SCHP Seche Environnement

Limited impact of the health crisis Business and income have recovered sharply since June 2020 goals on target and 2022 trajectory confirmed Return to growth and profitability trajectory in 20211

Regulatory News:

Séché Environnement (Paris:SCHP):

Business resilient Slight decline in contributed revenue: €313.0m vs. €329.8m at 6/30/2019

Agility of the organization

Operational responsiveness: Limited decline in EBITDA: €53.8m vs. €63.6m as of 6/30/2019 -of which €(7.6)m is from energy recovery- Investment management: Industrial CAPEX stable at €25.8m i.e. 8.3% of revenue vs. €27.2m, i.e. 8.3% of revenue at June 30, 2019 WCR management: WCR improved to +€31.7m vs. +€8.2m at June 30, 2019

Cash flow generation is solid

Free cash flow rose to €39.4m i.e. 12.4% of revenue vs. €35.0m, i.e. 10.6% of revenue at June 30, 2019 Liquidity position strengthened to €310.1m vs. €287.3m at 12/31/2019

Financial flexibility

Deleveraging: Net financial debt down to €390.1m vs. €399.4m as at 12/31/2019 Financial leverage ratio under control at 3.3x vs. 3.1x at 12/31/2019

Targets confirmed for 20202

Contributed revenue target confirmed in the €650m-€675m range. EBITDA target confirmed between 19% and 20% of contributed revenue with a second half of 2020 contribution about the same as the second half of 2019. Cash flow preserved: free cash flow generation above 35% of EBITDA Financial leverage stable at 3.3x targeting a return to around 3.0x at end-2021

Confidence in 2022 trajectory

Contributed revenue between €750m and €800m EBITDA between 21% and 22% of 2022 contributed revenue Financial leverage ratio below 3x EBITDA

During the Board of Directors meeting of September 11, 2020 that met to approve the June 30, 2020 financial statements, Chairman Joël Séché announced:

“Characterized by the emergence of an unprecedented pandemic, the recent period demonstrates the agility of our organization, the resilience of our businesses, and the flexibility of our financial structure.

After strong growth in the early months, in the second quarter Séché Environnement faced lockdowns, both in France and in the other countries where it is present, which affected its organization and that of its clients to varying degrees.

Séché Environnement quickly adapted and took enhanced measures early on to protect its staff, especially its teams most directly exposed to waste, and flexible, safety-ensuring organizational methods were universally applied.

Séché Environnement is pleased to have helped protect its employees' health – which is the number one reason for implementing these measures – and to have kept its human resources intact and its equipment available. The Group can count on the daily, courageous, and exemplary commitment of its teams to keep its operations up and running for its customers, and I want to thank them personally for their flawless efforts.

Both in France and abroad, Séché Environnement has shown agility in fulfilling its duties and has been able to continue its business through continuity plans adapted to each of its sites, with limited impacts on volume and business.

Our financial priorities have been strengthened, like managing our working capital requirements and investments, to maintain the liquidity and flexibility of our balance sheet.

Thanks to its positioning in its highly resilient markets, the Group was able to return to pre-crisis levels of business, at least in France. Abroad, the late onset of the health crisis in some regions, such as Latin America, is still delaying the restoration of those markets to normal.

The results we have delivered in the first half of 2020 reflect the impact of this unusual period, but they also demonstrate the Group’s financial solidity in confronting the crisis. Despite the decline in profitability as a result of the one-off decline in some of our business lines, particularly energy recovery, the Group has been able to put up a strong liquidity position and ample financial flexibility as of the end of the period.

These results are not indicative of the performance that we anticipate for 2020 as a whole, nor of our medium-term outlook, which remains focused on markets rich in development opportunities, as can be seen in the Solena project becoming a reality in France and our profitable growth prospects abroad, particularly in Italy and South Africa.

The second half of 2020 is expected to return to activity levels and operating income comparable to those of the second half of 2019, enabling our Group to begin 2021 having overcome the impacts of the health crisis and on a stronger course for 2022.

This is the message of confidence in the future that I want to deliver today: We are all committed to translating it into economic, financial, and environment performance right away.”

First-half 2020 highlights

General background relating to the COVID-19 health crisis: responsive organization, resilient business

The first half of 2020 was characterized by the occurrence of a major global health crisis that interrupted a promising start to the year.

After a first quarter that showed a strong growth trend in the markets, lockdowns affected certain activities to varying degrees, unevenly affecting all of the Group's regions.

By immediately adapting its organization as soon as the health crisis appeared, Séché Environnement was able to continue its waste treatment and recovery activities, with limited impacts on both. For this reason, the Group's profitability was primarily affected by business mix effects (decline in energy recovery), while one-time operational cost overruns stemming from these organizational measures were absorbed by cost-cutting measures and productivity gains.

Because of its experience with the hazardousness of waste, Séché Environnement carries on essential business in environmental and health risk management, and addresses a non-cyclical core industrial clientèle with strategic businesses (energy, health, pharmaceuticals, chemistry, etc., amounting to about 35% of contributed revenue) which continued to operate during the crisis, while Local Authorities and Environmental Services (36% of consolidated revenue) are characterized by the durability of their markets.

Séché Environnement has nonetheless seen declines in activity in some of its business lines, such as services in France and the International scope (Decontamination; Chemical Cleaning), which have suffered project delays, or sorting/recovery operations and final waste management equipment that have faced lower levels of Waste from Economic Activity (WEA) in conjunction with the slowdown in certain industrial activities and the service sector, particularly distribution.

Situations have also changed in varying ways in the different countries where the Group operates. For example, Spain, Chile, and Peru saw downturns that are quite a bit more significant than in France or Italy.

Note that in March, the global spread of the pandemic resulted in significantly worsening exchange rates for certain currencies against the euro, specifically in South Africa and Chile, which reduced the contributions to consolidated activity of subsidiaries in those countries.

Beginning in June, Séché Environnement observed, at least in France, a strong rebound in waste volumes and the return of most of its businesses to their pre-crisis levels. Abroad, the late onset of the health crisis in some regions, such as Latin America, has delayed the return of business to normal levels.

