New Earth Group
New Earth Solutions Group Limited (the Group) is an established UK provider of waste treatment facilities and is developing complementary operations in the renewable energy sector. Waste treatment services are provided by New Earth Solutions Facilities Management Limited (New Earth Solutions), whist New Earth Energy Facilities Managment Limited (New Earth Energy) focuses on projects to recover low-carbon renewable energy from waste derived fuels. Both of these sectors are dynamic, fast-growing and in need of substantial investment in infrastructure and services.
With its New Earth Solutions and New Earth Energy operating companies that are establishing long-term utility-type infrastructure, the Group is straddling the interface between, on the one hand, waste as a liability requiring treatment and on the other, waste as a resource in the form of the re-usable materials and a source of renewable energy.
In contrast to most of its competitors, New Earth Solutions has continued to grow rapidly during the ecnomic slowdown to become an established waste treatment provider. with a well-respected and increasingly high-profile brand. Since the summer of 2008 the Group has grown from a single site to having five operational sites.
The Directors form a strong senior management team with extensive experience in waste management, renewable energy, property, construction and funding. The Group has invested significantly in its central overhead by establishing sufficient capability within the financial, technical, planning and commercial teams to deliver its medium-term growth plans.
The Groups funding strategy provides it with independent sources of project equity and junior debt combined with conventional senior debt. Subordinated debt funding lines are in place to finance the construction of the facilities with contracted revenue streams from Local Authority waste contracts and energy sale agreements. A pipeline of projects exist which is expected to generate substantial future growth and deliver ongoing investor value.
Strong and compelling market dynamics exist for the waste treatment and waste to energy industries. Landfill diversion targets, increasing taxes on landfill disposal, declining landfill availability and the introduction of renewable energy targets and substantial price subsidies will further enhance the economics for waste treatment and renewable energy companies.
The management of the Group has capitalised on these attractive market dynamics to establish and grow the business through a combination of organic development and acquisition while also advancing renewable energy projects.
The Premier Investment Opportunities Fund Protected Cell Company plc (the “Fund”) is an open ended investment company incorporated in the Isle of Man designed for Qualifying Investors as defined in the Scheme Particulars of the Fund. The Fund has three sub-funds (together the “Investment Funds”):
- The New Earth Solutions Recycling Facilities Sterling Investment Sub-Fund priced in sterling;
- The New Earth Solutions Recycling Facilities Dollar Investment Sub-Fund priced in US dollars; and
- The New Earth Solutions Recycling Facilities Euro Investment Sub-Fund priced in Euros.
Each of the Investment Sub-Funds aims to provide long term growth by investing directly or indirectly in Recycling Facilities in the United Kingdom and in the development of such facilities, Recycling Facilities being defined for this purpose as industrial facilities for the processing and treatment of waste, including the recycling of waste, the treatment of waste, the preparation of waste for use in waste to energy and the conversion of waste to energy by any means.
Why the Waste and Waste to Energy Sectors?
The waste treatment industry is faced with the challenge of achieving escalating and demanding recycling and landfill diversion targets. At the same time, the energy industry is required to achieve challenging targets for the recovery of energy from renewable sources including waste. Waste and energy are therefore two of the key issues facing both the public and private sectors in the United Kingdom and strong policy and economic drivers exist in the United Kingdom in the waste treatment sector. This has created the incentive for the development of a new waste and energy infrastructure and this in turn creates commercial opportunities for established operators in the waste treatment sector, such as the New Earth Group, and attractive investment opportunities in waste treatment and renewable energy.
New Earth Group:
New Earth Solutions Group Limited is an established UK provider of waste treatment facilities and is developing complimentary operations in the renewable energy sector. Waste treatment services are provided by New Earth Solutions Facilities Management Limited (New Earth Solutions), whilst New Earth Energy Facilities Management Limited (New Earth Energy) focuses on projects to recover low-carbon renewable energy from waste-derived fuels. Both of these sectors are dynamic, fast-growing and in need of substantial investment in infrastructure and services.
The Premier Group (Isle of Man) Limited ("Premier") is the successor of a fund group established in 2001 and is responsible for designing, distributing and managing a range of investment funds to investment intermediaries and financial institutions throughout the UK and international markets.
Since formation, Premier has successfully launched a wide range of investment vehicles and innovative financial solutions in conjunction with a number of specialist and leading fund managers.
Having the capacity to move quickly and bring products to market on time has enabled Premier to build funds under management of approximately $700m.
In early 2009 Premier was accepted as both a regulated Manager and regulated Promoter under the supervision of Isle of Mans regulatory body, the Financial Supervision Commission (the "FSC").
In doing so Premier became the first company to hold both full Manager and Promoter licenses which further enhances their reputation and commitment to the Isle of Man, itself considered to be a leading offshore jurisdiction for financial services companies and investment schedules.
The implementation of landfill tax has become the most significant market driver in the UK and has created attractive opportunities for the recycling and treatment of waste.
