Committee was able to confirm this to be the case. External audit PricewaterhouseCoopers LLP (PwC) were appointed as the Company’s external auditors by shareholders at the AGM in 1994. The Committee expects to schedule an external audit tender process by no later than 2020. The Committee continues to review the performance, effectiveness and independence of the auditors on an annual basis. PwC rotate their lead audit engagement partner as a minimum at least every five 82 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 83 _Renewi_ARA_17.indb 83 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWAUDIT COMMITTEE REPORT CONTINUED years, as required by their own rules and by regulatory bodies. Rotation ensures a fresh look without sacrificing institutional knowledge. The rotation of lead audit partners, other partners including specialist partners and senior engagement personnel is reviewed on a regular basis by the lead audit engagement partner in consultation with the Committee. PwC’s rotation rules require the lead audit partner and key partners involved in the audit to rotate every five years (previously seven for key audit partners), and other partners and senior staff members every seven or ten years. The Committee’s responsibility to monitor and review the objectivity and independence of the external auditor is supported by a non-audit services policy. Specified services may be provided by the external auditor subject to a competitive bid process other than in situations where it is determined by the Committee, that the work is closely related to the audit or when a significant benefit can be obtained from work previously conducted by the external auditor. While the CFO may approve any new engagement up to the value of £25,000, anything in excess requires Committee approval up to an agreed annual aggregate limit of 50% of the prior year’s audit fee. In exceptional circumstances, this limit may be exceeded with the approval of the Board. In determining whether or not to engage the external auditor to provide any non- audit services, consideration will be given to whether this would create a threat to their independence. Similarly, the external auditor will not be permitted to undertake any advocacy role for the Group such that their objectivity may be compromised. The external auditor may not provide services involving the preparation of accounting records or financial statements, the design, implementation and operation of financial information systems, actuarial and internal control functions or the management of internal audits. During the year £3.2m of non-audit services were provided by PwC, while their total audit fees, as disclosed in note 5 of the financial statements, amounted to £1.2m. The significant increase this year is due to the appointment of PwC as reporting accountant for the capital markets work relating to the VGG merger. PwC was selected on the basis that their knowledge of the Group would make reporting on various workstreams more efficient and that they would remain independent and objective. A resolution will be put to shareholders at the forthcoming AGM proposing PwC’s re- appointment as Group auditors. As part of the external audit process, the Committee discusses and agrees the scope of the audit which is based around a structured methodology to help ensure quality and rigour as well as regulatory compliance. The 2016/17 audit process was based on PwC’s acceptance and independence procedures reflecting their understanding of the business and focusing on scoped areas determined to be of highest risk. During the year, tax and other professional services relating to the transaction have also been provided to the Group by audit firms KPMG, Deloitte and EY. Internal audit The Committee’s oversight of the internal audit function during the year is supported by the work of a dedicated Group Internal Audit and Reporting executive. During the year internal audit activities included a programme of internal cross-divisional peer reviews designed to bring the benefits of:  wider spread of specialist knowledge during audits;  enhanced operational and business model knowledge input to internal audits;  better ability to share knowledge across the Group on audit outcomes and improvements; and  independent assessment as divisional auditors do not audit their own divisions. The Group Internal Audit and Reporting executive co-ordinates the process to ensure consistency, quality of reporting and close-out of improvement actions and reports up to the Committee. Internal audit services from suitably qualified external providers were also engaged during the year. KPMG performed a control review which covered UK invoicing procedures. The detailed findings from all reviews were presented to and considered by the Committee. Any necessary actions including improvements from both the internal and external reviews are acted upon by local divisional teams with regular follow up at monthly business review meetings. Accountability and audit The responsibilities of the directors and the auditors in relation to the financial statements are set out on pages 105 to 113. Risk management The Group risk management framework, major risks and the steps taken to manage these risks are outlined on pages 68 to 75. As set out on these pages a detailed review of the Group risk register has been undertaken post the VGG merger in February. Internal control responsibility The system of internal control is based on a continuous process of identifying, evaluating and managing risks including the risk management processes outlined on pages 68 to 75. The Board of directors has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The Board recognises that internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can therefore only provide reasonable and not absolute assurance against material misstatements, losses and the breach of laws and regulations. Annual assessment of the effectiveness of the risk management and internal control systems In addition to the Board’s ongoing internal control monitoring process, it has also conducted an annual effectiveness review of the Group’s risk management and internal control systems in compliance with provision C.2.1 of the UK Corporate Governance Code and Turnbull guidance. This covered risk management systems and all significant material controls including financial, operational and compliance controls. Specifically, the Board’s review included consideration of changes in the risk universe and the Group’s ability to respond to these through its review of business risk registers controls and improvement action plans. It also reviewed the six-monthly certification by divisional management to ensure that appropriate internal controls are in place as well as reports by internal audit and external auditors. The main elements of the internal control framework which contribute towards its continuous monitoring are as follows:  a defined schedule of matters for decision by the Board;  a Group finance manual setting out financial and accounting policies, minimum internal financial control standards and the delegation of authority matrix over 84 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 85 _Renewi_ARA_17.indb 84 02/06/2017 11:16 Anti-bribery policies are in place that are applicable throughout the combined Group items such as capital expenditure, pricing strategy and contract authorisation; process and the preparation of the annual consolidated financial statements. The main control aspects are as follows:  formal written financial policies and procedures applicable to all business units;  a detailed reporting calendar including the submission of detailed monthly accounts for each business unit in addition to the year end and interim reporting process;  detailed management review to Board level of both monthly management accounts and year end and interim accounts;  consideration by the Board of whether the Annual Report is fair, balanced and understandable;  bi-annual certification by divisional managing and finance directors and executive directors on compliance with appropriate policies and accuracy of financial information; and  the Committee also receives regular reports from the Group Tax Manager on the Group’s tax policy, tax management and compliance. Anti-bribery and corruption Anti-bribery policies are in place which are applicable to all business units throughout the combined Group. For the former Shanks businesses a 24-hour/seven-days-a-week confidential reporting, ‘whistle-blowing’ service has been in operation throughout the year with all notifications being reported to and considered by the Committee. VGG have developed an Integrity Management framework supported by two dedicated Integrity Managers to whom employees may confidentially report any concerns for advice and investigation as necessary.  a comprehensive planning and budgeting exercise. Performance is measured monthly against plan and prior year results and explanations sought for significant variances. Key performance indicators are also extensively used to help management of the business and to provide early warning of potential additional risk factors;  monthly meetings and visits to key operating locations by the executive directors and most senior managers to discuss performance and plans;  appointment and retention of appropriately experienced and qualified staff to help achieve business objectives;  an annual risk-based internal audit plan approved by the Committee. Summaries of audit findings and the status of action plans to remedy significant failings are discussed at Group Board and Committee meetings on a regular basis;  a range of quality assurance, safety and environmental management systems in use across the Group. Where appropriate these are independently certified to internationally recognised standards and subject to regular independent auditing;  a minimum of three scheduled Committee meetings each year, to consider all key aspects of the risk management and internal control systems; and  prompt review by the Committee of any fraudulent activity or whistle-blowing reports with appropriate rectifying action. Where weaknesses in the internal control system have been identified through the monitoring processes outlined above, plans for strengthening them are put in place and action plans regularly monitored until complete. The Board confirms that no material weaknesses were identified during the year and therefore no remedial action is required in relation to them. Financial reporting In addition to the general risk management and internal control processes described above, the Group has implemented internal controls specific to the financial reporting 84 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 85 _Renewi_ARA_17.indb 85 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWDIRECTORS’ REMUNERATION REPORT The Remuneration Committee is focused on designing and implementing a Remuneration Policy that promotes the long-term success of the Company by enabling the Company to hire and retain the most appropriate people, aligning their financial interests with those of shareholders This Report, prepared by the Remuneration Committee on behalf of the Board, takes full account of the UK Corporate Governance Code and the latest Investment Association (IA) Principles of Remuneration and the Pensions and Lifetime Savings Association (PLSA) guidelines, and has been prepared in accordance with the provisions of the Companies Act 2006, the Listing Rules of the Financial Conduct Authority and the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The Act requires the Auditor to report to the Group’s shareholders on the audited information within this Report and to state whether in their opinion those parts of the Report have been prepared in accordance with the Act. The Auditor’s opinion in this regard is set out on page 113 and those aspects of the Report which have been subject to audit are clearly marked. CONTENTS 86 Section 1: The Annual Statement 88 Section 2: Remuneration Policy Details the Remuneration Policy which will, subject to shareholder approval, apply from the 2017 AGM. 94 Section 3: Annual Report on Remuneration Details how the Remuneration Policy was implemented during the year ended 31 March 2017 and how the Committee intends the Policy to apply for the year ending 31 March 2018. 1. REMUNERATION COMMITTEE CHAIRMAN’S ANNUAL STATEMENT On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 March 2017. I have summarised below the key decisions the Committee has taken during the year and provided explanation of the context in which they were made. 2016/17 PERFORMANCE, DECISIONS AND REWARD OUTCOMES 2016/17 Annual bonus Largely as a result of difficulties faced by the Municipal Division, the Group did not achieve the threshold profit target. However, the Committee has determined that the cash-flow targets, representing 25% of maximum bonus opportunity, was met. The result of this financial performance in combination with the Executive Directors overall performance against their personal objectives has meant that bonuses of 48% and 47% of the maximum will be paid to the Chief Executive Officer and the Chief Financial Officer respectively. Further details are set out on page 96. 2014 LTIP vesting in 2017 based on three-year performance to 31 March 2017 The Long Term Incentive Plan (LTIP) granted in May 2014 was designed to incentivise and reward the achievement of financial and share price performance over the three-year period concluding at the end of 2016/17 financial year. Though the company has made steady progress over this period, the stretching targets set for EPS, share price growth and ROCE have not been met. The 2014 LTIP awards have therefore lapsed in full. Remuneration Policy Review As a result of the policy reaching the end of its three-year duration in 2017, the Committee undertook a review of the Remuneration Policy in light of the Group’s strategy, performance and the completion of the Van Gansewinkel Groep BV (VGG) acquisition and the developing views of our major investors. Following the review, the Committee decided that, with certain changes to reflect developments in best practice, the existing policy continues to be appropriate for the time being. The Committee therefore intends to submit the existing policy for shareholder approval at the 2017 AGM with the following changes:  Shareholding guidelines for Executive Directors will be increased from 100% to 200% of salary. Executive Directors will be required to retain at least 50% of shares, net of tax, which vest under the Long Term Incentive Plan (LTIP) and Deferred Annual Bonus (DAB) until the guideline is met;  A two-year, post-vesting holding period will be introduced to LTIP awards granted to Executive Directors from the 2017 AGM onwards. This will replace the current phased approach whereby 50% of LTIP awards are released after three years from grant, 25% after four years and 25% after five years; and  Consistent with the Remuneration Committee’s intention, the relevant plan rules and practice under the LTIP, the policy has been clarified in respect of the payment of dividend equivalents on DAB awards, starting with the first such awards granted in 2015, to the extent that awards vest. 86 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 87 _Renewi_ARA_17.indb 86 02/06/2017 11:16 Eric van Amerongen Chairman of the Remuneration Committee The new Directors’ Remuneration Policy will be put to a binding shareholder vote at the AGM on 13 July 2017 and, subject to receiving majority shareholder support, the Policy will apply from the date of approval. The Policy is intended to remain in place for a maximum of three years although the Committee intends to review the policy in the next 12 to 24 months to ensure it remains aligned with business needs and our strategic priorities as the integration of our recent merger progresses. Implementing the Remuneration Policy for 2017/18 The Remuneration Committee intends to operate the Remuneration Policy for Executive Directors for 2017/18 as follows:  Executive Director basic salaries were increased from 1 April 2017 (the normal salary review date). Reflecting the importance of retaining the Executive Directors through the current period during which the value of the VGG merger is to be realised, the Chief Executive Officer’s basic salary was increased from £452,285 to £500,000 whilst the Chief Financial Officer’s basic salary was increased from £296,160 to £345,000. Further rationale for the increases is set out on page 94. No changes have been made to pension provision;  Annual bonus provision will remain at 150% of salary and targets will continue to measure profit before tax, free cashflow and personal objectives. Targets will reflect the enlarged Group. No changes will be made to the deferral, whereby two thirds of any bonus is payable in cash and one third will be deferred in shares, vesting 50% after three years, 25% vesting after four years and 25% vesting after five years; and  LTIP awards will be granted in 2017 at 150% of salary for the Chief Executive Officer and 120% for the Chief Financial Officer. Targets will continue to measure EPS, share price and ROCE. In addition, a two year post-vesting holding period will apply to LTIP awards granted from the 2017 AGM onwards. Looking forward At the 2016 AGM, our Annual Report on Remuneration received the support of just over 94% of all votes cast. The Committee thanks shareholders for their continued support and asks that they support the 2017 AGM resolutions. Resolutions seeking the approval of the Annual Statement and Annual Report on Remuneration for the year ended 31 March 2017 and the Remuneration Policy will be put to shareholders at the 2017 AGM. Eric van Amerongen Chairman of the Remuneration Committee 25 May 2017 The role of the Committee is to: • Determine the Group’s policy on remuneration and monitor its careful implementation; • Review and set performance targets for incentive plans; • Set the remuneration of the Group’s senior management; • Approve the specific remuneration package for each of the Executive Directors; • Determine the remuneration of the Chairman; • Determine the terms on which LTIP and Sharesave awards are made to employees; and • Determine the policy for and scope of pension arrangements for the Executive Directors. The Remuneration Committee met six times during the year and details of members’ attendance at meetings are provided in the Corporate Governance section on page 81. Committee Chairman: Eric van Amerongen Committee members: Colin Matthews, Jacques Petry, Stephen Riley, Marina Wyatt , Allard Castelein (appointed 3 January 2017) Terms of Reference: www.renewi.com/remco 86 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 87 _Renewi_ARA_17.indb 87 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW2. DIRECTORS’ REMUNERATION POLICY The principal objective of the Remuneration Committee is to design and implement a Remuneration Policy that promotes the long-term success of the Company. The Committee seeks to ensure that the senior executives are fairly rewarded in light of the Group’s performance, taking into account all elements of their remuneration package. A significant proportion of executive remuneration is performance related, comprising an annual bonus and a Long Term Incentive Plan (LTIP). The fixed portion of remuneration comprises basic salary, benefits and a payment in lieu of pension. Policy scope The Policy applies to the Chairman, Executive Directors and Non-Executive Directors. Policy duration The new Directors’ Remuneration Policy Report will be put to a binding shareholder vote at the AGM on 13 July 2017 and, subject to receiving majority shareholder support, the Policy will apply from the date of approval for a maximum of three years. It is intended however to revisit the Policy over the next 12 to 24 months to ensure that it remains aligned with business needs and strategic priorities during the next stage of the Company’s development. Changes from 2014 Remuneration Policy The main changes from the 2014 Remuneration Policy are summarised below:  Shareholding guidelines for Executive Directors will be increased from 100% to 200% of salary. Executive Directors will be required to retain at least 50% of the shares, net of tax, which vest under the LTIP and DAB until the guideline is met;  A two year post-vesting holding period will be introduced to LTIP awards granted to Executive Directors from the 2017 AGM onwards. This will replace the current phased approach whereby 50% of LTIP awards are released after three years from grant, 25% after four years and 25% after five years; and  Consistent with the Remuneration Committee’s intention and practice under the LTIP, the policy has been clarified in respect of the payment of dividend equivalents on DAB awards, starting with the first such awards granted in 2015, to the extent that awards vest. To facilitate its operation, a number of minor changes have also been made to the wording of the Remuneration Policy where appropriate. POLICY TABLE BASE SALARY: To pay a competitive basic salary to attract, retain and motivate the talent required to operate and develop the Group’s businesses OPERATION OPPORTUNITY PERFORMANCE METRICS Base salaries are generally reviewed on an annual basis or following a significant change in responsibilities. Salary levels are reviewed by reference to FTSE-listed companies of similar size and complexity. The Committee also has regard to individual and Group performance and changes to pay levels across the Group. Any basic salary increases are applied in line with the outcome of the review. None. For Executive Directors, it is anticipated that salary increases will normally be in line with those of salaried employees as a whole. In exceptional circumstances (including, but not limited to, a material increase in job size or complexity or a material market misalignment), the Committee has discretion to make appropriate adjustments to salary levels to ensure they remain market competitive. PENSION: To provide an opportunity for executives to build up a provision for income on retirement OPERATION OPPORTUNITY PERFORMANCE METRICS Executive Directors receive a cash pension allowance in lieu of company pension scheme contributions. Executive Directors may receive a cash allowance of up to 25% of salary. None. BENEFITS: To provide market-competitive benefits OPERATION OPPORTUNITY PERFORMANCE METRICS Benefits include life assurance, medical insurance, income protection and car/travel allowances. Benefits may vary by role. However, the total cost of taxable benefits will not normally exceed 10% of salary. None. The Committee retains discretion to approve a higher cost in exceptional circumstances (e.g. relocation or ex-patriation) or in circumstances where factors outside the Group’s control have changed (e.g. increases in market insurance premia). 88 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 89 _Renewi_ARA_17.indb 88 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUEDPOLICY TABLE continued ALL EMPLOYEE SHARE SCHEMES: To encourage Group-wide share ownership OPERATION OPPORTUNITY PERFORMANCE METRICS Executive Directors may participate in all-employee share arrangements on the same terms offered to employees. The maximum opportunity will not exceed the relevant HMRC limits, where applicable. None. ANNUAL BONUS: To motivate senior executives to maximise short-term performance and help drive initiatives which support long-term value creation OPERATION OPPORTUNITY PERFORMANCE METRICS For Executive Directors, the maximum annual bonus opportunity is 150% of salary. For threshold performance, the bonus earned is generally 25% of maximum and for on- target performance, 80% of maximum. Performance measures, targets and weightings are set at the start of the year. The maximum bonus is payable only if all performance targets are met in full. At least one third of any annual bonus award is deferred into shares for at least three years, subject to continued employment. The Group’s current policy is for 50% of the bonus to vest after three years, 25% to vest after four years, and 25% to vest after five years. Deferred bonus awards are in the form of Renewi plc ordinary shares. Dividend equivalents may accrue over the relevant vesting periods but would be paid only on shares that vest. MALUS & CLAWBACK: Malus provisions exist which entitle the Committee, at its discretion, to reduce the final award or deem it to have lapsed (to the extent it has not yet vested) in exceptional circumstances, e.g. material financial misstatement or gross misconduct. The bonus is also subject to clawback, i.e. recovery of paid amounts for material financial misstatement or conduct justifying summary dismissal. Executive Director performance is assessed by the Committee on an annual basis by reference to Group financial performance such as profit or cashflow measures (majority weighting) and the achievement of personal or strategic objectives (minority weighting). Bonus targets are generally calibrated with reference to the Group’s budget for the year. The Committee has the discretion to adjust the formulaic bonus outcomes both upwards (within the plan limits) and downwards, to ensure that payments are a true reflection of performance over the performance period, e.g. in the event of unforeseen circumstances outside management control. Details of the measures, weightings and targets applicable for the financial year under review are provided in the Annual Report on Remuneration. LONG TERM INCENTIVE PLAN (LTIP): To motivate and retain senior executives and managers to deliver the Group’s strategy and long-term goals and to help align executive and shareholder interests OPERATION OPPORTUNITY PERFORMANCE METRICS The maximum award limit in normal circumstances under the 2011 Long Term Incentive Plan will be 150% of salary (up to 200% in exceptional circumstances). Threshold performance will result in vesting of no more than 25% of maximum under each element. Vesting of LTIP awards will be subject to continued employment and financial and/ or share price-related performance targets measured over a period of at least three years. In addition to the Group achieving the financial/share price targets, the Committee must satisfy itself that the recorded outcome is a fair reflection of the underlying performance of the Group. The Committee has discretion (within the limits of the scheme) to adjust the formulaic performance outcomes to ensure that payments fairly reflect underlying performance over the period. Adjustments may be upwards or downwards. Details of LTIP targets are included in the Annual Report on Remuneration. Executive Directors and senior employees may be granted awards annually, as determined by the Committee. The vesting of these awards is subject to the attainment of performance conditions. Awards are in the form of Renewi plc ordinary shares. Dividend equivalents may accrue over the vesting period but would be paid only on shares that vest. Awards made under the LTIP have a performance and vesting period of at least three years. If no entitlement has been earned at the end of the relevant performance period, then the awards will lapse. Once vested awards may, at the discretion of the Committee, be subject to further holding in whole, or in part, for a period of up to two years following the end of the performance period. A two year post-vesting holding period will apply to LTIP awards granted to Executive Directors following the 2017 AGM. MALUS & CLAWBACK: Malus provisions exist which entitle the Committee to reduce the final award or deem it to have lapsed during the period between the granting and end of the later of the vesting or holding period, if there has been material misstatement, gross misconduct or something which causes significant reputational damage to the Group. LTIP awards (from 2015 onwards) are also be subject to clawback, i.e. recovery of vested awards for material financial misstatement or conduct justifying summary dismissal. 88 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 89 _Renewi_ARA_17.indb 89 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWNotes to the policy table Payments from existing awards The Group will honour any commitment entered into, and Executive Directors will be eligible to receive payment from any award made, prior to the approval and implementation of the Remuneration Policy detailed in this report, including previous share awards and associated dividend equivalent payments under the LTIP and deferred share bonus plan. Details of any such awards are disclosed in the Annual Report on Remuneration. Use of discretion The Committee may apply discretion as detailed below. Under each element of remuneration, a full description of how discretion can be applied is set out in line with UK reporting requirements. To ensure fairness and align executive remuneration with individual and underlying company performance the Committee may adjust up or down the outcome of the annual bonus and LTIP or the performance measures of inflight awards under either plan. Any adjustments in light of ‘non-regular events’ (including, but not limited to, corporate events (including Rights Issues), changes in the Group’s accounting policies, minor or administrative matters, internal promotions, external recruitment and terminations of employment) are expected to be made on a ‘neutral’ basis – i.e. adjustments will be designed so that the event is not expected to be to the benefit or the detriment of participants. Adjustments to incentives to ensure that outcomes reflect underlying performance may be made in exceptional circumstances to help ensure outcomes are fair to shareholders and participants. Performance measurement selection The measures used in the annual bonus are selected annually to reflect the Group’s main business priorities for the year, and capture both financial and non-financial objectives. Group financial performance targets relating to the annual bonus plan are based around the Group’s annual budget, which is reviewed and approved by the Board prior to the start of each financial year. Underlying profit before tax and underlying free cash flow are typically used as the key financial performance measures in the annual bonus plan because they are clear and well-understood measures of Group performance. Performance targets are reviewed annually and set to be stretching and achievable, taking into account the Group’s resources, strategic priorities and the economic environment in which the Group operates. Targets are set taking into account a range of internal and external reference points, including the Group’s strategic plan and broker forecasts for both the Group and sector peers. The Committee believes that the performance targets are stretching, and that to achieve maximum outcomes requires truly outstanding performance. The Committee considers the combination of three-year EPS growth, ROCE improvement and share price growth currently operated for the LTIP to be key indicators of success for the Group. These measures are transparent, visible and motivational to participants, balance growth and returns, and provide good line-of- sight for executives and alignment with shareholders. Remuneration policy for our senior leaders The Group’s approach to annual salary reviews is broadly consistent across the Group, with consideration given to the scope of the role, level of experience, responsibility, individual performance and pay levels for comparable roles in comparable companies. The broader Remuneration Policy across the Group is also consistent with that set out in this report for the Executive Directors. For example, remuneration is linked to Group and individual performance in a way that is ultimately aimed at reinforcing the delivery of shareholder value. Senior employees generally participate in an annual bonus scheme with a similar structure to that described for the Executive Directors. Opportunities and specific performance conditions vary by organisational level, with business area-specific metrics incorporated where appropriate. Members of the Executive Committee and other senior managers may participate in the LTIP on a similar basis to, but at lower levels than, Executive Directors. Such awards may be on the same terms as those granted to Executive Directors or they may differ in respect of vesting periods, holding periods and performance targets (i.e. the targets used and/or whether performance targets apply for some or all of the awards). All UK employees are eligible to participate in the Sharesave Scheme on the same terms although other all-employee share arrangements may be introduced if considered appropriate. Share ownership guidelines The Committee recognises the importance of Executive Directors aligning their interests with shareholders through building up significant shareholdings in the Group. Share ownership guidelines will, subject to shareholder approval, increase from the 2017 AGM, requiring Executive Directors to acquire a holding equivalent to 200% of their salaries. Executive Directors will be required to retain 50% of any LTIP and deferred bonus shares acquired on vesting (net of tax) until they reach their ownership guideline. APPROACH TO RECRUITMENT REMUNERATION External appointments In the cases of hiring or appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration, as described in the Policy Table on pages 88 and 89. The maximum limits for variable pay (excluding buy-outs) will be as for existing Executive Directors. In determining the appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant factors (including the overall quantum and nature of remuneration, and the jurisdiction from which the candidate is being recruited) to ensure that all such arrangements are in the best interests of Renewi and its shareholders. The Committee may also make an award in respect of a new appointment to buy-out incentive arrangements forgone on leaving a previous employer on a like-for-like basis, in addition to providing the normal remuneration elements. In constructing a buy-out, the Committee will consider all relevant factors including time to vesting, any performance conditions attached to awards, and the likelihood of those conditions being met. Any such buy- out awards will typically be made under the existing annual bonus and LTIP schemes, although in exceptional circumstances the Committee may exercise the discretion available under the FCA Listing Rule 9.4.2 R to make awards using a different structure. Any buy-out awards would have a fair value no higher than that of the awards forgone. 90 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 91 _Renewi_ARA_17.indb 90 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUEDInternal appointments In cases of appointing a new Executive Director by way of internal promotion, the Committee will determine remuneration in line with the policy for external appointees. Where an individual has contractual commitments made prior to promotion to the Board, the Group will continue to honour these. Incentive opportunities for below Board employees are typically no higher than for Executive Directors, but measures may vary to ensure they are relevant to the role. Non-Executive Director recruitment In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table on page 93. A base fee in line with the prevailing rate for Board membership would be payable, with additional fees payable for acting as Senior Independent Director or Chairman of a Committee, as appropriate. PROPORTION OF FIXED AND VARIABLE REMUNERATION FOR 2017/18 Chief Executive Officer £’000 Maximum 30% 35% 35% £2,152 On-target 47% 40% 13% Minimum 100% Chief Financial Officer Maximum 32% 38% 30% On-target 47% 42% 11% £1,402 £652 £’000 £1,366 £926 £435 PAY SCENARIO CHARTS Minimum 100% The following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’. Potential reward opportunities are based on the Remuneration Policy, applied to basic salaries as at 1 April 2017. Note that the projected values exclude the impact of any share price movements and dividends. The ‘Minimum’ scenario shows basic salary, pension and estimated benefits (i.e. fixed remuneration). These are the only elements of the Executive Directors’ remuneration packages which are not at risk. The ‘on-target’ scenario reflects fixed remuneration as above, plus a target bonus of up to 80% of maximum and threshold LTIP vesting of 25%. The ‘Maximum’ scenario reflects fixed remuneration plus full pay-out of all incentives, excluding any share price appreciation and dividends (as per the regulations). SALARY, PENSION AND BENEFITS ANNUAL BONUS LONG-TERM INCENTIVES SERVICE CONTRACTS AND EXIT PAYMENT POLICY Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee. The Committee has agreed that the policy with regard to the notice period for Executive Directors is one year’s written notice from the Group and from the individual. The contracts provide for an obligation to pay salary plus contractual benefits for any portion of the notice period waived by the Group. The Group has the ability to pay such sums in instalments, requiring the Director to mitigate loss (for example, by gaining new employment) over the relevant period. Executive Director Date of service contract Peter Dilnot 1 February 2012 Toby Woolrych 27 August 2012 If employment is terminated by the Group, the departing Executive Director may have a legal entitlement (under statute or otherwise) to certain payments, which would be met. In addition, the Committee retains discretion to settle any other amounts reasonably due to the Executive Director, for example to meet the legal fees incurred by the Executive Director in connection with the termination of employment, where the Group wishes to enter into a settlement agreement (as provided for below), and the individual must seek independent legal advice. In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including (but not limited to) settlement, confidentiality, restrictive covenants and/ or consultancy arrangements. These will be used sparingly and only entered into where the Committee believes that it is in the best interests of the Group and its shareholders to do so. When considering exit payments, the Committee reviews all potential incentive outcomes to ensure they are fair to both shareholders and participants. The table on page 92 summarises how the awards under the annual bonus and LTIP are typically treated in different circumstances, with the final treatment remaining subject to the Committee’s discretion. 