Furthermore, Séché Environnement has continued the restarting of the Strasbourg incinerator (Sénerval) that began in the third quarter of 2019 after five years of work. This restart phase has manifested as underutilization of incineration capacity, causing flows to be redirected to alternative treatment sites, along with a substantial contraction of energy sales. This situation has led to a substantial decline in that facility’s contribution to the Group’s operating margins over the period.

Since the lockdown began, Séché Environnement has paid close attention to preserving the quality of its balance sheet and its liquidity position.

Séché Environnement has strived to protect its cash flow by controlling its investments, expenditures, and change in working capital requirement through an active billing and collection policy. The Group has also secured six-month postponements of due dates from its banking partners for its short-term bank borrowings, even though the Group does not face any major financial debt repayment deadlines until 2023.

Finally, as a precaution, Séché Environnement suspended certain development investments in France and internationally, such the roll-out of the Eden project in South Africa (€11m planned in 2020), or the start-up of the Ciclo project in Chile (€6m in 2020).

Summary interim income statements

Unless expressly stated, the percentages shown in the tables and mentioned in the commentaries below are calculated using contributed revenue.

In €m

At June 30

Consolidated

France

International

2019

2020

2019

2020

2019

2020

 

 

 

 

 

 

 

Revenue (reported)

342.3

313.2

262.0

236.9

80.3

76.3

Contributed revenue

329.8

313.0

249.5

236.7

80.3

76.3

EBITDA

As a %

63.6

19.3%

53.8

17.2%

49.4

19.8%

42.3

17.9%

14.2

17.7%

11.5

15.1%

Current operating income

As a %

22.1

6.7%

13.0

4.1%

15.0

6.0%

11.0

4.7%

7.1

8.8%

2.0

2.6%

Operating income

As a %

21.6

6.6%

11.9

3.8%

 

Financial income

As a %

(8.4)

2.6%

(10.4)

3.3%

 

Tax expense

As a %

(5.0)

1.5%

(2.3)

0.1%

 

Share of income of associates

(0.1)

(0.1)

 

Minority interests

(0.5)

(0.0)

 

Net income (Group share)

As a %

7.6

2.3%

(0.9)

(0.0)%

 

Main factors in activity, income, and financial situation as of June 30, 2020

With contributed revenue of €313.0m as of June 30, 2020, slightly down -5.1% compared to June 30, 2019, Séché Environnement has demonstrated the resilience of its waste recovery and treatment businesses.

However, the symmetry between changes by scope (France revenue: -5.1% and International revenue: -5.0%) conceals contrasting situations between regions and businesses over the period:

• In France (76% of revenue), the crisis primarily affected services (stoppage of decontamination sites), sorting and recovery (lower WEA3 volumes) and final waste management (particularly polluted land treatment); meanwhile, materials recovery (chemical purification), and incineration (particularly hazardous waste) benefited from a good starting level of activity and the continuation of industrial clients' activities. At the end of the period, a sharp rebound in waste volumes and the resumption of worksites led to a return to growth in this scope in June compared to June 2019 (+2.8%). The first half of the year also saw a reduced contribution from the incineration and recovery activities, due to the unique situation of the Strasbourg incinerator, which is undergoing a restart.

• In the International scope (24% of revenue), the crisis had varying impacts on the subsidiaries' business, with a sharp decline for Solarca (industrial maintenance sites) while Mecomer (Italy) maintained a good level of growth over the period, and Spain and South Africa saw moderate business contraction. In some places (South Africa, LatAm), the unfavorable shift in foreign exchange rates beginning in March compounded the decline in business. Finally, the cycle shift, between the late arrival of the health crisis in Latin America and the implementation of strict lockdowns particularly in Chile and Peru, has heavily impacted business in those areas, and hindered the overall recovery of the International scope.

Operating revenue has been impacted by the effects of the health crisis, particularly due to changes in the business mix and the cost overruns that they led to in the second quarter, and by the reduced contribution of energy:

• EBITDA came to €53.8m, i.e. 17.2% of contributed revenue (vs. €63.6m one year earlier, to 19.3% of contributed revenue):
  • the scope effect (integration of Mecomer in Q1 2020) is €2.6m;
  • the currency effect is €(0.6)m;
  • at constant scope and exchange rates, EBITDA is mainly contending with €(17.5)m in business mix effects, stemming from declining volumes of certain activities (non-hazardous final waste management, worksites) and the €(7.6)m drop in energy recovery in France.

The price effects resulting from the 2019 and early-2020 increases produced significant positive effects (+€9.5m).

The remainder (-€3.8m) reflects changes in fixed and variable costs, and other operating expenses.

• COI came to €13.0m, i.e. 4.1% of contributed revenue (vs. €22.1m one year earlier, i.e. 6.7% of contributed revenue):
  • the scope effect is €2.5m;
  • the currency effect is €(0.1)m;
  • at constant scope and exchange rates, the change in COI reflects the contraction in EBITDA (-€12.3m), the near-stability of net depreciation, amortization and provisions (-€0.9m), and the improvement of other operating income and expenses (+€1.0m).

Financial income, at €(10.4)m vs. €(8.4)m as at June 30, 2019, with the change in that figure primarily reflecting the increase of average gross financial debt over the period, while the cost of gross debt has been reduced to 2.91% (vs. 3.07% in the first half of 2019), and an adverse impact of currency fluctuations in the first half of 2019 (-€0.9m vs. -€0.1m one year earlier), related to the weakening of the South African currency.

Net income (group share) totaled €0.9m vs. €7.6m at June 30, 2019.

Net industrial investments paid out – excluding IFRIC 12 - reached €35.4m vs. €30.2m in the first half of 2019). Active management of working capital requirements (which improved by €31.7m) made it possible to record a 12.6% increase in free operating cash flow to €39.4m vs. €35.0m the previous year.

The liquidity position remained high, at €310.1m vs. €289.1m as at June 30, 2019, and net banking debt is stable at €390.1m (vs. €390.4m as at June 30, 2019) resulting in a financial leverage ratio of 3.3x EBITDA (vs. 3.2x).

2020 outlook confirmed – Confidence in 2022 trajectory

In France, the continuation of current trends should spell a good second half and, in that scope, the contraction in business seen in the first half is expected to be at least partially made up. Sénerval’s return to normal business conditions is expected to contribute to solid growth in the second half of the year compared to the first half.

