endeavour and execution - ipl...

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See the end of this report for important disclosures and analyst certification. All authors are Research Analysts unless otherwise stated. One51 Closing price:170c April 29 2016 Declan Morrissey [email protected] / +353 1 6149192 Food, Beverage and Pharmaceuticals Team Cathal Kenny, Jack Gorman, John O'Reilly, Declan Morrissey [email protected] Share Price Performance Key financials (€m) Year End Dec15 Dec16E Dec17E Revenue 366.0 435.9 468.0 EBITDA 36.1 53.8 58.5 PBT 21.6 20.4 20.9 EPS Basic 11.8 11.0 11.3 EPS Diluted (Adj) 7.0 9.9 10.8 Cash EPS (Diluted) 15.9 23.9 26.7 Dividend 0.0 0.0 0.0 NBV 97.2 112.2 123.0 Valuation P/E 24.4 17.1 15.7 FCF Yield (pre div) (%) 1.5 0.4 6.7 Dividend Yield (%) 0.0 0.0 0.0 Price / Book 1.7 1.5 1.4 EV / EBITDA 11.6 7.8 6.9 Group Int. Cover (x) 7.2 3.0 3.2 Debt / EBITDA (x) 4.2 2.9 2.4 Financial Data One51 :Financial model and valuation analysis Endeavour and execution One51 management transformed the group from one with poor growth prospects and financial difficulties into a sustainable and scalable business with financial flexibility. A constant focus on operational excellence, combined with transformative M&A, now makes One51 an attractive investment. Building a successful and scalable Plastics business One51’s Plastics division was transformed by the acquisition of IPL in July 2015; the business immediately doubled in size, making it a market leader in several segments. The division was rebranded as OnePlastics Group (OPG) in 2014 and has three operating segments: Environmental Containers, Packaging and Industrial Products. In FY2015, the Plastics division generated revenue of €231.8m, up 89% year-on-year (yoy), and EBITDA of €33.1m, up 108% yoy, including the contribution from the IPL acquisition in North America and the full year impact and successful integration of Straight plc, acquired in August 2014. The group now has a well-invested asset base with nine manufacturing facilities across five countries that it can leverage further by adding adjacent product categories and implementing rapid payback automation projects to increase asset utilisation. Scale benefits also accrue from the increased purchasing power of the group both on raw materials and capital items. One51 will also bring the working capital and capex discipline it fostered at OPG to IPL. The group is well positioned to continue to act as a consolidator in a fragmented plastics landscape. While its quoted peer group comprises much larger companies, One51 does have leading and defensible positions in niche categories and geographies. Transitioning ClearCircle Environmental One51 is seeking to transition its ClearCircle Environmental business towards more specialised hazardous waste management in Ireland and the UK and away from the more commoditised metals recycling business. Two recent acquisitions in the division bear out this strategy: Greenway Environmental Services was acquired in September 2015, while H&T Labour and Vacuumation Services was acquired post year-end. In 2015, ClearCircle generated revenue of €134.2m, down 13% yoy, and EBITDA of €9.1m, down 15% yoy. The rationalisation and divestment of a number of underperforming metals recycling businesses in the UK impacted overall performance. The hazardous waste segment exhibits many attractive investment traits: it is a highly regulated sector with EPA and EA licencing acting as a key barrier for new entrants; revenue visibility is underpinned by multi-year contracts with blue-chip customers; and low- to mid-teens EBITDA margins appear sustainable.

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Page 1: Endeavour and execution - IPL Plastics/media/Files/I/IPL-Plastics-PLC/analyst-coverage-research/Davy...Pharmaceuticals Team Cathal Kenny, Jack Gorman, John O'Reilly, Declan Morrissey

See the end of this report for important disclosures and analyst certification. All authors are Research Analysts unless otherwise stated.

One51 Closing price:170c

April 29 2016

Declan Morrissey [email protected] / +353 1 6149192

Food, Beverage and Pharmaceuticals Team Cathal Kenny, Jack Gorman, John O'Reilly,

Declan Morrissey

[email protected]

Share Price Performance

Key financials (€m)

Year End Dec15 Dec16E Dec17E

Revenue 366.0 435.9 468.0

EBITDA 36.1 53.8 58.5

PBT 21.6 20.4 20.9

EPS Basic 11.8 11.0 11.3

EPS Diluted (Adj) 7.0 9.9 10.8

Cash EPS (Diluted) 15.9 23.9 26.7

Dividend 0.0 0.0 0.0

NBV 97.2 112.2 123.0

Valuation

P/E 24.4 17.1 15.7

FCF Yield (pre div)

(%) 1.5 0.4 6.7

Dividend Yield (%) 0.0 0.0 0.0

Price / Book 1.7 1.5 1.4

EV / EBITDA 11.6 7.8 6.9

Group Int. Cover

(x) 7.2 3.0 3.2

Debt / EBITDA (x) 4.2 2.9 2.4

Financial Data

One51 :Financial model and valuation analysis

Energy Sector Review

Endeavour and execution

One51 management transformed the group from one with poor

growth prospects and financial difficulties into a sustainable

and scalable business with financial flexibility. A constant focus

on operational excellence, combined with transformative M&A,

now makes One51 an attractive investment.

Building a successful and scalable Plastics business

One51’s Plastics division was transformed by the acquisition of IPL in July 2015; the

business immediately doubled in size, making it a market leader in several segments. The

division was rebranded as OnePlastics Group (OPG) in 2014 and has three operating

segments: Environmental Containers, Packaging and Industrial Products. In FY2015, the

Plastics division generated revenue of €231.8m, up 89% year-on-year (yoy), and EBITDA

of €33.1m, up 108% yoy, including the contribution from the IPL acquisition in North

America and the full year impact and successful integration of Straight plc, acquired in

August 2014.

The group now has a well-invested asset base with nine manufacturing facilities across

five countries that it can leverage further by adding adjacent product categories and

implementing rapid payback automation projects to increase asset utilisation. Scale

benefits also accrue from the increased purchasing power of the group both on raw

materials and capital items. One51 will also bring the working capital and capex

discipline it fostered at OPG to IPL. The group is well positioned to continue to act as a

consolidator in a fragmented plastics landscape. While its quoted peer group comprises

much larger companies, One51 does have leading and defensible positions in niche

categories and geographies.

Transitioning ClearCircle Environmental

One51 is seeking to transition its ClearCircle Environmental business towards more

specialised hazardous waste management in Ireland and the UK and away from the more

commoditised metals recycling business. Two recent acquisitions in the division bear out

this strategy: Greenway Environmental Services was acquired in September 2015, while

H&T Labour and Vacuumation Services was acquired post year-end. In 2015, ClearCircle

generated revenue of €134.2m, down 13% yoy, and EBITDA of €9.1m, down 15% yoy.