90 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 91 _Renewi_ARA_17.indb 91 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWTREATMENT OF AWARDS ON EXIT SCENARIO TIMING OF VESTING TREATMENT OF AWARDS ANNUAL CASH BONUS Ill-health, disability, death, retirement (with Group consent) or any other reasons the Committee may determine in its absolute discretion. Normal payment date, although the Committee has discretion to accelerate. Change of control. Immediately. Cash bonuses will only be paid to the extent that Group and personal objectives set at the beginning of the year have been achieved. Any resulting bonus will generally be pro-rated for time served during the year. Performance against targets will be assessed at the point of change of control and any resulting bonus will generally be pro-rated for time served. Any other reason. Not applicable. No bonus is paid. DEFERRED ANNUAL BONUS (DAB) Ill-health, disability, death, retirement (with Group consent) or any other reasons the Committee may determine in its absolute discretion. Normal payment date, although the Committee has discretion to accelerate. Any outstanding DAB awards will generally be pro-rated for time served. Change of control. Immediately. Any outstanding DAB awards will generally be pro-rated for time served. Any other reason. Not applicable. Awards lapse. LONG TERM INCENTIVE PLAN (LTIP) Ill-health, disability, death, retirement (with Group consent) or any other reasons the Committee may determine in its absolute discretion. Normal vesting date, although the Committee has discretion to accelerate. Any outstanding LTIP awards will generally be pro-rated for time served and performance. Change of control. Immediately. Any outstanding LTIP awards will generally be pro-rated for time served and performance, subject to the Committee’s discretion. In the event of a change of control, awards may alternatively be exchanged for new equivalent awards in the acquirer where appropriate. Any other reason. Not applicable. Awards lapse. NON-EXECUTIVE DIRECTORS The Non-Executive Directors do not have service contracts as their terms of engagement are governed by letters of appointment. These letters and the Company’s Articles of Association make provision for annual renewal at each AGM. Details of the Non-Executive Directors’ terms of appointment are shown in the table on the right. The appointment and re-appointment and the remuneration of Non-Executive Directors are matters reserved for the full Board. The Non-Executive Directors are not eligible to participate in the Group’s performance- related incentive plans and do not receive any pension contributions. Non-Executive Director Initial agreement date Renewal date Colin Matthews (Chairman) Allard Castelein Jacques Petry Stephen Riley Eric van Amerongen Marina Wyatt 7 March 2016 10 November 2016 30 September 2010 31 July 2017 31 July 2017 31 July 2017 29 March 2007 Retiring at 2017 AGM 9 February 2007 Retiring at 2017 AGM 2 April 2013 31 July 2017 92 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 93 _Renewi_ARA_17.indb 92 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUEDShareholder approval is being sought at the AGM to increase the cap on Non-Executive Directors’ fees in the Company’s Articles of Association from £400K to £750K, this last having been increased in 2005. Details of policy on fees paid to Non-Executive Directors are set out in the table below: OBJECTIVE OPERATION OPPORTUNITY PERFORMANCE METRICS To attract and retain Non- Executive Directors of the highest calibre with broad commercial and other experience relevant to the Group. Fee levels are reviewed annually, with any adjustments effective 1 April each year. The fee paid to the Chairman is determined by the Committee and fees to Non- Executive Directors are determined by the Board. Non-Executive Director fee increases are applied in line with the outcome of the review. Fees in respect of the year under review, and for the following year, are disclosed in the Annual Report on Remuneration. None. Additional fees are payable for acting as Senior Independent Director and as Chairman of the Board’s Committees and subsidiary company Supervisory Boards. Fee levels are reviewed by reference to FTSE-listed companies of similar size and complexity. The required time commitment and responsibilities are taken into account when reviewing fee levels. Non-Executive Directors may recieve benefits (including travel and office support, together with any associated tax liability that may arise). It is expected that any increases to Non- Executive Director fees will normally be in line with those for salaried employees. However, in the event that there is a material misalignment with the market or a change in the complexity, responsibility or time commitment required to fulfil a Non-Executive Director role, the Board has discretion to make an appropriate adjustment to the fee level. EXTERNAL APPOINTMENTS The Committee acknowledges that Executive Directors may be invited to become Non-Executive Directors of other quoted companies which have no business relationship with the Group and that these duties can broaden their experience and knowledge to the benefit of the Group. Executive Directors are limited to holding one such position, and the policy is that fees may be retained by the Director, reflecting the personal risk assumed in such appointments. No external appointments were held by the Executive Directors during the year. CONSIDERATION OF CONDITIONS ELSEWHERE IN THE GROUP Although the Committee does not consult directly with employees on executive Remuneration Policy, the Committee does consider general basic salary increases across the Group, remuneration arrangements and employment conditions for the broader employee population when determining Remuneration Policy for the Executive Directors. CONSIDERATION OF SHAREHOLDER VIEWS When determining executives’ remuneration, the Committee takes into account views of shareholders and best practice guidelines issued by institutional shareholder bodies. The Committee is always open to feedback from shareholders on Remuneration Policy and arrangements, and commits to undergoing shareholder consultation in advance of any significant Remuneration Policy changes. The Committee will continue to monitor trends and developments in corporate governance and market practice to ensure that the structure of the executive remuneration remains appropriate. Further details of the votes received in relation to last year’s Annual Report on Remuneration and the Remuneration Policy approved in 2014 are provided below: 2015/16 ANNUAL REPORT ON REMUNERATION AGM ON 14 JULY 2016 REMUNERATION POLICY AGM ON 25 JULY 2014 Total number of votes % of votes cast Total number of votes % of votes cast For (including discretionary) Against Total votes cast (excluding withheld votes) Votes withheld 300,065,259 19,002,556 319,067,815 69,956 94.04% 5.96% 100% 280,656,244 6,030,596 286,686,840 10,225,806 97.9% 2.1% 100% 92 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 93 _Renewi_ARA_17.indb 93 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW3. ANNUAL REPORT ON REMUNERATION The following section provides details of how our Remuneration Policy will be implemented during the year ending 31 March 2018 and how it was implemented during the financial year ended 31 March 2017. IMPLEMENTATION OF REMUNERATION POLICY FOR 2017/18 Basic salary Executive Director basic salaries were increased from 1 April 2017 (the normal salary review date). The Chief Executive Officer’s basic salary was increased from £452,285 to £500,000 whilst the Chief Financial Officer’s basic salary was increased from £296,160 to £345,000. In determining the revised salary levels, the Committee considered: (i) the performance of both the Group and the individuals concerned; (ii) the successful completion of the transformational VGG transaction, which has significantly increased the size of the roles, responsibility levels and time spent outside of the UK in the Benelux region for the two Executive Directors; (iii) the fact that both temporary and permanent relocation costs have been avoided; and (iv) the critical importance of retaining the existing Executive Directors for the post acquisition, integration phase of the VGG merger. Executive Director Basic salary at 1 April 2016 Basic salary from 1 April 2017 Percentage increase Peter Dilnot Toby Woolrych £452,285 £296,160 £500,000 £345,000 10.5% 16.5% Pension The Chief Executive Officer and Chief Financial Officer will continue to receive a cash supplement in lieu of pension of 25% and 20% of salary, respectively, or an equivalent pension contribution. Annual bonus The maximum annual bonus opportunity for Executive Directors in 2017/18 will remain unchanged at 150% of salary, with one third of any bonus pay-out deferred into shares vesting 50% after three years, 25% after four years and 25% after five years. Pay- out for achievement of target performance will be 75% of maximum. Bonuses will be based 50% on underlying profit before tax, 25% on underlying free cash flow and 25% on personal objectives. Proposed target levels have been set to be challenging relative to the 2017/18 business plan. The specific targets are currently deemed to be commercially sensitive, however we will disclose them retrospectively in the 2017/18 Annual Report. LTIP The Committee intends that LTIP awards granted in 2017 will be granted on the same terms as the awards granted in 2016. The performance conditions will therefore remain EPS, share price growth and ROCE weighted 50%, 25% and 25% respectively. Further details on the measures, targets and vesting schedule can be found on page 97. LTIP opportunities will remain at 150% of salary for the Chief Executive Officer and 120% of salary for the Chief Financial Officer. For any shares to vest, the Committee will also need to satisfy itself that the recorded outcome is a fair reflection of the overall performance of the Company over the period. Furthermore, half of any shares earned will be subject to an additional holding period, delivered to the individual in equal tranches after a further one and two years, subject to continued employment. A two year post-vesting holding period will be introduced to LTIP awards for Executive Directors granted after the 2017 AGM. This will replace the current phased approach whereby 50% of LTIP awards are released after three years from grant, 25% after four years and 25% after five years. Chairman and Non-Executive Director fees Chairman and Non-Executive Director fees, effective from 1 April 2017, are set out in the table below. Base fees Chairman Non-Executive Director Additional fees Audit Committee Chair Remuneration Committee Chair Senior Independent Director Basic fee at 1 April 2016 Basic fee from 1 April 2017 £150,000 £39,780 £7,140 £7,140 £5,100 £150,000 £48,000 £8,500 £8,500 £6,000 94 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 95 _Renewi_ARA_17.indb 94 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUEDSINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED) The table below sets out a single figure for the total remuneration received by each Executive Director for the year ended 31 March 2017 and the prior year. Basic salary Taxable benefits1 Pension2 Single-year variable3 Multiple-year variable4 Other5 Total PETER DILNOT TOBY WOOLRYCH 2015/16 £000 2016/17 £000 2015/16 £000 2016/17 £000 452 27 113 465 – 6 1,063 452 27 113 326 – 3 921 296 21 59 305 – 5 686 296 21 59 209 – 2 587 1 Taxable benefits comprise car allowance and medical insurance. 2 During the year, Peter Dilnot and Toby Woolrych received cash supplements in lieu of pension contribution of 25% and 20% of salary respectively. 3 Payment for performance during the year under the annual bonus including any deferred annual bonus. (See following sections for further details.) 4 Includes any LTIP awards based on the value at vesting of shares vesting on performance over the three-year period ending 31 March 2017 for 2016/17, and for shares vesting on performance over the three-year period ending 31 March 2016 for 2015/16. 5 Includes Sharesave awards, valued based on embedded gain at grant, life assurance and income protection SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED) The table below sets out a single figure for the total remuneration received by each Non-Executive Director for the year ended 31 March 2017 and the prior year. BASE FEE ADDITIONAL FEES TOTAL 2015/16 £000 2016/17 £000 2015/16 £000 2016/17 £000 2015/16 £000 2016/17 £000 13 – 40 40 40 40 118 150 10 40 40 40 40 – – – – – 12 7 – – – – – 25 7 – 13 – 40 40 52 47 118 150 10 40 40 65 47 – Colin Matthews (Chairman)1 Allard Castelein2 Jacques Petry Stephen Riley Eric van Amerongen3 Marina Wyatt4 Former Directors5 1 Colin Matthews was appointed Chairman Designate on 7 March 2016 and succeeded Adrian Auer as Chairman on 1 April 2016. 2 Allard Castelein was appointed to the Board on 3 January 2017. 3 Eric van Amerongen’s additional fees comprise amounts for his role as the Senior Independent Director and for his role as the Chair of the Remuneration Committee. His fees are set in Sterling and paid in Euros each month at the prevailing monthly exchange rate. From October 2016 he also received a fee of €30K pa for his Chairmanship of the Supervisory Board of Shanks Netherlands Holdings BV. This fee for the year is stated in Sterling at an exchange rate of £1: €1.1918 4 Marina Wyatt’s additional fee is in respect of her role as the Chair of the Audit Committee. 5 Adrian Auer retired as Chairman and from the Board on 31 March 2016. 94 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 95 _Renewi_ARA_17.indb 95 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW INCENTIVE OUTCOMES FOR THE YEAR ENDED 31 MARCH 2017 Performance-related annual bonus in respect of 2016/17 performance The annual bonus was measured against underlying profit before tax (50% weighting), underlying free cash flow (25% weighting) and the achievement of personal objectives (25% weighting). Actual performance against the targets set for each of these elements is shown below. Financial element outcomes The financial targets and corresponding outcomes for the 2016/17 annual bonus are shown below. Measure Weighting 2016/17 Final outcome Threshold Max Underlying profit before tax Underlying free cash flow 50% 25% £19.0m £21.9m £26.7m £13.4m £6.1m adjusted £6.1m adjusted Bonus payout (% of max) 0% 100% Both the underlying profit before tax and underlying free cash flow are set based on the Group’s expected budget outcome for the year with all values for the divisions converted to Sterling at the budgeted rates of exchange. Actual performance is also measured at this constant exchange rate. Profit performance for the Group was below threshold as a result of the challenges faced in the Municipal Division. The cash flow targets were set at the start of the financial year based on a number of operating assumptions which became inconsistent with the refinancing required to complete the VGG acquisition. As a result and so as not to penalise management for undertaking the important strategic development of the VGG acquisition, the Committee adjusted the originally set underlying free cash flow targets. The Committee is comfortable that these adjustments are fair and reasonable in the circumstances and are aligned to shareholder interests, particularly noting that the original targets would have been met in full had the VGG acquisition not taken place and also that the Company’s cash position following the refinancing is in a materially better position than it would have been had the transformational acquisition not taken place. Personal element outcomes The personal performance measures were based on individual objectives, as detailed below. Personal objectives during the year Committee’s assessment of performance Bonus payout (% of max) Peter Dilnot 1. Assess and capture strategic transformational opportunities whilst applying robust capital discipline 2. Refine Group growth strategy and produce implementation road map 3. Deliver commercial effectiveness gains 4. Develop senior leadership team 5. Continue to maintain and build investor relations 6. Continue to drive environmental, health and safety improvements across the Group Toby Woolrych 1. Assess and capture strategic transformational opportunities whilst applying robust capital discipline 2. Define and implement a strategy to protect and strengthen the Group balance sheet 3. Strengthen finance in respect of organisational design and structure 4. Standardise and harmonise finance functions and prepare for system upgrades 5. Drive cost savings and sustain Group investment programme returns 6. Continue to drive environmental, health and safety improvements across the Group 7. Continue to maintain and build investor relations The Committee was satisfied that objectives 1 to 5 were met or exceeded. While progress was made in respect of objective 6 and noting the impact of the VGG acquisition, the Committee considers that further improvements could be made. The Committee was satisfied that objectives 1, 2, 3, 5 and 7 were met or exceeded. The Committee determined that objective 4 was partially met and that progress was made in respect of objective 6 (as noted above). 92% 88% Overall bonus outcomes Executive Director Peter Dilnot Toby Woolrych Financial element bonus outcome (% of salary) Personal element bonus outcome (% of salary) Overall bonus outcome (% of salary/£) 37.5% 37.5% 34.5% 33.0% 72% / £325,645 70.5% / £208,793 One third of the bonus will be awarded in shares, which will vest in the proportion 50%, 25% and 25% on the third, fourth and fifth anniversary of the date of grant, respectively. 96 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 97 _Renewi_ARA_17.indb 96 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUED2014 LTIP vesting in 2017 Peter Dilnot and Toby Woolrych were granted LTIP awards in 2014 over shares equal to the value of circa 150% and 120% of salary respectively which would vest in 2017 based on three-year performance to 31 March 2017. Vesting was dependent on three-year adjusted underlying EPS, share price performance and ROCE. The vesting schedules, targets and the performance against targets are set out below: Measure Weighting Targets Actual performance Vesting outcome (% of maximum) EPS CAGR Share price CAGR Improvement in ROCE Total vesting 50% 25% 25% 0% vesting below 5% p.a. 25% vesting for 5% p.a. 50% vesting for 10% p.a. 100% vesting for 15% p.a. Straight-line vesting between these points 0% vesting below 9% p.a. 25% vesting for 9% p.a. 50% vesting for 13% p.a. 100% vesting for 17% p.a. Straight-line vesting between these points 0% vesting below +0.5% 25% vesting for +0.5% 100% vesting for +2.0% Straight-line vesting between these points <5% <9% <+0.5% 0% 0% 0% 0% Share price growth was calculated using three-month average share prices immediately prior to the start and end of the performance period. SHARE AWARDS GRANTED IN 2016/17 (AUDITED) The normal annual LTIP and deferred share bonus award grant date had been scheduled for late May 2016 but trading in the Company’s shares was suspended on 24 May 2016 at the Company’s instigation as a result of press speculation concerning a possible transaction with Van Gansewinkel Groep. It was agreed by the Committee that awards would be made as soon as the Company entered an open period which, due to successful negotiations, Prospectus publication, Rights Issue and shareholder approvals, was achieved some six months later, after the publication of the Interim Results on 17 November 2016. So as to ensure that participants were no better or worse off as a result of the delayed grant date (both in respect of the deferred bonus and LTIP awards), the number of shares that were granted in November 2016 was based on those that would have been granted at the end of May 2016 (and subsequently adjusted for the 3 for 8 Rights Issue), to ensure that individuals receiving awards were kept whole. LONG-TERM INCENTIVE PLANS Peter Dilnot and Toby Woolrych were granted awards under the Renewi plc 2011 Long Term Incentive Plan in November 2016 as follows: Executive Director Date of grant Base salary Basis of award Share price Face value2 Number of shares2 Post rights issue adj3 Peter Dilnot 23 November 20161 £452,285 150% of salary Toby Woolrych 23 November 20161 £296,160 120% of salary 81p 81p £678,428 £355,392 837,565 438,756 963,000 504,000 1 As a result of the Company being within a prohibited share dealing period, the 2016 LTIP award grant date was delayed from the end of May 2016 until 23 November 2016. 2 Based on the three-day average dealing price prior to the temporary suspension of the Company’s shares on 24 May 2016 (i.e. based on the average share price just prior to the intended grant date). 3 The number of shares intended to be granted in May 2016 based on a share price of 81p adjusted using the theoretical ex-rights price formula and rounded down to the nearest 1,000 shares. 96 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 97 _Renewi_ARA_17.indb 97 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW Details of the performance targets are as follows: Measure Weighting Targets EPS CAGR Share price CAGR Improvement in ROCE 50% 25% 25% 0% vesting below 5% p.a. 25% vesting for 5% p.a. 50% vesting for 10% p.a. 100% vesting for 15% p.a. Straight-line vesting between these points 0% vesting below 9% p.a. 25% vesting for 9% p.a. 50% vesting for 13% p.a. 100% vesting for 17% p.a. Straight-line vesting between these points 0% vesting below +0.5% 25% vesting for +0.5% 100% vesting for +2.0% Straight-line vesting between these points For any shares to vest, the Committee will also need to satisfy itself that the recorded outcome is a fair reflection of the overall performance of the Group over the period. Awards will vest on the third anniversary of grant. Half of any amounts earned will be released in November 2019 (i.e. three years from grant) and, reflecting the delayed grant date, the remaining portion will be delivered to the individuals in two equal tranches in May 2020 and May 2021 respectively (i.e. four and five years from the intended May 2016 grant date). DEFERRED ANNUAL BONUS (DAB) Peter Dilnot and Toby Woolrych were granted awards under the Renewi plc Deferred Annual Bonus Plan in November 2016 as follows: Executive Director Date of grant 2015/16 annual bonus Basis of deferred award Share price2 Face value of bonus deferred Number of shares3 Post rights issue adj3 Peter Dilnot 23 November 20161 £465,042 1/3rd of bonus Toby Woolrych 23 November 20161 £304,514 1/3rd of bonus 81p 81p £155,014 £101,505 191,375 125,315 220,189 144,183 1 As a result of Company being within a prohibited share dealing period, the 2016 DAB award grant date was delayed from the end of May 2016 until 23 November 2016. 2 Based on the three-day average dealing price prior to the temporary suspension of the Company’s shares on 24 May 2016 (i.e. based on the average share price just prior to the intended grant date). 3 The number of shares intended to be granted in May 2016 based on a share price of 81p adjusted using the theoretical ex-rights price formula. 50% of the awards will vest on the third anniversary of grant and, rather than the 4 and 5 year deferral typically operated for the remainder, 25% of awards will vest after 3 years and 6 months and 25% will vest after 4 years and 6 months, subject to continued employment. The shortened vesting periods reflect the delayed grant date from May 2016 to November 2016. EXIT PAYMENTS AND PAYMENTS MADE TO PAST DIRECTORS MADE IN THE YEAR (AUDITED) No exit payments or payments to past Directors were made in the year. RELATIVE IMPORTANCE OF SPEND ON PAY The table shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends and share buy- backs) from the financial year ended 31 March 2016 to the financial year ended 31 March 2017. The Directors are proposing a final dividend for the year ended 31 March 2017 of 2.1 pence per share (2016: 2.35p). Distribution to shareholders Employee remuneration 2015/16 £m 13.7 144.1 2016/17 £m 15.1 178.2 % change 10% 24% The increase in distribution to shareholders is attributable to the equity raise in October and November 2016. Employee remuneration is significantly higher than the prior year as the values for 2016/17 include one month of costs for the Van Gansewinkel businesses. 98 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 99 _Renewi_ARA_17.indb 98 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUED PAY FOR PERFORMANCE The graph shows the total shareholder return (TSR) of the Group over the eight-year period to 31 March 2017. While there is no comparator index or group of companies that truly reflects the activities of the Group, the FTSE Support Services sector has been selected as a comparator index as it is the sector in which Renewi is classified and tends to be the index against which analysts judge the performance of the Group. The Group is also a member of the FTSE all-share index. The table below the graph details the Chief Executive Officer’s single figure remuneration and actual variable pay outcomes over the same period. Historical TSR Performance Growth in value over eight years of a hypothetical £100 invested at 31 March 2009. RENEWI PLC FTSE ALL-SHARE SUPPORT SERVICES INDEX FTSE ALL-SHARE INDEX 400 350 300 250 200 150 100 50 0 31 MAR 10 31 MAR 11 31 MAR 12 31 MAR 13 31 MAR 14 31 MAR 15 31 MAR 16 31 MAR 17 Chief Executive Officer’s single figure of remuneration over the eight year period to 31 March 2017 2009/10 2010/11 2011/12 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 TOM DRURY1 PETER DILNOT2 Chief Executive Officer single figure of remuneration (£’000) Annual bonus outcome (% of maximum) LTIP vesting outcome (% of maximum) 663 840 284 157 657 860 902 1,063 921 38% 69% 0% 0% 0% 0% 87% 19% 66% 47% 69% 48% – 0% 0% 0% 0% 0% 1 Tom Drury resigned as Chief Executive on 30 September 2011. 2 Peter Dilnot was appointed as Chief Executive on 1 February 2012. PERCENTAGE CHANGE IN CHIEF EXECUTIVE OFFICER’S REMUNERATION The table below shows the percentage change in the Chief Executive Officer’s remuneration from the prior year compared to the average percentage change in remuneration for all UK-based employees. This group was selected because the Committee believes it provides a sufficiently large comparator group to give a reasonable understanding of underlying increases that are based on similar incentive structures, while on the other hand reducing any distortion arising from including all of the geographies in which the Group operates, with their different economic conditions. To provide a meaningful comparison, the analysis includes all UK based employees and is based on a consistent set of employees. Salary Taxable benefits Single-year variable CHIEF EXECUTIVE OFFICER OTHER EMPLOYEES 2015/16 £’000 452 27 465 2016/17 £’000 452 27 326 % Change 0% 0% -30% % Change 2% 0% -7% 98 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 99 _Renewi_ARA_17.indb 99 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWDIRECTORS’ INTERESTS (AUDITED) The interests of the Directors and persons closely associated in the ordinary shares of the Group during the year and as at 25 May 2017 were as shown on the right. Details of Directors’ interests in shares and options under the long-term share schemes are set out in the sections below. Colin Matthews (Chairman) Eric van Amerongen Allard Castelein (appointed January 2017) Peter Dilnot Jacques Petry Stephen Riley Toby Woolrych Marina Wyatt Ordinary shares at 1 April 2016 Ordinary shares at 31 March 2017 and 25 May 2017 – – – 95,538 – 20,000 39,821 – 137,500 – – 131,364 – 27,500 54,753 – DIRECTORS’ SHAREHOLDING (AUDITED) The table below shows the shareholding of each Executive Director, against their respective shareholding requirement as at 31 March 2017: SHARES HELD OPTIONS HELD Owned outright or vested Unvested but subject to holding period Unvested and subject to performance conditions Vested but not exercised Exercised during the year Unvested and subject to continuous employment Shareholding requirement1 (% salary) Current shareholding2 (% salary) Requirement met? Peter Dilnot 131,364 330,261 1,678,650 Toby Woolrych 54,753 216,260 879,083 – – – – 26,133 26,133 100% 100% 28% 18% On track On track 1 Share ownership guideline to be increased from 100% of salary to 200% of salary from the 2017 AGM (subject to shareholder approval). 2 Shareholdings were calculated using the mid-market price at 31 March 2017 of 95.5 pence and salary as at 31 March 2017. DIRECTORS’ INTERESTS IN SHARES OPTIONS AND SHARES IN THE DEFERRED ANNUAL BONUS PLAN, LONG TERM INCENTIVE PLAN AND ALL-EMPLOYEE PLANS (AUDITED) The Executive Directors have been made awards under the Group’s Deferred Annual Bonus Plan: Outstanding awards at 31 March 2016 Awards made during the year Rights issue adj1 Awards lapsed during the year Awards exercised during the year Outstanding awards at 31 March 2017 Date of award Share price on date of award (pence) Restricted period end2 Peter Dilnot Toby Woolrych 95,668 – 14,404 – 220,189 – 62,645 – 9,432 – 144,183 – – – – – – – – – 110,072 29.05.15 108.92 29.05.20 220,189 23.11.16 93.5 23.11.21 72,077 29.05.15 108.92 29.05.20 144,183 23.11.16 93.5 23.11.21 1 Awards granted prior to the November 2016 Rights Issue were adjusted based on the standard theoretical ex-rights price formula. 2 50% of the awards will be released three years after the date of award, 25% after four years and the remaining 25% after five years. 100 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 101 _Renewi_ARA_17.indb 100 02/06/2017 11:16 DIRECTORS’ REMUNERATION REPORT CONTINUEDThe Executive Directors have been made notional allocations of shares under the Group’s Long Term Incentive Plan: Outstanding awards at 31 March 2016 Awards made during the year Rights issue adj1 Awards lapsed during the year2 Awards exercised during the year Outstanding awards at 31 March 20173 Date of award Share price on date of award (pence) Performance period end Restricted period end4 Peter Dilnot 652,000 622,000 – – 98,167 750,167 – 963,000 – 341,000 Toby Woolrych 326,000 – – 51,342 392,342 93,650 49,083 – 504,000 – – – – – – – – – – – – 29.05.14 102.00 31.03.17 29.05.17 715,650 29.05.15 108.92 31.03.18 29.05.18 963,000 23.11.16 93.5 31.03.19 23.11.19 – 29.05.14 102.00 31.03.17 29.05.17 375,083 29.05.15 108.92 31.03.18 29.05.18 504,000 23.11.16 93.5 31.03.19 23.11.19 1 Awards granted prior to the November 2016 Rights Issue were adjusted based on the standard theoretical ex-rights price formula. 2 Awards lapse to the extent the performance conditions are not met. 3 The performance conditions relating to the vesting of outstanding awards are shown on page 98. 4 For LTIP awards made in 2014 to 2016, half of the awards will be released following the end of the performance period, with the remaining portion delivered in two equal tranches after a further one and two years respectively. The Executive Directors held options to subscribe for ordinary shares under the Group’s Sharesave Schemes: Date of grant Normal exercise dates from Normal exercise dates to Option price (pence)1 Rights Issue adj (pence)2 Number at 1 April 2016 Granted in year Rights issue adj3 Lapsed in year Exercised in year Peter Dilnot Toby Woolrych 25.09.14 01.11.17 30.04.18 24.09.15 01.11.18 30.04.19 25.09.14 01.11.17 30.04.18 24.09.15 01.11.18 30.04.19 84.0 75.0 84.0 75.0 73.01 65.18 73.01 65.18 10,714 12,000 10,714 12,000 – – – – 1,613 1,806 1,613 1,806 – – – – – – – – Number at 31 March 2017 12,327 13,806 12,327 13,806 1 The option price is the price at which the option was granted. The price is set by the Remuneration Committee but is not less than 80% of the average market price of the shares over the last three dealing days immediately preceding the date of the invitation to subscribe. 2 The option price was adjusted during the year for the November 2016 Rights Issue based on the standard theoretical ex-rights price formula. 3 Awards were adjusted during the year for the November 2016 Rights Issue based on the standard theoretical ex-rights price formula. The highest closing mid-market price of the ordinary shares of Renewi plc during the year was 99.52 pence and the lowest closing mid-market price during the year was 67.79 pence. The mid-market price at the close of business on 31 March 2017 was 95.5 pence. OTHER INTERESTS None of the Directors had an interest in the shares of any subsidiary undertaking of the Group or in any significant contracts of the Group. The Committee periodically undertakes due diligence to ensure that the Remuneration Committee advisers remain independent of the Group and that the advice provided is impartial and objective. The Committee is satisfied that the advice provided is independent. By order of the Board Eric van Amerongen Chairman of the Remuneration Committee 25 May 2017 ADVICE PROVIDED TO THE COMMITTEE DURING THE YEAR FIT Remuneration Consultants LLP (‘FIT’) was appointed by the Remuneration Committee during the year to provide independent advice on Committee matters. In 2016/17, FIT provided independent advice on executive remuneration including remuneration benchmarking data and market and best practice updates. FIT reports directly to the Chairman of the Committee. Their total fees for the provision of remuneration services to the Committee in 2016/17 were £27,341 charged on a time and materials basis. FIT provides no other services to the Group. Prior to this, Deloitte LLP was the appointed independent adviser to the Committee. Deloitte’s fees to the Committee for 2016/17 were £59,200. Both FIT and Deloitte are members of the Remuneration Consultants Group and are signatories to the Code of Conduct for Remuneration Committees consultants which can be found at www. remunerationconsultantsgroup.com. 100 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 101 _Renewi_ARA_17.indb 101 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWOTHER DISCLOSURES Change of Company name Following shareholder and regulatory approvals the merger of Shanks Group plc and Van Gansewinkel Groep BV was completed on 28 February 2017 and the combined company was renamed Renewi plc by Board resolution, as provided for in the Articles of Association. The Company’s Articles of Association Many of the matters described below are governed by the Company’s Articles of Association as well as by current legislation and regulations. The Company will be seeking a small number of amendments to the Articles at the 2017 Annual General Meeting, details of which are set out in the Notice of Meeting. The proposed amendments to the Articles can be viewed on the Company website at www.renewi. com/agm2017. Strategic report The Overview and Strategic Report sections set out on pages 2 to 75 provide a fair review of the Group’s business for the year ended 31 March 2017. They also explain the objectives and strategy of the Group, its competition and the markets in which it operates, the principal risks and uncertainties it faces, the Group’s financial position, key performance indicators and likely future developments of the business. The Overview and Strategic Report were approved by a duly authorised committee of the Board on 25 May 2017 and signed on its behalf by the Company Secretary. Directors’ report The Directors’ Report comprises pages 76 to 105. The Directors’ Report was approved by a duly authorised committee of the Board on 25 May 2017 and signed on its behalf by the Company Secretary. Other information Apart from the details of the Company’s Long Term Incentive Plans, as set out in the Directors’ Remuneration Report on pages 86 to 101, no further information requires disclosure for the purposes of complying with the Financial Conduct Authority’s Listing Rule 9.8.4C. Directors The composition of the Board at the date of this Report, together with directors’ biographical details, are shown on pages76 and 77. All served on the Board throughout the financial year under review with the exception of Allard Castelein. Eric van Amerongen and Stephen Riley will be retiring from the Board at the conclusion of the 2017 AGM. Following his appointment in January 2017, Allard Castelein will be standing for election by shareholders at the 2017 AGM. In accordance with governance best practice, all remaining directors will be offering themselves for re-election at the 2017 AGM. Appointment and replacement of directors The Company’s minimum requirement is to appoint at least two directors. The appointment and replacement of directors may be made as follows:  the Company’s members may, by ordinary resolution, appoint any person who is willing to act to be a director; (the Act), the directors of a company are, with certain exceptions, unable to allot any equity securities without express authorisation, which may be contained in a company’s Articles or given by its shareholders in general meeting. In addition, under the Act, the Company may not allot shares for cash (otherwise than pursuant to an employees share scheme) without first making an offer to existing shareholders to allot such shares to them on the same or more favourable terms in proportion to their respective shareholdings, unless this requirement is waived by a special resolution of the Company’s shareholders. The Company received authority at the last AGM to allot shares for cash on a non pre-emptive basis up to a maximum nominal amount of £3,982,052. This authority lasts until the earlier of the AGM in 2017 or 30 September 2017;  the Board may appoint any person who is  repurchase of shares – subject to willing to act to be a director. Any director so appointed shall hold office only until the next AGM and shall then be eligible for election;  each director shall retire from office at every AGM but may be re-appointed by ordinary resolution if eligible and willing;  the Company may, by special resolution, remove any director before the expiry of his or her period of office or may, by ordinary resolution, remove a director where special notice has been given and the necessary statutory procedures are complied with; and  a director must vacate their office if any of the circumstances in Article 100 of the Articles of the Company arise. Powers of directors The business of the Company is managed by the Board which may exercise all the powers of the Company, whether relating to the management of the business of the Company or not. This power is subject to any limitations imposed on the Company by legislation. It is also limited by the provisions of the Articles and by any directions given by special resolution of the members of the Company. Specific provisions relevant to the exercise of powers by the directors include the following:  pre-emptive rights and new issues of shares – under the Companies Act 2006, authorisation by shareholder resolution, the Company may purchase all or any of its own shares in accordance with the Act and the Listing Rules. Any shares which have been bought back may be held as treasury shares or, if not so held, must be cancelled immediately upon completion of the purchase, thereby reducing the amount of the Company’s issued share capital. The Company received authority at the last AGM to purchase up to 39,802,523 ordinary shares. This authority lasts until the earlier of the AGM in 2017 or 30 September 2017; and  borrowing powers – the directors are empowered to exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the Company’s assets, provided that the aggregate amount of borrowings of the Group outstanding at any time does not exceed the limit set out in the Articles, unless sanctioned by an ordinary resolution of the Company’s shareholders. Directors’ indemnities As at the date of this Report, the Company has granted indemnities to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out the role of a director of the Company. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006. In respect of those liabilities for which the directors may not 102 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 103 _Renewi_ARA_17.indb 102 02/06/2017 11:16 be indemnified, the Company maintained a Directors’ and Officers’ liability insurance policy throughout the financial year and has renewed that policy. Corporate governance The Board is fully committed to high standards of corporate governance. Details relating to the Company’s compliance with the UK Corporate Governance Code for the financial year are given in the Corporate Governance and Directors’ Remuneration Reports on pages 78 to 101. Corporate Social Responsibility Renewi plc is a leading international waste-to- product company. Information on Corporate Social Responsibility (CSR) matters, including those on environment, social, community and employment policies and health and safety are set out in the CSR section on pages 65 to 67, and in the People section on pages 60 to 64 of the Strategic Report. These include disclosures on greenhouse gas emissions reporting as well as human rights and gender diversity policies. Further details on the Company’s approach to carbon avoidance and the benefits of sustainable waste management can also be found in the Group CSR Report and CSR Policy, both of which are available on the company’s website. Results and dividends The Group’s Consolidated Income Statement, which appears on page 114 and note 3 to the financial statements, shows the contribution to revenue and profits made by the different segments of the Group’s business. The Group’s loss for the year was £61.4m (2016: loss of £3.9m). The directors recommend a final dividend of 2.1 pence (2016: 2.35 pence) per share be paid on 28 July 2017 to ordinary shareholders on the register of members at the close of business on 30 June 2017. This dividend, if approved by shareholders, together with the interim dividend of 0.95 pence (2016: 1.1 pence) per share already paid on 6 January 2017, will make a total dividend for the year of 3.05 pence per share (2016: 3.45 pence). After adjusting for the bonus factor of the Rights Issue, 3.05p represents an unchanged dividend on the previous year. Group have adequate resources to continue to operate and that the Group’s business is a going concern. For this reason the directors continue to adopt the going concern basis in preparing the financial statements. Taking account also of the Company’s current position and principal risks, the Board set out on page 75 how they have assessed the prospects of the Company and, in compliance with UK Corporate Governance Code provision C.2.2, confirm that they have a reasonable expectation that the Company and the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 31 March 2020. Share capital The Company’s share capital comprises ordinary shares of 10 pence each par value. As at 31 March 2017 and as at the date of this Report there were 799,812,223 and 799,825,845 ordinary shares in issue respectively. During the year ended 31 March 2017, in addition to ordinary shares issued in respect of the exercise of options or awards under the Company’s share schemes, the following ordinary shares were issued in relation to the merger with van Gansewinkel Groep BV: 45,000,000 Firm Placing shares, 166,201,962 Rights Issue shares and 190,187,502 Consideration shares, details of which are given in note 28 to the financial statements. Principal rights and obligations attaching to shares  Dividend rights – the Company may, by ordinary resolution, declare dividends but may not declare dividends in excess of the amount recommended by the directors. The directors may also pay interim dividends. No dividend may be paid other than out of profits available for distribution. Payment or satisfaction of a dividend may be made wholly or partly by distribution of assets, including fully paid shares or debentures of any other company. The directors may deduct from any dividend payable to a member all sums of money (if any) payable by such member to the Company in respect of their ordinary shares. Going concern and viability After making enquiries, the directors have formed the view, at the time of approving the financial statements, that the Company and  Voting rights – on a poll, every shareholder who is present in person or by proxy or represented by a corporate representative has one vote for every share held by that shareholder. In the case of joint holders of an ordinary share, the vote of the senior who tenders a vote shall be accepted to the exclusion of the votes of the other joint holders. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding. The deadline for appointing proxies to exercise voting rights at any general meeting is set out in the notice convening the relevant meeting. The Company is not aware of any agreements between holders of its shares that may result in restrictions on voting rights.  Return of capital – in the event of the liquidation of the Company, after payment of all liabilities and deductions taking priority, the balance of assets available for distribution will be distributed among the holders of ordinary shares according to the amounts paid up on the shares held by them. A liquidator may, with the sanction of a special resolution of the shareholders and any other sanction required by law, divide among the shareholders in kind the whole or any part of the Company’s assets or vest the Company’s assets, but no shareholder may be compelled to accept any assets upon which there is any liability. Share restrictions There are no limitations under the Company’s Articles of Association that restrict the rights of members to hold the Company’s shares. Certain restrictions may from time to time be imposed on the transfer of the Company’s shares by laws and regulations such as insider trading laws. In limited situations, as permitted by the Articles, the Board may also decline to register a transfer. The Company is not aware of any agreements between holders of its shares that may result in restrictions on the transfer of securities. Employee share schemes – control rights The Company operates a number of employee share schemes. Under one of those schemes, ordinary shares may be held by trustees on behalf of employees. Employees are not entitled to exercise directly any voting or other control rights in respect of any shares held by such trustees. The trustees have full discretion to vote or 102 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 103 _Renewi_ARA_17.indb 103 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWOTHER DISCLOSURES CONTINUED abstain from voting at general meetings of the Company in respect of such shares. Notifiable interests The Company has been notified of direct and indirect interests in voting rights equal to or exceeding 3% of the ordinary share capital of the Company as set out in the table below. Retail bonds As at 31 March 2017 the Company had in issue two Retail Bonds: the first, comprising €100m 4.23% guaranteed notes due 30 July 2019; and the second, comprising €100m 3.65% guaranteed notes due 16 June 2022. There are no restrictions under the instruments governing these notes that restrict the rights of investors to hold or transfer them. The Company is not aware of any agreements between the holders of the notes that may result in restrictions on their transfer. Change of control – significant agreements The Group’s principal financing instrument at 31 March 2017, a €600m multi-currency revolving credit facility and term loan with six major banks, contains an option for those banks to declare by notice that all sums outstanding under that agreement are repayable immediately in the event of a change of control of the Company. Any such notice may take effect no earlier than 30 days from the change of control and, if exercised at 31 March 2017, would have required the repayment of £279.6m (2016: £61.3m) in principal and interest. The Group’s Retail Bonds issued in July 2013 and in June 2015 require notice to be given to bondholders within seven business days of a change of control following which the holders have an option to seek repayment at a 1% premium, within 60 days of that notice. Such repayment must be made within ten business days of the expiry of the option period. If exercised at 31 March 2017, repayment of £177.6m (2016: £164.7m) in principal and interest would have been required. The rules of the Company’s employee share plans provide that awards and options may vest and become exercisable on a change of control of the Company. Research and development The Group spent £44,000 (2016: £86,000) on research and development during the year. This related to the development of technologies for mapping landfill sites, optimising waste decomposition processes and the recovery of energy and materials through excavation techniques and waste pre-treatment. NOTIFIABLE INTERESTS Political donations No donations were made by the Group for political purposes during the financial year (2016: £nil). Annual General Meeting Notice of the AGM of the Company to be held at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA on Thursday, 13 July 2017 at 11.00am will be made available to shareholders, together with a form of proxy, and will also be available on the Company website at www. renewi.com. The directors consider that all the AGM resolutions are in the best interests of the Company and they recommend unanimously that all shareholders vote in favour, as they intend to do in respect of their own shareholdings. Investor relations Renewi has an active investor relations programme to engage with institutional investors, analysts, press and other stakeholders. The Company uses a number of channels to do this including its AGM, face-to-face meetings, roadshows, analyst workshops, videos, presentations, reports and its corporate website. During the year the Remuneration Committee undertook a consultation exercise with the 20 largest shareholders in connection with the triennial review of the Directors’ Remuneration Policy. Following on from the completion of the merger with Van Gansewinkel and in support of the year-end trading update announced on 31 March 2017, the Company also hosted a workshop session with analysts, slides from which are available on the Company website. NOTIFICATIONS RECEIVED UP TO 25 MAY 2017 By order of the Board Number of shares Issued share capital % Kabouter Management LLC FMR LLC FIL Limited Paradice Investment Management LLC Cross Ocean Partners Neptune Investment Management Limited Notz, Stucki Europe SA 72,364,207 41,620,714 40,281,457 38,660,040 34,079,882 29,925,720 25,925,000 Philip Griffin-Smith Company Secretary 25 May 2017 Renewi plc Registered in Scotland no. SC077438 9.05 5.20 5.03 4.80 4.26 3.74 3.24 104 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 105 _Renewi_ARA_17.indb 104 02/06/2017 11:16   the Overview and Strategic Report include a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces;  there is no relevant audit information of which the Group and parent company’s auditors are unaware; and  they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and parent company’s auditors are aware of that information. By order of the Board Philip Griffin-Smith Company Secretary 25 May 2017 Renewi plc Registered in Scotland no. SC077438 DIRECTORS’ RESPONSIBILITIES STATEMENT The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the loss of the Group and parent company for that period. In preparing the financial statements, the directors are required to:  select suitable accounting policies and then apply them consistently;  state whether applicable IFRSs as adopted by the European Union have been followed for the Group and Parent Company financial statements, subject to any material departures disclosed and explained in the financial statements;  make judgements and accounting estimates that are reasonable and prudent; and  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the parent company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and parent company’s performance, business model and strategy. Each of the directors whose names and functions are listed on pages 76 and 77 of the Annual Report confirm that, to the best of their knowledge:  the parent company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the company;  the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group; 104 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 105 _Renewi_ARA_17.indb 105 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW INDEPENDENT INDEPENDENT AUDITORS’ REPORT AUDITORS’ REPORT TO THE MEMBERS TO THE MEMBERS OF RENEWI PLC OF RENEWI PLC Report on the financial statements analytical review and specified audit procedures were performed over the remaining two reporting units, being Netherlands Organics and Canada Municipal.  We obtained coverage of approximately 79% of the Group’s revenue and 87% of the Group’s underlying profit before tax from the audit procedures performed on full scope components. Areas of focus  Acquisition of VGG. OUR OPINION  the Consolidated Statement of Changes  Goodwill, intangible and tangible asset in Equity for the year then ended; impairment. In our opinion:  Renewi plc’s Group financial statements and Parent Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2017 and of the Group’s loss and the Group’s and the Parent Company’s cash flows for the year then ended;  the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union;  the Parent Company Statement of Changes in Equity for the year then ended;  the Consolidated Statement of Cash Flows for the year then ended;  Presentation of non-trading and exceptional items.  Accounting for provisions.  Accounting for taxation.  the Parent Company Statement of Cash  Accounting for PFI/PPP contracts. Flows for the year then ended; and  Revenue recognition on contracts where  the notes to the financial statements, performance occurs over time. which include a summary of significant accounting policies and other explanatory information. THE SCOPE OF OUR AUDIT AND OUR AREAS OF FOCUS  the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.  the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. WHAT WE HAVE AUDITED The financial statements, included within the Annual Report and Accounts (the “Annual Report”), comprise:  the Consolidated Balance Sheet as at 31 March 2017;  the Parent Company Balance Sheet as at 31 March 2017;  the Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the year then ended; The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006, and applicable law. OUR AUDIT APPROACH - OVERVIEW Materiality  Overall Group materiality: £3.9 million which represents 0.5% of revenue. Audit scope  We performed an audit of the complete financial information of five out of the eight reporting units being the Hazardous Waste, Netherlands Commercial (excluding Netherlands Organics), Belgium Commercial, UK Municipal and Group Central Services divisions, and an audit of certain balance sheet items for the VGG reporting unit. Additional We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table opposite. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. 106 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 107 _Renewi_ARA_17.indb 106 02/06/2017 11:16 AREA OF FOCUS HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS Acquisition of VGG The Group acquired VGG on 28 February 2017 for consideration of £205.6m as described in note 17. We evaluated the process used by management to identify and value the assets and liabilities acquired against the requirements of IFRS 3. IFRS 3 “Business combinations” (“IFRS 3”) requires that all assets and liabilities acquired in the business combination are recorded at fair value on acquisition. We focused on the acquisition accounting as judgment is required in identifying and valuing all the assets and liabilities acquired, in particular intangible assets. Management engaged an external expert to support them with quantifying the fair values of identified intangible and tangible assets. Intangible assets of £44.0m were identified relating to customer contracts, environmental permits, and licenses. The key judgments were in determining an appropriate methodology to value the assets and in the underlying assumptions including future cash flows, growth rates for existing customer revenues and a risk adjusted weighted average cost of capital. Given the timing of the acquisition being shortly before the year- end, the acquisition date fair values of acquired assets and liabilities have been presented as provisional. Goodwill, intangible and tangible asset impairment At 31 March 2017, the Group had £603.3m of goodwill and intangible assets and £578.4m of tangible assets on the Group balance sheet. See notes 13 and 14 to the financial statements respectively. The Group is required to annually assess the carrying value of goodwill by calculating the recoverable amount based on the future cash flow estimates of the relevant cash generating unit (CGU). As a result of performing value in use calculations, no goodwill impairment charges have been recorded by the Group for the year ended 31 March 2017. We focused on this area because the value in use calculations include key assumptions and judgements in the calculation of the recoverable amounts, namely forecast revenue growth rates, trading margin, the long term growth rate and discount rate assumptions. Separate to the consideration of the carrying value of goodwill, the Group must also consider whether any indicators of impairment have been identified in relation to other intangible assets subject to amortisation and tangible assets subject to depreciation in CGUs without goodwill. Accordingly, we focused on this area because the consideration of whether indicators of impairment exist in CGUs without goodwill is judgemental. We used our firm’s valuation experts in assessing the appropriateness of methodologies, and the reasonableness of key assumptions and judgements made by management in relation to the valuation of assets required. In relation to the valuation model inputs, we:  compared cash flow forecasts and revenue growth rates with historical patterns in the business to verify that assumptions were reasonable;  ascertained the life of operating licenses and assessed whether the cash flows appropriately reflected the term of these licenses;  agreed the tax rates used in the models to those enacted in the prospective markets; and  benchmarked the discount rate to comparable companies. We were satisfied that the methodologies and assumptions applied in determining the fair values of the intangible assets were materially consistent with our independent expectations and analysis. We tested the treatment of the other assets and liabilities acquired and the fair value adjustments applied by tracing these to supporting information. For all CGUs, we obtained the discounted cash flow forecasts prepared by management. Details of the key assumptions included in the cash flow forecasts prepared by the Group are included in notes 13 and 14. We evaluated the reasonability of the future cash flow forecasts by comparing them with the latest Board approved budgets and considering the historic accuracy of management’s forecasts by comparing prior year forecasts to actual outturn. Further, we challenged management on:  Forecast revenue growth rates and trading margins for the CGUs over the period of the forecasts;  The key assumptions for long term growth rates in the forecasts by comparing them with historical results and economic and industry forecasts; and  The discount rate used. Specifically, we recalculated the Group’s weighted average cost of capital using market comparable information and compared it to the rate calculated by management. 106 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 107 _Renewi_ARA_17.indb 107 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEW AREA OF FOCUS HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS Goodwill, intangible and tangible asset impairment continued Impairment reviews were performed for certain of the Group’s CGUs without goodwill as a result of deterioration in the markets in which these CGUs are located. As a result of this analysis, an impairment charge of £6.0m was recognised against plant and equipment at a UK Municipal facility. We focused on this area to verify whether the assumptions used in determining the quantum of the asset impairments were appropriate. Presentation of non-trading and exceptional items The Group presents two measures of performance in the Income Statement; statutory and trading/underlying, the latter after adjusting for certain items of income or expense as management believes these measures provide additional useful information on the underlying trends, performance and position of the Group. The determination of which items of income or expense are classified as exceptional or non-trading is subject to judgement and therefore users of the accounts could be misled if amounts are not classified appropriately. A description of the amounts presented as non-trading or exceptional is included in note 4 to the financial statements. Accounting for provisions The Group operates in different jurisdictions and in an industry that is heavily regulated and subject to change. Non-compliance with laws and regulations has the potential to lead to litigation and associated financial or reputational damage. As disclosed in note 26 to the financial statements, the Group has long term landfill provisions for site restoration and aftercare of £115.2m at 31 March 2017. We also performed sensitivity analysis on the discounted cash flow forecasts and on the ability of the Group to generate the forecast cash flows. Having ascertained the extent of change in those assumptions that either individually or collectively would be required for the goodwill, intangible and/or tangible assets to be impaired, we considered the likelihood of such a movement in those key assumptions arising and whether this would impact the assessment that no impairment is recognised for the year ended 31 March 2017. For all CGUs with goodwill, we were satisfied that the carrying value of goodwill was supported by the value in use calculations. In the CGUs without goodwill, we considered whether any indicators of impairment existed in specific CGUs identified by management. We compared actual performance of the relevant CGUs with budget/forecast and, where performance was below budget/ forecast, investigated the underlying causes. Having performed these procedures, and those on the cash flow forecasts prepared by management above, we concluded that the assumptions used by the Group in tangible asset impairments were reasonable and that the quantum of these impairments were within a reasonable range of outcomes. We considered the appropriateness of the amounts classified as non-trading and exceptional. In order to do this we considered:  The Group’s accounting policy on exceptional and non-trading items; and  Pronouncements by the Financial Reporting Council on this matter. We challenged management on the appropriateness of the classification of such items being mindful that classification should be even handed between gains and losses, the basis for the classification clearly disclosed, and applied consistently from one year to the next. Our work highlighted certain items that management had classified as exceptional which were judgemental. Having considered the nature and quantum of these items, overall we are satisfied that the presentation of non-trading and exceptional items in the financial statements for the year ended 31 March 2017 is appropriate. Our audit work on provisions focused on:  Understanding the processes and controls in place to ensure compliance and a discussion of any instances of non-compliance in the year with management;  Reading significant contracts entered into by the Group to determine whether any other contracts, other than those identified by management, are onerous; 108 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 109 _Renewi_ARA_17.indb 108 02/06/2017 11:16 INDEPENDENT AUDITORS’ REPORT CONTINUEDAREA OF FOCUS HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS Accounting for provisions continued Separately the Group has onerous contract provisions of £40.6m principally in the Municipal division and other provisions of £32.4m principally comprising restructuring obligations,dilapidations long-service employee awards, lifecycle expenditure obligations, legal claims, warranties and indemnities. Due to their nature, these provisions are judgmental. Changes to the environment in which the Group operates can impact both the amounts required to settle the provision and the period over which the provision is recognised. Accounting for taxation The Group has recognised £15.0m of a total potential deferred tax assets of £61.2m in respect of historic losses as at 31 March 2017. See note 18 to the financial statements. The amount of deferred tax assets recognised is judgemental and is determined by reference to future forecasts of taxable profits. In the current year the Group has increased the level of deferred tax assets recognised to represent a greater expected future utilisation of brought forward losses and temporary differences. This reflects greater certainty over interest income streams in the UK and restructuring of certain Belgian legal entities during the year. Accounting for PFI/PPP contracts The Group has the operating contracts for seven PFI contracts in the UK – A&B, D&G, Derby, ELWA, Cumbria, Derbyshire, BDR and Wakefield. Separately, the Group is the primary obligor in connection with the construction and delivery of a waste management facility in Surrey Canada. The key accounting judgements and estimates that management have applied in accounting for PFI/PPP contracts are disclosed in note 2.  Reading board minutes to identify any relevant matters reported to the Board;  Meeting with in-house legal counsel to determine the status of known claims against the Group and assess the appropriateness of the associated provisions held; and  Discussions with management to understand the basis of the calculation of the provision. In addition to the procedures above, for the Group’s long term landfill and onerous contract provisions we specifically:  Considered the estimation accuracy of the forecast spend on which the provision is based on our knowledge of the industry, the sites and contracts involved;  Considered the reasonableness of the provisions for future losses on onerous contracts in light of actual outturn in the year compared to previous estimates; and  Considered the appropriateness of the discount rates applied to the forecast future cash flows in light of market risk free rates and the nature of the risks in the future cash flows. Having performed the procedures above we found that the key assumptions applied to each provision, which differed depending on the nature of and duration of the provision, were appropriately supported. As part of our work on deferred tax, we have considered the appropriateness of management’s assumptions and estimates in relation to the likelihood of generating suitable future taxable profits to support the recognition of deferred tax assets. Specifically we assessed:  Board approved budgets and forecasts against historic performace by legal entity;  Whether taxable differences result in taxable amounts against which unused tax losses can be utilised; and  The historic level of utilisation of deferred tax assets. Having performed the procedures above we consider that the assumptions applied in the recognition of deferred tax assets at 31 March 2017 were reasonable. We have considered the appropriateness of the revenue and margin recognised on the Surrey Canada contract by considering the specific contractual arrangements and the requirements of IFRIC 12 which states that the total consideration receivable from the grantor is split between the fair value of construction services delivered and the fair value of operating services. This included evaluating the amount of revenue and margin recognised by reference to the proportion of costs incurred at 31 March 2017 compared to the total costs expected to be incurred. 108 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 109 _Renewi_ARA_17.indb 109 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWAREA OF FOCUS HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS Accounting for PFI/PPP contracts continued In addition to these estimates and judgements, during the year there have been a number of operational issues which have financial and accounting consequences including the recognition of provisions arising in connection with the construction of the facilities and commissioning obligations, and impairment of intangible assets associated with the operating agreements. We re-performed the calculation of revenue recognised based on this information to confirm that an appropriate amount of revenue and margin has been recognised in the year ended 31 March 2017. On the basis of our work we consider the amount of revenue and margin recognised to be appropriate. We reviewed the reasonableness of management’s models which were used to estimate the expected returns on the operating agreements. We did this by considering the estimation accuracy of management’s forecasts in light of actual outturn in the year and our knowledge of current market conditions. Where such estimates gave rise to provisions and / or impairments we considered the appropriateness of the discount rates applied to the forecast future cash flows in light of market risk free rates and the nature of the risks in the future cash flows. Based on this work, we concluded that management’s forecasts were reasonable and that where provisions and/or impairment charges were recognised, these had been calculated on an appropriate basis. Revenue recognition on contracts where performance occurs over time The nature of the Group’s performance obligations under revenue contracts varies from business to business and from customer to customer. In the Netherlands Commercial and VGG divisions, a number of contracts give rise to an obligation to process waste received. In the Hazardous Waste division the majority of the contracts give rise to an obligation to process waste received. Where such obligations exist revenue is deferred when invoices to customers are raised in advance of processing the waste. The calculation of deferred revenue in the Hazardous Waste division is based on a number of assumptions and judgments, principally in relation to the quantity of unprocessed material on site at the year end, which impact the quantum of revenue recognised in the year. We assessed the accuracy of management’s calculation of deferred revenue, which is calculated based on waste tonnages and pricing, by:  attending year-end inventory counts of unprocessed waste at three sites to test the existence and completeness of waste tonnages at year-end;  considering the reasonableness of management’s assumptions included in the calculation of deferred revenue by benchmarking data points used by management to external sources of information;  performing substantive tests of detail on the pricing of individual waste components by tracing to invoices raised to customers; and At 31 March 2017 the Group has £28.4m of deferred revenue on its balance sheet. See note 25 to the financial statements.  re-performing management’s calculation of deferred revenue at year-end. Due to the varying nature of the Group’s contractual obligations and the judgemental nature of the amount of unprocessed material on site at the year-end we have focused effort on this area to address the risk of undetected material errors in the recording of revenue and deferred revenue. Having performed the procedures above we were satisfied that the assumptions and judgments taken by management in calculating quantities of unprocessed waste at year-end were supportable and that appropriate prices had been used to calculate the deferred revenue balance. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the Group operates. The Group’s accounting function is structured into local or regional finance centres for each of the territories in which the Group operates. These functions maintain their own accounting records and controls and report to the head office finance team in Milton Keynes UK through an integrated consolidation system. The Group financial statements are a consolidation of seven reporting units being Netherlands Commercial (excluding Netherlands Organics), Netherlands Organics, Belgium Commercial, Hazardous Waste, UK Municipal, Canada Municipal, VGG and Group Central Services. Of the Group’s seven reporting units, we identified Netherlands Commercial (excluding Netherlands Organics), Belgium Commercial, Hazardous Waste, UK Municipal and Group Central Services which, in our view, required an audit of their complete financial information due to their size compared to the Group. Given the timing of the acquisition of VGG, the contribution of this segment to the Group income statement for the year ending 31 March 2017 is not significant from an audit perspective. Therefore we did not 110 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 111 _Renewi_ARA_17.indb 110 02/06/2017 11:16 INDEPENDENT AUDITORS’ REPORT CONTINUEDperform a full scope audit on VGG for the current year. However, in order to obtain sufficient coverage over the enlarged Group balance sheet we audited specific balance sheet line items for VGG at 31 March 2017. This, together with additional procedures performed at the Group level, gave us the evidence we needed for our opinion on the Group financial statements as a whole. Additional procedures were performed over non-reporting components, specifically Netherlands Organics and Municipal Canada, which included specified procedures and analytical review. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting units by us, as the Group engagement team (who were also responsible for the audit of the Municipal reporting unit), or component auditors from other PwC network firms operating under our instruction. Where the work was performed by our component audit teams we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. This included attendance at a planning day held through video conference with the component teams, a separate planning meeting with the VGG component team, attendance by the Group engagement team at the clearance meetings held for the Netherlands Commercial (excluding Organics), Belgium Commercial, Hazardous Waste and VGG reporting units and a review of the audit working papers of our component teams by the Group engagement team. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality How we determined it Rationale for benchmark applied Component materiality £3.9m (2016: £1.1m). 0.5% of revenue (2016: 5% of underlying profit before tax). Given the growth of the Group through the acquisition of VGG, we considered that the benchmark applied in 2016 did not adequately reflect the scale of the enlarged Group’s operations. In determining materiality for 2017, we considered a range of materiality benchmarks, including materiality based on underlying profit before tax, EBITDA and revenue. Having considered this range of materiality benchmarks, we selected an overall materiality level of £3.9m, being 0.5% revenue for the year which was neither at the upper nor lower end of the range. For each component in our audit scope, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £1.7m and £3.5m. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. S T N E M E T A T S L A I C N A N I F We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.2m (2016: £0.1m) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Going concern Under the Listing Rules we are required to review the directors’ statement, set out on page 103, in relation to going concern. We have nothing to report having performed our review. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to. As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Group and Parent Company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Parent Company’s ability to continue as a going concern. 110 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 111 _Renewi_ARA_17.indb 111 02/06/2017 11:16 MORE INFORMATIONGOVERNANCESTRATEGIC REPORTOVERVIEW OTHER REQUIRED REPORTING CONSISTENCY OF OTHER INFORMATION AND COMPLIANCE WITH APPLICABLE REQUIREMENTS Companies Act 2006 reporting In our opinion, based on the work undertaken in the course of the audit:  the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and  the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In addition, in light of the knowledge and understanding of the Group, the Parent Company and their environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have nothing to report in this respect. ISAs (UK & Ireland) reporting Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:  information in the Annual Report is: We have no exceptions to report. • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Parent Company acquired in the course of performing our audit; or • otherwise misleading.  the statement given by the directors on page 105, in accordance with provision C.1.1 of the UK Corporate Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the group’s and parent company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the group and parent company acquired in the course of performing our audit.  