Viridor Plastics Reprocessing Developments …...2019/09/12 · • Committed £65m investment at Avonmouth –Viridor reprocessing capacity moves from c.30,000 tonnes to c.110,000

© Pennon Group plc 2019© Pennon Group plc 2019

Viridor Plastics Reprocessing DevelopmentsAnalyst Breakfast Briefing

12 September 2019

© Pennon Group plc 20192

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PennonThe Pennon Team

(2)

Susan Davy

Chief Financial

Officer - Pennon

Elliot Rees

Finance Director -

Viridor

Jennifer Cooke

Investor Relations

Officer - Pennon


Viridor – Bringing resources to lifePlastics reprocessing developments

Market opportunity as policy and regulatory drivers call for greater domestic reprocessing

Well established in UK recycling and reprocessing, leveraging our plastics skill set

Promoting sustainable, de-risked infrastructure model

• Commercial model proven at scale - Energy park location enables significant cost benefits

• Avonmouth case study:

• High quality producer - strong relationships with brand leading manufacturers, over ½ of

offtake contracted for duration of business case

• Sustainable returns - IRR hurdle 15%, 7 year business case, payback <4 years

• Viridor at the forefront of the sector in the UK, transforming plastic waste into high quality recyclates for reprocessing

• Currently reprocess one third of plastic recyclate produced from Viridor’s Materials Recycling Facilities (MRFs)

• Future model – reprocess majority of Viridor produced recyclate

• Committed £65m investment at Avonmouth – Viridor reprocessing capacity moves from c.30,000 tonnes to c.110,000 tonnes

• Exploring two further Plastics Reprocessing Facilities at Ardley and Dunbar, co-located with Energy Recovery Facilities (ERFs),

increasing Viridor’s market share of UK reprocessed plastics by over 50%(2) from estimated c.110,000 tonnes (c.10% market share)

• Policy and regulatory measures driving change

• ‘Blue Planet effect’ aligning consumers and Government – plastics life cycle in the spotlight

• Challenging targets for UK recycling – significant reprocessing capacity gap remains(1), equivalent to the size of c.14

facilities the size of Avonmouth Plastics Reprocessing Facility

(1) WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018(2) Viridor analysis, WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018


Viridor - Plastics MarketSignificant opportunity for growth in plastics recycling

• ‘Blue Planet effect’ increasing pressure to tackle plastics pollution – Government and consumers aligned

• ‘War on plastic’ – plastics life cycle in the spotlight, drive to process UK waste on UK shores

Tonnes of recyclable plastic

currently collected in the

UK(4)

UK target for recycled

packaging

Plastic packaging currently recycled

1 million

46%

75%

UK plastic collected for

recycling currently exported

(1)

(1) DEFRA UK statistics on waste - 2019(2) 75% recycling rate for packaging by 2030 – subject to consultation, UK Government Resources and Waste Strategy(3) Recoup – UK Household Plastics Collection Survey 2018 (4) WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018

(2)

Underpins growth in plastics reprocessing

66%(3)

• Global production of plastics increasing but greater demand for high quality recycled content in brand leader manufacturing

• UK based plastics reprocessing offers sustainable solution - supporting movement towards a more circular economy


Viridor - Plastics Market‘Blue Planet Effect’ – consumers focused on recycling

Source: Edelman intelligence for Viridor, 2,500 UK general population, July 2019

… the UK should find a way to deal with its own recycling

… existing plastic waste should be used to create useful resources that can be used again

… individuals should take more responsibility for recycling in the UK

9 in 10 say…

Viridor Recycling Index 2019

Public support


Viridor - Plastics MarketPlastics on a Government fast track

UK Plastics Pact • 80% of plastic packaging supply chain signed up

• Target 30% recycled content by 2025

• Target to recycle 70% plastic packaging by 2025

UK Government • Tax announced on plastic packaging with less than 30% recycled content

expected in 2022

• Target 75% recycling rate for packaging by 2030

• Consistent household and business recycling collections

European Parliament• Mandatory 35% recycled content for drinks packaging by 2025

• Recycled polymer use in plastic packaging within Europe is set to increase four-fold by 2030