In the International scope, business in Europe is expected to rebound with a good level of growth, particularly in Italy, where Mecomer is gaining ground in very promising markets. However, uncertainties as to the strength of the recovery in some geographic regions, such as Latin America, and the lasting impacts of forex effects, presage a 2020 revenue figure below that of 2019.

These forecasts have allowed Séché Environnement to maintain its business expectations for 2020, with a contributed revenue target adjusted to the low end of the initial range of €650m-€700m4.

Given the business resilience seen in the first half of the year but also the persistent uncertainties as to the scale of the International recovery in the second half, the Group is projecting a one-time negative impact, potentially as high as 1% of revenue, on the 2020 EBITDA target, which was initially expected to be 20% of revenue.

The financial leverage should remain stable at 3.3x for the current year, targeting a return to around 3.0x at end-2021.

The positive trend in the second half of 2020 presages a smoothing out of the health crisis’ effects by the end of the year, returning by the start of 2021 to the growth and profitability trajectory presented at the Investor Day on December 17, 2019.

Séché Environnement remains confident in its ability to meet its 2022 goals, which include a target consolidated revenue of between €750m and €800m, of which 30% will come from International markets, EBITDA of between 21% and 22% of contributed revenue, and a financial leverage ratio below 3x EBITDA.

Roll-out of the Solena project5

Solena, which is 60% owned by Séché Environnement and 40% owned by its local partner, Sévigné, was informed of the signing of the operating permit for its future waste recovery site in Aveyron on August 21, 20206.

This circular-economy project is all about deploying a complete system for recovering and treating non-hazardous household and industrial waste from across Aveyron and will greatly reduce volumes of residual waste. It will be developed in Viviez, Aveyron as part of a 34-year public service concession.

The estimated €50m investment will cover the creation of a sorting center for processing waste into materials (recycling) or energy (producing biomethane for the public grid and producing fuels for industrial facilities). This unit will help greatly reduce the volume of non-recoverable waste, which will be processed at a storage facility with an authorized capacity of 90,000 tons a year.

Given the preliminary design phase, the anticipated length of construction, and possible litigation, the Solena site is expected to begin operation in 2023.

Analysis of the consolidated financial statements at June 30, 2020

Analysis of activity as of June 30, 2020

As of June 30, 2020, Séché Environnement reported consolidated revenue of €313.2m, compared to €342.3m one year earlier. Reported consolidated revenue includes non-contributed revenue of €0.2m (vs. €12.5m as of June 30, 2019).

Net of non-contributed revenue, contributed revenue totaled €313.0m as of June 30, 2020 (vs. €329.8m one year earlier), marking a -5.1% decline over the period (reported data) and -8.0% in organic terms7.

Breakdown of revenue by geographic region

At June 30

2019

2020

Gross change

Organic change

 

In €m

As a %

In €m

As a %

Subsidiaries in France (contributed revenue)

o/w scope effect

249.5

-

75.7%

236.7

75.6%

-5.1%

-5.1%

International subsidiaries

o/w scope effect

80.3

43.2

24.3%

76.3

13.6

24.4%

-5.0%

-17.4%

Total contributed revenue

329.8

100.0%

313.0

100.0%

-5.1%

-8.0%

At constant exchange rates, contributed revenue at June 30, 2019 was €325.3m, illustrating a negative foreign exchange effect of €4.5m over the period.

The period was characterized by the COVID-19 crisis, which hurt geographic regions in different ways, with significant foreign exchange effects and cycle delays between France and International outside Europe:

• In France, contributed revenue totaled €236.7m at June 30, 2020 vs. €249.5m one year earlier, reflecting a decrease of -5.1% for the period. This scope had a strong start to the fiscal year, particularly in industrial markets. Beginning in the second half of March, the crisis hurt some businesses such as Services (Pollution Remediation & Decontamination sites), final waste management (smaller contaminated soil volumes), and sorting/recovery of Waste from Economic Activity (WEA). At the same time, recovery and incineration, particularly of hazardous waste, were barely affected by the effects of the lockdown. After hitting a low in April, most businesses saw a sharp rebound, and revenue in France climbed back up, with growth returning in June (+2.8% over June 30, 2019). This scope is seeing a significant decline in the contribution of incineration activities due to the ramp-up of the Sénerval incinerator which caused the furnaces and boilers to be underutilized, amounting to about €8.0m in revenue. Revenue earned in France accounted for 75.6% of contributed revenue in the first half of 2020 (vs. 75.7% in H1 2019).

• Internationally, revenue totaled €76.3m at June 30, 2020 vs. €80.4m one year earlier, reflecting a decrease of -5.0% for the period. This includes a scope effect of €13.6m from the first quarter, reflecting the contribution of Mecomer, which was consolidated effective April 1, 2019.

At constant scope, revenue earned by International subsidiaries totaled €62.7m, down -22.0% at current exchange rates and -17.3% at constant exchange rates. Besides producing a cycle delay, the health crisis also revealed contrasting situations between regions and subsidiaries:

• In Europe (Italy, Spain, Germany), business at subsidiaries saw a roughly -16% decline, except for Mecomer which posted revenue that was up +4.9%.

• Outside Europe, the crisis was accompanied by a very substantial decline in exchange rates beginning in March, particularly in South Africa and to a lesser extent in Latin America (€4.5m consolidated impact over the first half of the year).

As such:

• Interwaste (South Africa): revenue at June 30, 2020 was €27.9m, a -13.7% decline at current exchange rates but 3.3% at constant rates.
• Kanay (Peru): revenue (€5.6m at June 30, 2020) was down -17.0% at current exchange rates and -16.5% at constant rates.
• SAN (Chile) suffered a large contraction in its business due to a strong first half of 2019, with revenue of €2.5m, down -44.9% at current exchange rates and -35.4% at constant rates.
• Solarca (Rest of the World) suspended its worksite operations at the start of the first half, with revenue of €6.2m, down -48.1% (no significant foreign exchange effect).

Revenue earned by international subsidiaries accounted for 24.4% of contributed revenue in the first quarter of 2020 (vs. 24.3% one year earlier).