the section of the Annual Report on page 82, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report. We have no exceptions to report. THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:  the directors’ confirmation on page 75 of the Annual Report, in accordance with provision We have nothing material to add or to draw attention to. C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.  the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.  the directors’ explanation on page 75 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing material to add or to draw attention to. We have nothing material to add or to draw attention to. Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review. 112 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 113 _Renewi_ARA_17.indb 112 02/06/2017 11:16 INDEPENDENT AUDITORS’ REPORT CONTINUED ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION AND EXPLANATIONS RECEIVED RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT Under the Companies Act 2006 we are required to report to you if, in our opinion:  we have not received all the information and explanations we require for our audit; or  adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or  the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. DIRECTORS’ REMUNERATION Directors’ Remuneration Report - Companies Act 2006 opinion In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. CORPORATE GOVERNANCE STATEMENT Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review. Our responsibilities and those of the directors As explained more fully in the Directors’ Responsibilities Statement set out on page 105, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Parent Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:  whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed;  the reasonableness of significant accounting estimates made by the directors; and  the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we consider whether those reports include the disclosures required by applicable legal requirements. S T N E M E T A T S L A I C N A N I F Matthew Mullins (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 25 May 2017 112 RENEWI plc Annual Report and Accounts 2017 Annual Report and Accounts 2017 RENEWI plc 113 _Renewi_ARA_17.indb 113 02/06/2017 11:16 MORE INFORMATIONGOVERNANCESTRATEGIC REPORTOVERVIEW CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2017 2017 Non trading & exceptional items £m – (43.3) (43.3) (32.2) (75.5) – (11.6) – (87.1) 6.4 (80.7) Trading £m 779.2 (653.3) 125.9 (89.4) 36.5 10.3 (23.1) 2.0 25.7 (5.9) 19.8 Total £m 779.2 (696.6) 82.6 (121.6) (39.0) 10.3 (34.7) 2.0 (61.4) 0.5 (60.9) 2016 Non trading & exceptional items £m (1.0) (0.6) (1.6) (22.0) (23.6) 0.1 – – (23.5) 0.8 (22.7) Trading £m 614.8 (517.8) 97.0 (63.6) 33.4 16.6 (30.0) 1.0 21.0 (2.3) 18.7 – 19.8 (0.5) (81.2) (0.5) (61.4) (0.3) 18.4 0.4 (22.3) 20.1 (0.3) 19.8 (81.2) – (81.2) (61.1) (0.3) (61.4) (11.3) (0.1) (11.4) (11.3) (0.1) (11.4) 18.4 – 18.4 4.2 (0.1) 4.1 4.2 (0.1) 4.1 (22.3) – (22.3) (5.1) 0.1 (5.0) (5.1) 0.1 (5.0) Total £m 613.8 (518.4) 95.4 (85.6) 9.8 16.7 (30.0) 1.0 (2.5) (1.5) (4.0) 0.1 (3.9) (3.9) – (3.9) (0.9) – (0.9) (0.9) – (0.9) Revenue Cost of sales Gross profit (loss) Administrative expenses Operating profit (loss) Finance income Finance charges Share of results from associates and joint ventures Profit (loss) before taxation Taxation Profit (loss) for the year from continuing operations Discontinued operations (Loss) profit for the year from discontinued operations Profit (loss) for the year Attributable to: Owners of the parent Non-controlling interest Note 3,4 4 4 3,4,5 8 4,8 4,15 3 4,9 4,10 34 Basic earnings (loss) per share attributable to owners of the parent (pence per share)* Continuing operations Discontinued operations 12 12 3.7 – 3.7 (15.0) (0.1) (15.1) Diluted earnings (loss) per share attributable to owners of the parent (pence per share)* (15.0) Continuing operations (0.1) Discontinued operations 3.7 – 12 12 *Earnings (loss) per share for 2016 has been restated to reflect the bonus factor within the 2017 equity raise. 3.7 (15.1) The notes on pages 119 to 175 are an integral part of these consolidated financial statements. 114 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 March 2017 Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign subsidiaries Fair value movement on cash flow hedges Deferred tax on fair value movement on cash flow hedges Share of other comprehensive income of investments accounted for using the equity method Items that will not be reclassified to profit or loss: Actuarial (loss) gain on defined benefit pension schemes Deferred tax on actuarial (loss) gain on defined benefit pension schemes Note 16 18 15 27 18 Other comprehensive income for the year, net of tax Loss for the year Total comprehensive (loss) income for the year Attributable to: Owners of the parent Non-controlling interest Total comprehensive (loss) income for the year Total comprehensive (loss) income attributable to owners of the parent arising from: Continuing operations Discontinued operations The notes on pages 119 to 175 are an integral part of these consolidated financial statements. 2017 £m 14.7 1.3 (0.7) 0.3 15.6 (10.7) 1.7 (9.0) 6.6 (61.4) (54.8) (54.3) (0.5) (54.8) (53.8) (0.5) (54.3) 2016 £m 13.0 (4.8) 0.2 0.1 8.5 3.2 (0.9) 2.3 10.8 (3.9) 6.9 7.1 (0.2) 6.9 7.0 0.1 7.1 115 CONSOLIDATED BALANCE SHEET As at 31 March 2017 Assets Non-current assets Intangible assets Property, plant and equipment Investments Loans to associates and joint ventures Financial assets relating to PFI/PPP contracts Trade and other receivables Derivative financial instruments Deferred tax assets Current assets Inventories Loans to associates and joint ventures Financial assets relating to PFI/PPP contracts Trade and other receivables Derivative financial instruments Current tax receivable Cash and cash equivalents Assets classified as held for sale Total assets Liabilities Non-current liabilities Borrowings – PFI/PPP non-recourse net debt Borrowings – Other Derivative financial instruments Other non-current liabilities Deferred tax liabilities Provisions Defined benefit pension schemes deficit Current liabilities Borrowings – PFI/PPP non-recourse net debt Borrowings – Other Derivative financial instruments Trade and other payables Current tax payable Provisions Total liabilities Net assets Equity Share capital Share premium Exchange reserve Retained earnings Equity attributable to owners of the parent Non-controlling interest Total equity 31 March 2017 £m 31 March 2016 £m Note 13 14 15 15 20 21 16 18 19 15 20 21 16 22 23 24 24 16 25 18 26 27 24 24 16 25 26 28 28 34 603.3 587.4 15.8 14.2 165.5 3.1 0.3 31.3 1,420.9 19.9 5.7 13.3 234.0 – 0.1 74.9 347.9 0.3 348.2 1,769.1 (85.0) (482.4) (30.0) (5.1) (73.6) (142.7) (26.9) (845.7) (2.1) (16.4) (0.8) (409.3) (11.2) (45.5) (485.3) (1,331.0) 438.1 79.9 377.2 39.1 (63.3) 432.9 5.2 438.1 194.5 297.0 10.8 1.3 145.8 1.1 – 19.9 670.4 6.8 – 12.8 122.4 0.3 – 34.7 177.0 – 177.0 847.4 (87.9) (224.9) (28.8) (6.4) (31.6) (43.9) (10.7) (434.2) (3.2) (2.4) (2.4) (203.3) (6.1) (13.0) (230.4) (664.6) 182.8 39.8 100.2 24.4 20.4 184.8 (2.0) 182.8 The notes on pages 119 to 175 are an integral part of these consolidated financial statements. The Financial Statements on pages 114 to 175 were approved by the Board of Directors and authorised for issue on 25 May 2017. They were signed on its behalf by: Colin Matthews Toby Woolrych Chairman Chief Financial Officer 116 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 March 2017 Balance at 1 April 2016 Loss for the year Other comprehensive income (loss): Exchange gain on translation of foreign subsidiaries Fair value movement on cash flow hedges Actuarial loss on defined benefit pension scheme Tax in respect of other comprehensive income items Share of other comprehensive income of investments accounted for using the equity method Total comprehensive income (loss) for the year Transactions with owners in their capacity as owners: Share-based compensation Movement on tax arising on share-based compensation Proceeds from share issues, net of transaction costs Issue of ordinary shares in consideration for a business combination Proceeds from exercise of employee options Non-controlling interest on acquisition of a subsidiary Dividends Balance as at 31 March 2017 Balance at 1 April 2015 Loss for the year Other comprehensive income (loss): Exchange gain on translation of foreign subsidiaries Fair value movement on cash flow hedges Actuarial gain on defined benefit pension scheme Tax in respect of other comprehensive income items Share of other comprehensive income of investments accounted for using the equity method Total comprehensive income (loss) for the year Transactions with owners in their capacity as owners: Share-based compensation Movement on tax arising on share-based compensation Proceeds from exercise of employee options Dividends Balance as at 31 March 2016 Note 16 27 18 15 7 18 28 17,28 28 17 11 16 27 18 7 18 28 11 Share capital £m 39.8 – Share premium £m 100.2 – Exchange reserve £m 24.4 – Retained earnings £m 20.4 (61.1) Non- controlling interest £m (2.0) (0.3) – – – – – – – – 21.1 19.0 – – – 79.9 39.8 – – – – – – – – – – – 39.8 – – – – – – – – 115.2 161.7 0.1 – – 377.2 100.0 – – – – – – – – – 0.2 – 100.2 14.7 – – – – 14.7 – – – – – – – 39.1 11.4 – 13.0 – – – – 13.0 – – – – 24.4 – 1.5 (10.7) 1.0 0.3 (69.0) 0.5 (0.1) – – – – (15.1) (63.3) 39.7 (3.9) – (4.6) 3.2 (0.7) 0.1 (5.9) 0.5 (0.2) – (13.7) 20.4 – (0.2) – – – (0.5) – – – – – 7.7 – 5.2 (1.8) – – (0.2) – – – (0.2) – – – – (2.0) Total equity £m 182.8 (61.4) 14.7 1.3 (10.7) 1.0 0.3 (54.8) 0.5 (0.1) 136.3 180.7 0.1 7.7 (15.1) 438.1 189.1 (3.9) 13.0 (4.8) 3.2 (0.7) 0.1 6.9 0.5 (0.2) 0.2 (13.7) 182.8 The exchange reserve comprises all foreign exchange differences arising since 1 April 2005 from the translation of the financial statements of foreign operations as well as from the translation of liabilities that hedge the Group’s net investment in foreign operations. The notes on pages 119 to 175 are an integral part of these consolidated financial statements. . 117 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 March 2017 Cash flows from operating activities Income tax paid Net cash inflow from operating activities Investing activities Purchases of intangible assets Purchases of property, plant and equipment Disposals of property, plant and equipment Acquisition of subsidiary, net of cash acquired Acquisition of business assets Proceeds from disposal of subsidiary Proceeds from sale of subordinated debt and on loss of control of subsidiary Proceeds from discontinued assets Outflow from disposal of subsidiaries Receipt of deferred consideration Payment of deferred consideration Investment in joint venture Dividends received from associates and joint ventures Loans granted to joint ventures Outflows in respect of PFI/PPP arrangements under the financial asset model Capital received in respect of PFI/PPP financial assets Finance income Net cash inflow from investing activities Financing activities Finance charges and loan fees paid Proceeds from share issues Costs in relation to share issues Dividends paid Proceeds from issuance of retail bonds Repayment of the VGG loan and derivatives acquired as part of the business combination Repayment of retail bonds Repayment of senior notes Proceeds from bank borrowings Proceeds from PFI/PPP net debt Repayment of PFI/PPP net debt Repayments of obligations under finance leases Net cash inflow (outflow) from financing activities Net increase (decrease) in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year The notes on pages 119 to 175 are an integral part of these consolidated financial statements. Note 30 17 17 17 15 15 15 28 28 11 22 2017 £m 27.9 (5.3) 22.6 (7.0) (37.0) 2.8 53.3 (1.1) 1.1 – – – 4.6 (1.3) – 0.1 (18.5) (2.1) 3.5 9.9 8.3 (28.9) 141.5 (5.1) (15.1) – (289.5) – – 211.2 0.4 (4.4) (3.2) 6.9 37.8 2.4 34.7 74.9 2016 £m 72.2 (4.8) 67.4 (4.9) (29.5) 6.2 – (0.2) 0.4 25.8 2.4 (1.4) 0.9 (0.1) (0.7) 0.1 – (29.3) 22.8 12.6 5.1 (25.4) 0.2 – (13.7) 71.4 – (73.5) (28.5) 25.1 9.2 (63.4) (2.8) (101.4) (28.9) 2.8 60.8 34.7 118 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies General information Renewi plc (previously Shanks Group plc) is a public limited company listed on the London Stock Exchange and is incorporated and domiciled in Scotland under the Companies Act 2006, registered number SC077438. The address of the registered office is given on page 191. The nature of the Group’s operations and its principal activities are set out in note 3. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis, except for derivative financial instruments, share-based payments and assets classified as held for sale, which are stated at fair value. The policies set out below have been consistently applied. The Group has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2016. The consolidated financial statements are presented in pounds sterling and all amounts are rounded to the nearest £0.1m unless otherwise stated. Changes in presentation Loans to joint ventures and associates were previously disclosed within investments on the balance sheet and have been presented separately in the current year to more accurately reflect the nature of these assets. The 2016 comparatives have been amended to reflect this change. Going concern Having assessed the principal risks and other matters in connection with the viability statement, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing these financial statements. Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC) adopted by the European Union (EU) and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Adoption of new and revised accounting standards and interpretations There were no new standards, amendments to standards or interpretations adopted for the first time for the Group’s financial year beginning 1 April 2016 that had a significant impact on these financial statements. New standards and interpretations not yet adopted Standards and interpretations issued by the International Accounting Standards Board (IASB) are only applicable if endorsed by the European Union. At the date of approval of these financial statements, the following standards and interpretations were in issue but not yet effective:    IFRS 9 Financial Instruments, effective for annual periods beginning on or after 1 January 2018. This standard addresses the classification, measurement and recognition approaches for financial assets and liabilities and requires additional disclosures in relation to hedging activities. The Group is yet to assess the full effect of the standard, however it is not expected to have a significant impact on the recognition and measurement of its financial instruments. IFRS 15 Revenue from contracts with customers, effective for annual periods beginning on or after 1 January 2018. The standard addresses revenue recognition and establishes principles for reporting information about the nature, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Following the recent acquisition of Van Gansewinkel Groep (VGG) the Group is working on the impact of this new standard on the Group’s financial statements. The Group will make an assessment of the impact over the next twelve months. IFRS 16 Leases, effective for annual periods beginning on or after 1 January 2019, subject to EU endorsement. The standard is expected to have a material impact for the Group as it requires almost all operating leases to be recognised as a liability together with a corresponding “right of use asset”. The Group has not yet quantified the impact given the recent acquisition as it will depend on leases held in the future. The current level of operating leases held by the Group is disclosed in note 32. There are no other IFRSs or IFRS IC interpretations not yet effective that would be expected to have a material impact on the Group and there were no new IFRSs or IFRS IC interpretations which were early adopted by the Group. 119 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies continued Basis of consolidation The consolidated financial statements incorporate the financial statements of Renewi plc and all its subsidiary undertakings (subsidiaries). Subsidiaries are entities which are directly or indirectly controlled by the Group. Control exists where the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Where there is a non-controlling interest this is identified separately from the Group’s equity. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with those used by the Group. The results of subsidiaries acquired or sold during the year are included in the consolidated financial statements from, or up to the date control passes. All intra-group transactions, balances, income and expenses are eliminated on consolidation. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in the financial and operating decisions of an entity but is not in control or joint control over those policies. Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost or, in the case of a disposal of the majority shareholding, at fair value. The cumulative post-acquisition profits or losses and movements in other comprehensive income are adjusted against the carrying amount of the investment. When the Group’s share of losses exceeds the carrying amount of the joint venture or associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture or associate. Accounting policies of associates and joint ventures have been adjusted where necessary to ensure consistency with the policies of the Group. Where the Group is party to a jointly-controlled operation, the Group proportionately accounts for its share of the income and expenditure, assets and liabilities and cash flows on a line-by-line basis in the consolidated financial statements. Equity investments in entities that are neither associates, joint ventures nor subsidiaries are held at cost, less any provision for impairment. Business combinations The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of the subsidiary is the fair value of assets transferred, liabilities incurred or assumed including the equity interests issued by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed, meeting the conditions for recognition under IFRS 3, are recognised at their fair value at the acquisition date. The fair value of businesses acquired may include waste permits, licences and customer relationships with the value calculated by discounting the future attributable revenue streams, which are recognised as intangible assets and amortised. The Group recognises any non-controlling interest in the acquired entity on an acquisition by acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. The costs of acquisition are charged to the Income Statement in the year in which they are incurred. Revenue recognition Revenue Revenue represents the fair value of consideration received or receivable, including landfill tax but excluding sales taxes, discounts and inter- company sales, for goods and services provided in the normal course of business. Revenue is recognised when it can be reliably measured and when it is probable that future economic benefits will flow to the entity. Revenue recognition criteria for the key types of transaction are as follows:  Waste collection services – revenue is recognised once the waste is delivered to the transfer station or processing facility.  Waste processing services – where the Group’s revenue contracts include an obligation to process waste, revenue is recognised as processing occurs.  Hazardous waste industrial cleaning – revenue is recognised by reference to the stage of completion based on services performed to date.  Sales of recyclate materials and products from waste – revenue is based on contractually agreed prices and is recognised when the risks and rewards have passed to the buyer.  Income from power generated from gas produced by processes at anaerobic digestion facilities and landfill sites is recognised at the time of supply based on the volumes of energy produced and an estimation of the amount to be received.  Construction services under the Canada Municipal service concession arrangement – revenue is recognised based on the stage of completion of the work performed. 120 1. Accounting policies continued Accrued income Accrued income at the balance sheet date is recognised at the fair value based on services provided and contractually agreed prices. It is subsequently invoiced and accounted for as a trade receivable. Unprocessed waste Unprocessed waste may give rise to deferred revenue, where invoices to customers are raised in advance of performance obligations being completed, or require an accrual for the costs of disposing of residual waste to be created once the Group has an obligation for its disposal. These amounts are shown in deferred revenue or accruals in the financial statements as appropriate. PFI/PPP contracts The Group’s PFI/PPP contracts are waste management contracts which require the building of new infrastructure and all rights to the infrastructure pass to the local authority at the termination or expiry of the contract. The Group applies IFRIC 12 (Service Concession Arrangements) which specifies the accounting treatment applied by concession operators. Under IFRIC 12, the operator’s rights over infrastructure operated under concession arrangements should be accounted for based on having considered the extent to which the grantor (the local authority) controls the assets, over what services the operator must provide with the infrastructure, to whom it must provide them and at what price. Having considered these factors the Group applies the ‘financial asset’ model to account for the infrastructure as it has an unconditional right to receive cash. The Group splits the local authority payment between a service element as revenue and a repayment element that is deducted from the financial asset. Interest receivable is added to the financial asset based on the rate implied in the contract payments. Reviews are undertaken regularly to ensure that the financial asset will be recovered over the contract life. Borrowing costs relating to contract specific external borrowings are expensed in the Income Statement. Income and costs relating to specific rights and obligations within the contracts are transferred to deferred revenue or other receivables and released or charged to the Income Statement over the period of delivery. Under the terms of these contracts, the Group is required to maintain the infrastructure such that it is handed over to the local authority in good working order. Where such expenditure required to fulfil these obligations constitutes major refurbishments and renewals (lifecycle expenditure) a provision is recorded for the best estimate of these costs as the facility is used. Intangible assets Goodwill Goodwill represents the excess of the purchase consideration over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition and is measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to those cash generating units (CGUs) or groups of CGUs that are expected to benefit from the synergies of the business combination. Goodwill is tested annually for impairment or more frequently if events or changes in circumstances indicate a potential impairment. Any impairment is charged immediately to the Income Statement and is not reversed in a subsequent period. Goodwill arising on acquisitions prior to the date of transition to IFRS (31 March 2004) has been retained at the previous UK GAAP net book value following impairment tests. Landfill void Landfill void represents the acquisition of a landfill operation in the Netherlands, the landfill void was capitalised based on the fair value of the void acquired. This asset is amortised over its estimated useful life on a void usage basis and measured at cost less accumulated amortisation. The estimated remaining useful life is 18 years. 121 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies continued Other intangibles Other intangible assets are capitalised on the basis of the fair value of the assets acquired or on the basis of costs incurred to purchase and bring the assets into use. They are subsequently measured at cost less accumulated amortisation. They are amortised over the estimated useful life on a straight-line basis, as follows: Contract right relating to leasehold land Contract right relating to PFI/PPP contracts in Municipal Computer software Acquisition related intangibles: Waste permits and licences Customer relationships Term of the lease Term of the contract 1 to 5 years 5 to 20 years Up to 14 years Property, plant and equipment Property, plant and equipment, except for freehold land and assets under construction, is stated at cost less accumulated depreciation and provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Freehold land and assets under construction are not depreciated. The asset’s residual values and useful lives are reviewed and adjusted if appropriate at the end of each reporting period. Assets other than goodwill are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. An impairment loss is recognised immediately as an operating expense and at each subsequent reporting date the impairment is reviewed for possible reversal. Buildings, plant and machinery Depreciation is provided on these assets to write off their cost (less the expected residual value) on a straight line basis over the expected useful economic lives as follows: Buildings Fixtures and fittings Plant Cars and service vehicles Heavy goods vehicles Other items of plant and machinery Computer equipment Up to 30 years 10 years 5 to 10 years 5 to 10 years 10 years 5 to 15 years 3 to 5 years Landfill sites Site development costs including engineering works are written off over the operational life of each site up to 30 years. Leased assets Finance leases Where the Group has substantially all the risks and rewards of ownership of a leased asset, the lease is treated as a finance lease. Leased assets are included in property, plant and equipment at the total of the capital elements of the payments during the lease term and the corresponding obligation is included in borrowings. Depreciation is provided to write down the assets over the shorter of the expected useful economic life and the lease term, unless there is reasonable certainty that the Group will obtain ownership of the asset by the end of the lease term, in which case it is depreciated over its useful economic life. 122 1. Accounting policies continued Operating leases All leases other than finance leases are treated as operating leases. Rentals payable under operating leases are charged to the Income Statement on a straight-line basis over the term of the relevant lease. The future aggregate minimum lease payments for operating leases are shown in note 32. Inventories Inventories are stated at the lower of cost and net realisable value and are measured on a first in first out basis. Provisions Provisions are recognised where there is a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect of the time value of money is material the value of a provision is the present value of the expenditures expected to be required to settle the obligation. The discount rates are reviewed at each year end with consideration given to appropriate market rates and the risk in relation to each provision. The unwinding of the discount to present value is included within finance costs. The Group’s policies on provisions for specific areas are: Site restoration provision Full provision is made for the net present value (NPV) of the Group’s unavoidable costs in relation to restoration liabilities at its landfill sites. In addition, the Group continues to provide for the NPV of intermediate restoration costs over the life of its landfill sites and mineral extraction sites, based on the quantity of waste deposited or mineral extracted in the year. Aftercare provision Provision is made for the NPV of post closure costs at the Group’s landfill sites based on the quantity of waste deposited in the year. Onerous contact provisions Onerous contract provisions are recognised when under a contract the unavoidable costs of meeting the obligation exceed the economic benefits expected to be received. Restructuring provision Provision for restructuring costs is recognised when a detailed formal plan exists and those affected by that plan have a valid expectation that the restructuring will be carried out. Employee benefits Retirement benefits The Group accounts for pensions and similar benefits under IAS 19 (revised) Employee Benefits. For defined benefit plans, obligations are measured at discounted present value whilst plan assets are recorded at fair value. The operating and financing costs of the plans are recognised separately in the Income Statement. Interest is calculated by applying the discount rate to the net defined pension liability. Actuarial gains and losses are recognised in full through the Statement of Comprehensive Income; surpluses are recognised only to the extent that they are recoverable. Movements in irrecoverable surpluses are recognised immediately in the Statement of Comprehensive Income. Payments to defined contribution schemes are charged to the Income Statement as they become due. The Group participates in several multi- employer schemes in the Netherlands and Belgium. With the exception of certain schemes in Belgium, these are accounted for as defined contribution plans as it is not possible to split the assets and liabilities of the schemes between participating companies, and the Group has been informed by the schemes that it has no obligation to make additional contributions in the event that the schemes have an overall deficit. Share-based payments The Group issues equity-settled share-based awards to certain employees. The fair value of share-based awards is determined at the date of grant and expensed on a straight-line basis over the vesting period with a corresponding increase in equity based on the Group’s estimate of the shares that will eventually vest. At each balance sheet date the Group revises its estimates of the number of options that are expected to vest based on service and non-market performance conditions. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares that will eventually vest, except for changes resulting from any market-related performance conditions. 123 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies continued Taxation Current tax Current tax is based on taxable profit or loss for the year. Taxable profit differs from profit before tax in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years or that are never taxable or deductible. The asset or liability for current tax is calculated using tax rates that have been enacted, or substantively enacted, at the balance sheet date. Deferred tax Deferred tax is recognised in full where the carrying value of assets and liabilities in the financial statements is different to the corresponding tax bases used in the computation of taxable profits. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that the taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that have been enacted, or substantively enacted, at the balance sheet date. Deferred tax is charged or credited in the Income Statement, except where it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity. Deferred income tax liabilities are not provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements as the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority. Foreign currencies The financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Sterling, which is the Group’s presentation currency. The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency of the Group as follows:  assets and liabilities at each balance sheet date are translated into Sterling at the closing year end exchange rate;  income and expenses in each Income Statement are translated into Sterling at the average rate of exchange for the year; and  the resulting exchange differences are recognised in the exchange reserve in other comprehensive income. Cumulative exchange differences are recognised in the Income Statement in the year in which an overseas subsidiary undertaking is disposed of. The most significant currencies for the Group were translated at the following exchange rates: Value of £1 Euro Canadian Dollar 31 March 2017 1.17 1.67 Closing rates 31 March 2016 1.26 1.86 Change (7.3)% (10.3)% 31 March 2017 1.19 1.79 Average rates 31 March 2016 1.37 1.97 Change (12.8)% (9.5)% The Group applies the hedge accounting principles of IAS 39 Financial Instruments: Recognition and Measurement relating to net investment hedging to offset the exchange differences arising on foreign currency denominated borrowings with the translation of foreign operations. Net investment hedges are accounted for by recognising exchange rate movements in the exchange reserve, with any hedge ineffectiveness being charged to the Income Statement in the period the ineffectiveness arises. 124 1. Accounting policies continued Deferred consideration Deferred consideration is provided for at the NPV of the Group’s expected cost or receipt at the date of acquisition or disposal. The likelihood of payment or receipt for deferred consideration where conditional on meeting certain performance targets is considered on acquisition or disposal. For acquisitions after 1 April 2010, any differences between consideration accrued and consideration paid or received are charged or released to the Income Statement and before this date any differences are adjusted through goodwill. Financial instruments Trade receivables Trade receivables do not carry interest and are recognised initially at their fair value and are subsequently measured at amortised cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying value and the value of estimated future cash flows. Subsequent recoveries of amounts previously written off are credited in the Income Statement. Trade receivables are derecognised when the Group’s rights to receive cash flows and substantially all the risks and rewards of ownership have been transferred. In transactions where substantially all the risks and rewards of ownership have neither been transferred nor retained and control has not been passed to the transferee, the Group continues to recognise the trade receivable to the extent of its continuing involvement which is determined by the extent to which it remains exposed to changes in the value of the transferred asset. Financial assets relating to PFI/PPP contracts Financial assets relating to PFI/PPP contracts are classified as loans and receivables and are initially recognised at fair value of consideration receivable and subsequently at amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. Where the Group has a legal right to offset with a financial institution and the intention to settle net, then bank overdrafts are offset against the cash balances. External borrowings Interest bearing loans and retail bonds are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Income Statement using the effective interest rate method. When the Group exchanges with an existing lender one debt instrument for another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly the Group accounts for substantial modifications of the terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. The terms are considered to be substantially different if the discounted present value of the cash flows under the new terms, including any fees paid and discounted using the original effective rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. Any gain or loss on extinguishment is recognised in the Income Statement. Trade payables Trade payables are not interest bearing and are stated initially at fair value and subsequently held at amortised cost. Other receivables and other payables Other receivables and other payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Derivative financial instruments and hedging activities In accordance with its treasury policy, the Group only holds derivative financial instruments to manage the Group’s exposure to financial risk. The Group does not hold derivative financial instruments for trading or speculative purposes. Such financial risk includes:  Interest risk and foreign exchange risk on the Group’s variable rate borrowings;  Commodity risk in relation to diesel consumption; and  Foreign exchange risk on the Group’s off-take contacts in the UK Municipal business. 125 NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies continued The Group manages these risks through a range of derivative financial instruments, including interest rate swaps, interest rate caps, cross- currency interest rate swaps, forward foreign exchange contracts and fuel derivatives. Derivative financial instruments are considered to be used for hedging purposes when they alter the risk profile of an underlying exposure of the Group in line with the Group’s risk management policies. At the inception of the hedge relationship, the Group formally designates and documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Such hedges are expected at inception to be highly effective and are assessed on an ongoing basis to determine that they have been highly effective throughout the financial reporting periods for which they are designated. Changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised in other comprehensive income and subsequently reclassified into profit or loss as the hedged cash flows occur. Any ineffectiveness is recognised in the Income Statement as a non-trading income or charge. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction occurs at which point it is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is recognised in the Income Statement immediately. Certain derivative financial instruments do not quality for hedge accounting. Changes in the fair value of such instruments are recognised immediately in the Income Statement as a non-trading income or charge. Details of the fair values of the derivative financial instruments are disclosed in note 16. Assets classified as held for sale Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets are available for sale in their present condition. Called up share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or share options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the net proceeds over the nominal value of any shares issued is credited to the share premium account. Dividends Dividend distributions to the equity holders are recognised in the period in which they are approved by the shareholders in general meeting. Interim dividends are recognised when paid. Segmental reporting The Group’s segmental reporting reflects the management structure which is aligned with the core activities of the Group. The reportable segments are Commercial Waste, Hazardous Waste, Municipal, Van Gansewinkel Groep (VGG) and Group central services. 