The rationalisation and divestment of a number of underperforming metals recycling

businesses in the UK impacted overall performance. The hazardous waste segment

exhibits many attractive investment traits: it is a highly regulated sector with EPA and EA

licencing acting as a key barrier for new entrants; revenue visibility is underpinned by

multi-year contracts with blue-chip customers; and low- to mid-teens EBITDA margins

appear sustainable.

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One51

2

Table of Contents

Group overview 3 Recent trading – operational progress continues 4

Plastics division – investment thesis 5 What makes plastics an attractive investment? 5

Key drivers of a successful plastics business 7

Plastics division – an overview 9 Recent performance 11

IPL acquisition was transformative 12

Asset footprint 13

Understanding resin prices 13

Plastics division – competitive landscape 15

Environmental Services – investment thesis 18

ClearCircle Environmental 19 Overview of waste industry 20

Hazardous waste 20

Metals recycling 21

Environmental Services – competitive landscape 23

Valuation 25

Important disclosures 29

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One51

3

Group overview Over the past three years, One51 has transformed from a UK/Irish-based business

lacking scale to an international business focussed on two core operating activities –

Plastics and Specialist Environmental Services. Management deserves credit for cleaning

up its balance sheet and significantly improving its operating performance over this

period. As a result, it returned to revenue and profit growth last year, and management

is now confident that it can sustain growth via organic investments, further enhanced by

M&A. The recent IPL acquisition signals management’s growth ambitions, particularly

for the Plastics business.

Two operating divisions – Plastics and Environmental Services

One51 comprises two operating divisions: Plastics and Environmental Services

(ClearCircle).

Plastics is the group’s largest division by profitability and consists of two sub-divisions

– OnePlastics Group (OPG) and IPL. Plastics supplies products to a broad range of

customers across the following market sectors in Ireland, the UK, North America and

China from nine production facilities (four in the UK, one in Ireland, one in China and

three in North America):

– Environmental Containers – wheeled bins and caddies for the waste

management and recycling industries;

– Packaging – rigid plastic packaging for the FMCG, food service and

pharmaceutical industries;

– Industrial Products – manufacturing partner to blue-chip customers in the

agricultural adhesive coating, construction, furniture and material handling

sectors.

ClearCircle Environmental is the umbrella brand for Specialist Environmental Services

(includes hazardous waste management and industrial services), the Metals Recycling

business and the Materials Recycling business. ClearCircle provides environmental

services to a broad range of customers from 12 operating facilities in Ireland and the

UK.

One51 returned to revenue and

profit growth last year, and

management is now confident that

it can sustain growth via organic

investments, further enhanced by

M&A

One51 comprises two operating

divisions: Plastics and

Environmental Services

Figure 1: Group revenue split (€000)

Source: Company reports

0

50

100

150

200

250

300

350

400

450

500

FY2014 FY2015 FY2016F FY2017F

One Plastics IPL ClearCircle SES

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One51

4

Recent trading – operational progress continues

FY2015 headline numbers

One51 FY2015 group revenues came in at €366m, up 32% yoy. Group EBITDA was

€36.1m, up 67% yoy. Group adjusted diluted EPS was 6.98c, up 30.5% yoy. Group net

debt came in at €120.3m, helped by the receipt of €51.8m cash from its investment in

NTR.

Solid operating performance in both divisions in FY2015

The Plastics division generated revenue of €231.8m, up 89% yoy, and EBITDA of

€33.1m, up 108% yoy. Trading in the underlying business was described as “solid”,

while the majority of the yoy EBITDA uplift came from the IPL acquisition in North

America and the full year impact and successful integration of Straight plc, acquired in

August 2014. The on-going integration of IPL is said to be progressing well.

ClearCircle Environmental generated revenue of €134.2m, down 13% yoy, and EBITDA

of €9.1m, down 15% yoy. The underlying performance of ClearCircle is also described

as “solid”, with the rationalisation and divestment of a number of underperforming

metals recycling businesses in the UK impacting the overall performance. The group has

made some recent bolt-on acquisitions in the division: Greenway Environmental Services

was acquired in September 2015, while H&T Labour and Vacuumation Services was

acquired post year-end.

Figure 2: Group EBITDA (€000)

Source: Company reports

In 2015, the Plastics division

generated revenue of €231.8m, up

89% yoy, and EBITDA of €33.1m,

up 108% yoy

ClearCircle Environmental

generated revenue of €134.2m,

down 13% yoy, and EBITDA of

€9.1m, down 15% yoy

0

10

20

30

40

50

60

70

FY2014 FY2015 FY2016F FY2017F

One Plastics IPL ClearCircle SES

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One51

5

Plastics division – investment thesis The overall investment case for One51 can be looked at as an amalgam of two separate

investment cases: one for the Plastics business and one for the Environmental Services

business.

We make some observations below on what makes the segment an attractive

investment in a broader context and the criteria we deem necessary for a successful

plastics business.

What makes plastics an attractive investment? the revenue opportunity created by the switch to plastic packaging from traditional

packaging materials;

EU legislation, which is driving demand in Environmental Containers;

multi-year customer contracts with raw material price pass-through mechanism;

potential to leverage existing asset footprint by filling gaps in existing product range

and by implementing rapid payback automation projects;

building scale and size in niche segments, products and geographies;

fragmented landscape offering opportunity to add value via M&A activity.

Revenue opportunity created by the switch to plastic packaging from

traditional materials

The global packaging market is estimated to be worth $800bn with rigid packaging

valued at c.$171bn. Global rigid plastic packaging is forecast to grow at 5.8% CAGR

over the next five years, faster than average global GDP of 3.4%. Growth is being driven

by its comparatively lower cost, lighter weight and greater flexibility compared with

traditional packaging materials. Rigid plastic has a wide application in the food and

beverage sector, which is seen as less susceptible to macro-economic influences than

other industries.

Table 1: Global rigid packaging market (US$bn)

2015 2020 CAGR

Non-food 64.3 38% 98.3 43% 8.9%

Food 46.6 27% 57.2 25% 4.2%

Beverage 39.3 23% 45.1 20% 2.8%

Industrial 20.4 12% 25.8 11% 4.8%

Global rigid packaging 171 226 5.8%

Source: Company reports

Legislation drives demand in Environmental Containers

OPG has a leading position in the UK market for environmental containers (wheelie bins,

kitchen caddies, recycling boxes). Demand in this market is driven by EU legislation; the

EU Waste Framework Directive 2008 stipulates that 50% of all household waste must

be recycled by 2020 with separate waste streams for paper, metal, plastic and glass

from January 2015 onward. There is also an on-going requirement for replacement

wheelie bins, which comprise c.50% of the market in the UK.

