Cleanaway to raise $400m for Global Renewables acquisition, sees profits soften during FY22

Waste management firm Cleanaway (ASX: CWY) has today announced it will raise $400 million to bolster its balance sheet and acquire a competitor with a focus on sustainability, alongside the release of its FY22 results which detailed a softer full year profit.

The company’s equity raising is comprised of a $350 million institutional placement and a $50 million share purchase plan, with funds to facilitate the purchase of a 100 per cent interest in Global Renewables Holdings (GRL) for $168.5 million.

Cleanaway claims it is the “logical owner” of GRL - a licensed composting facility that processes approximately 20 per cent of Sydney’s ‘Red bin’ household waste at its Eastern Creek site and delivers circa 30 per cent landfill diversion and better carbon outcomes compared to landfill.

The purchase of GRL is part of Cleanaway’s ‘BluePrint 2030’ organics strategy, which is now set to be accelerated according to CEO and managing director Mark Schubert.

“The acquisition of GRL represents an important step in the acceleration of our BluePrint 2030 strategy. The site and facility provide a strategic location and infrastructure to enhance our broader network and customer offering today and into the future as we position ourselves for the growing FOGO market opportunity,” Schubert said.

“As outlined in our Strategic Infrastructure Growth Pillar update, Cleanaway aims to be recognised by our customers as the most innovative and sustainable waste management company and today’s acquisition is clearly aligned with this objective.

“We are also well advanced on a number of strategic infrastructure development initiatives and tender opportunities aligned to BluePrint 2030. The Equity Raising will provide significant balance sheet capacity to invest in these growth initiatives.”

Cleanaway is already the exclusive contracted provider of waste to the GRL facility until 2032, with waste supply underpinned by contracts with surrounding councils.

The waste management company aims to immediately internalise existing volumes as part of the acquisition which will add around $21.4 million in earnings per annum based on FY22 levels.

To fund the acquisition, CWY will undertake a $350 million placement by issuing 140 million new shares at a price point of $2.50, representing a 7.7 per cent discount to the company’s last close price of $2.71 per share on 18 August.

The announcement comes alongside the release of Cleanaway’s FY22 results, which detailed a dip in profits for the waste management firm.

Statutory net profit for the financial year ending 30 June 2022 was down 45.4 per cent on the prior corresponding period to $80.6 million - a dip explained by CWY as the result of costs associated with the acquisition of Sydney Resource Network (SRN), landfill rectification post-floods, leadership transition and equipment loss in its health services business.

Other financial metrics were more buoyant however, with net revenue rising by 18.4 per cent to $2.6 billion and EBITDA rising by 8.7 per cent to $581.6 million.

The company’s dividend to shareholders also rose by 6.5 per cent, with backers to receive 4.90 cents per share.

“In a year of significant challenges posed by a global pandemic, natural disasters, supply chain disruptions and emerging inflation, Cleanaway delivered a strong financial performance,” Schubert said.

“COVID-19 continued to adversely affect the market and our business throughout the year. High volume and low margin customers came with significant inefficiencies in our Health Services business. More generally, lockdowns impacted revenues and efficient operations and widespread community infections reduced labour availability and increased pandemic leave costs.

“After years of low Inflation, we started to see inflation increase sharply across the economy. There are several reasons for this, including supply chain constraints, the war in Ukraine and the wider economic impacts of the pandemic. One of the largest contributors to rising operating costs has been fuel, with the price of oil having risen dramatically over the year.”

CWY says FY23 earnings are expected to be higher than FY22 due to a full year contribution from the recently-added SRN, underlying growth and its Blueprint 2030 initiatives. As such, FY23 EBITDA is expected to be in the range of $630-670 million.