126 2. Key accounting judgements and estimates The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenditure. The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes. Underlying business performance The Group uses alternative performance measures as they believe these measures provide additional useful information on the underlying trends, performance and position of the Group. These include trading profit, underlying profit before tax, underlying profit after tax, underlying free cash flow, underlying earnings per share and EBITDA (earnings before interest, tax, depreciation and amortisation). These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees. The terms ‘trading profit’, ‘exceptional items’ and ‘underlying’ are not defined terms under IFRS and may therefore not be comparable with similarly titled profit measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measurements of profit. The term ‘underlying’ refers to the relevant measure being reported for continuing operations excluding non-trading and exceptional items, financing fair value remeasurements and amortisation of acquisition intangibles. ‘Trading profit’ is defined as continuing operating profit before amortisation of acquisition intangibles and exceptional items. . The Group incurs costs each year in maintaining the acquired customer relationships, permits and licences intangible assets and excludes amortisation of these assets from trading profit to avoid double counting such costs within underlying results. EBITDA comprises trading profit from continuing operations before depreciation, amortisation and profit or loss on disposal of property, plant and equipment. Reconciliations are set out in note 4. A full list of alternative performance measures and non-IFRS measures are set out on page 189. Non-trading and exceptional items Items classified as non-trading and exceptional are disclosed separately due to their size or incidence to enable a better understanding of performance. These include, but are not limited to, significant impairments, restructuring of the activities of an entity including employee severance costs, acquisition and disposal related transaction costs, onerous contracts, profit or loss on disposal of properties or subsidiaries and amortisation of acquisition intangibles. A full listing of those items presented as non-trading and exceptional is shown in note 4. Service concession arrangements under PFI/PPP contracts Financial assets are recognised in accordance with IFRIC 12. They represent the present value of the future cash flows of the contract. These cash flows are dependent on, amongst other things, tonnages, indexation, recycling rates and labour costs. UK PFI/PPP contracts The Group’s UK PFI/PPP arrangements involve the construction of waste management facilities to be provided to local authorities. The building of the facilities is governed by the engineer, procure and construct contract entered into by the Group. The construction work is undertaken by third party contractors with drawdowns of financing from the UK PFI/PPP funders used to pay the subcontractor for the construction works. The Group has considered all relevant factors in the contractual arrangements between the parties to determine whether the Group acts as agent or principal during the construction phase of the contracts. The considerations taken into account in reaching this conclusion are:  The Group obtains quotes for the fixed price construction contract from a number of contractors as part of the preparation to submit a bid to the municipality. Once the Group has been selected as preferred bidder it has no further opportunity to vary the prices it has bid other than indexation for inflation following delay to financial close. The detailed specification and prices of the works are agreed in advance and milestone payments are only made against works to the agreed specification. In the event that a revision to the specification of works is required these and the pricing adjustment are jointly agreed with the municipality and the funders.  At the date of financial close direct agreements are signed between the municipality, the funders and the construction contractors which govern the procedures for the completion of the waste management facilities.  The Group has an obligation to pay the construction contractor from the non-recourse bank debt regardless of any non-payment by the municipality. In the event that the municipality fails to pay tonnage fees after the construction period there is a termination procedure which calculates the amount of damages due to all parties including fully repaying the debt. We consider that the likelihood of the risk of the municipality becoming insolvent is remote. Therefore in our view the weight of this factor in coming to our overall judgement is educed.  In the event that the construction contractor fails to perform under the terms of the contract the Group holds performance and retention bonds which guarantee the obligations of the contractor. Any additional costs arising from having to replace the contractor, should they arise, would be satisfied by payments from the bonds.  The Group earns certain fixed fees in connection with UK PFI/PPP arrangements. These fees represent consideration for services delivered before financial close or for ongoing project management. 127 NOTES TO THE FINANCIAL STATEMENTS 2. Key accounting judgements and estimates continued In summary we consider that, on the basis that the construction contractor is known to the municipality at the date of financial close and in view of the negligible credit risk taken by the Group, on balance, despite some overall risk residing with the Group for delivery of services, we consider that we act as agent versus principal in the provision of construction services. Accordingly, revenue and costs for the construction are not recognised gross in the Income Statement. In light of these conclusions and the presentation of the revenue and costs associated with the construction services net in the Income Statement, we consider that the most appropriate classification of the PFI/PPP non-recourse debt cash flows associated with the construction of the waste management facilities in the Statement of Cash Flows is as financing and investing cash flows respectively and not as operating cash flows. This classification has been consistently applied to all periods presented in the financial statements. The Group is the operator for one class of service concession arrangements, that of the provision of waste treatment and waste treatment facilities, and these are classified as service concession arrangements in accordance with IFRIC. If the Group underperforms, including failure to divert waste from landfill, the contract can be terminated before the end of its term. Canadian PPP contract The Group’s Canadian PPP arrangement involves the construction of waste management facilities to be provided to the City of Surrey. The building of the facilities is governed by the design-build agreement entered into by the Group. The construction work is undertaken by third party contractors with the financing provided from the Group’s core bank facilities. All relevant factors in the contractual arrangements between the parties have been considered to determine whether the Group acts as agent or principal during the construction phase of the contracts. Given the level of risks and rewards borne by the Group it has been concluded that we act as principal in this contract. Revenue and costs for the construction are therefore recognised gross in the Income Statement and the cash flows associated with the construction of the waste management facilities are classified as operating cash flows in the Statement of Cash Flows. For the year ended March 2017 the construction revenue recognised was £20.8m (2016: £13.8m). Other information for PFI/PPP contracts The table below sets out the Group’s interest in service concession arrangements as at 31 March 2017. Contract Financial close Full Service Commencement (actual or forecast) April 2003 September 2001 June 2009 April 2013 Contract Expiry Interests in Special Purpose Vehicle September 2026 June 2034 Renewi: 100% Renewi: 100% January 2013 December 2015 February 2038 Renew: 50.001% Equitix Infrastructure 4 Limited: 49.99% City of Surrey (Canada) February 2015 January 2042 Renewi: 100% March 2012 June 2040 Late 2017 July 2015 Argyll & Bute Cumbria Wakefield Barnsley, Doncaster and Rotherham Derby City and Derbyshire August 2014 January 2018 March 2042 Dumfries and Galloway November 2004 February 2007 September 2029 East London Waste Authority December 2002 August 2007 December 2027 Renewi: 75% SSE Generation Limited: 25% Renewi: 50% Interserve Developments No 4 Limited: 50% Renewi: 20% John Laing Environmental Assets Group (UK) Limited: 80% Renewi: 20% John Laing Environmental Assets Group (UK) Limited: 80% Following the entering into a share purchase agreement on 30 March 2016 the sale of 49.99% of the equity interest in Wakefield Waste PFI Holdings completed on 17 August 2016. The design and build phase of the facility for the City of Surrey service concession arrangement remains in progress with full service commencement scheduled for late 2017. There have been no changes to the other arrangements during the year ended 31 March 2017. Further disclosures in respect of service concession arrangements as required by paragraph 6 SIC 29 are provided on pages 32 to 35 of the review of Municipal. 128 2. Key accounting judgements and estimates continued PPP contracts in the Netherlands Following the acquisition of VGG, the Group now participates in PPPs with local governments in the Netherlands with regard to waste collecting activities. The PPP entities are each 100% owned by the local government municipality with the Group wholly responsible for the management of the legal entity. In addition to 100% ownership by the municipality, the considerations taken into account in reaching this conclusion are that the municipality has the ability to direct the activities that significantly affect the investee’s returns through approval of budgets, investment plans and business plans and has the ability to terminate the operating agreement. The Group has considered all relevant factors in the contractual arrangements between the parties and has concluded that the municipality has control over the PPPs and therefore the PPP entities are not consolidated within the Group’s financial statements. Invoice finance facilities The Group has entered into invoice finance facilities whereby certain of its trade receivables are sold to third parties on a monthly basis. Trade receivables subject to the arrangement are derecognised if it is assessed that substantially all risks and rewards and rights to receive cash flows have been transferred. For trade receivables where the Group has neither transferred nor retained substantially all the risks and rewards of ownership and control has not passed to the third party, the Group continues to recognise part of the trade receivable according to the Group’s continuing exposure to the risks and rewards of the financial asset. The continuing involvement on the non-recourse invoice finance facility is the remaining late payment risk and is included within trade receivables and other payables. The Group continues to perform the servicing of the receivables sold and is not authorised to use the receivables sold other than in its capacity as servicer. The value of this service is not considered material for specific disclosure. Residual amounts owed from the third parties under the arrangement are disclosed in note 21. Impairment of intangible assets In conducting the impairment review on goodwill and intangibles, management is required to make estimates of pre-tax discount rates, future profitability and growth rates. Detailed descriptions of assumptions and values are given in note 13. Provisions Restoration and aftercare provisions are recognised in the financial statements at the net present value of the estimated future expenditure required to settle the Group’s restoration and aftercare obligations. A discount is applied to recognise the time value of money and is unwound over the life of the provision. Provisions also include the present value of the estimated operating losses on loss-making onerous contracts. Further information is set out in note 26. Retirement benefit schemes The Group operates defined benefit schemes in the UK, the Netherlands and Belgium for which actuarial valuations are carried out as determined by the trustees at intervals of not more than three years. The pension cost under IAS 19 (revised) Employee Benefits is assessed in accordance with management’s best estimates using the advice of an independent qualified actuary and assumptions in the latest actuarial valuation. The principal assumptions in connection with the Group’s retirement benefit schemes are set out in note 27. Taxation The Group operates principally in the Netherlands, Belgium, the UK, France, Germany and Canada, all of which have their own tax legislation. Deferred tax assets and liabilities have been calculated based on the substantially enacted tax rates in the relevant jurisdictions at the balance sheet date or those rates expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. The Group has available tax losses, some of which have been recognised as a tax asset and some have not based on management’s best estimate of the ability of the Group to utilise those losses. Further information is set out in note 18. 129 NOTES TO THE FINANCIAL STATEMENTS 3. Segmental reporting The Group’s chief operating decision maker is considered to be the Board of Directors. The Group’s reportable segments determined with reference to the information provided to the Board of Directors in order for it to allocate the Group’s resources and to monitor the performance of the Group are set out below. Following the recent acquisition of the Van Gansewinkel Groep (VGG) on 28 February 2017 the results of VGG have been reported as a separate reportable segment with no changes to the existing segments. Commercial Waste Collection and treatment of commercial waste in the Netherlands and Belgium. Hazardous Waste Industrial cleaning and treatment of hazardous waste in the Netherlands. Municipal Operation of waste management facilities under long-term municipal contracts in the UK and Canada. Van Gansewinkel Groep (VGG) Waste collection, recycling and head office functions operating principally in the Netherlands and Belgium Group central services Head office corporate function. The Commercial Waste division includes the Netherlands and Belgium operating segments and the Municipal division includes the UK and Canada operating segments, based on geographical location. Operating segments within the Commercial Waste and Municipal divisions have been aggregated as they operate in similar markets in relation to the nature of the products, services, production processes and type of customer. The profit measure the Board of Directors uses to evaluate performance is trading profit. Trading profit is continuing operating profit before the amortisation of acquisition intangibles, non-trading and exceptional items. The Group accounts for inter-segment trading on an arm’s length basis. Revenue Netherlands Commercial Waste Belgium Commercial Waste Commercial Waste Hazardous Waste UK Municipal Canada Municipal Municipal VGG Inter-segment revenue Total revenue from continuing operations# #Total revenue from continuing operations in 2016 excludes the impact of the non-trading item of £1.0m. 2017 £m 226.6 121.0 347.6 160.2 174.8 32.8 207.6 71.5 2016 £m 185.5 111.8 297.3 136.2 163.5 24.2 187.7 – (7.7) 779.2 (6.4) 614.8 130 3. Segmental reporting continued Results Netherlands Commercial Waste Belgium Commercial Waste Commercial Waste Hazardous Waste UK Municipal Canada Municipal Bid costs Municipal VGG Group central services Total trading profit Non-trading and exceptional items Total operating (loss) profit from continuing operations Finance income Finance charges Finance charges – non trading and exceptional items Share of results from associates and joint ventures Loss before taxation and discontinued operations 2017 £m 16.0 6.6 22.6 19.3 (4.2) 1.8 (0.2) (2.6) 3.9 (6.7) 36.5 (75.5) (39.0) 10.3 (23.1) (11.6) 2.0 (61.4) 2016 £m 10.0 5.4 15.4 15.6 7.8 2.0 (0.4) 9.4 – (7.0) 33.4 (23.6) 9.8 16.7 (30.0) – 1.0 (2.5) Net Assets 31 March 2017 Gross non-current assets Gross current assets Gross liabilities Net assets (liabilities) 31 March 2016 Gross non-current assets Gross current assets Gross liabilities Net assets (liabilities) Operating Assets Commercial Waste £m Hazardous Waste £m Municipal £m VGG £m Group central services £m Tax, net debt and derivatives £m Total continuing operations £m Discontinued operations £m Total £m 280.8 68.0 (131.8) 217.0 267.6 61.0 (125.6) 203.0 180.2 29.2 (42.0) 167.4 171.3 26.6 (38.2) 159.7 245.6 51.8 (112.4) 185.0 681.5 123.6 (302.2) 502.9 209.5 53.1 (92.1) 170.5 – – – – 0.4 0.6 (40.9) (39.9) 1.6 0.6 (21.2) (19.0) 31.6 75.0 1,420.1 348.2 (701.5) (1,330.8) 437.5 (594.9) 0.8 – (0.2) 0.6 1,420.9 348.2 (1,331.0) 438.1 19.9 35.0 (387.3) (332.4) 669.9 176.3 (664.4) 181.8 0.5 0.7 (0.2) 1.0 670.4 177.0 (664.6) 182.8 131 NOTES TO THE FINANCIAL STATEMENTS 3. Segmental reporting continued Other disclosures 31 March 2017 Capital expenditure: Property, plant and equipment Intangible assets Depreciation charge Amortisation of intangibles Impairment charge: Intangible assets Property, plant and equipment 31 March 2016 Capital expenditure: Property, plant and equipment Intangible assets Depreciation charge Amortisation of intangibles Impairment charge: Property, plant and equipment Commercial Waste £m Hazardous Waste £m Municipal £m VGG £m Group central services £m Discontinued operations £m 19.1 2.1 24.6 3.6 – 0.3 18.8 0.8 22.5 3.5 0.5 7.3 0.3 9.9 0.6 – – 8.5 0.2 8.4 0.5 – 0.9 8.4 3.3 0.2 3.2 6.0 1.1 3.9 2.3 0.2 – 7.0 0.3 4.0 0.8 – – – – – – – – – – – 0.2 – – – – – 0.2 – – – – – – 0.5 – – – – – – Total £m 34.3 11.1 41.8 5.4 3.2 6.8 28.4 4.9 33.2 4.4 0.5 Geographical information – continuing operations The Group’s revenue from external customers and information about its segment assets (non-current assets being intangibles assets, property plant and equipment and investments in joint ventures, associates and other unlisted investments.) by geographical location are detailed below: Revenue from external customers Non-current assets 2017 £m 423.0 145.7 174.8 32.8 1.8 0.9 0.2 – 779.2 2016 £m 315.3 110.8 163.5 24.2 – – – – 613.8 2017 £m 769.9 324.4 36.1 28.1 37.7 9.0 0.9 0.4 1,206.5 2016 £m 401.4 37.6 38.2 25.1 – – – – 502.3 Netherlands Belgium UK Canada France Portugal Germany Hungary 132 4. Non-trading and exceptional items To improve the understanding of the Group’s financial performance, items which are not considered to reflect the underlying performance are presented in non-trading and exceptional items. Continuing operations Restructuring charges and employee related costs Portfolio management activity: Acquisition costs Synergy delivery costs Integration costs Industrial Cleaning disposal in Belgium Disposals in the Netherlands Wakefield equity and subordinated debt disposal Other items: Onerous contract provisions Municipal contract issues Costs relating to a fire ATM waterside contamination ATM soil revenue recognition Profit on disposal of land (Vliko) Prior period exceptional provision releases Exceptional finance costs Impairment of assets and goodwill Amortisation of acquisition intangibles Change in fair value of derivatives at fair value through profit or loss Non-trading and exceptional items in loss before tax Tax on non-trading and exceptional items Non-trading and exceptional items in loss after tax Discontinued operations Total non-trading and exceptional items in loss after tax The above non-trading and exceptional items include the following: Note 17 17 17 13 10 2017 £m 2.4 18.9 4.5 2.9 0.4 (0.3) – 26.4 28.2 5.3 1.6 – – – – 35.1 11.6 9.5 2.1 – 87.1 (6.4) 80.7 0.5 81.2 2016 £m 2.4 0.8 – – 3.7 – 5.0 9.5 5.0 4.9 – 1.3 1.0 (2.7) (0.1) 9.4 – 0.5 1.8 (0.1) 23.5 (0.8) 22.7 (0.4) 22.3 Restructuring charges and employee related costs Restructuring and employee related charges were incurred for structural cost reduction programmes across the Group in place prior to the merger of £1.5m (2016: £2.4m) and reassessment of prior year employee related provisions of £0.9m (2016: £nil). The total cost of £2.4m is recorded in administrative expenses (2016: £2.4m). Portfolio management activity Acquisition related costs of £18.9m (2016: £0.8m) principally comprising advisory, corporate finance and legal fees have been incurred in relation to the merger with Van Gansewinkel Groep BV. Synergy costs of £4.5m (2016: £nil) and integration costs of £2.9m (2016: £nil) were incurred as the Group starts to execute merger plans for generating value. Following the sale of the loss-making industrial cleaning business in the prior year further costs of £0.4m (2016: £3.7m) were incurred. The disposals in the Netherlands generated a profit of £0.3m including the loss on the sale of the groundworks business (£0.6m), profit on sale of surplus land in Netherlands Commercial Business (£0.5m) and the profit on sale of a closed facility in Hazardous Waste (£0.4m). The total charge of £26.4m is recorded in administrative expenses (2016: £0.1m in cost of sales and £9.4m in administrative expenses). 133 NOTES TO THE FINANCIAL STATEMENTS 4. Non-trading and exceptional items continued Other items The onerous contract charge of £28.2m (2016: £5.0m) includes increases in the Cumbria (£2.2m) and D&G (5.0m) onerous contract provisions which were classified as exceptional in previous years. New provisions were recognised this year in relation to the BDR operating contract (£8.6m), a provision for a specific loss-making contract entered into under the ELWA operating contact (£1.6m) and a provision for the commissioning of the Derby facility due to an uncontrollable delay in completion (£1.8m). Separately, a provision has been recognised to cover incremental capital works that are required at BDR and Wakefield to enable the plants to function as intended (£9.0m). The Municipal contract issues of £5.3m (2016: £4.9m) relate to the Derby, Wakefield, ELWA and Canada contracts. As a result of the insolvency of one of the major contractors for the Derby contract, there has been a delay in the commissioning of the facility. The Group is largely protected from this as it is not involved in the construction of the project, however liquidated damages and associated costs of £1.7m will be incurred. At Wakefield, £2.5m of additional third party cleaning and disposal costs have been incurred in the year due to operational issues following on from the subcontractor insolvency last year. Other items totalling £1.1m include reinstatement works on leased land (£0.6m) and a legal claim in Canada (£0.5m). Costs of £1.6m have been incurred relating to incremental operating costs which were unable to reclaimed under the Group’s business interruption insurance following the fire at the UK Municipal East London site in August 2014. The total charge of £35.1m (2016: £9.4m) is recorded as £32.0m in cost of sales and £3.1m in administrative expenses (2016: £1.0m in revenue, £1.4m credit in cost of sales and £9.8m in administrative expenses). Finance costs The total charge of £11.6m (2016: £nil) includes the costs of arranging the banking facility, extinguishment of the previous facility together with the settlement of the Pricoa deferred premium. Impairment of assets and goodwill Impairment of assets of £9.5m (2016: £0.5m) relates to plant and equipment at the Westcott Park UK Municipal facility (£6.0m), contract rights in UK Municipal (£3.2m) and Shanks branding on trucks in Netherlands Commercial (£0.3m). The prior year impairment charge of £0.5m principally related to plant and equipment at the Shanks Wood Products biomass facility in Belgium as a result of market changes. The charge was split £9.2m (2016: £0.1m) in cost of sales and £0.3m (2016: £0.4m) in administrative expenses. Amortisation of acquisition intangibles Amortisation of intangible assets acquired in business combinations of £2.1m (2016: £1.8m) is all recorded in cost of sales. Reconciliation of trading profit to EBITDA from continuing operations Trading profit Depreciation of property, plant and equipment Amortisation of intangible assets (excluding acquisition intangibles) Non-exceptional gains on disposal of property, plant and equipment Landfill related expense and provisioning EBITDA from continuing operations 2017 £m 36.5 41.8 3.3 (0.5) (0.7) 80.4 2016 £m 33.4 33.2 2.6 (0.3) (0.4) 68.5 134 5. Operating profit Operating profit for the year is stated after charging (crediting): Continuing operations Staff costs Depreciation of property, plant and equipment Amortisation of intangible assets Repairs and maintenance expenditure on property, plant and equipment Net profit on disposal of property, plant and equipment Non-trading and exceptional items Trade receivables impairment Government grants Operating lease costs: – Minimum lease payments – Less sub-lease rental income Remuneration of the Group’s auditor, PricewaterhouseCoopers LLP and its associates: – Audit of parent company and consolidated financial statements – Audit of subsidiaries pursuant to legislation Fees payable to the auditors pursuant to legislation Corporate finance services Other non-audit services Total fees Note 6 14 13 4 21 2017 £m 178.2 41.8 5.4 42.8 (0.5) 75.5 1.4 (0.1) 15.8 (0.3) 15.5 2017 £m 0.2 1.0 1.2 3.1 0.1 4.4 2016 £m 144.1 33.2 4.4 35.1 (0.3) 23.6 1.3 (0.3) 11.2 (0.2) 11.0 2016 £m 0.2 0.5 0.7 – 0.1 0.8 Corporate finance services relate to professional services performed in respect of the acquisition of VGG. The Corporate Governance section on page 84 includes an explanation of how the external auditor's objectivity and independence are safeguarded when non-audit services are provided by the external auditor. 6. Employees Staff costs and the average monthly number of employees analysed by reportable segment are shown below: Wages and salaries Social security costs Share-based benefits Other pension costs Total staff costs The average number of employees by reportable segment during the year was: Commercial Waste Hazardous Waste Municipal VGG* Group central services Total average number of employees * For the VGG reportable segment the number of employees for the month of March 2017 was 3,709. Note 7 27 2017 £m 139.5 25.4 0.5 12.8 178.2 1,895 758 665 309 18 3,645 2016 £m 112.0 21.3 0.5 10.3 144.1 2,012 783 631 – 20 3,446 135 NOTES TO THE FINANCIAL STATEMENTS 7. Share-based payments As described in the Remuneration Report, the Group issues equity-settled share-based payments under a Savings Related Share Option Scheme (SRSOS), a Long Term Incentive Plan (LTIP) and a Deferred Annual Bonus (DAB) arrangement. The final options under the Executive Share Option Scheme (ESOS) expired on 5 June 2015. Outstanding options – SRSOS and LTIP SRSOS ESOS LTIP Outstanding at 1 April 2015 Granted Forfeited Expired Exercised Outstanding at 31 March 2016 Rights issue adjustment* Granted* Forfeited* Expired* Exercised* Outstanding at 31 March 2017 Exercisable at 31 March 2017 Exercisable at 31 March 2016 Weighted average share price at date of exercise At 31 March 2017: Range of price per share at exercise Weighted average remaining contractual life Weighted average exercise price 114p – – 114p – – – – – – – – Options Number 33,979 – – (33,979) – – – – – – – – Options Number 11,625,000 3,708,000 (880,000) (3,856,000) – 10,597,000 1,595,447 4,710,000 (598,288) (4,868,019) – 11,436,140 Options Number 1,307,369 816,336 (425,838) (25,260) (339,140) 1,333,467 198,294 537,060 (277,833) (86,679) (233,202) 1,471,107 35,143 70,910 Weighted average exercise price 79p 75p 80p 90p 74p 77p (10p) 83p 69p 67p 66p 73p 63p 73p 94p 65.2p to 82.6p 1 – 2 years *All information is given as if the Rights Issue occurred on 1 April 2016 to enable comparison (see note 28 for details of the Rights Issue). Fair value of options granted during the year Valuation model Weighted average fair value Weighted average share price Weighted average exercise price Expected volatility Expected life Risk-free interest rate Dividend yield SRSOS LTIP 2017 Black- Scholes 19p 92p 71p 25% 3 years 0.1% 3.9% 2016 Black- Scholes 18p 90p 75p 26% 3 years 0.5% 3.4% 2017 Discounted 89p 89p – – 3 years – – 2016 Discounted 109p 109p – – 3 years – – 2017 Monte Carlo 34p 89p – 27% 3 years 0.3% – 2016 Monte Carlo 29p 109p – 26% 3 years 0.7% 3.4% For the LTIP awards granted, the fair value of the element subject to non-market conditions has been calculated using a discounted model based on the share price at the award date and the expense recognised is based on expectations of these conditions being met which are reassessed at each balance sheet date. The awards granted in 2016/17 vest after three years, three and a half years and four and a half years. The awards granted during 2014/15 and 2015/16 vest after three years, four years and five years. There is no service condition after three years on any of the awards granted, just a holding period of between half a year and two years. The Monte Carlo valuation model is used to determine the weighted average fair value of the market conditions element of awards granted. Expected volatility has been calculated using average volatility historical data over a three-year period from the grant date. The risk-free interest rate is based on the implied yield of zero-coupon government bonds with a remaining term equal to the expected life. The expected life used in the models equals the vesting period. 136 7. Share-based payments continued Deferred Annual Bonus (DAB) On 23 November 2016 364,372 shares were granted in relation to the DAB for the year ended March 2016 and in the prior year 182,149 shares (adjusted in relation to the Rights Issue) were granted in relation to the year ended March 2015. The DAB awards for the year ended March 2017 have not yet been granted and therefore the charge is based on an estimate. Further details and performance metrics of both LTIPs and DABs can be found in the Directors’ Remuneration Report on pages 86 to 101. Charge for the year The Group recognised a total charge of £0.5m (2016: £0.5m) relating to equity-settled share-based payments. 8. Net finance charges Continuing operations Finance charges Interest payable on borrowings wholly repayable within five years Interest payable on borrowings repayable after five years Interest payable on PFI/PPP non-recourse net debt Unwinding of discount on provisions (note 26) Interest charge on the retirement benefit schemes (note 27) Amortisation of loan fees Other finance costs Total finance charges Finance income Interest receivable on financial assets relating to PFI/PPP contracts (note 20) Unwinding of discount on deferred consideration receivable Interest income on bank deposits Interest receivable on other loans and receivables Total finance income Change in fair value of derivatives at fair value through profit or loss Exceptional finance charges (note 4) Net finance charges 9. Taxation The tax (credit) charge based on the loss for the year from continuing operations is made up as follows: Current tax: UK corporation tax – Current year Overseas tax – Current year – Prior year Total current tax Deferred tax (note 18) – Origination and reversal of temporary differences in the current year – Adjustment in respect of prior year Total deferred tax Total tax (credit) charge for the year 2017 £m 7.9 2.9 7.3 2.6 0.3 1.0 1.1 23.1 (9.6) (0.2) – (0.5) (10.3) – 11.6 24.4 2017 £m 1.4 3.7 0.2 5.3 (5.3) (0.5) (5.8) (0.5) 2016 £m 9.5 1.9 14.2 2.3 0.5 1.1 0.5 30.0 (16.2) (0.2) (0.1) (0.1) (16.6) (0.1) – 13.3 2016 £m 1.0 3.1 0.2 4.3 (2.6) (0.2) (2.8) 1.5 137 NOTES TO THE FINANCIAL STATEMENTS 9. Taxation continued The tax on the Group’s loss for the year from continuing operations differs from the UK standard rate of tax of 20% (2016: 20%), as explained below: Total loss before taxation Tax credit based on UK tax rate of 20% (2016: 20%) Effects of: Adjustment to tax charge in respect of prior years Profits taxed at overseas tax rates Non-deductible (non-taxable) other items Non-deductible transaction costs Non-taxable disposals Unrecognised deferred tax assets Change in tax rate Total tax (credit) charge for the year 2017 £m (61.4) (12.3) (0.3) 0.8 1.3 1.9 – 6.4 1.7 (0.5) 2016 £m (2.5) (0.5) – – (1.2) – (1.6) 3.8 1.0 1.5 Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 17% from 1 April 2020. As a result the UK deferred tax for the year has been calculated based on the enacted rates of 17%, 19% and 20% depending on when the timing differences are expected to reverse (2016: 18%,19% and 20%). 10. Discontinued operations The table below show the results of the UK Solid Waste discontinued operations which are included in the Income Statement. Income Statement Revenue Cost of sales Administrative expenses Trading loss before exceptional and non-trading items Exceptional and non-trading items Operating profit before tax on discontinued operations Taxation Profit after tax on discontinued operations 2017 £m – – – – (0.5) (0.5) – (0.5) 2016 £m 0.1 (0.2) (0.2) (0.3) 0.4 0.1 – 0.1 The £0.5m non-trading item related to the impairment of an unused piece of land based on the recoverable amount calculated on the fair value less costs to sell. The prior year gain related to profit generated on the sale of the Kettering material recycling facility. The net cash inflow generated from the discontinued operations included in the consolidated cash flow statement was £0.4m (2016: £2.8m inflow). 138 11. Dividends Amounts recognised as distributions to equity holders in the year: Final dividend paid for the year ended 31 March 2016 of 2.35p per share (2015: 2.35p) Interim dividend paid for the year ended 31 March 2017 of 0.95p per share (2016: 1.1p) Proposed final dividend for the year ended 31 March 2017 of 2.1p per share (2016: 2.35p) Total dividend per share 12. Earnings per share Number of shares Weighted average number of ordinary shares for basic earnings per share Effect of share options in issue Weighted average number of ordinary shares for diluted earnings per share Continuing operations Loss attributable to owners of the parent used to determine basic and diluted earnings per share (£m) Non-trading and exceptional items (net of tax) (£m) (see note 4) Earnings attributable to owners of the parent for underlying basic and underlying diluted earnings per share (£m) Basic and diluted loss per share Underlying and underlying diluted earnings per share (see note below) Discontinued operations (Loss) profit attributable to owners of the parent used to determine basic and diluted earnings per share (£m) Non-trading and exceptional items (net of tax) (£m) (see note 4) Loss attributable to owners of the parent for underlying basic and underlying diluted earnings per share (£m) Basic and diluted loss per share Underlying and underlying diluted loss per share (see note below) Total operations Loss attributable to owners of the parent used to determine basic and diluted earnings per share (£m) Non-trading and exceptional items (net of tax) (£m) (see note 4) Earnings attributable to owners of the parent for underlying basic and underlying diluted earnings per share (£m) Basic and diluted loss per share Underlying and underlying diluted earnings per share (see note below) *Earnings (loss) per share for 2016 has been restated to reflect the bonus factor within the 2017 equity raise . 2017 £m 9.4 5.7 15.1 16.8 3.05p 2016 £m 9.3 4.4 13.7 9.4 3.45p 2017 2016* 536.3m 0.9m 537.2m 449.5m 0.5m 450.0m (60.6) 80.7 20.1 (11.3)p 3.7p (0.5) 0.5 – (0.1)p – (61.1) 81.2 20.1 (11.4)p 3.7p (4.0) 22.7 18.7 (0.9)p 4.2p 0.1 (0.4) (0.3) – (0.1)p (3.9) 22.3 18.4 (0.9)p 4.1p As detailed in note 28, the Group issued new shares during the year by way of a firm placing and rights issue. As required by International Accounting Standard 33 – Earnings per Share, the Group has adjusted the current year and prior year basic, diluted and underlying earnings per share, for the bonus element included within the placing and rights issue. The bonus adjustment factor was 1.129. The Directors believe that adjusting basic earnings per share for the effect of the amortisation of acquisition intangibles, the change in fair value of derivatives, non-trading and exceptional items enables comparison with historical data calculated on the same basis. Exceptional items are those items that need to be disclosed separately on the face of the Income Statement, because of their size or incidence, to enable a better understanding of performance. 139 NOTES TO THE FINANCIAL STATEMENTS 13. Intangible assets Cost At 1 April 2015 Acquisition through business combination Additions Disposals Reclassification (note 20) Exchange At 31 March 2016 Acquisition through business combination – VGG Acquisition through business combination – other Additions Exchange At 31 March 2017 Accumulated amortisation and impairment At 1 April 2015 Amortisation charge Disposals Exchange At 31 March 2016 Amortisation charge Impairment charge Exchange At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 Goodwill £m Landfill void £m Computer software and others £m Acquisition related intangibles £m 200.6 0.3 – (0.1) – 18.7 219.5 337.2 0.2 – 17.6 574.5 46.2 – (0.1) 4.4 50.5 – – 4.0 54.5 520.0 169.0 154.4 18.6 – – – – 1.7 20.3 – – – 1.6 21.9 9.7 1.4 – 0.8 11.9 1.4 – 1.0 14.3 7.6 8.4 8.9 11.6 – 4.9 (0.1) 3.9 1.1 21.4 9.1 – 11.1 1.0 42.6 6.5 1.2 (0.1) 0.7 8.3 1.9 3.2 0.6 14.0 28.6 13.1 5.1 23.8 – – – – 2.2 26.0 44.0 0.8 – 2.2 73.0 18.4 1.8 – 1.8 22.0 2.1 – 1.8 25.9 47.1 4.0 5.4 Total £m 254.6 0.3 4.9 (0.2) 3.9 23.7 287.2 390.3 1.0 11.1 22.4 712.0 80.8 4.4 (0.2) 7.7 92.7 5.4 3.2 7.4 108.7 603.3 194.5 173.8 The £11.1m (2016: £4.9m) additions in the year include £8.1m (2016: £3.7m) contract rights in relation to Municipal contracts. The reclassification in the prior year of £3.9m related to UK Municipal contract rights which have been reclassified from financial assets. Of the total £5.4m (2016: £4.4m) amortisation charge for the year, £2.1m (2016: £1.8m) related to intangible assets arising on acquisition. Of the remaining amortisation expense of £3.3m (2016: £2.6m), £1.9m (2016: £1.6m) has been charged in cost of sales and £1.4m (2016: £1.0m) has been charged in administrative expenses. The acquisition related intangibles net book value of 47.1m (2016: £4.0m) included customer relationships of £31.5m (2016: £1.3m), permits of £7.3m (2016: £1.8m) and licences of £7.7m (2016: £nil). The impairment charge of £3.2m (2016: £nil) for the year related to contract right intangibles in UK Municipal as it has been determined that they are no longer recoverable. 