Breakdown of revenue by division

At June 30

2019

2020

Gross change

Organic change

 

In €m

As a %

In €m

As a %

 

 

Hazardous Waste division

o/w scope effect

213.8

32.5

64.8%

198.4

13.6

63.4%

-7.2%

-12.2%

Non-Hazardous Waste division

o/w scope effect

116.0

10.7

35.2%

114.6

-

36.6%

-1.2%

-0.1%

Total contributed revenue

329.8

100.0%

313.0

100.0%

-5.1%

-8.0%

In the first half of 2020, the waste treatment and recovery divisions demonstrated the resilience of Séché Environnement's business. As such, after a substantial contraction in volume and a sharp decline in some service businesses (worksites) in France and abroad, the divisions saw their business recover significantly, particularly the Hazardous Waste division.

The HW division, which accounts for 63.4% of consolidated contributed revenue, recorded revenue of €198.4m at June 30, 2020, down -7.2% from the first half of 2019 at current exchange rates.

Subtracting the scope effect and foreign exchange fluctuations, the division's decline was -12.2%, reflecting the fact that markets moved differently from one geographic region to another, with substantially more resilient business in France even as the cycle shifts observed in the International scope led to a greater contraction in its HW business:

• In France, the division brought in €144.7m in revenue, representing a slight decline of -1.2% compared to the same period last year. The division had a promising start to the fiscal year, supported by solid industrial markets and the growth of Services businesses (Decontamination). The arrival of the health crisis in mid-March led to the suspension of decontamination work, as well a decline in the volumes of contaminated soil in final waste treatment facilities. Businesses linked to industrial activity, such as incineration and materials recovery (chemical purification), were substantially less affected given the Group's positioning in favor of a strategic industrial clientèle, which remained operational. Since May, the division has benefited from the resumption of decontamination work and a sharp rebound in volumes, particularly in final waste treatment facilities.

• Internationally, the division's revenue totaled €53.7m at June 30, 2020 (vs. €67.5m one year earlier), a decrease of -20.3% on a reported basis. Subtracting the scope effect (€13.6m) and foreign exchange fluctuations, the decline in organic terms was -37.5%. The substantial contraction of International revenue from the HW division, at constant scope and exchange rates, reflects cycle shifts in the health crisis between different geographical regions, as the post-crisis restart of International industrial markets has been slower than in France.

With contributed revenue of €114.6m, the NHW division is slightly down (-1.2% at constant exchange rates and -0.1% in organic terms) compared to the first half of 2019 (€116.0m), and accounts for 37.0% of contributed revenue:

• In France, the division recorded contributed revenue of €92.1m, down -10.7% from the first half of 2019. Over the period, the division was affected by the sharp decline in the energy recovery business (ramp-up of Sénerval), and during the health crisis, by the decline in the Services business (decontamination sites) and by the contraction in WEA volumes. The sharp jump in volumes and return of site-based work to a normal level enabled the division to rebound at the end of the period to its pre-crisis level of activity.

• Internationally, revenue totaled €22.6m (vs. €12.9m one year earlier). The strong organic growth in the division (+75%) particularly reflects the solid contribution from Interwaste (South Africa), which benefited from spot markets in that period.

Breakdown of revenue by activity

At June 30

2019

2020

Gross change

Organic change

 

In €m

As a %

In €m

As a %

 

 

Treatment

o/w scope effect

158.0

15.1

47.8%

-

157.0

13.4

50.2%

-0.6%

-8.4%

Recovery

o/w scope effect

60.6

4.5

18.4%

-

44.5

0.1

14.2%

-26.5%

-26.0%

Services

o/w scope effect

111.2

23.6

33.8%

-

111.5

0.1

35.6%

+0.5%

+2.7%

Total contributed revenue

329.8

100.0%

313.0

100.0%

-5.1%

-8.0%

Treatment activities brought in €157.0m at June 30, 2020 vs. €158.0m one year earlier, a slight decline of -0.6% (reported data).

This change incorporates a €13.4m scope effect resulting from the contribution of Mecomer in the first half of 2020 (consolidated effective April 1, 2019). In organic terms, treatment activities were down -8.4%:

• In France, treatment activities contracted -3.0% to €130.2m, benefiting from the resilience of the NHW division, while the decline in contaminated soil (related to the stoppage of decontamination work) hurt the HW division during the health crisis. Thermal treatment activities were also hurt by the restarting of the Sénerval incinerator;

• Internationally, these activities saw a sharp organic decline (-40.0%), with contrasting changes between Mecomer, which grew over the period, and non-Europe business which remained persistently affected.

Treatment activities accounted for 50.2% of contributed revenue.

Recovery activities brought in €44.5m at June 30, 2020 (vs. €60.6m a year earlier), down -26.5% at current exchange rates (-26.0% at constant rates):

• In France, revenue from recovery activities stood at €33.4m (-24.6%), reflecting the impact of the ramp-up of the Sénerval incinerator in the winter while hazardous waste recovery activities (chemical purification) continued to hold up well.

• Internationally, revenue stood at €11.1m, down -31.8% at current exchange rates and down -30.4% at constant rates, hurt by the sharp decline in PCB activities in Latin America (spot markets) and to a lesser extent by Valls Quimica (regeneration) whose activities are increasingly focused on businesses with higher value added against a backdrop of less buoyant economic conditions in Spain.

Recovery activities accounted for 14.2% of contributed revenue.

Services activities recorded contributed revenue of €111.5m at June 30, 2020 (vs. €111.3m a year earlier), up +0.5% at current exchange rates and +2.7% on a like-for-like basis:

• In France, revenue from services activities was €73.2m, up +3.1% over the period, reflecting the bounce in Decontamination activities after the health crisis.

• Internationally, revenue stood at €38.3m, a -5.1% contraction at current exchange rates and up +1.6% like-for-like, representative of positive movement by Interwaste (South Africa) even as the Solarca project's activities were badly hurt over the period.

Services activities accounted for 35.6% of contributed revenue.

Analysis of major changes in the interim income statements at June 30, 2020

Séché Environnement’s consolidated results as of June 30, 2020 were operationally affected by the COVID-19 crisis, and particularly by the decline in energy recovery in France.

This is because the health crisis has led to substantial changes in the business mix and waste mix within the consolidated activity8, which hurt the contribution of some activities to the period’s operational performance.

For this reason, Séché Environnement projects that operational cost overruns (productivity losses, organizational costs, etc.) caused by the crisis will be about 1% of contributed revenue for 2020 (about €6.5m).