In the UK, local authorities are responsible for implementing this legislation and as such

are OPG’s main customers. Contracts awarded can be quite lumpy, e.g. OPG won a

large contract from Birmingham City Council two years ago. Similarly, in Canada, IPL has

a strong regional position in Environmental Containers and won a contract in 2014 to

supply the municipality of Peel, outside Toronto, with wheelie bins.

Growth in rigid plastic packaging is

being driven by its comparatively

lower cost, lighter weight and

greater flexibility compared with

traditional packaging materials

The EU Waste Framework Directive

2008 stipulates that 50% of all

household waste must be recycled

by 2020 with separate waste

streams for paper, metal, plastic

and glass from January 2015

onward

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One51

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The US market is more immature than the UK or Canada with low penetration rates of

wheelie bins; most roadside collections still involve metal trash cans, which can corrode

and are easily damaged during collection. Some US municipalities are now beginning to

roll out wheelie bin infrastructure, but this is still at an early stage of development. The

opportunity set in the US is significant with potential for much larger contract sizes (e.g.

LA municipality).

Multi-year customer contracts with raw material price pass-through

mechanism

OPG and IPL enjoy a high degree of revenue visibility across all three product segments,

with c.70% of revenues coming from multi-year customer contracts. As a general rule, if

the manufacturer invests in specialised tooling for a customer product, then it will

demand a minimum volume per year over a three- to five-year period from the customer

to recompense it for the upfront investment in tooling. Larger customers will usually also

agree a pass-through mechanism in the contract to account for fluctuations in resin

pricing. Smaller customers may not have the scope to engage in such contracts but are

usually willing to pay a higher price.

Potential to leverage existing asset footprint by filling gaps in existing

product range and by implementing rapid payback automation projects

OPG’s main sites in the UK are flexible and can be adopted to produce many different

products on one site. This is a deliberate move to help maximise asset utilisation; tooling

can be changed quickly when a production run ends to produce a different product. The

sites are also run 24/5 with the flexibility to run 24/7 subject to customer demand. Some

higher value customers have exclusivity over specific injection moulding machines, but

this is not common practice. The recent announcement of an €8m investment in a food

grade facility in Cork is evidence of OPG filling product gaps on a site-by-site basis and

leveraging IPL food packaging products into new markets.

IPL operates somewhat differently with sites such as Lee’s Summit and Edmundston

dedicated solely to food grade packaging. One51 believes it can better utilise the site by

adding some capacity in Environmental Containers. In addition, while the IPL assets are

very well invested, One51 sees a number of rapid payback automation projects that can

increase labour efficiency and output.

Building scale and size in niche segments, products and geographies

OPG has built a leading position in the UK in the Environmental Containers segment,

while IPL has done the same in Canada. IPL is also the leading producer of overcaps in

North America and has a strong regional presence in retail packaging in Eastern Canada.

OPG has a strong presence in niche segments of the industrial products and rigid

packaging markets, e.g. it is the largest supplier to EMC and a leading UK manufacturer

of paint cans and pails.

Fragmented landscape offering opportunity to add value via M&A activity

The plastics landscape in which One51 operates remains very fragmented. In the EU

alone, there are c.56,000 converters (businesses that convert plastic pellets into plastic

products) with aggregate revenues of c.€220bn. This equates to an average revenue per

operator of c.€4m per annum. Given that there are some large converters with a global

footprint operating in this market, this implies a very long tail of SME operators. We

view this as an opportunity; as the major customers for plastic packaging (e.g. food and

beverage companies) continue to consolidate, they will seek to deal with larger suppliers

also. The story in the North American market is no different; if anything, the plastics

OPG and IPL enjoy a high degree

of revenue visibility across all

three product segments, with

c.70% of revenues coming from

multi-year customer contracts

OPG’s main sites in the UK are

flexible and can be adopted to

produce many different products

on one site

OPG has built a leading position in

the UK in the Environmental

Containers segment, while IPL has

done the same in Canada

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One51

7

packaging market is less mature in North America than in Europe with huge scope for

increased penetration.

Key drivers of a successful plastics business well-invested production assets;

in-market presence with larger products;

asset utilisation and degree of automation;

in-house product design and engineering capabilities;

flexible approach to raw material procurement;

capex discipline;

scope for improved cash management at IPL;

extending into adjacent product categories from existing sites.

Well-invested production assets

The most important piece of the injection moulding process is the machine itself and

related automated systems requiring substantial investment. Both IPL and OPG have a

wide range of injection moulding machines from 90-3,500 tonnes, most of which were

purchased within the last five years. Over time, there should be significant savings from

centralised procurement of equipment for OPG and IPL. Larger orders attract higher

discounts and more flexible payment terms.

In-market presence with larger products

The economics of shipping plastic containers becomes less favourable with size, thus

requiring manufacturers to have an in-market presence for bigger items such as large

food and agri-feed buckets, paint pails and environmental containers. As a general rule

of thumb, shipping these products over 1,500km is not competitive. In contrast, smaller

items such as retail food packaging and overcaps can be shipped over 2,000km. In this

context, and given the sheer size and scale of the North American market, the logic of

adding products to the Lee’s Summit site in IPL makes sense.

Asset utilisation

OPG has a keen focus on operating metrics such as cycle times, waste, resin usage and

labour per unit which drive asset utilisation. Site MDs have access to this information in

real time and can react quickly if necessary. Since the acquisition of IPL, One51 has been

implementing the same processes and controls as those on the OPG sites.

In-house product design and engineering capabilities

Both IPL and OPG have in-house product design and engineering capabilities – a key

differentiator with customers. This is a service that smaller competitors usually do not

offer, and few customers have in-house capabilities. IPL has 20 design patents granted

and another 15 pending, arising from its in-house R&D, particularly in retail packaging.

The scale of OPG’s R&D is smaller and it tends to focus on re-engineering existing

products for customers such as EMC, delivering savings on raw materials or assembly

times.

Flexible approach to raw material procurement

Circa 50% of the material cost of injection moulded products is resin, making it by far

the biggest line item in COGS. Labels are the second-biggest line item on the OPG and

IPL bill of materials. A hybrid approach to resin procurement has worked best for OPG

historically, and this approach is now being rolled out at IPL. At certain times, a

centralised approach works best while at other times opportunistic spot purchases can

work out cheaper. Ultimately, every factory MD is responsible for raw material

procurement but can leverage central buying power when appropriate. One51 expects

Over time, there should be

significant savings from centralised

procurement of equipment for

OPG and IPL

Both IPL and OPG have in-house

product design and engineering

capabilities – a key differentiator

with customers

One51 expects to achieve c.€1m

per annum in resin procurement

savings from leveraging the

collective buying power of IPL and

OPG

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One51

8

to achieve c.€1m per annum in resin procurement savings from leveraging the collective

buying power of IPL and OPG.