Brand leader targets – public declarations on recycled content• Unilever 25% by 2020

• P&G double recycled content by 2020

• Coca-Cola 50% of PET bottles by 2025Policy and regulatory measures driving change


Viridor - Plastics MarketDrive for increased recyclability

Main polymer

Clear/natural

Detectable colour (1)

Not detectable colour (1)

Polypropylene

HDPE & LDPE(2)

aPET/rPET(3)

cPET(4) –

Styrenes

PVC(5)

Multi-layer

In order for something to be deemed ‘recyclable’, it must be collected, sorted, reprocessed andmanufactured back into a new product or packaging – at scale and economically.UK Plastics Pact

Pressure on manufacturers to deliver recyclable products

Source: WRAP – Polymer choice and recyclability guidance(1) Detectable by Near-infrared (optical sorters)(2) High-Density polyethylene & Low-density polyethylene(3) APET – Amorphous polyethylene terephthalate / RPET – Recycled polyethylene terephthalate(4) CPET – Crystalline polyethylene terephthalate(5) PVC – Polyvinyl chloride

• An increase in the recyclability of plastic packaging will further increase the size of the market for plastics reprocessing

© Pennon Group plc 20199 Source: Viridor analysis, WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018(1) 2025 capacity gap of 1141kt based on Wrap forecast of 2410kt plastic packaging placed on the market and a forecast implied recycled rate of 67%

Viridor - Plastics MarketForecast growth in plastics available for recycling

• 46% of UK plastic waste currently collected for recycling – rate rising but without further action UK Plastics Pact target of 70% of

plastic packaging effectively recycled or composted by 2025, would be missed

• UK Capacity Gap increasing – currently fulfilled through exporting

• To fill estimated UK Capacity Gap by 2025(1) would require the equivalent of c.14 Avonmouth Plastics Reprocessing Facilities

• Including all plastics placed on the market an additional c.10 Avonmouth Plastic Reprocessing Facilities would be required

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

2018 2019 2020 2021 2022 2023 2024 2025

UK

Re

cycl

able

Pla

stic

Pac

kagi

ng

Mar

ket

(kT)

UK Plastic Reprocessing Capacity (Others) Viridor Committed Plastic Reprocessing Capacity UK Capacity Gap Additional Material with Recycling Potential

46%

Implied Recycling Rate (%)

50%52%

55%58%

61%64%

67%

Driving confidence in reprocessing investment

Equivalent capacity of

c.10Avonmouth

facilities

Equivalent capacity to

c.14Avonmouth

facilities


Viridor - Opportunities for GrowthMoving up the value chain

Deriving further benefit from the value chain

• Recyclate will be reprocessed into high quality pellet and flake for direct use in consumer product manufacturing

• Viridor leveraging plastics skill set to encompass greater focus on reprocessing as manufacturer demand for

pellet and flake increases

• Majority of plastic recyclate currently sold for third party processing will be reprocessed by Viridor

Source: Viridor analysis, based on total recyclate and reprocessing capacity for 2018/19(1) Based on Viridor current reprocessing capacity at Skelmersdale Plastics Reprocessing Facility

(1)


Viridor - Opportunities for GrowthCase Study – Avonmouth Plastics Reprocessing Facility

Operationally sustainable

Environmentally sustainable

c.80,000input tonne capacity(1)

c.1 tonneCO2 saving vs virgin polymer production

Multi-stream

plastics and outputs pellets

c.80%of water recycled for

production processing

c.12,000tonnes CO2 saved

through co-location

Operationally and environmentally sustainable

(1) c.8% of current market requirement

c.60,000tonne output


Revenue• Manufactured pellets and flake to be sold for direct use in

consumer product manufacturing• Secured via medium term contracts over duration

of investment case• 60-80% of pricing fixed – balance linked to materials purchase

price to mitigate market riskMaterial Inputs

• Purchase of plastics from recyclate streams• Secured from Viridor recycling facilities and

medium term 3rd party contracts• No value loss on recyclate as this becomes an input into this

higher value processOperating Costs

• Power (direct supply from ERF enabling c.50% cost saving)• Labour (pickers, maintenance, supervision)• Maintenance• Consumables (chemicals)• Insurance and overheads