EBITDA (earnings before interest, tax, depreciation and amortization)

Consolidated EBITDA at June 30, 2020 amounted to €53.8m, a decrease of 14.4% from the first half of 2019 (€63.6m).

This change incorporates a €2.6m scope effect reflecting the contribution of Mecomer in the first quarter of 2020 (subsidiary consolidated effective April 1, 2019).

In addition, it suffered from an exchange rate effect of €(0.6)m.

At constant scope and exchange rates, EBITDA declined 18.7% from the same period of the previous year. This change is mainly attributable to:

• positive price effects resulting from increases initiated in 2019 and 2020 (+€9.5m) partially offset by €(9.9)m in negative commercial effects related to the health crisis (volume effects and changes in the business mix and/or waste mix);
• €(7.6)m from the decline in the contribution of energy recovery in France;
• €(3.8)m from changes in fixed and variable expenses, including one-time expenses stemming from the organizational measures taken during the health crisis.

Change in EBITDA by geographic scope

In €m

June 30, 2019

June 30, 2020

 

Consolidated

France

International

Consolidated

France

International

Contributed revenue

329.8

249.5

80.3

313.0

236.7

76.3

EBITDA

63.6

49.4

14.2

  53.8

  42.3

11.5

% of contributed revenue

19.3%

19.8%

17.7%

17.2%

17.9%

15.1%

EBITDA has moved in different directions depending on the scope:

• In France, EBITDA stood at €42.3m, or 17.9% of contributed revenue, down -14.4% from the same period last year (€49.4m, or 19.8% of contributed revenue).

This change reflects the combined effect of:

• the reduced contribution of certain treatment activities (final waste management, sorting/recovery of WEA), equal to €(12.0)m;
• the decline equal to €(0.5)m in the profitability of recovery activities, particularly hurt by Sénerval;
• the positive contribution of Services, which had a strong start to the year and saw the worksite business rebound after the lockdown, equal to +€3.3m;
• the improvement of the operating balance of holding activities, equal to +€2.2m.

• Internationally, EBITDA stood at €11.5m, or 15.1% of contributed revenue, down -19% from the same period the year before (€14.2m, or 17.7% of contributed revenue).

This change incorporates a scope effect related to the contribution of Mecomer over the first quarter of 2020 (€2.6m) and a forex effect of €(0.6)m.

At constant scope and exchange rate, EBITDA stood at €8.9m, or 14.2% of revenue, an organic contraction of -34.6% relative to the first half of 2019, reflecting:

• a contribution €(4.1)m lower from Services activities (particularly industrial maintenance, Solarca);
• a contribution €(0.9)m lower from recovery activities, hurt by the decline in the PCB business in Latin America;
• the resilience of the contribution of treatment activities, adding €0.2m.

Current Operating Income (COI)

As of June 30, 2020, consolidated COI was €13.0m, or 4.1% of contributed revenue, down 41.2% from the first half of 2019 (€22.1m, or 6,7% of contributed revenue).

This change incorporates a €2.5m scope effect related to the contribution of Mecomer over the first quarter of 2020 and a currency effect of €(0.1)m.

At constant scope and exchange rates, COI declined 51.2% from the same period of the previous year, which primarily reflects:

• the decline in consolidated EBITDA over the period, taking away €(12.4)m;
• the near-stability of net depreciation, amortization and provisions (+€0.9m from the first half of 2019);
• a +€1.0m improvement in other financial income and expenses.

Change in current operating income by geographic scope

In €m

June 30, 2019

June 30, 2020

 

Consolidated

France

International

Consolidated

France

International

Contributed revenue

329.8

249.5

80.3

313.0

236.7

76.3

COI

22.1

15.0

7.1

13.0

11.0

2.0

% of contributed revenue

6.7%

6.0%

8.8%

4.1%

4.7%

2.6%

For each geographic scope, the main changes were:

• In France, COI totaled €11.0m, or 4.7% of contributed revenue (vs. €15.0m, i.e. 6.0% of contributed revenue at June 30, 2019).

This change mainly reflects:

• the decline in EBITDA in this scope, which took away €(7.1)m;
• the change in net allocations to depreciation and amortization: €((1.0)m
• the +€1.7m improvement in other financial income and expenses.

• Internationally, COI totaled €2.0m, or 2.6% of revenue (vs. €7.1m, or 8.8% of revenue one year earlier).

The COI incorporates a €2.5m scope effect related to the contribution of Mecomer over the first quarter of 2020 and a forex effect of €(0.1)m.

At constant scope and exchange rates, the COI drop indicates:

• the decline in EBITDA at constant scope within this scope, amounting to €(5.2)m;
• the stability of amortization expenses and provisions, up €0.2m.

Operating Income (OI)

At June 30, 2020, operating income came to €11.9m, i.e. 3.8% of contributed revenue (vs. €21.6m, or 6.6% of contributed revenue one year earlier).

This change mainly reflects the decline in consolidated ROI.

Financial income

Financial income came to €(10.4)m, as of June 30, 2020, i.e. 3.4% of contributed revenue (vs. €(8.4)m, or 2.6% of contributed revenue one year earlier).

This increase partially reflects the change in average gross financial debt over the period, while the average cost of debt fell from 3.07% to 2.91%, and partially reflects the change in “other financial income and expenses”, including a €(0.9)m impact of currency fluctuations.

Net income (Group share)

As of the first half of 2020, corporate tax expense was €(2.3)m (vs. (€5.0)m at June 30, 2019).

Net income (Group share) came to €(0.9)m, i.e. (0.0)% of contributed revenue (vs. €7.5m, or 2.3% of contributed revenue, one year earlier).

Analysis of cash flows and financial situation

Summary of cash flows

In millions of euros

6/30/2019

6/30/2020

Cash flows from operating activities

64.8

71.4

Cash flows from investments

(100.6)

(42.1)

Cash flows from financing activities

55.7

94.1

Change in cash flow from ongoing operations

20.0

123.4

Change in cash flow for discontinued operations

-

-

Change in cash and cash equivalents

20.0

123.4

Over the period, Séché Environnement strengthened its change in cash and cash equivalents which rose from +€20.0m as of June 30, 2019 to +€123.4m as of June 30, 2020.