Capex discipline

Injection moulding is a relatively capital-intensive business and low returns on capital can

occur if poor decisions are made regarding capital allocation, e.g. the price differential

between manufacturers can be significant and some offer more flexible payment terms

than others.

Scope for improved cash management at IPL

Tight cash management has been evident in OPG for the past three years, reflected in

the reduction of working capital/sales and capex/sales. At the end of 2015, working

capital accounted for only c.2% of sales versus 15% of sales at IPL. One51 sees the

medium-term working capital requirement for IPL being 10-12% of sales. Achieving this

could result in a significant cash release for the group.

Extending into adjacent product categories from existing sites

IPL has a strong regional presence in the northeast but is restricted beyond this region. It

is only economical to ship larger bulk and environmental products less than 1,500km.

The Lee’s Summit facility, which has no bulk and environmental capacity at the moment,

could provide the ideal springboard for the central US states. Such a move would not be

as expensive as a greenfield site, while adding additional product categories could

increase deliver cost synergies on-site.

Tight cash management has been

evident in OPG for the past three

years, reflected in the reduction of

working capital/sales and

capex/sales

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One51

9

Plastics division – an overview One51’s Plastics division was rebranded as OnePlastics Group (OPG) in 2014 and has

three operating segments: Packaging, Environmental Containers and Industrial Products.

The division was transformed by the acquisition of IPL in July 2015; the business

immediately doubled in size, making it a market leader in several segments.

One51’s Plastics division was

transformed by the acquisition of

IPL in July 2015; the business

immediately doubled in size,

making it a market leader in

several segments Figure 3: Packaging

Source: One51

Figure 4: Environmental Containers

Source: One51

Electronics1%

Food74%

Non-food industrial

10%

Construction6%

Non-food packaging

2%

Other7%

End markets

48%

2015 revenue split

Other8%

Environmental -public62%

Environmental -private20%

Non-food industrial

7%

Food3%

32%

2015 revenue split End markets

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One51

10

Until the appointment of a new executive management team in 2013, the division was

run as a number of separate businesses acquired by One51 from 2006 onward in

addition to some greenfield investments in China. Today, the OPG and IPL businesses

are run as integrated businesses and have management teams that report to the central

executive team.

Figure 5: Industrial Products

Source: One51

Figure 6: Plastics overview

Source: Company presentation

20%

Electronics42%

Construction21%

Non-food industrial

10%

Non-food packaging

12%

Food14%

Other1%

End markets2015 revenue split

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One51

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Table 2: OPG timeline

2006 Acquired Protech Performance Plastics

Acquired Enplast

2007 Acquired Foamalite

Acquired Thormac Engineering

2008 Acquired AAC Structural Foam

Acquired MGB Plastics

2010 Established Protech Performance Plastics China

Disposed of Enplast and Foamalite

2014 Rebranded OnePlastics Group

Acquired Straight PLC

2015 Disposed of Thormac Engineering

Established innovation centre in Cork

New senior management team appointed

€8m investment in food grade facility in Cork

Source: Company reports

Recent performance The Plastics division generated revenue of €231.8m in 2015, up 89% yoy, and EBITDA

of €33.1m, up 108% yoy. Trading in the underlying business was described as “solid”,

while the majority of the yoy EBITDA uplift came from the IPL acquisition in North

America and the full year impact and successful integration of Straight plc, acquired in

August 2014. The on-going integration of IPL is said to be progressing well.

OPG OPG operates from six sites across Ireland, the UK and China. It has circa 400,000

square feet of manufacturing and warehousing space, approximately 130 moulding

machines and about 500 employees. The division’s product range spans across

Environmental Containers, Packaging and Industrial Products.

Table 3: One Plastics forecasts

One Plastics FY2014 FY2015 FY2016 FY2017

Revenue 122,482 145,157 141,300 145,200

Growth yoy 23.4% 18.5% (2.7%) 2.8%

EBITDA 15,709 20,512 21,208 22,043

Growth yoy 0.8% 30.6% 3.4% 3.9%

EBITDA margin 12.8% 14.1% 15.0% 15.2%

EBIT 11,152 14,567

Growth yoy 30.6%

EBIT margin 9.1% 10.0%

D&A 4,557 5,945 6,700 7,600

as a % of sales 3.7% 4.1%

Capex 4,672 8,955 10,000 10,000

as a % of sales 3.8% 6.2% 7.1% 6.9%

Working capital (1,474) 3,184 3,000 3,000

as a % of sales (1.2%) 2.2% 2.1% 2.1%

Source: Davy

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One51

12

IPL acquisition was transformative One51’s acquisition of a majority stake in Canadian firm IPL creates a scalable,

international plastics business with potential for significant cost and revenue synergies.

The transaction more than doubles the EBITDA line on a pro-forma basis. IPL’s 2015F

pro-forma revenue for 2015 was c.CAD$275m with adjusted EBITDA of c.CAD$40m.

This equates to a forward multiple of 7x.

IPL transaction

One51, together with two Canadian equity partners, acquired Canadian firm IPL Inc.

from Novacap and Fonds de solidarité FTQ (FSTQ) for a total consideration of

CAD$280m. One51 acquired a majority share of 67% in IPL, with Caisse de dépôt et

placement du Québec (CDPQ) also becoming a shareholder (22%) and FSTQ remaining

a shareholder (11%), while Investissement Quebec is also participating in the financing

package. The total equity contribution amounted to CAD$135m with One51’s share at

CAD$90m. IPL was acquired on a 2014 EV/EBITDA multiple of 9x and a forward multiple

of 7x.

Table 4: IPL transaction details

CADm One51 CDPQ FSTQ IQ

Debt 155.0 110.0 20.0 15.0 10.0

Equity 135.0 90.45 29.7 14.85 0

290.0 200.5 49.7 29.9 10.0

Source: Davy

IPL is a well-established North American plastics business, founded in 1939, which was

taken private by Novacap in 2010 and was formerly listed on the Toronto Stock

Exchange. IPL’s injection moulding business has significant overlap with One51’s OPG,

which has operations in Ireland, the UK and China that manufacture similar products.

The acquisition also offers exposure to a new product category – food packaging. IPL

has significant scale in this segment and is a supplier to some major US food and

beverage companies. The integration of both businesses should result in significant cost

synergies, mainly in raw materials procurement, while top-line synergies should also

emerge as a result of cross-selling and a more complete product offering. The

acquisition should also lead to significant capex savings in the medium term through

capex avoidance and the scale purchasing of machine tooling, etc.