The European and national framework of policies and targets that exists is calling for the development of a new strategy and infrastructure for waste management in the UK. The UK is historically amongst the most reliant countries within the European Union (“EU”) upon landfill, with 75% of municipal waste being sent to landfill against an EU average of 45% (2003 statistics). More recent statistics from 2010 indicate that the UK continues to be among the EU’s worst offenders with regards to the volume of waste landfilled per capita, depositing 255 kilogrammes (“kg”) per capita versus the EU average of 162 kg.
The Groups addressable market comprises 32 million tpa of municipal waste with similar amount of commercial and industrial waste, taking the combined marketing to around 64 million tpa. The combined annual value of these waste streams is currently estimated to be around £5bn and expected to rise to circa £6.5bn by 2014. The UKs dependency on landfill is a consequence of the abundance of sites suitable for landfill use as a result of past mining and quarrying activities.
The UK Governments approach to waste management is highlighted by its waste hierarchy which seeks to minimise waste generation, promote re-use and to divert waste from landfill disposal towards recycling, composting and energy recovery.
Waste Management Drivers
The market dynamics for waste management revolve around the division of waste from landfill. The implementation of landfill tax has become the most significant marketing driver in the UK and has created attractive opportunities for the recycling and treatment of waste.
From April 2012 UK landfill disposal costs will typically cost £90 per tonne (compromising £64 per tonne landfill tax and typically £24 per tonne landfill gate fee), which is comparable to the waste treatment gate free provided by New Earth. Landfill disposal costs are expected to exceed £100 per tonne (including landfill tax) by 2014, making the Groups waste treatment offering increasingly cost competitive.
The escalation of landfill tax in particular, has ensured that the do nothing option is no longer viable.
The proportion of composted and recycled waste has increased considerably since 2000/01, however a major element of this has been the nationwide roll-out of source segregated household recycling schemes. Significant further improvements in the rate of landfill diversion are expected to be limited without increased investment in waste treatment and waste to energy facilities.
STRATEGIC REVIEW UPDATE
On 28th November 2013 we advised that the New Earth group of companies (“New Earth”) had announced a joint strategic review of its successful association with the Fund. An update has been provided by letter on 16th July 2014, as follows:
Strategic Review undertaken by New Earth (the “Review”)
The Review identified five key initiatives in order to progress the financing options available to New Earth in order to pursue their expansion plans.
Whilst much of the progress made to date remains market sensitive and therefore still confidential, the Fund Directors would, like to report on the developments made to date and below is an update on the initiatives:
A review of the whole structure of the New Earth businesses is being undertaken in association with EY in order to best package the financing options available to institutional investors or progressing any IPO, if this is seen as the most favourable option.
2) Local Authority Contracts:
The security provided by the long term waste supply contracts is extremely important as this provides a cornerstone to the New Earth businesses and any future financing arrangements. Significant extensions to both the Bournemouth and Dorset contracts have been obtained from 2014 and 2017 respectively to 2021. Additionally, a contract with the Borough of Poole has been secured until 2027. Additional work is continuing to be undertaken to strengthen the contracted position of the other plants with more announcements anticipated over the next few months.
3) Refinancing Avonmouth Waste to Energy Plant:
Significant progress has been made in sourcing senior debt from a major bank, which has been secured subject to satisfactory ongoing operability tests of the Energy Plant. Other parallel refinancing options are also being explored at this time. These include the potential marketing of further loan notes in New Earth Energy (Avonmouth) Limited. Obtaining refinance is seen as key to progressing financing options in order to deliver the future growth objectives of the New Earth businesses.
4) Sale of Non-Core Assets:
In conjunction with EY, significant progress has been made on the sale of a number of the non-core assets. This has taken longer than expected however, due to the complexity of the waste business, the sale requires extensive discussions with key stakeholders, particularly local authorities, which extends the process. It is hoped that positive announcements on this will be forthcoming over the next few months.
5) Business prospects:
The driving fundamentals of the New Earth businesses, which are, landfill diversion supported by an escalation of landfill tax and the incentives around the generation of renewable energy, remain firmly in place. The building of two further waste to energy plants, which are fed by the existing waste processing plants at Avonmouth (Bristol), Canford (Dorset) and Cotesbach (Leicestershire), together with the combined waste management and waste to energy facility in the Scottish Borders, provide an attractive proposition for potential investors in the New Earth businesses. This is seen as being essential to progressing the financing options.
Pricing, valuations and dealing
The financial review has been concluded by the Fund and, bearing in mind the priority of the Fund is the success of the Review mentioned in order to support New Earth to pursue its expansion plans, the Fund is unfortunately unable to provide any excess liquidity to enable redemption requests, whether in full or part, to be met at this time.
Should this situation change we will inform shareholders at the time.
Suspension of dealing
In the last update, we communicated that redemption requests would be rejected. However, following revised legal opinion, any redemption requests will be recorded and remain queued whilst the temporary suspension remains in place.
The Directors of the Fund remain fully supportive of New Earth and their expansion plans and are committed to providing such financial support necessary throughout this process, as they firmly believe this to be in the best interests of the majority of shareholders. I trust that you can therefore understand the rationale behind the decisions taken by the Directors and appreciate your patience throughout this period.