140 13. Intangible assets continued Goodwill impairment Impairment testing is carried out at cash generating unit (CGU) level on an annual basis. The following is a summary of the goodwill allocation for each reporting segment: Commercial Waste Hazardous Waste Municipal VGG Total goodwill 2017 £m 67.0 99.6 15.7 337.7 520.0 2016 £m 61.9 92.3 14.8 – 169.0 The Group estimates the recoverable amount of a CGU using a value in use model by projecting cash flows for the next five years together with a terminal value using a growth rate. The key assumptions underpinning the recoverable amounts of the CGUs tested for impairment is forecast revenue and trading profit. The forecast revenues in these models are based on management’s predictions of overall market growth rates, including both volume and price. Trading margin is the average trading profit margin as a percentage of revenue over the five-year forecast period. The five-year plans used in the impairment models are based on management’s past experience and future expectations of performance and reflect the planned changes in the CGUs as a result of restructuring programmes and actions instigated in the current year together with limited recovery and improvement in general market and economic conditions. For each of the CGUs with significant goodwill in comparison with the total carrying value of goodwill of the Group, the key assumptions, long- term growth rate and discount rate used in the value in use calculations are shown below. 31 March 2017 Revenue (% annual growth rate) Trading margin (average % of revenue) Long-term growth rate Pre-tax discount rate 31 March 2016 Revenue (% annual growth rate) Trading margin (average % of revenue) Long-term growth rate Pre-tax discount rate Netherlands Commercial Waste 3.6% 7.8% 2.0% 8.6% Netherlands Commercial Waste 2.9% 7.8% 2.0% 8.6% Hazardous Waste 1.2% 14.1% 2.0% 8.7% Hazardous Waste 2.5% 13.2% 2.0% 8.6% VGG 1.0% 4.7% 2.0% 8.9% VGG – – – – The recoverable amounts of the Commercial, Hazardous Waste, Municipal and VGG CGUs were in excess of the carrying values and it is considered unlikely that any reasonably possible change to key assumptions would result in an impairment charge. 141 NOTES TO THE FINANCIAL STATEMENTS 14. Property, plant and equipment Cost At 1 April 2015 Acquisition through business combination Additions Disposals Transfer from assets held for sale Exchange At 31 March 2016 Acquisition through business combination (note 17) Additions Disposals Exchange At 31 March 2017 Accumulated depreciation and impairment At 1 April 2015 Depreciation charge Impairment charge Disposals Transfer from assets held for sale Exchange At 31 March 2016 Depreciation charge Impairment charge Disposals Exchange At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 Land and buildings £m Landfill sites £m Plant and machinery £m 226.7 – 11.5 (6.6) 3.3 17.9 252.8 140.4 7.8 (4.4) 20.4 417.0 88.3 8.0 0.2 (3.9) 1.7 7.6 101.9 10.0 0.5 (2.6) 8.1 117.9 299.1 150.9 138.4 36.5 – – – – 3.4 39.9 3.9 0.1 - 3.1 47.0 33.9 0.2 – – – 3.2 37.3 0.4 – – 2.7 40.4 6.6 2.6 2.6 470.1 0.1 16.9 (34.2) – 40.9 493.8 140.8 26.4 (18.7) 37.7 680.0 328.2 25.0 0.3 (32.6) – 29.4 350.3 31.4 6.3 (17.0) 27.3 398.3 281.7 143.5 141.9 Total £m 733.3 0.1 28.4 (40.8) 3.3 62.2 786.5 285.1 34.3 (23.1) 61.2 1,144.0 450.4 33.2 0.5 (36.5) 1.7 40.2 489.5 41.8 6.8 (19.6) 38.1 556.6 587.4 297.0 282.9 Included above are plant and machinery assets under construction of £9.8m (2016: £4.2m) and land and buildings assets under construction of £2.7m (2016: £3.0m). Depreciation expense of £40.0m (2016: £32.1m) has been charged in cost of sales and £1.8m (2016: £1.1m) in administrative expenses. Included in plant and machinery are assets held under finance leases with a net book value of £55.2m (2016: £11.0m) and in land and buildings are assets under finance leases with a net book value of £8.9m (2016: £2.8m). The impairment charge of £6.8m (2016: £0.5m) relates principally to plant and machinery at the UK Municipal organics facility as a result of adverse market developments. The recoverable amount was based on the value in use with a pre-tax discount rate applied of 8.5%. The impairment of land and buildings relates to the discontinued UK Solid Waste business as referred to in note 10. The prior year impairment charge of £0.5m relates principally to plant and equipment at the Belgium Commercial Shanks Wood Products facility as a result of market changes with the recoverable amounts determined with reference to the estimated fair value less costs of disposal of the land and buildings based on an external valuation and for the plant and equipment based on the value in use and a pre-tax discount rate of 9.5%. The impairment charge was split £6.0m (2016: £0.1m) cost of sales, £0.3m (2016: £0.4m) administrative expenses and £0.5m (2016: £nil) in discontinued cost of sales. 142 15. Investments and Loans to joint ventures and associates At 1 April 2015 Additions Share of retained profits Dividend income Fair value adjustment on cash flow hedges Exchange At 31 March 2016 Additions Acquisitions through business combinations (note 17) Share of retained profits Dividend income Fair value adjustment on cash flow hedges Exchange At 31 March 2017 Loans Loans to joint ventures and associates £m 1.3 – – – – – 1.3 18.5 0.1 – – – – 19.9 Investments Associates £m 3.4 – 0.4 – 0.1 – 3.9 – 1.1 0.5 (0.1) 0.3 – 5.7 Other unlisted investments £m 2.4 – – – – 0.3 2.7 – 1.0 – – – 0.3 4.0 Joint ventures £m 3.0 0.7 0.6 (0.1) – – 4.2 – 0.4 1.5 – – – 6.1 Total £m 8.8 0.7 1.0 (0.1) 0.1 0.3 10.8 – 2.5 2.0 (0.1) 0.3 0.3 15.8 Joint ventures are held at nil value when the Group’s share of losses exceeds the carrying amount as a result of the charge in relation to the fair value movement on cash flow interest rate hedges. The Group’s share of losses in the year was £3.8m (2016: £1.9m), cumulatively £13.9m (2016: £10.1m) which is unrecognised. The loans to joint ventures and associates increased by £18.5m in the year which included £17.5m in relation to the subordinated debt injection into Resource Recovery Solutions (Derbyshire) Limited. The loans to joint ventures and associates is split £5.7m current (2016: £nil) and £14.2m non-current (2016: £1.3m). Where the associate or joint venture holds non-recourse PFI/PPP debt there is a restriction on payment of dividends, which is due to the terms of the financing facility agreements and as such requires lender approval. Details of joint ventures and investments in associates are shown in note 35. No joint venture or associate is considered individually material to the Group for further disclosure. 143 NOTES TO THE FINANCIAL STATEMENTS 16. Derivative financial instruments Relating to core financing facility Cross-currency interest rate swaps – cash flow hedges Fuel derivatives – cash flow hedges Forward foreign exchange contracts – cash flow hedges Interest rate cap – cash flow hedge Relating to PFI/PPP contracts Interest rate swaps – cash flow hedges Interest rate swaps – at fair value through profit or loss Total Current Non-current Total 2017 Assets £m Liabilities £m 2016 Assets £m Liabilities £m – – – 0.3 – – 0.3 – 0.3 0.3 1.1 0.8 0.1 – 28.6 0.2 30.8 0.8 30.0 30.8 – – 0.3 – – – 0.3 0.3 – 0.3 – 3.0 0.1 – 27.9 0.2 31.2 2.4 28.8 31.2 The fair value of a derivative financial instrument is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than one year and as a current asset or liability when the remaining maturity is less than one year. Cumulative losses recognised in equity on the derivative financial instruments at 31 March 2017 were £29.4m (2016: £30.7m) with a gain of £1.3m recognised in the current year (2016: £4.8m loss) in the Statement of Comprehensive Income. There was no ineffectiveness to be recorded for the cash flow hedges. The foreign exchange gain on translation of the borrowings under the cross currency interest rate swaps of £0.9m (2016: £nil) is included within the £1.3m gain recognised in other comprehensive income. In the prior year £17.8m of losses were reclassified from equity to the Income Statement as a result of the interest rate swap contracts disposed of in relation to Wakefield Waste PFI Limited. Relating to core financing facilities Cross-currency interest rate swaps The notional principal amount of the outstanding forward cross currency interest rate swaps at 31 March 2017 was £75.0m (2016: £nil). Under these two contracts a floating rate term loan borrowing of Canadian dollar $50.0m was swapped to €36.1m at a fixed interest rate of 2.18% and a floating rate revolving credit facility (RCF) borrowing of Sterling £45m was swapped to €53.0m at a fixed interest rate of 2.17%. The expiry date for both contracts is 28 February 2020. Interest rate cap The notional principal amount of the outstanding interest rate cap contract at 31 March 2017 was £106.9m (2016: £nil). Under this contract the 3-month Euribor interest rate payable on £106.9m (€125m) of term loan and RCF borrowings is capped at 0.25% until 28 February 2020. Fuel derivatives The value of wholesale fuel covered by fuel derivatives at 31 March 2017 amounted to £12.6m (2016: £9.6m). The combined Group has annual usage across the Netherlands and Belgium of approximately 54m litres of diesel per annum of which approximately 34m litres has been fixed at an average of €0.40 per litre for the year to 31 March 2018 and a further 7m litres has been fixed at an average of €0.39 per litre for the year to 31 March 2019. Forward foreign exchange contracts The notional principal amount of the outstanding forward foreign exchange contracts at 31 March 2017 was £10.1m (2016: £5.6m). Under these contracts the UK Municipal business has fixed the Sterling rate of underlying Euro off take contracts on a monthly basis at an average GBP:EUR rate of 1.15 expiring on 7 March 2018. Relating to PFI/PPP contracts Interest rate swaps The notional principal amount of the outstanding interest rate swap contracts at 31 March 2017 was £100.4m (2016: £104.3m). Under these contracts the Libor rate of PPP/PFI non-recourse borrowing for Argyll & Bute, Cumbria and Barnsley Doncaster & Rotherham projects are fixed at rates of 5.8%, 4.8% and 3.4% respectively from inception to expiry on 16 January 2023, 30 September 2032 and 30 June 2037 respectively. The gains and losses recognised in the Statement of Comprehensive Income for cash flow hedges will be released to the Income Statement within finance costs until the repayment of the non-recourse borrowings. 144 17. Acquisitions and disposals Acquisitions On 28 February 2017, the Group acquired 100% of the share capital of Van Gansewinkel Groep BV (VGG) for £205.6m being £24.9m cash and consideration shares of £180.7m. The fair value of the 190,187,502 shares issued was based on the published share price on the date of acquisition of 95p per share. VGG is a market leader in the Benelux region whose operations were divided into two segments Waste Collections and Recycling. Following the acquisition, the Renewi Group has a fully national presence across the Netherlands bringing the opportunity to service all areas and clients in- house enabling a full waste-to-product service and allow it to address increased potential waste volumes to maximise utilisation of the Group’s facilities. In Belgium the combined Group will be able to provide a full waste service offering as legacy VGG and Shanks traditionally focussed on different regions. The provisional fair value of the identifiable assets and liabilities acquired in respect of the VGG acquisition were: Intangible assets: Customer relationships Intangible assets: Licenses Intangible assets: Permits Intangible assets: Software Property, plant and equipment Investments Trade and other receivables Assets held for sale Inventory Deferred taxation Current tax receivable Cash and cash equivalents Trade and other payables Provisions Defined benefit pension schemes deficit Deferred tax liability Current tax payable Derivatives Borrowings – Syndicated facility Borrowings - Finance leases, overdraft and other loans Net identifiable assets acquired Less: Non-controlling interests Add: Goodwill arising on acquisition Net assets acquired Purchase consideration – cash (outflow) inflow Cash consideration Less: Cash balances acquired Net cash inflow – investing activities Provisional fair value acquired £m 30.8 7.7 5.5 9.1 285.1 2.6 107.8 0.3 11.1 5.6 0.1 78.2 543.9 (186.9) (96.5) (8.1) (40.5) (4.6) (12.6) (276.9) (41.7) (667.8) (123.9) (7.7) 337.2 205.6 Total £m (24.9) 78.2 53.3 145 NOTES TO THE FINANCIAL STATEMENTS 17. Acquisitions and disposals continued The fair value of acquired trade receivables is £67.4m. The gross contractual amount for trade receivables due is £70.2m of which £2.8m is expected to be uncollectable. Land and buildings of £139.8m, included in property plant and equipment in the table above, have provisionally been carried at book value for the purposes of the purchase price allocation exercise as at 28 February 2017. The directors intend to obtain an external market appraisal of the fair value of the land and buildings acquired within the next six months, at which point a measurement period adjustment will be recorded which will affect the carrying value of the land and buildings and goodwill. The goodwill arising on the acquisition is attributable to management’s expectations in regard to VGG’s growth prospects and margin improvements as well as synergies to be achieved post acquisition. None of the goodwill on this acquisition is expected to be deductible for tax. As disclosed in note 4, the Group incurred £30.5m of acquisition related costs that were not directly attributable to the issue of shares and have been charged to the consolidated Income Statement as exceptional items. VGG contributed revenues of £71.5m and trading profit of £3.9m to the Group for the month of March 2017. If the acquisition had occurred on 1 April 2016, consolidated pro forma revenue and EBITDA for the year ended 31 March 2017 would have been £1,463.5m and £150.3m respectively. EBITDA is shown as this was the measure used by VGG prior to acquisition. This information is not necessarily indicative of the 2017 results for the consolidated group had the purchase actually been made at the beginning of the year presented, or indicative of the future consolidated performance given the nature of the business acquired. Disposals On 30 November 2015 the Group sold 100% of its holding in Shanks Wallonia Industrial Cleaning SA, a non-core industrial cleaning business in the Belgium Commercial Waste segment. A loss of £0.4m (2016: £3.7m) was recognised in non-trading administrative expenses as a result of the transaction. A payment of £1.2m including deferred consideration and a working capital adjustment was paid during the year ended 31 March 2017 (2016: £1.4m). On 30 March 2016 the Group signed a share purchase agreement to dispose of 100% of the subordinated debt and 49.99% of its equity interest in the Wakefield Waste PFI Holdings Limited. A loss of £5.0m was recognised in non-trading administrative expenses during the year ended 31 March 2016 as a result of the transaction. Total cash consideration was £30.0m of which £25.8m was received during the year ended 31 March 2016 and the remaining deferred consideration of £4.2m was received during the year ended 31 March 2017. The remaining holding in the Wakefield SPV is now recognised as a joint venture. 146 18. Deferred tax Deferred tax is provided in full on temporary differences under the liability method using applicable local tax rates. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. At 1 April 2015 (Charge) credit to Income Statement (note 9) (Charge) credit to equity Disposal of subsidiary Exchange At 31 March 2016 (Charge) credit to Income Statement (note 9) Credit (charge) to equity Acquisition through business combination (note 17) Exchange At 31 March 2017 Deferred tax assets Deferred tax liabilities At 31 March 2017 Deferred tax assets Deferred tax liabilities At 31 March 2016 Retirement benefit schemes £m 3.3 (0.5) (0.9) – – 1.9 (0.4) 1.7 2.1 – 5.3 5.3 – 5.3 1.9 – 1.9 Tax losses £m 9.2 0.4 – (2.9) 0.2 6.9 4.6 – 3.3 0.2 15.0 5.5 9.5 15.0 1.7 5.2 6.9 Derivative financial instruments £m 8.9 – 0.2 (3.2) – 5.9 – (0.7) – – 5.2 5.2 – 5.2 5.9 – 5.9 Capital allowances £m (27.3) 1.7 – 4.9 (2.2) (22.9) (1.9) – (26.0) (1.6) (52.4) 7.3 (59.7) (52.4) 7.2 (30.1) (22.9) Other timing differences £m (2.6) 1.2 (0.2) (1.4) (0.5) (3.5) 3.5 (0.1) (14.3) (1.0) (15.4) 8.0 (23.4) (15.4) 3.2 (6.7) (3.5) Total £m (8.5) 2.8 (0.9) (2.6) (2.5) (11.7) 5.8 0.9 (34.9) (2.4) (42.3) 31.3 (73.6) (42.3) 19.9 (31.6) (11.7) At 31 March 2017, £31.3m (2016: £19.1m) of the deferred tax asset and £73.6m (2016: £31.6m) of the deferred tax liability is expected to be recovered after more than one year. As at 31 March 2017, the Group had unused trading losses (tax effect) of £61.2m (2016: £29.4m) available for offset against future profits. A deferred tax asset has been recognised in respect of £15.0m (2016: £6.9m) of such losses and recognition is based on management’s projections of future profits in the relevant companies. No deferred tax asset has been recognised in respect of the remaining £46.2m (2016: £22.5m) due to the uncertainty of future profit streams. Tax losses may be carried forward indefinitely in the relevant companies with the exception of the Netherlands where the losses expire after 9 years (£3.2m recognised and £20.0m unrecognised). No liability has been recognised on the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries. This is because the Group is in a position to control the timing and method of the reversal of the differences and it is probable that such differences will not give rise to a tax liability in the foreseeable future. The total temporary difference at 31 March 2017 amounted to £194.3m (2016: £157.5m) and the unrecognised deferred tax on the unremitted earnings is estimated to be £0.3m (2016: £0.3m) which relates to taxes payable on repatriation and dividend withholding taxes levied by overseas jurisdictions. UK tax legislation relating to company distributions provides for exemption from tax for most repatriated profits, subject to certain exemptions. 147 NOTES TO THE FINANCIAL STATEMENTS 19. Inventories Raw materials and consumables Finished goods 2017 £m 9.8 10.1 19.9 2016 £m 6.1 0.7 6.8 20. Financial assets relating to PFI/PPP contracts Financial assets result from the application of IFRIC 12 on accounting for concession arrangements relating to the UK and Canada PFI/PPP Municipal contracts and they are measured initially at fair value of consideration receivable and subsequently at amortised cost. At 1 April 2015 Income recognised in the income statement: Interest Income (note 8) Advances Disposal Repayments Reclassified to intangible assets (note 13) Exchange At 31 March 2016 Income recognised in the income statement: Interest Income (note 8) Advances Repayments Exchange At 31 March 2017 Current Non-current At 31 March 2017 Current Non-current At 31 March 2016 £m 278.2 16.2 37.3 (133.7) (36.4) (3.9) 0.9 158.6 9.6 21.4 (13.1) 2.3 178.8 13.3 165.5 178.8 12.8 145.8 158.6 The prior year disposal related to the agreement to sell 49.99% of the equity of the Wakefield Waste SPV and the prior year reclassification of £3.9m related to UK Municipal contract rights which were reclassified to intangible assets. 148 21. Trade and other receivables Non-current assets Deferred consideration Other receivables Current assets Trade receivables Provision for impairment of receivables Trade receivables – net Accrued income Deferred consideration Other receivables Prepayments 2017 £m 0.8 2.3 3.1 144.5 (8.5) 136.0 53.0 – 30.0 15.0 234.0 2016 £m 0.5 0.6 1.1 71.2 (7.5) 63.7 20.0 4.7 22.5 11.5 122.4 As at 31 March 2017, the carrying amount included in trade and other receivables representing the Group’s continuing involvement in trade receivables subject to invoice finance facilities (as described on page 129) totalled £4.0m (2016: £3.3m) in trade receivables and £12.9m (2016: £3.4m) in other receivables. Movement in the provision for impairment of receivables: At 1 April Charged to Income Statement Utilised Disposal of subsidiary Exchange At 31 March The allowance for bad and doubtful debts is equivalent to 5.9% (2016: 10.5%) of gross trade receivables. Ageing of trade receivables that are past due but not impaired: Neither impaired nor past due Not impaired but overdue by less than three months Not impaired but overdue by between three and six months Not impaired but overdue by more than six months Impaired Impairment provision 2017 £m 7.5 1.4 (1.0) – 0.6 8.5 2017 £m 99.6 31.5 1.7 3.2 8.5 (8.5) 136.0 2016 £m 6.6 1.3 (0.7) (0.2) 0.5 7.5 2016 £m 47.3 14.7 0.5 1.2 7.5 (7.5) 63.7 Past due and current amounts are not impaired where collection is considered likely. The Group considers that the carrying amount of trade and other receivables approximates their fair value. There is no concentration of credit risk with respect to trade and other receivables as the Group has a large number of customers internationally dispersed with no individual customer owing a significant amount. 149 NOTES TO THE FINANCIAL STATEMENTS 21. Trade and other receivables continued The carrying amounts of trade and other receivables are denominated in the following currencies: Sterling Euro Canadian Dollar 22. Cash and cash equivalents Cash at bank and in hand Short-term deposits The carrying amounts of cash and cash equivalents are denominated in the following currencies: Sterling Euro Canadian Dollar 23. Assets classified as held for sale Property, plant and equipment 2017 £m 34.8 200.9 1.4 237.1 2016 £m 41.2 80.9 1.4 123.5 2017 £m 74.8 0.1 74.9 2017 £m 18.1 56.2 0.6 74.9 2017 £m 0.3 2016 £m 34.6 0.1 34.7 2016 £m 9.3 24.7 0.7 34.7 2016 £m – The assets held for sale were acquired through the VGG acquisition and consist of a piece of land on the Maarheeze site in the Netherlands which was formerly used as a waste collection site. 150 24. Borrowings Current borrowings Bank overdraft Finance lease obligations Other loans Core borrowings PFI/PPP non-recourse net debt Non-current borrowings Retail bonds Term loan Revolving credit facility Finance lease obligations Other loans Core borrowings PFI/PPP non-recourse net debt 2017 £m 4.0 12.3 0.1 16.4 2.1 18.5 170.2 123.0 156.2 32.9 0.1 482.4 85.0 567.4 The table below details the maturity profile of non-current borrowings: Between one and two years Between two years and five years Over five years 2017 PFI/PPP non- recourse net debt £m 2.5 9.3 73.2 85.0 Core borrowings £m 9.5 379.0 93.9 482.4 Total £m 12.0 388.3 167.1 567.4 2016 PFI/PPP non- recourse net debt £m 3.0 8.5 76.4 87.9 Core borrowings £m 2.0 141.5 81.4 224.9 The carrying amounts of borrowings are denominated in the following currencies: Sterling Euro Canadian Dollar 2017 £m 132.1 398.7 55.1 585.9 2016 £m – 2.4 – 2.4 3.2 5.6 157.5 – 59.6 7.8 – 224.9 87.9 312.8 Total £m 5.0 150.0 157.8 312.8 2016 £m 112.6 200.8 5.0 318.4 Core borrowings The Group’s core bank loans and retail bonds are unsecured and have cross guarantees from members of the Group. Term loan and revolving credit facilities At 31 March 2017, the Group had a core multicurrency bank facility of £513.1m (€600m) (2016: £142.7m (€180m)). €575m (£491.7m) of the facility, including the whole term loan and part of the revolving credit facility mature in five years on 29 September 2021 (in each case subject to two, one year extension options), the remaining €25m (£21.4m) of the revolving credit facility matures in two years on 29 September 2018. At 31 March 2017 the margin on the facility was 2.15% which will then vary according to a leverage based pricing grid. At 31 March 2017 the £123.0m (€143.8m) term loan was fully drawn (2016: £nil) and £156.2m (€182.7m) (2016: £61.3m (€77.4m)) of the revolving credit facility was drawn for borrowing. The remaining £233.9m (€273.5m) (2016:£81.4m (€102.6m)) was available for drawing under the revolving credit facility of which £69.7m (€59.6m) (2016: £nil (€nil)) was utilised for ancillary guarantee facilities. Retail bonds At 31 March 2017 the Group had two issues of retail bonds to investors in Belgium and Luxembourg which are listed on the London Stock Exchange. The retail bonds due July 2019 of £85.2m (€100m) (2016: £79.3m (€100m)) have an annual coupon of 4.23% and the green retail bonds due June 2022 of £85.0m (€100m) (2016: £79.3m (€100m)) have an annual coupon of 3.65%. 151 NOTES TO THE FINANCIAL STATEMENTS 24. Borrowings continued Finance leases The Group’s finance lease liabilities are payable as follows: Group Within one year Between one and five years More than five years 2017 2016 Minimum lease payments £m 13.4 25.9 10.7 50.0 Interest £m (1.1) (2.0) (1.7) (4.8) Principal £m 12.3 23.9 9.0 45.2 Minimum lease payments £m 2.8 5.8 4.5 13.1 Interest £m (0.4) (0.9) (1.6) (2.9) Principal £m 2.4 4.9 2.9 10.2 The Group has an option to purchase leased assets at the end of the lease term. There are no restrictions imposed by lessors to take out further debt or leases. PFI/PPP non-recourse net debt The PFI/PPP non-recourse debt is held in the three PFI/PPP companies: Argyll & Bute, Cumbria and Barnsley, Doncaster & Rotherham with maturities on 15 January 2023, 30 September 2032 and 30 June 2037 respectively. PFI/PPP cash and cash equivalents are offset against the non-recourse gross debt as they are subject to offsetting arrangements under the debt facilities. PFI/PPP non-recourse gross debt PFI/PPP cash and cash equivalents PFI/PPP non-recourse net debt 2017 Bank Loans PFI/PPP non-recourse net debt £m 102.7 (15.6) 87.1 2016 Bank Loans PFI/PPP non-recourse net debt £m 105.8 (14.7) 91.1 Each UK Municipal PFI/PPP company has non-recourse loan facilities which are secured by a legal mortgage over any land and a fixed and floating charge over the assets of the PFI/PPP company. Liquidity risk Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due. The Group primarily manages liquidity risk by monitoring forecast cash flows to ensure that revolving credit facility drawdowns are arranged as necessary and an adequate level of headroom is maintained. The way the Group manages liquidity risk has not changed from the previous year. Unutilised committed borrowing facilities: Expiring between one and two years Expiring in more than two years Core borrowings 2017 £m 21.4 161.6 183.0 2016 £m – 81.4 81.4 PFI/PPP non-recourse net debt 2017 £m – 1.9 1.9 2016 £m – 1.9 1.9 Total 2017 £m 21.4 163.5 184.9 2016 £m – 83.3 83.3 In addition, the Group had access to £4.3m (2016: £25.1m) of undrawn uncommitted working capital facilities. In the majority of cases subsidiaries holding non-recourse PFI/PPP debt and financial assets are restricted in their ability to transfer funds to the parent in the form of cash dividends or to repay loans and advances. This is due to the terms of the financing facility agreements and require lender approval to make such transfers. 152 24. Borrowings continued The following table analyses the Group’s financial liabilities and net settled derivative financial instruments into relevant maturity groupings. The maturities of the undiscounted cash flows, including interest and principal, at the balance sheet date are based on the earliest date on which the Group is obliged to pay. Within one year £m Between one and five years £m Over five years £m At 31 March 2017 Retail bonds Bank loans – core borrowings Bank loans – PFI/PPP non-recourse net debt Finance lease liabilities Net settled derivative financial instruments Trade and other payables At 31 March 2016 Retail bonds Bank loans – core borrowings Bank loans – PFI/PPP non-recourse net debt Finance lease liabilities Net settled derivative financial instruments Trade and other payables 25. Trade and other payables and other non-current liabilities Current liabilities Trade payables Other tax and social security payable Other payables Accruals Deferred revenue Deferred consideration Non-current liabilities Other payables Deferred revenue Deferred consideration Government grants 6.7 11.6 6.8 13.4 3.1 347.6 389.2 5.7 1.4 6.7 2.8 3.7 171.7 192.0 105.2 307.6 26.2 25.9 12.2 0.6 477.7 99.0 63.9 26.7 5.8 13.5 1.2 210.1 2017 £m 177.1 34.9 46.4 123.4 26.8 0.7 409.3 2.9 1.6 0.4 0.2 5.1 The carrying amounts of trade and other payables and other non-current liabilities are denominated in the following currencies: Sterling Euro Canadian Dollar 2017 £m 73.5 335.3 5.6 414.4 88.6 – 108.4 10.7 23.0 2.7 233.4 84.5 – 116.0 4.5 25.4 2.7 233.1 2016 £m 89.2 16.4 15.0 66.3 15.2 1.2 203.3 2.9 2.2 1.0 0.3 6.4 2016 £m 74.0 131.6 4.1 209.7 153 NOTES TO THE FINANCIAL STATEMENTS 26. Provisions At 1 April 2016 Provided in the year Released in the year Acquisition through business combination Finance charges – unwinding of discount (note 8) Utilised in the year Transfer Exchange At 31 March 2017 Current Non-current At 31 March 2017 Current Non-current At 31 March 2016 Site restoration and aftercare £m 36.9 0.4 – 74.8 1.7 (1.1) (0.5) 3.0 115.2 6.8 108.4 115.2 2.5 34.4 36.9 Restructuring £m 1.3 5.4 – 1.3 – (1.6) – – 6.4 6.4 – 6.4 1.3 – 1.3 Onerous contracts £m 12.2 28.2 – 4.8 0.8 (5.9) 0.5 – 40.6 21.7 18.9 40.6 5.0 7.2 12.2 Other £m 6.5 9.4 (0.2) 15.6 0.1 (5.6) – 0.2 26.0 10.6 15.4 26.0 4.2 2.3 6.5 Total £m 56.9 43.4 (0.2) 96.5 2.6 (14.2) – 3.2 188.2 45.5 142.7 188.2 13.0 43.9 56.9 Site restoration The site restoration provision as at 31 March 2017 related to the cost of final capping and covering of the landfill sites. The Group’s minimum unavoidable costs have been reassessed at the year end and the net present value fully provided for. These costs are expected to be paid over a period of up to 34 years from the balance sheet date and may be impacted by a number of factors including changes in legislation and technology. Aftercare Post-closure costs of landfill sites, including such items as monitoring, gas and leachate management and licensing, have been estimated by management based on current best practice and technology available. These costs may be impacted by a number of factors including changes in legislation and technology. The dates of payments of these aftercare costs are uncertain but are anticipated to be over a period of at least 30 years from closure of the relevant landfill site. Restructuring The restructuring provision relates to redundancy and related costs incurred as part of the previous structural cost programme and also recent restructuring initiatives including the delivery of merger related synergies. As at 31 March 2017 the remaining affected employees are expected to leave the business during the following year. Onerous contracts Onerous contracts are provided at the net present value of the least net cost of either exiting the contracts or fulfilling our obligations under the contracts. The provisions are to be utilised over the period of the contracts to which they relate with the latest date being 2040. Other Other provisions principally cover dilapidations, long-service employee awards, lifecycle expenditure obligations, legal claims, indirect tax, warranties and indemnities. Under the terms of the agreements for the disposal of certain businesses, the Group has given a number of warranties and indemnities to the purchasers which may give rise to payments. 154 27. Retirement benefit schemes Retirement benefit costs UK defined contribution scheme UK defined benefit scheme VGG defined benefit schemes Other overseas pension schemes 2017 £m 1.1 0.3 0.2 11.2 12.8 2016 £m 1.0 0.3 – 9.0 10.3 UK defined benefit scheme The UK defined benefit pension scheme (called the Shanks Group Pension Scheme) covers eligible UK employees and is closed to new entrants. The defined benefit plan provides benefits to members in the form of a guaranteed level of pension payable for life and the level of benefits provided depends on the members’ length of service and salary. Plan assets are managed by the trustees. There are five trustees, three were appointed by the Company and two nominated by members, who are responsible for ensuring the scheme is run in accordance with the members’ best interests and the pension laws of the UK (which are overseen by The Pensions Regulator). The most recent triennial actuarial valuation of the Scheme, which was performed by independent qualified actuaries for the trustees of the Scheme, was carried out as at 5 April 2015. The Group has agreed that it will aim to eliminate the pension plan deficit over a further five years, with an agreed annual deficit contribution of £3.1m. The total estimated contributions expected to be paid to the scheme in the year ending 31 March 2018 are £3.3m. The scheme’s assets of £174.0m (2016: £150.8m) are invested via Aon’s Delegated Consulting Service which is a fiduciary investment management platform managed by Hewitt Risk Management Services Limited. The delegated mandate is split into a growth and a hedging component and the allocation to each is determined by the investment objectives set by the trustees. The growth component of £97.0m (2016: £84.2m) comprises the following asset classes: equities, fixed income, debt, property, infrastructure and hedge funds. The hedging component of £77.0m (2016: £66.6m) comprises a mix of leveraged gilt funds and cash. The significant actuarial assumptions adopted at the balance sheet date were as follows: Discount rate Rate of price inflation Consumer price inflation 2017 % p.a. 2.6 3.3 2.2 2016 % p.a. 3.5 3.0 2.0 The discount rate assumption is derived from the single agency curve based on high quality AA rated bonds. The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a member currently aged 65 will live on average for a further 23 years if they are male and for a further 25 years if they are female. For a member who retires in 2037 at age 65 the assumptions are that they will live on average for around a further 25 years after retirement if they are male or for a further 27 years after retirement if they are female. The weighted average duration of the defined benefit obligation is approximately 19 years. The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Discount rate Rate of price inflation Consumer price inflation Life expectancy Impact on net defined benefit obligation Change in assumption % 0.25 0.25 0.25 Increase in assumption £m 8.9 (5.6) (5.6) Decrease in assumption £m (9.4) 4.8 4.8 Increase by 1 year in assumption £m (7.0) Decrease by 1 year in assumption £m 7.0 155 NOTES TO THE FINANCIAL STATEMENTS 27. Retirement benefit schemes continued The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, as changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the balance sheet. VGG defined benefit schemes The VGG net defined benefit obligation relates to funded plans, mainly insurance contracts managed by insurers, in both the Netherlands and Belgium. There are various schemes which are based on final salaries and in some cases on average salaries. The assets consist of qualifying insurance policies which match the vested benefits. The vested benefits will be financed immediately for the pension plan. The build-up of rights for inactives are indexed on the basis of additional interest and rights of active employees are being indexed unconditionally with the price-inflation figure. There are no unfunded plans. The total estimated contributions expected to be paid to the scheme in the year ending 31 March 2018 are £2.0m. The significant actuarial assumptions adopted at the balance sheet date for the most significant scheme were as follows: Discount rate Rate of salary inflation Rate of price inflation 2017 % p.a. 2.2 2.5 2.0 The discount rate assumption is based on interest rates applying to high quality corporate bonds with a term approximately equal to the term of the related pension liability. The mortality assumptions are based on standard mortality tables which allow for future mortality improvements. The assumptions are that a member currently aged 65 will live on average for a further 22 years if they are male and for a further 24 years if they are female. For a member who retires in 2037 at age 65 the assumptions are that they will live on average for around a further 24 years after retirement if they are male or for a further 26 years after retirement if they are female. The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is: Discount rate Rate of price inflation Impact on net defined benefit obligation Change in assumption % 0.25 0.25 Increase in assumption £m (2.8) 0.3 Decrease in assumption £m 3.0 (0.3) The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, as changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the balance sheet. 