This enabled Séché Environnement to offset the reduction in its recurring operating cash flow9 (from €52.9m as of June 30, 2019 to €41.7m as of June 30, 2020) primarily from the effect of the contraction in EBITDA (-€9.8m) and the impact of currency fluctuations (-€0.9m vs. €0.1m one year earlier) owing to:

• the selectiveness of its net industrial investments: Net investments recorded (excluding IFRIC and MM&R) totaling €13.3m (vs. €17.1m one year earlier). Net investments paid out rose from €31.9m in the first half of 2019 (including €17.7m in recurrent investments and €14.2m in development investments) to €35.6m in the first half of 2020 (including €19.2m in recurrent investments and €12.1m in development investments). Séché Environnement sought to stabilize its maintenance investments at a normal level (5.6% of contributed revenue), while continuing the deployment of certain strategic development projects (ERP for the Group’s structure, new treatment capacity for Mecomer, etc.). Furthermore, as a precaution, the Group suspended certain development investments, such as the Eden project in South Africa and the Ciclo project in Chile.

• the active management of its working capital requirements, which have generated a positive cash flow of €31.7m vs. €8.2m, with this favorable change coming from the improvement of receivables (recovery policy).

Free operating cash flow10 is up +14% to €39.0m despite the growth in interest paid (€8.5m vs. €7.5m) and the increase in tax expense (to €6.3m vs. €0.8m one year ago, due to advance payments).

Financial investments totaled €6.5m related to the balance of the payment for a 2019 acquisition, while the Group posted a €(2.9)m change in cash and cash equivalents without gain of control corresponding to the acquisition of an additional 10% of Solarca.

After drawing €100m from the revolving credit facility (RCF) and paying off loans (€16.5m), the Group has generated a €123.4m positive change in cash and cash equivalents by the end of the period (vs. €20.0m a year earlier).

It should be noted that Séché Environnement has also secured six-month postponements of due dates from its banking partners for its short-term bank borrowings, and that the Group does not face any major financial debt repayment deadlines until 2023.

Simplified consolidated balance sheet

In millions of euros

12/31/2019

6/30/2020

Non-current assets

787.2

771.2

Current assets (excluding cash and cash equivalents)

238.4

207.2

Cash and cash equivalents

92.3

215.1

Assets held for sale

-

-

Total assets

1,117.9

1,193.5

Shareholders’ equity (including minority interests)

263.5

242.2

Non-current liabilities

535.2

518.7

Current liabilities

319.2

432.6

Liabilities held for sale

-

-

Total liabilities

1,117.9

1,193.5

During the period, Séché Environnement bolstered its financial solvency, recording a larger liquidity position and stable net debt, which enabled it to maintain its financial flexibility.

The liquidity position was €310.1m (vs. €287.3m as of December 31, 2019). reflecting good management of cash flow generation over the period.

• Cash balance: €215.1m (vs. €92.3m as of 12/31/2019), with this change covering the generation of cash flow over the period (+€23.2m), plus the partial use of the RCF during the period, drawing €100m.
• Credit facilities: €20.0m (unchanged from 12/31/2019).
• RCF: €50m (vs. €150m at 12/31/2019).
• Term loan: €25.0m (unchanged).

Consolidated financial debt evolved as follows over the period:

In millions of euros

12/31/2019

6/30/2020

Bank debt (excl. non-recourse bank loans)

203.8

217.4

Non-bank debt

32.0

30.8

Bond debt

254.0

254.1

Lease finance liabilities

42.9

42.5

Miscellaneous financial debt

4.2

3.5

Short-term bank borrowings

11.5

112.2

Total financial debt (current and non-current)

548.5

660.6

o/w due within one year

63.2

183.4

o/w due in more than one year

485.3

477.2

 

 

 

Cash balance

(92.3)

(215.1)

Net financial debt

456.2

445.5

 

 

 

Net financial debt (bank definition)

399.7

390.1

As of June 30, 2020, net banking debt stood at €390.1m, up slightly from December 31, 2019 (-2.4%), leaving the financial leverage ratio still at 3.3x (vs. 3.2x as of December 31, 2019)

Business outlook maintained for 2020 - Confidence in the 2022 trajectory

Séché Environnement is growing in promising waste recovery and treatment markets, with solutions that address the challenges of its industrial and governmental clients for the circular economy, fighting climate change, and promoting sustainable development.

These markets are characterized by their resilience, which has as much to do with the inevitable nature of waste output as it does with regulations that support their growth in terms of both volume and value.

For this reason, after a health crisis that has led to an unprecedented economic contraction in France and many countries where the Group is present, Séché Environnement has observed:

• in France, the return to growth of most of its business, with a rebound in volumes that has been keenly felt in the HW division, while the NHW division is continuing its positive course; The continuation of these trends is strengthening the prospect of a good second half in this scope, compared to a second-half 2019 affected by the partial unavailability of some sites (the revamping of Salaise 2; the restart of Sénerval) and the lower contribution from some worksite businesses; For this reason, the second half might allow for the first-half decline in activity within this scope to be partially made up.

• Internationally, each geographic region and subsidiary is facing a different situation:
  • Solarca (4% of revenue in 2019) is expected to benefit from a high level of billings in the second half of the year, due to the postponement of its projects, and Mecomer (5% of revenue in 2019) is expected to continue its pace of growth observed throughout the first half of the year;
  • Valls Quimica (Spain; 4% of revenue in 2019) and Interwaste (South Africa; 9% of revenue in 2019) have recovered despite a bleak economy;
  • Latin America (4% of revenue in 2019): The current situation still looks uncertain with respect to how long the crisis will last and what impacts it will have on the business of subsidiaries there.

The continuation of these trends, accompanied by persistently unfavorable foreign exchange effects, suggest that this scope will see a lower contribution in the second half of 2020 than in the second half of 2019.

These facts have caused Séché Environnement to adjust its business expectations for 202011, with a contributed revenue target of near the lower end of the initial range of €650m-€700m.

Additionally, Séché Environnement is taking into account uncertainties about the strength of the recovery in the International scope and the one-time adverse effects of the health crisis in the second quarter (waste mix effects, etc.) as well as the decline in energy recovery over the period, which could have an impact as high as 1% of revenue on the 2020 EBITDA target, which was initially expected to be 20% of revenue.

