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With no sign yet of the Dutch authorities allowing a resumption of shipments of thermally-treated soil from the ATM site, Renewi has assumed zero shipments for the year to March 2020 and cut its operating profit forecast by €25m.
The ATM plant in the Netherlands is one of Europe’s biggest for treating contaminated soil. For the last 18 months it has been running at reduced capacity as government inspectors continue to test the soil to make sure it meets the regulations.
Also, with the Derbyshire waste-to-energy facility way behind schedule and the prime contractor, Interserve (IRV), now in administration, Renewi is having to take £39m of provisions for costs and unpaid interest and another £10m of provisions in case it doesn’t recover these costs.
In a desperate effort to conserve cash and get its net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) below 3.5 times it is selling off assets and cutting the final dividend to 0.5p per share.
This makes the full year dividend 1.45p meaning the yield as of last night’s close was 6% and not 12%. As we have said before, when a stock has a double-digit yield it is usually too good to be true and it means the market believes the dividend will be cut, exactly as has happened in this case.
The company maintains that even with earnings this year set to be below its previous forecast, by selling off assets, cutting costs and slashing the dividend it can keep net debt to EBITDA below the crucial level of 3.5 times and stay within its banking covenants.