156 27. Retirement benefit schemes continued The amounts recognised in the financial statements are as follows: Income statement Current service cost Interest expense on scheme net liabilities Net retirement benefit charge before tax Statement of comprehensive income Actuarial (loss) gain on scheme liabilities Actuarial gain (loss) on scheme assets Actuarial (loss) gain 2017 2016 UK £m 0.3 0.3 0.6 UK £m (33.2) 22.5 (10.7) VGG £m 0.2 – 0.2 VGG £m – – – 2017 Total £m 0.5 0.3 0.8 Total £m (33.2) 22.5 (10.7) UK £m 0.3 0.5 0.8 UK £m 9.6 (6.4) 3.2 VGG £m – – – VGG £m – – – 2016 Cumulative actuarial gains and losses recognised in the statement of comprehensive income since 1 April 2004 are losses of £36.4m (2016: £25.7m). Balance sheet Present value of funded obligations Fair value of plan assets Pension scheme deficit Related deferred tax asset (note 18) Net pension liability 2017 2016 UK £m (192.7) 174.0 (18.7) 3.2 (15.5) VGG £m (52.8) 44.6 (8.2) 2.1 (6.1) Total £m (245.5) 218.6 (26.9) 5.3 (21.6) The movement in the amounts recognised in the balance sheet: At 1 April 2015 Current service cost Interest expense Net actuarial gains recognised in the year Contributions from employer At 31 March 2016 Acquisition through business combination (note 17) Current service cost Interest expense Net actuarial losses recognised in the year Contributions from employer At 31 March 2017 UK £m (161.5) 150.8 (10.7) 1.9 (8.8) UK £m (16.4) (0.3) (0.5) 3.2 3.3 (10.7) – (0.3) (0.3) (10.7) 3.3 (18.7) VGG £m – – – – – VGG £m – – – – – – (8.1) (0.2) – – 0.1 (8.2) Total £m 0.3 0.5 0.8 Total £m 9.6 (6.4) 3.2 Total £m (161.5) 150.8 (10.7) 1.9 (8.8) Total £m (16.4) (0.3) (0.5) 3.2 3.3 (10.7) (8.1) (0.5) (0.3) (10.7) 3.4 (26.9) 157 NOTES TO THE FINANCIAL STATEMENTS 27. Retirement benefit schemes continued Reconciliation of the defined benefit obligation: At 1 April 2015 Current service cost Interest expense Remeasurements: Actuarial gain on scheme liabilities arising from changes in financial assumptions Actuarial gain on scheme liabilities arising from changes in experience Actuarial loss on scheme liabilities arising from changes in demographic assumptions Contributions from plan participants Benefit payments At 31 March 2016 Acquisition through business combination Current service cost Interest expense Remeasurements: Actuarial loss on scheme liabilities arising from changes in financial assumptions Actuarial gain on scheme liabilities arising from changes in experience Actuarial loss on scheme liabilities arising from changes in demographic assumptions Contributions from plan participants Benefit payments At 31 March 2017 Reconciliation of plan assets: At 1 April 2015 Interest income Remeasurements: Return on plan assets excluding interest expense Contributions from employer Contributions from plan participants Benefit payments At 31 March 2016 Acquisition through business combination Interest income Remeasurements: Return on plan assets excluding interest expense Contributions from employer Contributions from plan participants Benefit payments At 31 March 2017 UK £m (169.2) (0.3) (5.7) 3.8 6.0 (0.2) (0.1) 4.2 (161.5) – (0.3) (5.5) (33.3) 1.1 (1.0) (0.1) 7.9 (192.7) UK £m 152.8 5.2 (6.4) 3.3 0.1 (4.2) 150.8 – 5.2 22.5 3.3 0.1 (7.9) 174.0 VGG £m – – – – – – – – – (52.4) (0.2) (0.1) – – – (0.1) – (52.8) VGG £m – – – – – – – 44.3 0.1 – 0.1 0.1 – 44.6 Total £m (169.2) (0.3) (5.7) 3.8 6.0 (0.2) (0.1) 4.2 (161.5) (52.4) (0.5) (5.6) (33.3) 1.1 (1.0) (0.2) 7.9 (245.5) Total £m 152.8 5.2 (6.4) 3.3 0.1 (4.2) 150.8 44.3 5.3 22.5 3.4 0.2 (7.9) 218.6 158 27. Retirement benefit schemes continued Through its defined benefit pension schemes the Group is exposed to a number of risks, the most significant of which are set out below. Asset volatility The scheme liabilities are calculated using a discount rate set with reference to corporate bond yields and if plan assets underperform this yield, this will result in a deficit. The UK pension scheme’s assets are held in a portfolio of pooled funds which are single priced at the net asset value. The investment objective of the portfolio is to achieve long-term total returns in excess of a nominal portfolio of long-dated Sterling bonds through a diversified portfolio of collective investment schemes, which may include derivatives. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The trustees have agreed an underlying strategy with the Company so that any ongoing improvements in the scheme’s funding position would trigger movements from growth assets to non-growth assets in order to protect and consolidate such improvements. The assets in the VGG pension schemes consist of qualifying insurance policies which match the benefits that will be paid to employees. Changes in bond yields A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the scheme’s bond holdings. Inflation risk The majority of benefit obligations are linked to inflation and higher inflation will lead to higher liabilities. For the UK scheme caps on the level of inflationary increases are in place to protect the plan against extreme inflation. Life expectancy The majority of the scheme’s obligations are to provide benefits for the life of the member, so increases in the life of the member will result in an increase in the liabilities. Other overseas schemes The total cost in the year for other overseas pensions was £11.2m (2016: £9.0m). In the Netherlands in particular, employees are members of either a multi-employer pension scheme or other similar externally funded schemes, including Government funded schemes. These schemes are treated as defined contribution plans as it is not possible to separately identify the Group’s share of the assets and liabilities of those schemes. The Group has been informed by the schemes that it has no obligation to make additional contributions in the event that the schemes have an overall deficit. In addition there are a number of pension schemes in Belgium which are considered as defined benefit schemes under IAS 19. At 31 March 2017 the potential liability to the Group was estimated and determined as not significant. 159 NOTES TO THE FINANCIAL STATEMENTS 28. Share capital and share premium Group Share capital allotted, called up and fully paid At 1 April 2015 Issued under share option schemes At 31 March 2016 Issued under rights issue and firm placing Consideration shares issued as consideration for acquisition of subsidiary Issued under share option schemes At 31 March 2017 Ordinary shares of 10p each £m Share premium £m Number 397,850,417 339,140 398,189,557 211,201,962 190,187,502 233,202 799,812,223 39.8 – 39.8 21.1 19.0 – 79.9 100.0 0.2 100.2 115.2 161.7 0.1 377.2 On 24 October 2016 a firm placing of 45,000,000 shares was completed at a price of 100p per share. On 10 November 2016 a 3 for 8 rights issue of 166,201,962 shares to qualifying shareholders was completed at 58p per share. The Company raised £136.3m net of £5.1m issuance costs. The bonus factor used in all calculations was 1.129. On 28 February 2017 the Group issued 190,187,502 shares as part of the purchase consideration for 100% of the ordinary share capital of Van Gansewinkel Groep B V. The ordinary shares issued have the same rights as the other shares in issue. During the year 233,202 (2016: 339,140) ordinary shares were allotted following the exercise of share options under the Savings Related Share Option Schemes for an aggregate consideration of £156,017 (2016: £249,548). Further disclosures relating to share-based options are set out in note 7. 160 29. Financial instruments Carrying value of financial assets and financial liabilities Financial assets Loans and receivables Loans to joint ventures and associates Trade and other receivables excluding prepayments Cash and cash equivalents Financial assets relating to PFI/PPP contracts Derivative financial instruments Interest rate cap Forward foreign exchange contracts Available for sale financial assets Unlisted investments Note 15 21 22 20 16 15 2017 £m 19.9 222.1 74.9 178.8 0.3 – 4.0 500.0 2016 £m 1.3 112.0 34.7 158.6 – 0.3 2.7 309.6 The Group considers that the fair value of financial assets is not materially different to their carrying value. For unlisted investments the carrying value is measured at cost as the range of possible fair values is significant and the Group has no current plans to dispose of these investments. Financial liabilities Financial liabilities at amortised cost Bank overdraft Term loan, revolving credit facility and other loans Retail bonds Finance lease obligations Trade and other payables excluding non-financial liabilities Bank loans – PFI/PPP non-recourse net debt Derivative financial instruments Cross-currency interest rate swaps Fuel derivatives Forward foreign exchange contracts Interest rate swaps relating to PFI/PPP contracts Note 24 24 24 24 25 24 16 16 16 16 2017 £m 4.0 279.4 170.2 45.2 350.9 87.1 1.1 0.8 0.1 28.8 967.6 2016 £m – 59.6 157.5 10.2 175.6 91.1 – 3.0 0.1 28.1 525.2 The Group considers that the fair value of bank loans, trade and other payables and finance lease obligations are not materially different to their carrying value. Fair value hierarchy The Group uses the following hierarchy of valuation techniques to determine the fair value of financial instruments:  Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;  Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;  Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. During the year ended 31 March 2017, there were no transfers between level 1 and level 2 fair value measurements and no transfers into and out of level 3. 161 NOTES TO THE FINANCIAL STATEMENTS 29. Financial instruments continued Valuation techniques used to derive Level 2 fair values The fair values of interest rate swaps, interest rate caps, cross-currency interest rate swaps, forward foreign exchange contracts and fuel derivatives are determined by discounting the future cash flows using the applicable period-end yield curve. For the retail bonds, the fair value is based on indicative market pricing. The table below presents the Group’s assets and liabilities measured at fair value: Assets Derivative financial instruments (note 16) Liabilities Derivative financial instruments (note 16) Retail bonds Level 2 2017 £m 0.3 0.3 30.8 177.4 208.2 2016 £m 0.3 0.3 31.2 164.6 195.8 Risk management The Group is exposed to market risk (interest rate risk and commodity price risk), foreign exchange risk, liquidity risk and counterparty credit risk. The Group’s Treasury Committee is charged with managing and controlling risk relating to the financing and liquidity of the Group under policies approved by the Board of Directors. The Group does not enter into speculative transactions. These risks are described in more detail below in addition to the information disclosed in note 16. Interest rate risk Changes in interest rates could have an impact on the interest cover covenant of the core Group facilities and on the interest charge in the Income Statement. In order to monitor and manage the risk, borrowings and the expected interest cost for the year are frequently forecasted and sensitised for potential changes. The Group has continued to limit its exposure to interest rate risk by using fixed rate retail bonds, fixed rate finance leases and, following the recent acquisition, entering into cross currency interest rate swaps and an interest rate cap to protect the Group from movements in interest rates over the next three years. The proportion of the Group’s core borrowing that was fixed or hedged at 31 March 2017 was £387.1m (2016: £168.5m) or 78% (2016: 74%). Additionally the PFI/PPP non-recourse floating rate borrowings are hedged using interest rate swaps. The interest rate swaps hedge the interest cash flows. The interest rate swaps and cross currency swaps are accounted for under IAS 39 with changes in the fair value of interest rate swaps being recognised directly in reserves, as they are effective hedges. The interest rate swap in relation to Argyll & Bute has not been designated as a hedge by the Group therefore it is classified as held for trading in accordance with IAS 39. 162 29. Financial instruments continued Interest rate sensitivity for core borrowings Interest on the unhedged floating rate revolving credit facility will vary as interest rates increase or decrease. If rates had moved by 1% the impact on profit before tax would have been a loss or gain of £0.8m (2016: £0.5m) based on the average core bank borrowing during the year. The fair values of cross currency interest rate swaps for hedging the core borrowing are determined with reference to floating market interest rates. A 1% increase in interest rates would have reduced the fair value of the interest rate hedge liabilities and resulted in a pre-tax gain in other comprehensive income of £2.3m (2016: £nil). A 1% decrease in interest rates would have increased the fair value of the interest rate hedge liabilities and led to a pre-tax loss in other comprehensive income of £2.4m (2016: £nil). The fair value of the interest rate cap used for hedging the core borrowing was determined with reference to floating market interest rates. A 1% increase in interest rates would have increased the fair value of the interest rate cap asset and resulted in a pre-tax gain in other comprehensive income of £1.6m (2016: £nil). A 1% decrease in interest rates would have reduced the fair value of the interest rate cap asset and led to a pre-tax loss in other comprehensive income of £0.2m (2016: £nil). Interest rate sensitivity for PFI/PPP non-recourse borrowings There is no unhedged amount of the PFI/PPP facilities. The fair values of interest rate swaps used for hedging of PFI/PPP non-recourse borrowings are determined with reference to floating market interest rate. A 1% increase in interest rates would have reduced the fair value of the interest rate swap liabilities and resulted in a pre-tax gain in other comprehensive income of £11.0m (2016: £22.2m as restated to remove the sale of the Wakefield investment). A 1% decrease in interest rates would have increased the fair value of the cross currency interest rate swap liabilities and led to a pre-tax loss in other comprehensive income of £12.6m (2016: £13.5m as restated to remove the impact of the sale of the Wakefield investment). Foreign exchange risk The Group operates in Europe and Canada and is exposed to translation risk on the value of assets denominated in Euro and Canadian Dollar into Sterling. This exposure is reduced by borrowing in Euros and Canadian Dollars. The Group applies hedge accounting principles to net investments in foreign operations and the related borrowings. The Group has limited transactional risk as the Group’s subsidiaries conduct the majority of their business in their respective functional currencies. Some risk arises on the export of processed waste from the UK to Europe in Euros which is managed through the use of forward exchange contracts. The Group has designated the carrying value of Euro borrowings (excluding finance leases) of £349.8m (2016: £190.8m) (fair value of £357.0m (2016: £197.9m)) as a net investment hedge of the Group’s investments denominated in Euros. The hedge was 100% effective for the year ended 31 March 2017 (2016: 100%) and as a result the related exchange loss of £17.2m (2016: £18.7m loss) on translation of the borrowings into Sterling has been recognised in the exchange reserve. Foreign exchange sensitivity The impact of a change in foreign exchange rates of 10% on the Group’s profit before tax would be £2.3m (2016: £0.5m) and the impact on underlying profit before tax would have been £3.4m (2016: £2.0m). The fair values of cross currency interest rate swaps for hedging the core borrowing are determined with reference to spot foreign exchanges rates. A 10% increase in the Euro foreign exchange rate against the Canadian Dollar and Sterling would have increased the fair value of the cross currency interest rate swap liabilities and resulted in a pre-tax loss in other comprehensive income of £7.3m (2016: £nil). A 10% decrease in the Euro foreign exchange rate against the Canadian Dollar and Sterling would have reduced the fair value of the cross currency interest rate swap liabilities to become an asset and led to a pre-tax gain in other comprehensive income of £8.9m (2016: £nil). 163 NOTES TO THE FINANCIAL STATEMENTS 29. Financial instruments continued Commodity price risk The Group is exposed to diesel price changes which are managed using forward contracts. The Group manages other exposures to prices of paper, plastics, metals, residual fuels and other recyclates associated with off take through commercial contracting as they are not commoditised. Commodity price sensitivity The impact of a change in unhedged wholesale fuel prices (excluding duty) of 10% on the Group’s profit before tax would have been £0.4m (2016: £0.2m). Credit risk Credit risk is the risk of financial loss where counterparties are not able to meet their obligations. Surplus cash is primarily used to repay borrowings. At 31 March 2017 the amount of credit risk on cash and short-term deposits totalled £74.9m (2016: £34.7m). Trade and other receivables mainly comprise amounts due from customers for services performed. Management considers that the exposure to any single customer is not significant and that where credit quality is in doubt, adequate provision has been made for probable losses. At 31 March 2017 the amount of credit risk on trade and other receivables amounted to £209.2m (2016: £108.6m). The Group does not hold any collateral as security. The financial assets relating to PFI/PPP contracts are recoverable from the future revenues relating to these contracts. Management consider that as the counterparties for the future revenues are local authorities or councils, there is minimal credit risk. At 31 March 2017 the amount of credit risk on financial assets amounted to £178.8m (2016: £158.6m). Capital management The Group actively manages the capital available to fund the Group, comprising equity and reserves together with core debt funding. In order to make decisions over where capital is allocated, the Group monitors the return on capital employed. The Group has a funding strategy to ensure there is an appropriate debt to equity ratio as well as an appropriate debt maturity profile. The strategy is based on the requirements of the Company’s Articles of Association, which state that borrowings should be limited to three times the level of capital and reserves, which is the equity attributable to the owners of the parent. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as core net debt divided by total capital. The gearing ratios at 31 March 2017 and 2016 were as follows: Total core borrowings Less: cash and cash equivalents Core net debt Total equity Total capital Gearing ratio Note 24 22 2017 £m 498.8 (74.9) 423.9 438.1 862.0 49% 2016 £m 227.3 (34.7) 192.6 182.8 375.4 51% During the year the firm placing and rights issues raised additional funding of £136.3m. The Group has to comply with a number of banking covenants which are set out in the core bank facility agreements including interest cover and the ratio of debt to EBITDA of the Group. There are other restrictions in the loan documentation concerning acquisitions, disposals, security and other issues. The Group has complied with its banking covenants during the year. 164 30. Notes to the statements of cash flows Loss before tax Fair value gain on financial instruments Finance income Finance charges Share of results from associates and joint ventures Operating (loss) profit from continuing operations Operating (loss) profit from discontinued operations Amortisation and impairment of intangible assets Depreciation and impairment of property, plant and equipment Gain on disposal of property, plant and equipment Increase in service concession arrangement receivable Exceptional gain on disposal of property, plant and equipment Exceptional gain on disposal of discontinued assets Exceptional loss on disposal of subsidiaries Net increase in provisions Payments to fund defined benefit pension scheme deficit Share-based compensation Exceptional non-cash contract costs Operating cash flows before movement in working capital (Increase) decrease in inventories (Increase) decrease in receivables Increase in payables Cash flows from operating activities 2017 £m (61.4) – (10.3) 34.7 (2.0) (39.0) (0.5) 8.6 48.6 (0.5) (19.6) (0.5) – 0.2 29.0 (3.1) 0.5 – 23.7 (1.5) (4.1) 9.8 27.9 2016 £m (2.5) (0.1) (16.6) 30.0 (1.0) 9.8 0.1 4.4 33.7 (3.0) (10.3) – (0.4) 8.7 2.1 (3.1) 0.5 2.3 44.8 0.8 5.0 21.6 72.2 Movement in net debt Cash and cash equivalents Bank loans Retail bonds Finance leases Total core net debt PFI/PPP non-recourse net debt Total net debt At 1 April 2016 £m 34.7 (59.6) (157.5) (10.2) (192.6) (91.1) (283.7) Cash flows £m (40.4) 65.7 – 3.2 28.5 4.0 32.5 Acquired £m 78.2 (282.3) – (36.3) (240.4) – (240.4) Other non-cash changes £m – (1.6) (0.2) (1.1) (2.9) – (2.9) Exchange movements £m 2.4 (5.6) (12.5) (0.8) (16.5) – (16.5) At 31 March 2017 £m 74.9 (283.4) (170.2) (45.2) (423.9) (87.1) (511.0) Consolidated movement in net debt Net decrease in cash and cash equivalents Net decrease in borrowings and finance leases Capitalisation of loan fees Cash and borrowings acquired through the VGG business combination Total cash flows in net debt Disposal of PFI/PPP non-recourse debt Finance leases entered into during the year Deferred interest of PFI/PPP non-recourse debt Amortisation of loan fees Exchange loss Movement in net debt Net debt at beginning of year Net debt at end of year 2017 £m (40.4) 72.9 – (240.4) (207.9) – (1.1) – (1.8) (16.5) (227.3) (283.7) (511.0) 2016 £m (28.9) 62.4 1.7 – 35.2 80.4 (0.3) (3.1) (1.1) (17.2) 93.9 (377.6) (283.7) 165 NOTES TO THE FINANCIAL STATEMENTS 30. Notes to the statements of cash flows continued Reconciliation of underlying free cash flow as presented in the Finance Review Net cash inflow from operating activities Exclude provisions, working capital and restructuring spend Exclude payments to fund UK defined benefit pension scheme Exclude increase in service concession arrangement Include finance charges and loan fees paid (excluding exceptional finance charges) Include finance income received Include purchases of replacement items of intangible assets Include purchases of replacement items of property, plant and equipment Include proceeds from disposals of property, plant and equipment Underlying free cash flow 31. Capital commitments Contracts placed for future capital expenditure on financial assets Contracts placed for future capital expenditure on property, plant and equipment Contracts placed for future intangible assets Joint venture contracts placed for future capital expenditure including financial assets 2017 £m 22.6 25.5 3.1 19.6 (19.4) 9.9 (3.1) (37.9) 2.8 23.1 2017 £m 1.9 18.9 1.3 10.4 2016 £m 67.4 7.4 3.1 10.3 (25.4) 12.6 (1.0) (23.8) 6.2 56.8 2016 £m 17.2 9.6 1.1 30.2 166 32. Financial commitments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Within one year Later than one year and less than five years More than five years Future minimum lease payments expected to be received under non-cancellable sub-leases 2017 £m 31.1 70.8 140.3 242.2 (0.6) 241.6 2016 £m 10.9 24.1 52.8 87.8 (0.2) 87.6 33. Contingent liabilities Due to the nature of the industry in which the business operates, from time to time the Group is made aware of claims or litigation arising in the ordinary course of the Group’s business. Provision is made for the Directors’ best estimate of all known claims and all such legal actions in progress. The Group takes legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice that the action is unlikely to succeed or a sufficiently reliable estimate of the potential obligation cannot be made. Under the terms of sale agreements, the Group has given a number of indemnities and warranties relating to the disposed operations for which appropriate provisions are held. In respect of contractual liabilities the Group and its subsidiaries have given guarantees and entered into counter indemnities of bonds and guarantees given on their behalf by sureties and banks totalling £216.4m (2016: £165.7m). 167 NOTES TO THE FINANCIAL STATEMENTS 34. Related party transactions Non-controlling interests The information below reflects the amounts included in the Group’s Income Statement and Balance Sheet for subsidiaries with material non- controlling interests at 31 March 2017. Revenue Profit after tax Other comprehensive income Total comprehensive income Loss allocated to the non-controlling interests Non-current assets Current assets Non-current liabilities Current liabilities Net assets Accumulated non-controlling interests Maltha Groep BV £m 4.2 (0.1) – (0.1) – 28.9 15.5 (10.3) (14.6) 19.5 6.5 2017 Others £m 18.3 (1.2) (0.7) (1.9) (0.5) 73.6 9.5 (62.1) (24.6) (3.6) (1.3) Total £m 22..5 (1.3) (0.7) (2.0) (0.5) 102.5 25.0 (72.4) (39.2) 15.9 5.2 Net increase (decrease) in cash and cash equivalents 0.3 (0.3) – Comparative information is not disclosed as there were no material non-controlling interests in the year ended 31 March 2016. Transactions between the Group and its associates and joint ventures The Group had the following transactions and outstanding balances with associates and joint ventures, in the ordinary course of business: Sales Purchases Management fees Interest on loans to joint ventures and associates Receivables at 31 March Payables at 31 March Loans made by Group companies at 31 March Loans made to Group companies at 31 March Associates 2017 £m 64.1 1.5 0.7 – 7.2 0.3 1.1 – 2016 £m 59.3 0.1 0.7 – 5.9 – – – Joint ventures 2017 £m 74.6 0.4 0.8 0.1 4.1 0.2 19.1 0.5 2016 £m 40.0 1.4 0.4 0.1 3.2 0.1 1.3 0.5 The receivables and payables are due one month after the date of the invoice are unsecured in nature and bear no interest. 168 34. Related party transactions continued Remuneration of key management personnel Key management personnel comprises the Board of Directors and the members of the Group’s Executive Committee. The disclosures required by the Companies Act 2006 and those specified by the Financial Conduct Authority relating to Directors’ remuneration (including retirement benefits and incentive plans), interests in shares, share options and other interests, are set out within the Directors’ Remuneration Report on pages 86 to 101, and form part of these financial statements. The emoluments paid or payable to key management personnel were: Short-term employee benefits Post-employment benefits Share-based payments 2017 £m 3.9 0.2 0.2 4.3 2016 £m 3.7 0.3 0.3 4.3 169 NOTES TO THE FINANCIAL STATEMENTS 35. Subsidiary undertakings and investments at 31 March 2017 Subsidiary undertakings In accordance with section 409 of the Companies Act, a full list of subsidiaries at 31 March 2017 is disclosed. All are wholly-owned by the Group and have a 31 March year end unless otherwise stated and all operate in the waste management sector and have been consolidated in the Group’s financial statements. Those subsidiaries owned by Renewi plc, the parent company, are indicated with an asterix. Subsidiary Address of the registered office Incorporated in the Netherlands AB Civiel Beheer BV Afvalstoffen Terminal Moerdijk BV A&G Holding BV B.V. Twente Milieu Bedrijven B.V. van Vliet Groep Milieu-Dienstverleners Coolrec BV Coolrec Nederland BV EcoSmart Nederland BV Glasrecycling Noord-Oost Nederland BV Icopower BV Icova BV IMMO CV Klok Containers BV Maltha Glasrecycling Nederland BV (67%) Maltha Glassrecycling International BV (67%) Maltha Groep BV (67%) Orgaworld International BV Orgaworld Nederland BV Orgaworld WKK 1 BV Orgaworld WKK II BV Orgaworld WKK III BV Plastic Herverwerking Brakel BV Riebeek Olie Amsterdam 1 BV Regionale Reinigingsdienst (R.R.D.) BV Reym BV Robesta Vastgoed Acht BV Robesta Vastgoed BV Semler BV Shanks Belgium Holding BV Shanks BV Valgenweg 7, 9936HV Farmsum, Netherlands Vlasweg 12, 4782 PW Moerdijk, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Grote Wade 45, 3439 NZ Nieuwegein, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Grevelingenweg 3, 3313 LB Dordrecht, Netherlands Spaarpot 6, 5667 KX Geldrop, Netherlands Columbusstraat 20, 7825 VR Emmen, Netherlands Kajuitweg 1, 1041 AP Amsterdam, Netherlands Kajuitweg 1, 1041 AP Amsterdam, Netherlands Loswalweg 50, 3199 LG Maasvlakte Rotterdam, Netherlands Molenvliet 4, 3076 CK Rotterdam, Netherlands Glasweg 7, 4794 TB Heijningen, Netherlands Glasweg 7, 4794 TB Heijningen, Netherlands Glasweg 7, 4794 TB Heijningen, Netherlands Lindeboomseweg 15, 3825 AL Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL Amersfoort, Netherlands Hornweg 67, 1044 AN Amsterdam, Netherlands Hornweg 69, 1044 AN Amsterdam, Netherlands Hornweg 71, 1044 AN Amsterdam, Netherlands Van Hilststraat 7, 5145 RK Waalwijk, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Computerweg 12, 3821 AB Amersfoort, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Ockhuizenweg 5-A, 5691 PJ Son, Netherlands Lindeboomseweg 15, 3825 AL Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL Amersfoort, Netherlands 170 35. Subsidiary undertakings and investments at 31 March 2017 continued Subsidiary Address of the registered office Incorporated in the Netherlands Shanks European Investments 1 Coop WA Shanks European Investments 2 Coop WA* Shanks Hazardous Waste BV Shanks Nederland BV Shanks Netherlands Holdings BV Shanks Netherlands Investments BV Smink Afvalverwerking BV Smink Beheer BV Transportbedrijf Van Vliet BV Van Gansewinkel CFS BV Van Gansewinkel Industrial Services BV Van Gansewinkel Industrie BV Van Gansewinkel International BV Van Gansewinkel Maasvlakte BV Van Gansewinkel Milieuservices Overheidsdiensten BV Van Gansewinkel Milieutechniek BV Van Gansewinkel Nederland BV Van Gansewinkel Recycling BV Van Gansewinkel Zweekhorst BV Verwerking Bedrijfsafvalstoffen Maasvlakte (V.B.M.) CV Vliko BV Incorporated in Belgium Belgo-Luxembourgeoise de Services Publics SA Coolrec Belgium NV Eco-Smart NV Enviro+ NV Maltha Glasrecycling Belgie BVBA Ocean Combustion Service NV Recydel SA (80%) Shanks Belgium NV (previously Shanks Vlaanderen NV) Shanks Logistics NV Shanks Valorisation & Quarry SA (previously Shanks SA) Shanks Wood Products NV Van Gansewinkel NV Van Gansewinkel ES Treatment NV Van Gansewinkel Industrial Services Belgium NV Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Computerweg 12D, 3821 AB Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Lindeboomseweg 15, 3825 AL, Amersfoort, Netherlands Wateringveldseweg 1, 2291 HE Wateringen, Netherlands Wetering 14, 6002 SM Weert, Netherlands Quebecstraat 1, 3197 KL Botlek Rotterdam, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Loswalweg 50, 3199 LG Maasvlakte Rotterdam, Netherlands Touwslagerstraat 1, 2984 AW Ridderkerk, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Doesburgseweg 16 D, 6902 PN Zevenaar, Netherlands Loswalweg 50, 3199 LG Maasvlakte Rotterdam, Netherlands Industrieweg 24, 2382 NW Zoeterwoude, Netherlands Rue de Rolleghem 381, 7700 Mouscron, Belgium Baeckelmansstraat 125, 2830 Willebroek, Belgium Nijverheidsstraat 2, 2870 Puurs, Belgium John Kennedylaan 4410, 9042 Gent, Belgium Fabrieksstraat 114, 3920 Lommel, Belgium Terlindenhofstraat 36, 2170 Meerksem, Belgium Rue Wérihet 72, 4020 Liège, Belgium Da Vincilaan, 2, Building G, 3de verdieping, 1930 Zaventem, Belgium John Kennedylaan 4410, 9042 Gent, Belgium Da Vincilaan, 2, Building G, 3de verdieping, 1930 Zaventem, Belgium John Kennedylaan 4410, 9042 Gent, Belgium Berkebossenlaan 7, 2400 Mol, Belgium Berkebossenlaan 7, 2400 Mol, Belgium Berkebossenlaan 7, 2400 Mol, Belgium Incorporated in Germany ATM Entsorgung Deutschland GmbH (Year end 31 December) Reym GmbH Coolrec Deutschland GmbH (Year end 31 December) Coolrec RDE Rucknahmen Demontagen Elektronik-Recycling GmbH (Year end 31 December) Kaldenkirchener Strasse 25, D-41063, Mönchengladbach, Germany Hansestrasse 14-16, 49685 Schneiderkrug, Germany Donatusstraße 127-129, 50259 Pulheim, Germany Industriestraße 1, 50259 Pulheim, Germany 171 NOTES TO THE FINANCIAL STATEMENTS 35. Subsidiary undertakings and investments at 31 March 2017 continued Subsidiary Incorporated in France Coolrec France SAS (90%) Maltha Glass Recycling France SAS (67%) Address of the registered office Rue Iéna Parcelle 36, 59810 Lesquin, France Zone Industrielle, 33450 Izon, France Incorporated in Hungary Maltha Hungary Uvegujrahasznosito Kft. (67%) 1214 Budapest, Orion utca 14, Hungary Incorporated in Luxembourg Van Gansewinkel Luxembourg SA Z.A. Gadderscheier, 4501 Differdange, Luxembourg Incorporated in Poland Maltha Szklo Recycling Polska Sp. zoo (67%) ul. Półłanki 64, 30-740 Kraków, Poland Incorporated in Portugal Maltha Glass Recycling Portugal Lda (67%) Parque Industrial da Gala, Lotes 26 e 27, 3081-801 Figueira da Foz, Portugal Incorporated in the Czech Republic A&G Envirotech sro U Vlečky 592, 664 42 Modřice, Czech Republic Incorporated in the UK Renewi Waste Management Limited* Safewaste Limited Shanks European Holdings Limited Shanks Financial Management Limited Shanks Holdings Limited* Shanks PFI Investments Limited* Shanks SRF Trading Limited Shanks Waste Management Limited* Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom 172 35. Subsidiary undertakings and investments at 31 March 2017 continued Subsidiary Address of the registered office Incorporated in Canada Orgaworld Canada Limited Orgaworld Design-Builder General Partner Limited Orgaworld Design-Builder Limited Partnership Orgaworld Surrey General Partner Limited Orgaworld Surrey Limited Partnership 2940 Dingman Drive, London ON N6N 1G4, Canada 800-885 West Georgia Street, Vancouver BC V6C 3H1, Canada 800-885 West Georgia Street, Vancouver BC V6C 3H1, Canada 800-885 West Georgia Street, Vancouver BC V6C 3H1, Canada 800-885 West Georgia Street, Vancouver BC V6C 3H1, Canada Subsidiary undertakings holding UK PFI/PPP contracts Shanks Argyll & Bute Limited Shanks Argyll & Bute Holdings Limited* Shanks Cumbria Limited Shanks Cumbria Holdings Limited 16 Charlotte Square, Edinburgh, EH2 4DF, United Kingdom 16 Charlotte Square, Edinburgh, EH2 4DF, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom 3SE (Barnsley, Doncaster & Rotherham) Holdings Limited (75%) Dunedin House, Auckland Park, Mount Farm, Milton Keynes, 3SE (Barnsley, Doncaster & Rotherham) Limited (75%) Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom 173 NOTES TO THE FINANCIAL STATEMENTS 35. Subsidiary undertakings and investments at 31 March 2017 continued Joint ventures, joint operations and associates At 31 March 2017 the Group through wholly-owned subsidiaries had the following interests in joint venture companies, joint operations and associates, all of which operate in the waste management sector. Joint venture, joint operation and associates Incorporated in the Netherlands Afval Loont Holding BV AMP BV Baggerspecieverwerking Noord-Nederland VOF Dorst BV Induserve VOF Mokum Mariteam BV Mokum Mariteam CV Octopus VOF PQA BV Recycling Maatschappij Bovenveld BV Reym HMVT BV Smink Boskalis Dolman VOF BV SQAPE BV Tankterminal Sluiskil BV TOP Leeuwarden VOF Zavin BV Zavin CV Incorporated in France ENVIE2e SAS Incorporated in Belgium Marpos NV Recypel BVBA Silvamo NV SUEZ PCB Decontamination NV Valorem SA % Group holding Most recent year end Address of the registered office 22% 31 December 2016 33% 31 December 2016 50% 31 December 2016 50% 31 December 2016 67% 31 December 2016 50% 31 December 2016 20% 31 December 2016 50% 31 December 2016 50% 31 December 2016 50% 31 December 2016 50% 31 December 2016 50% 31 December 2016 50% 31 December 2016 40% 31 December 2016 50% 31 December 2016 33% 31 December 2016 33% 31 December 2016 Middenbaan-Noord 5, 3191 EM Hoogvliet Rotterdam, Netherlands Victoriberg 18, 2211 DH Noordwijkerhout, Netherlands Newtonweg 1, 8912 BD Leeuwarden, Netherlands Van’t Hoffstraat 12A, 2313SP, Leiden, Netherlands Flight Forum 240, 5657 DH Eindhoven, Netherlands Jan van Galenstraat 4, 1051 KM, Amsterdam, Netherlands Jan van Galenstraat 4, 1051 KM, Amsterdam, Netherlands Forellenweg 24, 4941 SJ Raamsdonksveer, Netherlands Bennebroekerdijk 244, 2142 LE, Cruquius, Netherlands Coevorderweg 48, 7737 PG Stegeren, Netherlands Maxwellstraat 31, 6716 BX Ede, Netherlands Lindeboomseweg 15, 3825 AL Amersfoort, Netherlands Bennebroekerdijk 244, 2142 LE Cruquius, Netherlands Oude Haven 44, 4501 PA Oostburg, Netherlands Newtonweg 1, 8912 BD Leeuwarden, Netherlands Baanhoekweg 42, 3313 LA Dordrecht, Netherlands Baanhoekweg 46, 3313 LA Dordrecht, Netherlands 17% 31 December 2016 2 Boulevard Thomson, 59810 Lesquin, France 45% 31 December 2016 L. Coiseaukaai 43 8380 Brugge, Belgium 50% 31 December 2016 50% 31 March 2017 Reinaertlaan 82, 9190 Stekene, Belgium Regenbeekstraat 7C 8800 Roeselare, Belgium 23% 31 December 2016 30% 31 December 2016 Westvaartdijk 97, 1850 Grimbergen, Belgium Rue des trois Burettes 65 1435 Mon-Saint-Guibert, Belgium 174 35. Subsidiary undertakings and investments at 31 March 2017 continued Joint venture, joint operation and associates Incorporated in Austria EARN Elektrogeräte Service GmbH % Group holding Most recent year end Address of the registered office 33% 31 December 2016 Johannesgasse 15, 1010 Wien, Austria Incorporated in the UK Caird Evered Holdings Limited Caird Evered Limited ELWA Limited ELWA Holdings Limited Energen Biogas Limited 50% 31 December 2016 50% 31 December 2016 20% 31 March 2017 20% 31 March 2017 50% 31 March 2017 Resource Recovery Solutions (Derbyshire) Holdings Limited Resource Recovery Solutions (Derbyshire) Limited 50% 31 March 2017 50% 31 March 2017 Shanks Dumfries and Galloway Holdings Limited 20% 31 March 2017 Shanks Dumfries and Galloway Limited 20% 31 March 2017 Wakefield Waste Holdings Limited 50.001% 31 March 2017 Wakefield Waste PFI Holdings Limited 50.001% 31 March 2017 Wakefield Waste PFI Limited 50.001% 31 March 2017 Bardon Hall, Copt Oak Road, Markfield, Leicestershire, LE67 9PJ, United Kingdom Bardon Hall, Copt Oak Road, Markfield, Leicestershire, LE67 9PJ, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom 16 Charlotte Square, Edinburgh, EH2 4DF, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom 16 Charlotte Square, Edinburgh, EH2 4DF, United Kingdom 16 Charlotte Square, Edinburgh, EH2 4DF, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom Dunedin House, Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU, United Kingdom 175 CONSOLIDATED FIVE YEAR FINANCIAL SUMMARY Consolidated income statement Revenue1 Trading profit from continuing operations1 Finance charges – interest Finance charges – other Share of results from associates and joint ventures Profit from continuing operations before exceptional items and tax (underlying profit) Non-trading and exceptional items (Loss) profit before tax from continuing operations Taxation Exceptional tax and tax on exceptional items (Loss) profit after tax from continuing operations (Loss) profit after tax from discontinued operations Loss for the year (Loss) profit attributable to: Owners of the parent Non-controlling interest Consolidated balance sheet Non-current assets Other assets less liabilities Net debt Net assets Equity attributable to owners of the parent Share capital and share premium Reserves Non-controlling interest Total equity Financial ratios Underlying earnings per share – continuing operations2 Basic (loss) earnings per share – continuing operations2 Dividend per share 2017 £m 779.2 36.5 (8.3) (4.5) 2.0 25.7 (87.1) (61.4) (5.9) 6.4 (60.9) (0.5) (61.4) (61.1) (0.3) (61.4) 1,420.9 (471.8) (511.0) 438.1 457.1 (24.2) 432.9 5.2 438.1 3.7p (11.3)p 3.05p 2016 £m 614.8 33.4 (9.7) (3.7) 1.0 21.0 (23.5) (2.5) (2.3) 0.8 (4.0) 0.1 (3.9) (3.9) – (3.9) 670.4 (203.9) (283.7) 182.8 140.0 44.8 184.8 (2.0) 182.8 4.2p (0.9)p 3.45p 2015 £m 601.4 34.3 (10.6) (2.8) 0.8 21.7 (42.2) (20.5) (1.7) 4.0 (18.2) 1.3 (16.9) (17.0) 0.1 (16.9) 737.3 (170.6) (377.6) 189.1 139.8 51.1 190.9 (1.8) 189.1 4.4p (4.1)p 3.45p 2014 £m 633.4 45.6 (11.7) (4.1) 0.3 30.1 (22.5) 7.6 (7.2) 1.4 1.8 (30.0) (28.2) (28.3) 0.1 (28.2) 744.4 (166.8) (304.1) 273.5 139.7 134.0 273.7 (0.2) 273.5 5.1p 0.4p 3.45p 2013 £m 611.9 44.9 (10.8) (3.8) (0.3) 30.0 (40.3) (10.3) (7.5) 6.7 (11.1) (24.1) (35.2) (35.3) 0.1 (35.2) 767.7 (179.7) (274.3) 313.7 139.5 174.1 313.6 0.1 313.7 5.0p (2.5)p 3.45p 1 Revenue and trading profit from continuing operations is stated before non-trading and exceptional items as set out in note 4. 2 Underlying and basic (loss) earnings per share for continuing operations have been restated to reflect the bonus factor within the 2017 equity raise as described in note 12. 