The financial leverage should remain stable at 3.3x targeting a return to around 3.0x at end-2021.

The positive trend in the second half of 2020 presages a smoothing out of the health crisis’ effects by the end of the year, returning by the start of 2021 to the growth and profitability trajectory presented at the Investor Day on December 17, 2019.

Séché Environnement is therefore confident in its ability to continue its 2022 trajectory, which includes a target consolidated revenue of between €750m and €800m, including 30% from International operations, EBITDA of between 21% and 22% of contributed revenue, and a financial leverage ratio below 3.0x EBITDA.

Information meeting

Due to the current health crisis, the presentation of the half-year results will take place solely in the form of a webcast on Tuesday, September 15, at 8:30 a.m.

To watch the conference live, you can go directly to Séché Environnement's website: www.groupe-seche.com

Calendar

Revenue at September 30, 2020 October 27, 2020 after market close

About Séché Environnement

Séché Environnement is one of France's leading players in the recovery and treatment of all types of waste, from both industry and local communities.

Séché Environnement is the leading independent operator in France. It is uniquely positioned as a specialist in highly complex waste, operating within regulated waste recovery and treatment markets with high barriers to entry, and develops cutting edge hazardous and non-hazardous waste recovery and treatment solutions.

Its facilities and expertise enable it to provide high value-added solutions to its industrial and public authority clients, targeting the challenges of the circular economy and sustainable development requirements, such as:

• material or energy recovery from hazardous and non-hazardous waste;
• a comprehensive range of treatment solutions for solid, liquid and gaseous waste (thermal, physical-chemical and radiation treatment, etc.);
• the storage of final hazardous and non-hazardous waste;
• eco-services such as decontamination, decommissioning, asbestos removal and rehabilitation;
• the global management of environmental services under outsourcing agreements.

Leveraging its extensive expertise, Séché Environnement operates in more than 15 countries around the world and is developing rapidly internationally through organic growth and acquisitions. Already operating in Europe (Spain and Germany, and now Italy) Séché Environnement has recently taken a leading position in Latin America (Peru and Chile) and in South Africa.

The Group currently employs around 4,500 people worldwide (including about 2,000 in France).

Séché Environnement has been listed on Eurolist by Euronext (Compartment B) since November 27, 1997.

It is eligible for equity savings funds dedicated to investing in SMEs and is listed in the CAC Mid&Small, Enternext PEA-PME 150, and Enternext Tech40 indexes.

APPENDIX 1

SELECTED FINANCIAL INFORMATION AND DEFINITIONS

Reported consolidated data

In millions of euros

6/30/2019

6/30/2020

Gross change

12/31/2019

Contributed revenue (1)

329.8

313.0

-5.1%

687.8

EBITDA

63.6

53.8

-15.4%

135.4

COI

22.1

13.0

-41.2%

47.8

Net income (Group share)

7.6

(0.9)

ns

17.8

 

 

 

 

 

Recurring operating cash flow (2)

55.8

41.7

-21.2%

113.2

Net industrial CapEx paid (excl. IFRIC 12)

30.2

35.4

+17.2%

60.9

Free operating cash flow (3)

35.0

39.4

+12.6%

56.7

 

 

 

 

 

Net bank debt (4)

390.4

390.1

0.0%

399.4

Financial leverage ratio

3.2x

3.3x

-

3.1x

1 Consolidated revenue net of:

a. IFRIC 12 revenue, representing investments made for assets under concession arrangements booked as revenue in accordance with IFRIC 12 and, b. damages and compensation paid to Sénerval, net of variable cost savings to cover costs incurred to maintain continuity of services to local authorities during asbestos removal at the Euro Métropole Strasbourg incinerator.

2 Earnings before interest, tax, depreciation and amortization (EBITDA) minus 1) calculated expenses, 2) current and non-current income and expenses, 3) costs of rehabilitation and maintenance on treatment sites and disposed assets, and 4) IFRIC 12 net investments paid.

3 Recurring operating cash flow minus change in working capital requirements, tax expenses, net interest payments, and recurring industrial investments, before development investments and financial investments, before dividends and financing.

4 According to the definition provided in the banking contract.

APPENDIX 2

CONSOLIDATED BALANCE SHEET AT JUNE 30, 2020

(In thousands of euros)

6/30/2019

12/31/2019

6/30/2020

Goodwill

300,608

309,714

307,115

Intangible fixed assets under concession arrangements

51,719

49,441

43,052

Other intangible fixed assets

25,973

35,712

37,876

Property, plant and equipment

297,138

316,735

309,408

Investments in associates

387

431

370

Non-current financial assets

8,799

7,996

7,616

Non-current derivatives - assets

0

0

0

Non-current operating financial assets

45,073

42,889

41,096

Deferred tax assets

22,275

24,300

24,637

Non-current assets

751,971

787,218

771,170

Inventories

14,316

14,553

14,276

Trade and other receivables

187,541

179,480

155,944

Current financial assets

2,113

3,586

4,572

Current derivatives - assets

0

0

0

Current operating financial assets

30,377

40,765

32,457

Cash and cash equivalents

94,326

92,276

215,116

Current assets

328,673

330,660

422,365

Assets held for sale

-

-

-

TOTAL ASSETS

1,080,643

1,117,878

1,191,535

Share capital

1,572

1,572

1,572

Additional paid-in capital

74,061

74,061

74,001

Reserves

166,376

161,918

162,105

Net income

7,574

17,825

(926)

Shareholders’ equity (Group share)

249,583

255,376

236,812

Minority interests

4,831

8,096

5,393

Total shareholders’ equity

254,414

263,472

242,205

Non-current financial debt

485,560

485,238

477,234

Non-current derivatives - liabilities

331

189

85

Employee benefits

7,760

14,358

15,213

Non-current provisions

14,982

18,891

19,374

Non-current operating financial liabilities

2,139

9,681

330

Deferred tax liabilities

3,660

6,883

6,252

Non-current liabilities

514,431

535,240

518,699

Current financial debt

54,673

63,228

183,330

Current derivatives - liabilities

100

83

55

Current provisions

4,815

5,442

2,012

Tax liabilities

4,549

6,439

4,568

Current operating financial liabilities

247,662

243,974

242,666

Current liabilities

311,798

319,166

412,630

Liabilities held for sale

-

-

-

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

1,080,643

1,117,878

1,193,535

APPENDIX 3

CONSOLIDATED INCOME STATEMENT AS OF JUNE 30, 2020

(In thousands of euros)