Table 5: IPL forecasts

IPL FY2014 FY2015 FY2016 FY2017

Revenue 86,635 183,400 198,574

Growth yoy 111.7% 8.3%

EBITDA 12,572 27,900 30,638

Growth yoy 121.9% 9.8%

EBITDA margin 14.5% 15.2% 15.4%

EBIT 7,246 14,400 15,038

Growth yoy 98.7% 4.4%

EBIT margin 8.4% 7.9% 7.6%

D&A 5,326 13,500 15,600

as a % of sales 6.1% 7.4% 7.9%

Capex 8,345 11,000 9,600

as a % of sales 9.6% 6.0% 4.8%

Working capital 28,416 33,000 36,100

as a % of sales 32.8% 18.0% 18.2%

Source: Davy

One51’s acquisition of a majority

stake in Canadian firm IPL creates a

scalable, international plastics

business with potential for

significant cost and revenue

synergies

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Asset footprint OPG comprises five manufacturing facilities with one in Ireland and China respectively

and three in the UK. Its asset configuration in the UK allows it to serve the entire market

across its Environmental Containers, Packaging and Industrial Products divisions. The

facility in Ireland serves a mixture of rigid packaging customers (primarily paint

containers, infant formula overcaps and agri-feed buckets) and its industrial customer,

EMC. In China, it has a dedicated facility for EMC, manufacturing injection moulded

server components.

In the UK, MGB in Rotherham is the group’s dedicated wheelie bin facility while the

other sites produce a mix of environmental containers, paint cans, agri-feed buckets and

industrial products. The Straights facility in Hull also manufactures a range of

environmental containers, including kitchen caddies and kerbside recycling containers.

IPL comprises three sites: two in northeastern Canada and one in Missouri, USA. The

largest facility in Canada is St. Damien in Quebec which produces bulk and

environmental packaging and is by far the largest site in the group. Edmundston is the

other Canadian site and concentrates on the production of thin wall containers for the

retail packaging segment (mainly food packaging). Lee’s Summit, which is just outside

Kansas City in Missouri, is the largest producer of lids and overcaps in the US with

customers such as Kraft, Smuckers and Mondelez.

Understanding resin prices Resin and related inputs (labelling) typically account for c.50% of sales for a rigid

packaging manufacturer and comprise mainly polypropylene of different grades. The

group currently procures resin in North America and Europe and uses both virgin and

recycled resin across all three product categories. Oil is a price factor but there are other

factors such as resin production capacity, the supply and type of cracking feedstock

available and converter demand. With the resin market controlled by a handful of large

integrated chemical companies in Europe and the US, resin pricing is rarely a direct

function of oil or gas prices.

The majority of customers (>60%) have resin price pass-through mechanisms in their

contracts. The following chart shows that while oil and polypropylene resin prices have

Figure 7: Asset footprint

Source: Company reports

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some relationship, polypropylene prices have not exhibited the same volatility at extreme

points in the cycle.

Group procurement of resin should drive synergies over the medium term, but it will

take time to standardise resin grades across the group. It is also important to retain

some flexibility in resin procurement, allowing localised, opportunistic procurement

where appropriate. One51 has identified c.€1m per annum in resin procurement

savings, but we view this figure as conservative. There is also scope for further savings

on labels via group procurement over the medium term.

Figure 8: Polypropylene prices versus oil and gas

Source: FactSet

Group procurement of resin should

drive synergies over the medium

term, but it will take time to

standardise resin grades across the

group

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Plastics division – competitive landscape Although the competitive landscape for polymer converters remains very fragmented

(there are c.56,000 businesses in Europe alone), there are some large regional players in

both Europe and North America. Most of these players have a presence in rigid

packaging, particularly with large blue-chip food and beverage customers. The peer

average FY1 EV/EBITDA for the group is 9.5x.

Table 6: Peer summary financials

Sales FY1 EBITDA FY1 EBITDA (%)

RPC Group Plc £1,649 £252 15.3%

Berry Plastics Group, Inc. $6,674 $1,181 17.7%

Bemis Company, Inc. $4,094 $609 14.9%

Aptargroup, Inc. $2,382 $489 20.5%

Amcor Ltd $12,436 $1,846 14.8%

Source: FactSet

RPC

RPC is a leading plastic products design and engineering company for packaging and

non-packaging markets, with 18 design and engineering development centres and 89

manufacturing sites in 24 countries employing more than 15,000 people and

manufacturing a wide range of standard and bespoke packaging and other products for

the food and non-food consumer and industrial markets.

RPC converts polymer into finished packaging and other products by a combination of

moulding and assembly processes, with certain products undergoing additional value-

added decoration techniques such as printing or label application. RPC uses three of the

main polymer conversion processes – blow moulding, injection moulding and

thermoforming. RPC converts approximately 475,000 tonnes of polymer per annum.

Although the competitive

landscape for polymer converters

remains very fragmented, there

are some large regional players in

both Europe and North America

Figure 9: Peer EV/EBITDA multiples

Source: Bloomberg

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2016 EV/EBITDA 2017 EV/EBITDA 2016 Average 2017 Average

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It services a wide range of customers, from large multinational companies such as

Unilever, Kraft, Nestlé and Procter & Gamble to local small and medium-sized

enterprises. It has positions in the personal care sector, in open-topped pails for a wide

range of consumer and industrial segments, in the spreads and dairy industry and in

multi-layer and other barrier packs for oxygen-sensitive food products. The business is

organised and managed according to product and market characteristics and is split into

two segments – packaging and non-packaging. The packaging businesses serve the

food, non-food, personal care, beverage and healthcare markets; the non-packaging

businesses design and manufacture moulds, moulded products and technical

components for other markets.

In December 2015, RPC acquired GCS – a leading global manufacturer of plastic

closures and dispensing systems for a wide range of end markets. The enterprise value

was €650m, representing a 6.8x LTM EBITDA multiple. The acquisition was financed by

a £233m rights issue (35% discount) and extension of credit facilities.

Berry

Berry is primarily a North American manufacturer of value-added consumer packaging

and engineered materials with annual revenue of nearly $5bn. As a global leader in the

manufacture of plastic packaging, Berry specialises in value-added, customised rigid

plastic containers, thin-wall thermoformed drink cups, dispensing lids as well as

technical engineered materials for industrial applications. The company serves several of

the world's largest consumer product manufacturers, focusing on food and beverage,

household consumer product and personal care/specialty end markets. The engineered

materials business also serves a variety of end markets including oil, water and gas

infrastructure, construction and select consumer-oriented markets. The majority of sales

and operations are in North America (97% of sales) followed by Europe (2% of sales)

and other regions.

In October 2015, Berry acquired Avintiv for $2.45bn. The acquisition was financed by

$400m in 6% loan notes and an increase in Berry's credit facilities by $2.1bn. The

acquisition multiple was 6.9x (post synergies). Avintiv is the world's largest maker of

non-woven fabrics.

