European recycling group Renewi is effectively paying waste management giant Biffa £125million to take its local authority waste treatment business off its hands.
It said that its UK Municipal division, which has five “highly bespoke”, long dated contracts with local authorities in England and Scotland, was a “legacy business” that did not fit with the rest of the group.
Renewi said that the contracts were entered into 10 years ago and were either break even or “structurally loss making”. The deal will see it pay Biffa a nominal sum to take on UK Municipal and inject £125million into it so it can fulfil its contractual obligations.
Chief executive Otto de Bont said that disposing of UK Municipal to Biffa was a “transformational milestone” that marks the beginning of a new chapter for Renewi. It will immediately improve its free cash flow by up to £17million a year, he said.
“The exit of UK Municipal will immediately improve our cashflow and profit margins, and enable us to drive sustainable growth,” de Bont added.
For the 12 months to the end of March, Renewi made a £26.3million loss, versus a profit of £56.7million last year.
Biffa said that 550 employees will transfer over to it and take over collections in Barnsley, Doncaster and Rotherham, Cumbria, Wakefield, East London and Argyle & Bute.