6/30/2019

6/30/2020

 

 

 

Revenue

342,286

313,246

Other business income

3,429

78

Transfers of expenses

298

0

Purchases used for operational purposes

(44,249)

(43,682)

External expenses

(130,262)

(109,071)

Taxes and duties

(24,249)

(23,461)

Employee expenses

(83,659)

(83,266)

EBITDA

63,595

53,635

Expenses for rehabilitation and/or maintenance of sites under concession arrangements

(5,804)

(7,645)

Operating income

226

607

Operating expenses

(2,051)

(685)

Net allocations to provisions and impairment

116

1,907

Net allocations to depreciation & amortization

(33,977)

(34,981)

Current operating income

22,105

13,039

Income on sales of fixed assets

(681)

41

Impairment of assets

(38)

0

Impact of changes in consolidation scope

(663)

0

Other operating income and expenses

915

(1,192)

Operating income

21,639

11,888

Income from cash and cash equivalents

349

151

Cost of gross financial debt

(8,150)

(8,844)

Cost of net financial debt

(7,801)

(8,692)

Other financial income

1,680

886

Other financial expenses

(2,310)

(2,607)

Financial income

(8,432)

(10,413)

Income tax

(4,994)

(2,323)

Income of consolidated companies

8,214

(848)

Share of income of associates

(118)

(67)

Net income from continuing operations

8,095

(916)

Income from discontinued operations

-

-

Net income

8,095

(916)

o/w attributable to minority interests

521

(10)

o/w Group share

7,574

(926)

 

 

 

Group share

 

 

Non-diluted earnings per share

€0.96

(0.12)

Diluted earnings per share

€0.96

(0.12)

APPENDIX 4

STATEMENT OF CASH FLOWS AS OF JUNE 30, 2020

(In thousands of euros)

6/30/2019

6/30/2020

Net income

8,095

(916)

Share of income of associates

118

67

Dividends from joint ventures and associates

-

-

Depreciation & amortization, impairment, and provisions

35,304

33,198

Income from disposals

709

986

Deferred taxes

1,702

(891)

Other income and expenses

1,068

1,761

Cash flows

46,995

34,204

Income tax

3,292

3,354

Cost of gross financial debt before long-term investments

7,195

8,491

Cash flow from operating activities before taxes and financing costs

57,482

46,049

Change in working capital requirement

8,152

31,679

Tax paid

(792)

(6,324)

Net cash flows from operating activities

64,842

71,404

Investments in property, plant and equipment and intangible assets

(32,988)

(36,485)

Disposals of property, plant and equipment and intangible assets

1,147

904

Increase in loans and financial receivables

(337)

(118)

Decrease in loans and financial receivables

357

11

Takeover of subsidiaries net of cash and cash equivalents

(68,797)

(6,482)

Loss of control over subsidiaries net of cash and cash equivalents

-

55

Cash flows from investments

(100,618)

(42,115)

Dividends paid to equity holders of the parent

-

-

Dividends paid to holders of minority interests

(590)

(482)

Capital increase or decrease from controlling company

-

-

Cash and cash equivalents without loss of control

-

-

Cash and cash equivalents without gain of control

(1,580)

(2,919)

Change in shareholders’ equity

(228)

(300)

New loans and financial debt

85,541

123,778

Repayment of loans and financial debt

(19,832)

(16,461)

Interest paid

(7,570)

(8,544)

Net cash flows from financing activities

55,741

94,074

 

 

 

Total cash flow for the period, continuing operations

19,964

123,362

Net cash flows from discontinued operations

-

-

TOTAL CASH FLOWS FOR THE PERIOD

19,964

123,362

 

 

 

Cash and cash equivalents at beginning of year

66,806

80,741

- o/w in continuing operations

66,806

80,741

- o/w in discontinued operations

-

-

 

 

 

Cash and cash equivalents at end of year

85,895

202,899

- o/w in continuing operations(1)

85,895

202,899

- o/w in discontinued operations

-

-

 

 

 

Effect of changes in foreign exchange rates

(876)

(1,065)

- o/w in continuing operations

(876)

(1,085)

- o/w in discontinued operations

-

-

 

 

 

(1) of which:

 

 

Cash and cash equivalents

94,326

215,116

Short-term bank borrowings (current financial debt)

(8,431)

(12,216)

Important notice

This press release may contain information of a provisional nature. This information represents either trends or targets as of the date of publication of the press release and may not be considered as results forecasts or as any other type of performance indicator. This information is by nature subject to risks and uncertainties which are difficult to foresee and are usually beyond the Company's control, which may imply that expected results and developments differ significantly from announced trends and targets. These risks notably include those described in the Company's Registration Document, which is available on its website (www.groupe-seche.com). This information therefore does not reflect the Company's future performance, which may differ considerably, and no guarantee can be given as to the achievement of these forward-looking figures. The Company makes no commitment on the updating of this information. More detailed information on the Company can be obtained on its website (www.groupe-seche.com), in the Regulated Information section. This press release does not constitute an offer of shares or a solicitation in view of an offer of shares in any country, including the United States. Distribution of this press release may be subject to the laws and regulations in force in France or other countries. Persons in possession of this press release must be aware of these restrictions and observe them.

1 See Investor Day, December 17, 2019 2 See Investor Day, June 26, 2018 3 WEA: Waste from economic activity 4 See "Investor Day", June 26, 2018 and "Investor Day", December 17, 2019 5 See press release of August 27, 2020 6 See press release from August 27, 2020 7 Organic: at constant scope and exchange rates 8 See 2.2. Comments on consolidated activity at June 30, 2020 9 See Appendix 1: “Definitions” 10 See Appendix 1: Definitions 11 See "Investor Day", June 26, 2018 and "Investor Day", December 17, 2019

View source version on businesswire.com: https://www.businesswire.com/news/home/20200914005556/en/

Séché Environnement Manuel Andersen Head of Investor Relations +33 (0)1 53 21 53 60 m.andersen@groupe-seche.com