Bemis

Bemis Company, Inc. is a global packaging company with a market-leading position in

flexible packaging and has a sizeable presence in the pressure sensitive materials market.

The company generates 70% of its sales in North America and has expanded its

international footprint largely through acquisitions. With the acquisitions of Dixie Toga

and Food Americas, Bemis is the largest flexible packager in Latin America. The company

generates the majority of its sales from food and beverage (70% of sales), personal care,

consumer goods and pharmaceuticals. Bemis' customer base comprises blue-chip

companies including Kraft, Nestlé, Kimberly Clark, Coca-Cola, Owens Corning, Tyson

and Boston Scientific. Through its flexible packaging segment (c.89% of sales), the

company manufactures multilayer flexible polymer film structures and laminates for

food, medical and personal care products and non-food applications utilising vacuum or

modified atmosphere packaging. For the pressure sensitive materials segment (c.11% of

sales), it manufactures pressure sensitive adhesive coated paper and film substrates

comprising label market products such as narrow-Web rolls of pressure sensitive paper,

film and metallised film printing stocks used in high-speed printing and die cutting.

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Aptar

AptarGroup Inc. (ATR) is a global provider of consumer product dispensing systems and

is the result of a spin-off from Pittway Corporation in 1993. Products include non-

aerosol spray and lotion pumps, plastic dispensing and non-dispensing closures and

metered-dose aerosol valves. The company operates manufacturing facilities in 19

countries located in North America, Europe, Asia and South America. Approximately

56% of ATR's sales are derived in Europe, roughly 26% in the US and the remaining

18% in other parts of the world. The company operates through three reporting

segments: Beauty + Home (primarily pumps to the fragrance/cosmetic, personal care

and household markets), Pharmaceutical (pumps and metered dose inhaler valves for

allergy or nasal decongestant, cold and flu treatments) and Food + Beverage (dispensing

and non-dispensing closures for food/beverage, personal care and household

applications). ATR sells to over 5,000 customers with the largest customer accounting

for approximately 6% of revenue. The Beauty + Home segment accounts for

approximately two-thirds of company revenues, while the Pharmaceutical segment

generates over half of ATR's operating income. Food and beverage applications are the

company's fastest growing markets with growth rates in the low-teens.

Amcor

Amcor (AMC) is a global, market-leading packaging business with two distinct business

units – flexibles and rigid plastics. It operates in 43 countries and has more than 180

plants. AMC's sales consist mostly of defensive industries (beverages, food, healthcare

and tobacco). Its main geographical exposures are developed markets across Europe,

North America and Australia/New Zealand, with emerging markets providing c.32% of

FY2015 revenue. With 80-90% of products created sold in the region, AMC's success is

supported by its scale and global presence, which give it an immediate advantage in

terms of its proximity to customers.

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Environmental Services – investment thesis The investment thesis for Environmental Services is quite different to that of Plastics.

One51 is seeking to transition the business toward more specialised hazardous waste

management in Ireland and the UK and away from the more commoditised metals

recycling business. Two recent acquisitions in the division bear out this strategy:

Greenway Environmental Services was acquired in September 2015, while H&T Labour

and Vacuumation Services was acquired post year-end.

Regulation is the key barrier to entry in the sector

All of ClearCircle’s waste treatment sites in Ireland and the UK are EPA and EA-licensed,

a requirement for all participants in the sector. ClearCircle sites can be audited at any

time by the EPA or local authorities and must adhere to any change in legislation.

Obtaining a new EPA licence is difficult, with most operators preferring to buy an

existing site that is EPA licensed.

Site location also important

Proximity to customer sites is a requisite when dealing with bulky materials such as

contaminated soils and hazardous wastes from energy plants. In Ireland, ClearCircle’s

main site in Rathcoole, Co. Dublin, is close to the city centre and strategically located to

handle waste streams from industrial and construction customers. In the UK, Future

Industrial Services has four sites spanning the length of England that can cope with a

variety of industrial waste streams. All are near to major industrial centres and key

customers.

Organic growth correlated to economic recovery

Demand for some of ClearCircle’s service offering is closely correlated to industrial and

construction activity, e.g. demand for soil remediation services in Ireland is highly

dependent on construction activity. In contrast, Industrial Services in the UK is less

correlated to the broader economic cycle.

Bolt-on M&A in Ireland and UK can fill service and location gaps

ClearCircle has identified a number of targets in Ireland and the UK that are either

complementary to the existing service offering or extend its reach into a new territory.

Most of these bolt-ons are less than €10m EBITDA and meet its acquisition criteria of

12-13% EBITDA margin and >10% ROCE.

Multi-year contracts in Specialist Environmental Services offer greater

revenue visibility

The revenue model for Industrial Services in the UK tends to revolve around fixed term

service agreements with blue-chip customers.

Positive mix effect on margin as the business mix transitions toward

Specialist Environmental Services

Specialist Environmental Services attracts a higher EBITDA margin than Metals Recycling.

One51 is targeting an EBITDA margin of 12-13% for the division in the medium term as

it transitions the business mix away from Metals Recycling.

One51 is seeking to transition the

business toward more specialised

hazardous waste management in

Ireland and the UK and away from

the more commoditised metals

recycling business

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ClearCircle Environmental ClearCircle Environmental is the umbrella brand for One51’s hazardous waste

management and material and metals recycling businesses. The businesses within the

division are primarily focused on metals recycling and hazardous waste management in

Ireland and the UK. The division is structured into two segments: Specialist

Environmental Services (SES) and Metals Recycling.

Table 7: ClearCircle forecasts

ClearCircle SES FY2014 FY2015 FY2016 FY2017

Revenue 154,025 134,218 111,186 124,274

growth yoy 1.6% -12.9% -17.2% 11.8%

EBITDA 10,708 9,120 10,310 11,452

growth yoy 9.7% -14.8% 13.0% 11.1%

EBITDA margin 7.0% 6.8% 9.3% 9.2%

EBIT 6,319 4,619 5,610 6,552

growth yoy -26.9% 21.5% 16.8%

EBIT margin 5.2% 3.2% 4.0% 4.5%

D&A 4,389 4,501 4,700 4,900

as a % of sales 2.8% 3.4% 4.2% 3.9%

Capex 4,527 8,638 5,500 2,500

as a % of sales 2.9% 6.4% 4.9% 2.0%

Working capital 3,845 -2,972 -191 247

as a % of sales 2.5% -2.2% -0.2% 0.2%

Source: Davy

ClearCircle Environmental is the

umbrella brand for One51’s

hazardous waste management and

material and metals recycling

businesses

Figure 10: ClearCircle overview

Source: Company reports

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Overview of waste industry The waste industry consists of numerous waste streams. Waste collection is followed by

identification, sorting and then either disposal or recovery. Due to different processing

requirements, the waste industry is highly fragmented with different processors focused

on different waste streams. ClearCircle Environmental is divided along the lines of the

three principal waste streams processed and is made up of a number of separate

businesses that are integrated to varying degrees.