176 PARENT COMPANY BALANCE SHEET As at 31 March 2017 Assets Non-current assets Intangible assets Property, plant and equipment Investments Trade and other receivables Deferred tax assets Current assets Trade and other receivables Cash and cash equivalents Total assets Liabilities Non-current liabilities Borrowings Derivative financial instruments Other non-current liabilities Defined benefit pension scheme deficit Current liabilities Derivative financial instruments Trade and other payables Current tax payable Provisions Total liabilities Net assets Equity Share capital Share premium Retained earnings* Total equity 31 March 2017 £m 31 March 2016 £m Note 6 7 8 9 10 9 11 12 13 14 16 13 14 15 17 17 0.2 0.3 411.2 272.6 7.0 691.3 183.5 18.1 201.6 892.9 (170.2) (0.1) – (18.7) (189.0) (0.8) (120.2) – (0.9) (121.9) (310.9) 582.0 79.9 401.2 100.9 582.0 0.3 0.3 498.8 81.1 3.1 583.6 175.0 2.6 177.6 761.2 (209.3) (0.7) (96.9) (10.7) (317.6) (2.4) (39.7) (0.3) (0.8) (43.2) (360.8) 400.4 39.8 124.2 236.4 400.4 *As permitted by section 408 of the Companies Act, the Company has elected not to present its own Income Statement or Statement of Comprehensive Income. The Company reported a loss for the year ended 31 March 2017 of £111.8m (2016: £14.6m profit). These Financial Statements were approved by the Board of Directors and authorised for issue on 25 May 2017. They were signed on its behalf by: Colin Matthews Toby Woolrych Chairman Chief Financial Officer 177 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY Balance at 1 April 2016 Loss for the year Other comprehensive loss: Actuarial loss on defined benefit pension scheme Tax in respect of other comprehensive income items Total comprehensive loss for the year Transactions with owners in their capacity as owners: Share-based compensation Movement on tax arising on share-based compensation Proceeds from exercise of employee options Proceeds from share issues, net of transaction costs Issue of ordinary shares in consideration for a business combination Dividends Balance at 31 March 2017 Balance at 1 April 2015 Profit for the year Other comprehensive income: Fair value movement on cash flow hedges Actuarial gain on defined benefit pension scheme Tax in respect of other comprehensive income items Total comprehensive gain for the year Transactions with owners in their capacity as owners: Share-based compensation Movement on tax arising on share-based compensation Proceeds from exercise of employee options Dividends Balance as at 31 March 2016 Note 16 3 17 17 17 5 16 3 17 5 Share Capital £m 39.8 – – – – – – – 21.1 19.0 – 79.9 39.8 – – – – – – – – – 39.8 Share Premium £m 124.2 – – – – – – 0.1 115.2 161.7 – 401.2 124.0 – – – – – – – 0.2 – 124.2 PARENT COMPANY STATEMENT OF CASH FLOWS Cash flows from (used in) operating activities Income tax (paid) received Net cash inflow (outflow) from operating activities Investing activities Proceeds from sale of subordinated debt and on loss of control of subsidiary Investment in subsidiaries Finance income Net cash (outflow) inflow from investing activities Financing activities Finance charges and loan fees paid Proceeds from share issues Costs in relation to share issues Dividends paid Proceeds from issuance of retail bonds Repayment of retail bonds (Repayment of) proceeds from bank borrowings Net cash inflow from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 178 Retained Earnings £m 236.4 (111.8) (10.7) 1.7 (120.8) 0.5 (0.1) – – – (15.1) 100.9 232.3 14.6 0.8 3.2 (1.1) 17.5 0.5 (0.2) – (13.7) 236.4 2017 £m 1.2 (0.4) 0.8 – (43.4) 6.9 (36.5) (13.2) 141.5 (5.1) (15.1) – – (56.9) 51.2 15.5 2.6 18.1 Total Equity £m 400.4 (111.8) (10.7) 1.7 (120.8) 0.5 (0.1) 0.1 136.3 180.7 (15.1) 582.0 396.1 14.6 0.8 3.2 (1.1) 17.5 0.5 (0.2) 0.2 (13.7) 400.4 2016 £m (39.3) 1.1 (38.2) 25.8 (15.0) 5.5 16.3 (9.0) 0.2 – (13.7) 71.4 (73.5) 41.1 16.5 (5.4) 8.0 2.6 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1. Accounting policies General information Renewi plc (previously Shanks Group plc) is a public limited company listed on the London Stock Exchange and is incorporated and domiciled in Scotland under the Companies Act 2006, registered number SC077438. The address of the registered office is given on page 191. The nature of the Company’s principal activity is a head office corporate function. Basis of preparation The separate financial statements of the Company are presented in compliance with the requirements for companies whose shares are listed on the London Stock Exchange. They have been prepared on the historical cost basis, except for derivative financial instruments and share- based payments, which are stated at fair value. The policies set out below have been consistently applied. The Company has applied all accounting standards and interpretations issued relevant to its operations and effective for accounting periods beginning on 1 April 2016. Going concern Having assessed the principal risks and other matters in connection with the viability statement, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing these financial statements. Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and related interpretations issued by the IFRS Interpretations Committee (IFRS IC) adopted by the European Union (EU) and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. Adoption of new and revised accounting standards and interpretations There were no new standards, amendments to standards or interpretations adopted for the first time for the Company’s financial year beginning 1 April 2016 that had a significant impact on these financial statements. New standards and interpretations not yet adopted Standards and interpretations issued by the International Accounting Standards Board (IASB) are only applicable if endorsed by the European Union. At the date of approval of these financial statements, the following standard was in issue but not yet effective: IFRS 9 Financial Instruments, effective for annual periods beginning on or after 1 January 2018. This standard addresses the classification, measurement and recognition approaches for financial assets and liabilities and requires additional disclosures in relation to hedging activities. The Company is yet to assess the full effect of the standard, however it is not expected to have a significant impact on the recognition and measurement of its financial instruments. There are no other IFRSs or IFRS IC interpretations not yet effective that would be expected to have a material impact on the Company. Intangible assets Computer Software Computer software is capitalised on the basis of the costs incurred to purchase and bring the assets into use. These costs are amortised over the estimated useful life ranging from one to five years on a straight-line basis. 179 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1. Accounting policies – Company continued Property, plant and equipment Property, plant and equipment, except for freehold land, is stated at cost less accumulated depreciation and provision for impairment. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Freehold land is not depreciated. The asset’s residual values and useful lives are reviewed and adjusted if appropriate at the end of each reporting period. Assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. An impairment loss is recognised immediately as an operating expense and at each subsequent reporting date the impairment is reviewed for possible reversal. Depreciation is provided on fixtures and fittings to write off their cost (less the expected residual value) on a straight line basis over an expected useful life of up to 10 years. Investments in subsidiary undertakings Investments in subsidiary undertakings are stated at cost in the Company’s balance sheet less any provision for impairment in value. Provisions Provisions are recognised where there is a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Employee benefits Retirement benefits The Company accounts for pensions and similar benefits under IAS 19 (revised) Employee Benefits. For defined benefit plans, obligations are measured at discounted present value whilst plan assets are recorded at fair value. The operating and financing costs of the plans are recognised separately in the Income Statement. Interest is calculated by applying the discount rate to the net defined pension liability. Actuarial gains and losses are recognised in full through the Statement of Comprehensive Income; surpluses are recognised only to the extent that they are recoverable. Movements in irrecoverable surpluses are recognised immediately in the Statement of Comprehensive Income. Payments to defined contribution schemes are charged to the Income Statement as they become due. Share-based payments The Company issues equity-settled share-based awards to certain employees. The fair value of share-based awards is determined at the date of grant and expensed on a straight-line basis over the vesting period with a corresponding increase in equity based on the Company’s estimate of the shares that will eventually vest. At each balance sheet date the Company revises its estimates of the number of options that are expected to vest based on service and non-market performance conditions. The amount expensed is adjusted over the vesting period for changes in the estimate of the number of shares that will eventually vest, save for changes resulting from any market-related performance conditions. 180 1. Accounting policies – Company continued Taxation Current tax Current tax is based on taxable profit or loss for the year. Taxable profit differs from profit before tax in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years or that are never taxable or deductible. The asset or liability for current tax is calculated using tax rates that have been enacted, or substantively enacted, at the balance sheet date. Deferred tax Deferred tax is recognised in full where the carrying value of assets and liabilities in the financial statements is different to the corresponding tax bases used in the computation of taxable profits. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that the taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that have been substantively enacted at the balance sheet date. Deferred tax is charged or credited in the Income Statement, except where it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity. Foreign currencies The functional and presentational currency of the Company is Sterling. Monetary assets and liabilities denominated in foreign currencies at the year end are translated at the period end exchange rate. Foreign currency gains or losses are credited or charged to the profit and loss account as they arise. Financial instruments Amounts owed by subsidiary undertakings Amounts owed by subsidiary undertakings are initially recognised at fair value and subsequently measured at amortised cost less provision for impairment. A provision for impairment is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivable. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with a maturity of three months or less. External borrowings Interest bearing loans and retail bonds are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Income Statement using the effective interest rate method. When the Company exchanges with an existing lender one debt instrument for another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly the Company accounts for substantial modifications of the terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. The terms are considered to be substantially different if the discounted present value of the cash flows under the new terms, including any fees paid and discounted using the original effective rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. Any gain or loss on extinguishment is recognised in the Income Statement. Trade payables Trade payables are not interest bearing and are stated initially at fair value and subsequently held at amortised cost. Amounts owed to subsidiary undertakings Amounts owed to subsidiary undertakings are initially recognised at fair value and subsequently held at amortised cost. Other receivables and other payables Other receivables and other payables are initially recognised at fair value and subsequently measured at amortised cost. Derivative financial instruments In accordance with its treasury policy, the Company only holds derivative financial instruments to manage the Group’s exposure to financial risk. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company’s derivatives financial instruments are not designated as hedges and the changes in fair value are recognised in the Income Statement. Details of the fair values of the derivative financial instruments are disclosed in note 13. 181 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1. Accounting policies – Company continued Called up share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or share options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the net proceeds over the nominal value of any shares issued is credited to the share premium account. Dividends Dividend distributions to the equity holders are recognised in the period in which they are approved by the shareholders in general meeting. Interim dividends are recognised when paid 2. Key accounting judgements and estimates The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenditure. The area involving a higher degree of judgement or complexity is set out below and in more detail in the related note. Retirement benefit scheme The Company operates a defined benefit scheme in the UK for which an actuarial valuation is carried out as determined by the trustees at intervals of not more than three years. The pension cost under IAS 19 (revised) Employee Benefits is assessed in accordance with management’s best estimates using the advice of an independent qualified actuary and assumptions in the latest actuarial valuation. The principal assumptions in connection with the retirement benefit schemes are set out in note 27 of the Group financial statements. 3. Employees Staff costs Wages and salaries Social security costs Share-based benefits Other pension costs Total staff costs 2017 £m 3.4 0.4 0.5 0.1 4.4 2016 £m 3.3 0.4 0.5 0.2 4.4 The average number of people (including executive directors) employed by the Company was 18 employees (2016: 20). See pages 86 to 101 of the Directors’ Remuneration report for details of the remuneration of executive and non-executive Directors and their interest in shares and options of the Company. See note 7 of the Group financial statements for details of share based payments. 4. Auditor’s remuneration The auditor’s remuneration for audit services to the Company was £0.1m (2016: £0.1m). Fees paid to PricewaterhouseCoopers LLP and its associates for non-audit services for the Company are disclosed in note 5 of the Renewi plc consolidated financial statements. 182 5. Dividends See Note 11 of the Group financial statements for details of the dividends of the Company. 6. Intangible assets Cost At 1 April 2015, 31 March 2016 and 31 March 2017 Accumulated amortisation and impairment At 1 April 2015 Amortisation charge At 31 March 2016 Amortisation charge At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 7. Property, plant and equipment Cost and accumulated amortisation and impairment At 1 April 2015, 31 March 2016 and 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 31 March 2015 8. Investments At 1 April 2015 Additions Disposals At 31 March 2016 Additions Disposals Impairment At 31 March 2017 Computer Software £m 1.2 0.7 0.2 0.9 0.1 1.0 0.2 0.3 0.5 Total £m 0.3 0.3 0.3 0.3 Investments in subsidiary undertakings £m 487.4 15.0 (3.6) 498.8 43.4 (29.4) (101.6) 411.2 Land £m 0.1 0.1 0.1 0.1 Fixtures and fittings £m 0.2 0.2 0.2 0.2 During the year an impairment of £101.6m related to the investment in Shanks Waste Management Limited as a result of the difficult trading conditions being encountered in the UK Municipal division. The addition of £43.4m relates to a loan to Shanks Waste Management Limited which was capitalised on 31 March 2017. The disposals of £29.4m (2016: £3.6m) related to investments in dormant non-trading subsidiaries which were placed into voluntary liquidation during the year. 183 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 9. Trade and other receivables Non-current assets Amounts owed by subsidiary undertakings Current assets Amounts owed by subsidiary undertakings Other receivables Prepayments 2017 £m 272.6 272.6 183.0 0.4 0.1 183.5 2016 £m 81.1 81.1 174.5 0.4 0.1 175.0 Interest on inter-company balances is received at rates of between 0% and 13% (2016: 0% and 13%), the balances are unsecured and repayable either on demand or in accordance with the loan agreement with the final repayment due on 30 September 2039. The carrying amounts of trade and other receivables are denominated in the following currencies: Sterling Euro Canadian Dollar 10. Deferred tax 2017 £m 62.3 362.8 31.0 456.1 2016 £m 65.3 163.1 27.7 256.1 Deferred tax is provided in full on temporary differences under the liability method using applicable local tax rates. At 1 April 2015 (Charge) credit to Income Statement Charge to equity At 31 March 2016 (Charge) credit to Income Statement Credit to equity At 31 March 2017 Retirement benefit schemes £m 3.3 (0.5) (0.9) 1.9 (0.4) 1.7 3.2 Tax losses £m – – – – 2.9 – 2.9 Derivative financial instruments £m 0.2 0.4 – 0.6 (0.4) – 0.2 Other timing differences £m 1.0 (0.2) (0.2) 0.6 – 0.1 0.7 Total £m 4.5 (0.3) (1.1) 3.1 2.1 1.8 7.0 At 31 March 2017, £7.0m (2016: £3.1m) of the deferred tax asset is expected to be recovered after more than one year. As at 31 March 2017, the Company has unused tax losses (tax effect) of £6.6m (2016: £5.9m) available for offset against future profits. A deferred tax asset has been recognised in respect of £2.9m (2016: £nil) of such losses and recognition is based on management’s projections of future profits in the Company. Tax losses may be carried forward indefinitely. 11. Cash and cash equivalents The carrying amount of cash and cash equivalents of £18.1m (2016: £2.6m) were denominated in the following currencies: Sterling Euro Canadian Dollar . 184 2017 £m 10.0 8.1 – 18.1 2016 £m 1.5 0.8 0.3 2.6 12. Borrowings Non-current borrowings Retail bonds Revolving credit facility The table below details the maturity profile of non-current borrowings: Between two years and five years Over five years The carrying amounts of borrowings are denominated in the following currencies: Sterling Euro 2017 £m 170.2 – 170.2 2017 £m 85.2 85.0 170.2 2017 £m – 170.2 170.2 2016 £m 157.5 51.8 209.3 2016 £m 130.4 78.9 209.3 2016 £m 16.9 192.4 209.3 The terms of the retails bonds and the revolving credit facility, including the amount available for drawing, are detailed in the Group financial statements note 24. The retail bonds are carried at amortised cost and are not subject to the consolidated hedging arrangements. 13. Derivative financial instruments The Company held fuel derivatives with a current liability of £0.7m (2016: £2.3m) and a non-current liability of £0.1m (2016: £0.7m). The notional value of the wholesale fuel covered by fuel derivatives as at 31 March 2017 amounted to £12.6m (2016: £9.6m). Forward foreign exchange contracts were held with a current liability of £0.1m (2016: £0.1m) and a notional value of £10.6m (2016: £2.4m). 185 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 14. Trade and other payables and other non-current liabilities Current liabilities Trade payables Other tax and social security payable Other payables Accruals Amounts owed to Group undertakings Non-current liabilities Amounts owed to Group undertakings 2017 £m 7.5 0.3 0.1 12.4 99.9 120.2 – – 2016 £m 0.3 0.3 0.5 8.1 30.5 39.7 96.9 96.9 Interest on inter-company loan balances is charged at rates of between 0% and 2.15% (2016: 0% and 2.32%) and these balances are unsecured and repayable upon demand. The carrying amounts of trade and other payables and other non-current liabilities are denominated in the following currencies: Sterling Euro 15. Provisions At 1 April 2016 Provided in the year Utilised in the year At 31 March 2017 2017 £m 82.9 37.3 120.2 Other £m 0.8 – (0.1) 0.7 2016 £m 111.8 24.8 136.6 Total £m 0.8 0.2 (0.1) 0.9 Restructuring £m – 0.2 – 0.2 Restructuring The restructuring provision relates to redundancy and related costs incurred as part of the delivery of merger related synergies. As at 31 March 2017 the remaining affected employees are expected to leave the business during the following year. Other Other provisions principally covers warranties, under the terms of the agreements for the disposal of certain businesses, the Company has given warranties to the purchasers which may give rise to payments. 186 16. Retirement benefit scheme The Renewi plc defined benefit pension scheme (called the Shanks Group Pension Scheme) covers eligible UK employees and is closed to new entrants. The defined benefit plan provides benefits to members in the form of a guaranteed level of pension payable for life and the level of benefits provided depends on the members’ length of service and salary. See note 27 of the Group financial statements for further details. 17. Share capital and share premium Share capital allotted, called up and fully paid At 1 April 2015 Issued under share option schemes At 31 March 2016 Issued under rights issue and firm placing Consideration shares issued Issued under share option schemes At 31 March 2017 Ordinary shares of 10p each £m Number Share premium £m 397,850,417 339,140 398,189,557 211,201,962 190,187,502 233,202 799,812,223 39.8 – 39.8 21.1 19.0 – 79.9 124.0 0.2 124.2 115.2 161.7 0.1 401.2 On 24 October 2017 a firm placing of 45,000,000 shares was completed at a price of 100p per share. On 10 November 2016 a 3 for 8 rights issue of 166,201,962 shares to qualifying shareholders was completed at 58p per share. The Company raised £136.3m net of £5.1m issuance costs. The bonus factor used in all calculations was 1.129. On 28 February 2017 the Group issued 190,187,502 shares as part of the purchase consideration for 100% of the ordinary share capital of Van Gansewinkel Groep B V. The ordinary shares issued have the same rights as the other shares in issue. During the year 233,202 (2016: 339,140) ordinary shares were allotted following the exercise of share options under the Savings Related Share Option Schemes for an aggregate consideration of £156,017 (2016: £249,548). 18. Financial instruments The carrying value of the Company’s financial assets and financial liabilities is shown below: Financial assets Trade and other receivables excluding prepayments Cash and cash equivalents Financial liabilities Bank loans Retail bonds Trade and other payables excluding non-financial liabilities Fuel derivatives Forward foreign exchange contracts Note 9 11 12 12 14 13 13 2017 £m 456.0 18.1 474.1 – 170.2 119.9 0.8 0.1 291.0 2016 £m 256.0 2.6 258.6 51.8 157.5 136.3 3.0 0.1 348.7 The fair value of financial assets and financial liabilities is not materially different to their carry value except for the retail bonds which have a fair value of £177.4m (2016: £164.6m). 187 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 19. Notes to the statement of cash flows (Loss) profit before tax Fair value (gain) loss on financial instruments Finance income Finance charges Operating (loss) profit from continuing operations Amortisation and impairment of intangible assets Exceptional provision against investment in subsidiary Exceptional loss on disposal of subsidiaries Net increase (decrease) in provisions Payments to fund defined benefit pension scheme deficit Share-based compensation Exchange gain Operating cash flows before movement in working capital (Increase) decrease in receivables Decrease in payables Cash flows from operating activities 20. Contingent liabilities 2017 £m (113.9) (2.1) (8.4) 14.8 (109.6) 0.1 101.6 29.4 0.1 (3.1) 0.5 1.9 20.9 (1.5) (18.2) 1.2 2016 £m 14.6 3.1 (8.0) 11.6 21.3 0.2 – 3.6 (0.3) (3.1) 0.5 4.7 26.9 38.0 (104.2) (39.3) In addition to the contingent liabilities in Note 33 of the Group financial statements the Company has given guarantees in respect of the Group’s subsidiary and joint venture undertakings’ borrowing facilities totalling £323.1m (2016: £34.4m). The Company also has contingent liabilities in respect of both VAT and HM Revenue & Customs group payment arrangements of £1.4m (2016: £2.5m). 21. Related party transactions A list of the Company’s subsidiaries is set out in note 35 of the Group financial statements. Transactions with subsidiaries relate to interest on intercompany loans and management charges. Net interest income was £7.9m (2016: £6.7m) and management charges were £7.3m (2016: £7.7m). Total outstanding balances are listed in notes 9 and 14. 188 EXPLANATION OF NON-IFRS MEASURES The Directors use alternative performance measures as they believe these measures provide additional useful information on the underlying trends, performance and position of the Group. These measures are used for internal performance analysis. These terms are not defined terms under IFRS and may therefore not be comparable with similarly titled measures used by other companies. These measures are not intended to be a substitute for, or superior to, IFRS measurements. The alternative performance measures used are set out below. Financial Measure Trading profit Trading margin EBITDA Underlying profit before tax Underlying EPS Return on operating assets Post-tax return on capital employed Pre-tax return on investment programme Underlying free cash flow Free cash flow conversion Core net debt Net debt to EBITDA Pro forma information Underlying effective tax rate How we define it Operating profit from continuing operations excluding amortisation of intangible assets arising on acquisition, non-trading and exceptional items Trading profit as a percentage of revenue Trading profit before depreciation, amortisation and profit or loss on disposal of plant, property and equipment Profit before tax from continuing operations before non-trading and exceptional items, amortisation of intangible assets arising on acquisition and fair value remeasurements Earnings per share before non-trading and exceptional items, amortisation of intangible assets arising on acquisition and fair value remeasurements Last 12 months trading profit divided by a 13 month average of total net assets excluding core net debt, derivatives, tax balances, goodwill and acquisition intangibles Last 12 months trading profit as adjusted by the Group effective tax rate divided by a 13 month average of total net assets excluding core net debt and derivatives Last 12 months trading profit generated by the investment divided by the original invested capital spend presented for the total programme spend and also for fully operational assets only Net cash generated from operating activities principally excluding non-trading and exceptional items and including interest, tax and replacement capital spend The ratio of underlying free cash flow to trading profit Core net debt includes cash and cash equivalents but excludes the net debt relating to the UK PFI/PPP contracts. Why we use it Provides insight into ongoing profit generation and trends Provides insight into ongoing margin development and trends Measure of earnings and cash generation to assess operational performance Facilitates underlying performance evaluation Facilitates underlying performance evaluation Provides a measure of the return on assets across the Divisions and the Group excluding historic goodwill and acquisition intangible balances Provides a measure of the Group return on assets taking into account the historic goodwill and acquisition intangible balances Provides a measure of the efficiency of recent significant capital investment Measure of cash available after regular replacement capital expenditure to pay dividends, fund growth capital projects and invest in acquisitions Provides an understanding of how our profits convert into cash The borrowings relating to the UK PFI/PPP contracts are non-recourse to the Group and excluding these gives a suitable measure of indebtedness for the Group Commonly used measure of financial leverage and consistent with covenant definition Core net debt divided by an annualised EBITDA with a net debt value based on the terminology of financing arrangements and translated at an average rate of exchange for the period Last 12 months for VGG to align to the Renewi plc financial year The effective tax rate on underlying profit before tax Provides a more comparable basis to analyse our Provides a comparable measure with the legacy Shanks activity tax rate 189 MORE INFORMATION SHAREHOLDER INFORMATION ANALYSIS OF SHAREHOLDERS AS AT 31 MARCH 2017 Holders % Shares held Private shareholders Corporate shareholders Total 1,870 632 2,502 74.7 25.3 15,293,221 784,519,002 100.0 799,812,223 100.0 % 1.9 98.1 Size of shareholding Holders % Shares held 1-5,000 5,001 - 25,000 25,001 - 50,000 50,001 - 100,000 100,001 - 250,000 250,001 - 500,000 over 500,000 Total 1,595 63.8 2,948,507 561 101 47 54 31 113 22.4 5,952,450 4.0 3,449,311 1.9 3,353,870 2.2 8,300,143 1.2 10,544,782 4.5 765,263,160 2,502 100.0 799,812,223 % 0.4 0.8 0.4 0.4 1.0 1.3 95.7 100.0 Change of Company name On 28 February 2017, following the completion of the merger of Shanks Group plc and Van Gansewinkel Groep BV, the combined company was renamed Renewi plc. Replacement share certificates were not issued and existing certificates in the name of Shanks Group plc will remain valid. Registrar services Administrative enquiries concerning shareholdings in the Company should be made to the Registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZZ. Computershare can also be contacted by telephone on 0370 707 1290. Shareholders can also manage their holding online by registering at www.investorcentre.co.uk. Dividends Shareholders are strongly encouraged to receive their cash dividends by direct transfer as this ensures dividends are credited promptly and efficiently. Shareholders who do not currently have their dividends paid directly to a bank or building society account, and who wish to do so, should complete a mandate form obtainable from Computershare. Overseas shareholders wishing to receive their dividend payment in local currency can now do so using Computershare’s Global Payments Service. Dividend tax allowance The announcement made by the Chancellor in the 2017 Spring Budget that the annual dividend tax allowance will be reduced from £5,000 to £2,000 per annum does not come into force until April 2018. For the Financial Year 2017/18 dividends received amounting to less than £5,000 are tax free. Dividends in excess of this allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. Renewi plc will continue to provide registered shareholders with a confirmation of the dividends paid by the Company. Any dividends received from Renewi plc should be added to all other dividend income received by shareholders for the respective year when calculating and reporting their total dividend income for tax purposes. It is the responsibility of the shareholder to include all dividend income from all shares held in all companies, when calculating any tax liability. ShareGift If shareholders have only a small number of shares, the value of which makes it uneconomic to sell, they may wish to consider donating them to the charity ShareGift (registered charity no. 1052686). Further information may be obtained from their website at www.sharegift.org or by calling 020 7930 3737. Electronic shareholder communication Shareholders may elect to receive future shareholder documents and information by email or via the Company’s website. This is intended to help the environment by reducing paper and transport as well as enabling the Company to save on administration, printing and postage costs. Please contact the Company Registrar for details. Share fraud warning Fraudsters use persuasive and high pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. While high profits are promised, if you buy or sell shares in this way you will probably lose your money. How to avoid fraud Firms authorised by the Financial Conduct Authority (FCA) will rarely contact you out of the blue with an offer to buy or sell your shares. If you feel that the person contacting you is not legitimate, note their name and the firm they work for; you can check the Financial Services Register at www. fca.org.uk to see if the person and firm is authorised by the FCA. Call the FCA on 0800 111 6768 if the firm does not have contact details on the register or they are out of date. You can search the list of unauthorised firms to avoid at www.fca.org.uk/scams. If you buy or sell shares from an unauthorised firm, you will not have access to the Financial Ombudsman or Financial Services Compensation Scheme. You should always consider getting independent financial advice before any transaction. Report a scam If you are approached by a fraudster please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about investment scams, or call the FCA Consumer Helpline on 0800 111 6768. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040. 190 _Renewi_ARA_17.indb 190 02/06/2017 11:16 RENEWI plcAnnual Report and Accounts 2017FINANCIAL CALENDAR 29 June 2017 Ex-dividend date for final 2017 dividend November 2017 Announcement of interim results and dividend 30 June 2017 Record date for final 2017 dividend 31 March 2018 2018 financial year end 13 July 2017 Annual General Meeting May 2018 Announcement of 2018 preliminary results and dividend recommendation 28 July 2017 Payment of final 2017 dividend For updates to the calendar during the year, please visit the Company website: www.renewi.com COMPANY INFORMATION PRINCIPAL OFFICES Netherlands Commercial Division Former Shanks Head Office: Lindeboomseweg 15 3828 NG Hoogland The Netherlands Tel: 00 31 (0) 332 050 200 Fax: 00 31 (0) 332 050 211 Website: www.shanks.nl info@shanks.nl Email: Former Van Gansewinkel Head Office: Flight Forum 240 5657 DH Eindhoven Netherlands Tel: 00 31 (0) 40 751 40 00 Website: www.vangansewinkelgroep.com www.vangansewinkel.nl info@vangansewinkel.com Email: Hazardous Division Computerweg 12D Postbus 1545 3821 AB Amersfoort The Netherlands Tel: 00 33 (0) 455 88 90 Fax: 00 33 (0) 456 25 81 Website: www.shankshazardouswaste.com info@shankshazardouswaste.com Email: CORPORATE ADVISERS Belgium Commercial Division Former Shanks Belgium Head Office: Corporate Village Leonardo Da Vincilaan, 2 1935 Zaventem Belgium Tel: 00 32 (0) 247 710 00 Fax: 00 32 (0) 272 124 54 Website: www.shanks.be info@shanks.be Email: Former Van Gansewinkel Head Office: Nijverheidstraat 2 2870 Puurs Belgium Tel: 00 32 (0) 344 325 00 Website: www.vangansewinkelgroep.com www.vangansewinkel.be info@vangansewinkel.com Email: Municipal Division Shanks Waste Management Limited Dunedin House Auckland Park, Mount Farm Milton Keynes Buckinghamshire MK1 1BU Tel: 00 44 (0) 1908 650650 Fax: 00 44 (0) 1908 650699 Website: www.shanksmunicipal.co.uk info@shanks.co.uk Email: Corporate Head Office Renewi plc Dunedin House Auckland Park, Mount Farm Milton Keynes Buckinghamshire MK1 1BU Tel: 00 44 (0) 1908 650580 Website: www.renewi.com info@renewi.com Email: Registered Office Renewi plc 16 Charlotte Square Edinburgh EH2 4DF Registered in Scotland No. SC077438 Group Company Secretary Philip Griffin-Smith, FCIS Independent Auditors PricewaterhouseCoopers LLP Financial Advisers Greenhill & Co International LLP PR Advisers Brunswick Solicitors Ashurst LLP Dickson Minto W.S. Corporate Brokers Investec Peel Hunt Principal Bankers ING Bank N.V. Coöperatieve Rabobank U.A. ABN Amro Bank N.V. KBC Bank N.V. BNP Paribas Fortis S.A./N.V. HSBC Bank plc _Renewi_ARA_17.indb 191 191 02/06/2017 11:16 MORE INFORMATIONFINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTOVERVIEWRENEWI plcAnnual Report and Accounts 2017 MORE INFORMATION GLOSSARY AD AGM AVR BDR Anaerobic Digestion Annual General Meeting Afvalverwerking B.V. Barnsley, Doncaster and Rotherham BENELUX The economic union of Belgium, the Netherlands and Luxembourg BRZO C&D CAGR CE CER CFS CGU CI Major accident regulations Construction and Demolition Compound Annual Growth Rate Commercial Effectiveness Constant Exchange Rate A brand in the Van Gansewinkel portfolio Cash Generating Unit Continuous Improvement CONNECTUS Group-wide collaboration tool CORE NET DEBT CSR DAB EBITDA ELWA EPC EPS EU EXCOM FCA HWRC I&C ICT IFRS Borrowings less cash from core facilities excluding PFI/PPP non-recourse debt Corporate Social Responsibility Deferred Annual Bonus Trading profit before Interest, Tax, Depreciation and Amortisation East London Waste Authority Engineering, Procurement and Construction Earnings Per Share European Union Executive Committee Financial Conduct Authority Household Waste Recycling Centre Industrial and Commercial Information and Communications Technology International Financial Reporting Standards IMO IVC LTIP M&A MBT MRF NORM OEM PDR PFI PPP RDF Integration Management Office In-Vessel Composting Long Term Incentive Plan Mergers and Acquisitions Mechanical Biological Treatment Material Recycling Facility Naturally Occuring Radioactive Materials Original Equipment Manufacturer Performance Development Review Private Finance Initiative Public Private Partnership Refuse Derived Fuel RIDDOR Reporting of Injuries, Diseases and Dangerous Occurrences Regulations ROCE SPV SRF SSC TAG TOM Return on Capital Employed Special Purpose Vehicle Solid Recovered Fuel Shared Service Centre Tar and Asphalt Granulate Target Operating Model TRADING PROFIT TRI TSR UK GAAP UFCF (UNDERLYING FREE CASH FLOW) VGG VGIS Operating profit before the amortisation of acquisition intangibles, exceptional items and discontinued operations Thermische Reinigings Installatie (Thermal Cleaning Installation) Total Shareholder Return UK Generally Accepted Accounting Practice Cash flow before dividends, growth capex, Municipal/PFI funding, acquisitions, disposals and exceptional items Van Gansewinkel Groep B.V. Van Gansewinkel Industrial Services 192 _Renewi_ARA_17.indb 192 02/06/2017 11:16 RENEWI plcAnnual Report and Accounts 2017Designed and produced by Wardour www.wardour.co.uk Printed by Newnorth on FSC® certified paper with 100% vegetable inks. 100% of the inks used are vegetable oil-based, 95% of press chemicals are recycled for further use and, on average, 99% of any waste associated with this production will be recycled. Newnorth is FSC and PEFC certified. Its Environmental Management System is accredited to ISO14001 and its procedures are accredited to ISO9001. This document is printed on Satimat green 75, the new generation of premium wood free coated papers produced using a high percentage of recovered fibres, delivering superb environmental credentials without compromising quality. Manufactured with 75% recycled fibre and 25% virgin fibre, FSC® certified. 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