Capex

• Modest capital requirement • Corporately financed via existing headroom

Viridor - Opportunities for GrowthFinancial model – commercially proven at scale

Double the value in reprocessed product compared to recyclate(1)

Financially sustainable

IRR hurdle

15%Secured:

¾ inputs

½ offtake

7 year business case

payback< 4 years

£65minvestment co-located with Avonmouth ERF

Operating returns

Investment (1) Viridor market analysis


Viridor - Opportunities for GrowthDevelopment preparation progressing at two further Viridor sites

• Viridor reprocessing portfolio:

• Exploring two further reprocessing facilities, co-located with Ardley and

Dunbar ERFs – planning in progress

• Skelmersdale – 30,000 tonne capacity –operational since 2009

• Avonmouth – 80,000 tonne capacity –

under construction, operational in 2020/21

• Long-term contracts promoting sustainable de-

risked infrastructure model

• Pennon headroom for investment of £725m(1)

enabling agile response to market opportunities

Viridor proven track record in plastics market - well placed for next growth phase

Skelmersdale plastics reprocessing facility

(operational)

DunbarExploring plastics reprocessing facility

Avonmouth plastics Reprocessing Facility(under construction)

ArdleyExploring plastics reprocessing facility

(1) As at 31 March 2019

Viridor ERF location

Plastic reprocessing facility operational / under construction


Viridor – Bringing resources to lifePlastics reprocessing developments

Market opportunity as policy and regulatory drivers call for greater domestic reprocessing

Well established in UK recycling and reprocessing, leveraging our plastics skill set

Promoting sustainable, de-risked infrastructure model

• Commercial model proven at scale - Energy park location enables significant cost benefits

• Avonmouth case study:

• High quality producer - strong relationships with brand leading manufacturers, over ½ of

offtake contracted for duration of business case

• Sustainable returns - IRR hurdle 15%, 7 year business case, payback <4 years

• Viridor at the forefront of the sector in the UK, transforming plastic waste into high quality recyclates for reprocessing

• Currently reprocess one third of plastic recyclate produced from Viridor’s Materials Recycling Facilities (MRFs)

• Future model – reprocess majority of Viridor produced recyclate

• Committed £65m investment at Avonmouth – Viridor reprocessing capacity moves from c.30,000 tonnes to c.110,000 tonnes

• Exploring two further Plastics Reprocessing Facilities at Ardley and Dunbar, co-located with Energy Recovery Facilities (ERFs),

increasing Viridor’s market share of UK reprocessed plastics by over 50%(2) from estimated c.110,000 tonnes (c.10% market share)

• Policy and regulatory measures driving change

• ‘Blue Planet effect’ aligning consumers and Government – plastics life cycle in the spotlight

• Challenging targets for UK recycling – significant reprocessing capacity gap remains(1), equivalent to the size of c.14

facilities the size of Avonmouth Plastics Reprocessing Facility

(1) WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018(2) Viridor analysis, WRAP – PlasticFlow 2025 - Plastic Packaging Flow Data Report 2018

© Pennon Group plc 2019© Pennon Group plc 2019

Q&A


Appendix


Appendix Plastics reprocessing – high level process

Plastics Reprocessing Facility

Bale input (PET,PP, HDPE)

Bottle sorting

• PET (colour)• PET• PP• HDPE (natural) • HDPE (colour)• Waste

Bale and sell

To Energy Recycling Facility

Grind Wash Dry Flakesorting

Extrusion Deodorising Storage

Bulk bag

Pellet /Flake Silos

Caps and labels Bag and sell

© Pennon Group plc 201918 Source: Viridor(1) Including Skelmersdale and Avonmouth plastics reprocessing facilities – c.110,000 tonne s capacity

Polyethylene terephthalate (PET)

High Density Polyethylene(HDPE)

Polypropylene(PP)

AppendixAverage Viridor reprocessing volumes by plastic type(1)

HDPE c.37%

PPc.10%

PETc.53%

Documents

Viridor Plastics Reprocessing Developments …...2019/09/12 · • Committed £65m investment at Avonmouth –Viridor reprocessing capacity moves from c.30,000 tonnes to c.110,000