The waste industry continues to evolve, driven by three main forces – economic and

social change, legislation and government policy and the emergence of new processing

technologies.

Two scalable models are typically adopted by industry participants – originator-centric

firms that are broad-based and look to control the front end of multiple waste streams

and product-centric operators looking to maximise value in one or two waste streams.

Product-centric operators have an end-to-end focus on a small number of higher value

waste streams.

ClearCircle Environmental is a product-centric operator focused on fewer niche waste

streams. Value is driven through the specialisation and value-add of the equipment and

the processes together with service delivery.

ClearCircle operates within two niche segments of the overall waste value chain, metal

recycling and hazardous waste, through a number of separate businesses that are

integrated to varying degrees.

Recent performance ClearCircle Environmental generated 2015 revenue of €134.2m (Davy: €123.4m), down

13% yoy, and EBITDA of €9.1m (Davy: €9.1m), down 15% yoy. The underlying

performance of ClearCircle is described as “solid”, with the rationalisation and

divestment of a number of underperforming metals recycling businesses in the UK

impacting the overall performance.

Hazardous waste Waste is generally classified as hazardous when it displays one or more hazardous

properties such as explosive, oxidizing, flammable, irritant, harmful, toxic or

carcinogenic. The overall quantity of hazardous waste managed in Ireland in 2011 (most

recent data) was 287,376 tonnes, representing a <0.1% reduction on that reported for

2009. Around half of this is exported for treatment (149,037 tonnes in 2011) with 39%

of this volume shipped to Britain and 21% shipped to Germany. We estimate that

ClearCircle, through its Rilta Environmental business, has a 30% market share in the

Irish market, while its Future Industrial Services provides a foothold in the much larger

UK market. The UK market is greater than 3m tonnes in size (depending on definition).

Increasingly stringent environmental regulation has dramatically reduced the proportion

of hazardous waste sent to landfill in both Ireland and the UK with a much higher

proportion being treated or remediated. Specialist licensed operators such as Rilta and

Future are mandated to treat and dispose of such waste. There are approximately 20

licensed facilities in Ireland to deal with hazardous waste. In the UK, the structure of the

market is more fragmented with a number of smaller specialist companies dealing with

specific waste streams as well as a few major integrated players such as Veolia and Sita.

ClearCircle Environmental is a

product-centric operator focused

on fewer niche waste streams

We estimate that ClearCircle,

through its Rilta Environmental

business, has a 30% market share

in the Irish market, while its Future

Industrial Services provides a

foothold in the much larger UK

market

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Rilta Environmental

Acquired in 2005, Rilta Environmental is the market leader in hazardous waste solutions

in Ireland – providing an all-Ireland service from a single site in Rathcoole, County

Dublin. Rilta’s competitive advantage lies in its broad service offering, on-going

innovation (Rilta now recycles waste oil to fuel grade specification for resale) and

technical and commercial know-how in extracting value from complicated hazardous

waste materials. Another point of differentiation is its list of blue-chip clients, including

Irish Rail and ESB.

Future Industrial Services

Acquired in 2008, Future Industrial Services Ltd provides services relating to hazardous

waste and operates from four EA-licensed facilities in strategic locations in the UK –

Newport near Cardiff; Berwick in the northeast; the main site, Kirkby in Liverpool; and

Rugby in the south. The business provides three main service offerings – industrial site

services, waste treatment and transfer and other services including mercury disposal.

One51 recently expanded its UK reach via the acquisitions of Greenway Environmental

Services and H&T Vacuumation Services, both of which are highly complementary to

Future’s existing service offering.

Materials NI

Materials NI comprises a single site in Northern Ireland that is home to Ireland’s only

licenced WEELABEX compliant plant. This plant is the only authorised facility for the

recycling of white goods on the island of Ireland.

Metal recycling Metals make up a high proportion of the total value recovered at the end of the overall

waste stream, particularly supported by high prices attained for non-ferrous

commodities. Metal recycling tends to be a pro-cyclical business with volumes highly

correlated to new housing starts and new vehicle registrations. The sector has gone

through a very difficult period of volume and price decline, particularly in Ireland, over

the last few years due to reduced levels of industrial and construction activity. Any

meaningful upturn in construction or industrial output should result in an inflection

point in volumes and prices.

Rilta’s competitive advantage lies

in its broad service offering, on-

going innovation and technical

and commercial know-how in

extracting value from complicated

hazardous waste materials

Figure 11: Steel prices

Source: FactSet

0

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Market drivers

Metal recycling is essentially a commodity/brokerage-type business. The starting point is

scrap metal, usually in the form of waste from the construction sector and end-of-life

vehicles. This is fragmentised and non-metallic waste is separated and the metallic

elements are sorted and aggregated before being sold on to smelters. Metal prices tend

to be a good proxy for market pricing, while new housing starts and vehicle registrations

tend to be a good proxy for input market volumes.

Metals Ireland

ClearCircle’s metals recycling business in Ireland operates in four sites – Cork, Galway,

Limerick and Mountmellick. These operations are engaged in scrap metal processing,

end of life vehicle processing and ferrous/non-ferrous metals trading.

Metals UK

Two facilities are operated in the southeast of England, engaging in the collection and

processing of end of life ferrous and non-ferrous material for resale. During the year,

One51 decided to wind down its ES Metals (North) operations in the greater Manchester

area which comprises three facilities. One51 is in the process of divesting the remaining

assets from that business. One part of the business was disposed of to a third party.

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Environmental Services – competitive landscape There are several UK-listed Specialist Environmental Services peers for One51 along with

some international conglomerates that have a presence in the UK and Irish market. The

average EV/EBITDA of the group outlined below is 6.1x. There are also a number of

other sizeable players in the UK that are privately held.

Table 8: Peer FY1 sales and EBITDA

Sales FY1 EBITDA FY1 EBITDA (%)

AUG-GB Augean PLC £58 £13 22.5%

SKS-GB Shanks Group plc £587 £73 12.4%

VIE-FR Veolia Environnement SA €25,604 €2,980 11.6%

SEV-FR SUEZ Environnement Co. SA €15,412 €2,567 16.7%

SCHP-FR Seche Environnement SA €467 €90 19.3%

Source: FactSet

Alder & Allen

Adler & Allan (A&A) is a long-established provider of environmental technical and

consulting services and also specialises in the removal and treatment of hazardous waste

across the UK. A&A is management owned and supported by LDC (Lloyds Development

Capital). A MBO supported by LDC was completed in September 2014 from Spirit

Capital (spin-off from Aberdeen Asset Management) and Maven Capital. HSBC provided

senior debt finance.

Augean

Augean plc is one of the UK’s leading waste management businesses, providing

specialist services focused on managing hazardous waste. Augean provides a range of

waste recovery, recycling, treatment and disposal solutions. The group operates from

nine locations across the UK – from Lerwick in the north to Kent and Avonmouth in the

south.

Figure 12: Peer EV/EBITDA multiples

Source: Bloomberg

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Suez Environnment Shanks Veolia Environnment Seche Environment Augean

2016 EV/EBITDA 2017 EV/EBITDA 2016 Average 2017 Average

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DCC – Enva

Enva Ireland Ltd, as part of the Environmental division of DCC plc, provides waste

management and environmental solutions covering areas such as the treatment and

disposal of oil and hazardous waste, on-site cleaning services, water and effluent

treatment and contaminated soil.

Shanks

Shanks is a leading international waste-to-product business positioned to deliver cost-

effective alternatives to environmentally harmful landfill sites or capital-intensive

incineration plants.

Veolia

Veolia Environnement S.A., branded as Veolia, is a French transnational company with

activities in three main service and utility areas traditionally managed by public

authorities – water management, waste management and energy services.

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Valuation

Sum-of-the-parts (SOTP) approach

Using this approach we look at the peer average EV/EBITDA multiple for the Plastics and

Environmental Services divisions and apply this to the respective EBITDA contributions

from each division. Central costs are proportionately shared across the three operating

divisions. We derive a group Enterprise Value (EV) from the aggregate EVs for each

division and then subtract net debt and deferred consideration and add back

investments to get the implied equity value. The SOTP approach yields a 2016F valuation

of €2/share assuming a 9.5x average EV/EBITDA multiple for the Plastics business and a

6.1x EV/EBITDA multiple for the Environmental Services business.

Table 9: Sum-of-the-parts valuation

EBITDA 2016F Adjusted EBITDA Peer multiple EV by division

Group 53,818

One Plastics 21,208 19,209 9.5x 182,487

36%

IPL 27,900 25,270 9.5x 240,070

47%

Environmental 10,310 9,338 6.1x 56,961

17%

Central (5,600)

(10%)

Derived Enterprise Value 479,518

Blended group multiple 8.9x

- Debt 117,726

- Deferred consideration 36,000

- Minorities 0

Value of equity 327,319

Number of shares 163,407

Derived value/share 2.00

Source: Davy

ROIC/WACC approach

This approach assumes that the ratio of EV to Invested Capital (IC) should trend toward

the ratio of Return on Invested Capital (ROIC) to Weighted Average Cost of Capital

(WACC) over time. One51’s EV/IC currently trades at a discount to its ROIC/WACC ratio

of 1.64x. An EV/IC of 1.64x equates to a share price of €2.31.

The SOTP approach yields a 2016F

valuation of €2/share assuming a

9.5x average EV/EBITDA multiple

for the Plastics business and a 6.1x

EV/EBITDA multiple for the

Environmental Services business

This approach assumes that the

ratio of EV to IC should trend

toward the ratio of ROIC to WACC

over time

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One51

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Table 10: ROIC WACC valuation

2016F

Current Enterprise Value (EV) 431,518

EV/IC 1.33

WACC 4.90%

ROIC/WACC 1.64

EV implied by a 1:1 ROIC:WACC relationship 531,083

Debt 117,726

Deferred 36,000

Equity 377,357

Number of shares 163,407

Implied equity value/share 2.31

Source: Davy

DCF approach

An alternative approach is to forecast the future free cash flows of One51, discount

these back to a present value using an appropriate discount rate and, assuming the EV

holds constant, add this to the equity portion of the EV. This approach yields the lowest

value per share of €1.71 as the value of deferred consideration for IPL is expected to

increase over time.

Table 11: Cash flow (€m)

2016F 2017F 2018 2019 2020

Revenue growth rate 19% 7% 2% 2% 2%

Revenue 435,886 465,048 474,349 483,836 493,512

EBITDA 53,818 58,533

Free cash flow margin (pre-capex) 6% 9% 9% 9% 9%

Free cash flow (pre-capex) 27,534 40,003 40,803 41,619 42,452

EBITDA margin 12.3% 12.6%

Capex (26,500) (22,100) (22,100) (22,100) (22,100)

Capex/sales 6.1% 4.8% 4.7% 4.6% 4.5%

Free cash flow (post-capex) 1,034 17,903 18,703 19,519 20,352

FCF margin 0.2% 3.8% 3.9% 4.0% 4.1%

Net debt 117,726 98,283 79,580 60,061 39,709

Leverage 2.19x 1.68x

Current enterprise value 431,518 431,518

- Debt 117,726 39,709

- deferred consideration 36,000 52,570

Value of equity 277,792 339,239

Number of shares 163,407 163,407

Estimated value/share 1.70 2.08

Discount rate 4.96%

Present value of

equity/share

1.71

Source: Davy

The DCF approach yields the

lowest value per share of €1.71 as

the value of deferred

consideration for IPL is expected to

increase over time

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One51

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Valuation summary

A simple average of all three approaches yields a valuation of €2.01/share.

Table 12: Valuation summary

SOTP 2.00

ROIC/WACC 2.31

DCF 1.71

Average 2.01

Source: Davy

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One51

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Important Disclosures

Analyst certification I, Declan Morrissey, hereby certify that: (1) the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this report and (2) no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in this report.

Price performance (% change) Stock 2011 2012 2013 2014 2015

ONE51 -30.0 -78.6 -333.3 69.2 45.5

Source: Datastream

WARNING: Past performance is not a reliable guide to future performance

Investment ratings definitions

Davy ratings are indicators of the expected performance of the stock relative to its sector index (FTSE E300) over the next 12 months. At times, the performance might fall outside the general ranges stated below due to near-term events, market conditions, stock volatility or – in some cases – company-specific issues. Research reports and ratings should not be relied upon as individual investment advice. As always, an investor's decision to buy or sell a security must depend on individual circumstances, including existing holdings, time horizons and risk tolerance.

Our ratings are based on the following parameters:

Outperform: Outperforms the relevant E300 sector by 10% or more over the next 12 months.

Neutral: Performs in-line with the relevant E300 sector (+/-10%) over the next 12 months.

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Under Review: Rating is actively under review.

Suspended: Rating is suspended until further notice.

Restricted: The rating has been removed in accordance with Davy policy and/or applicable law and regulations where Davy is engaged in an investment banking transaction and in certain other circumstances.

Distribution of ratings/investment banking relationships

Investment banking services/Past 12 months

Rating Count Percent Count Percent

Outperform 71 53 29 74

Neutral 38 28 4 10

Underperform 12 9 0 0

Under Review 3 2 2 5

Suspended 5 3 0 0

Restricted 4 3 4 10

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