In addition Stobart Group expects to benefit from £30m per annum of transport revenues from the new venture within three years. At the same time, Eddie Stobart has secured a ten-year transport contract with A.W. Jenkinson which is expected to deliver pre tax profit of £19.25m over five years.
Stobart Group Limited ("Stobart"), the UK’s leading provider of multimodal transport and logistics solutions, has taken a controlling interest in newly formed Stobart Biomass Products Limited ("SBPL") together with market leader A.W. Jenkinson Forest Products ("AWJFP") the largest supplier of wood related biomass in the UK. The new company has been created to source and distribute, on a long-term contractual basis, supplies of biomass fuel to theUKrenewable energy market, which has the potential to grow ten-fold in the next three to four years.
In addition, Eddie Stobart has secured a major transportation contract with AWJFP for the next ten years. This contract is expected to generate an additional pre tax profit of £19.25m over the first five years. The investment and new contract together will provide substantial strategic synergies across the Stobart Group.
Separately, Stobart expects to benefit from £30m per annum transport revenues from SBPL within three years. Under the terms of the deal Stobart will take a controlling interest in the new venture for £30m comprised of £15m cash and the remainderby the issue of 11,278,195 new ordinary shares in Stobart Group, which will be subject to a lock-in arrangement for a period of 12 months from completion. The Board believes that the transaction will be earnings enhancing for Stobart from day one.
SBPL already has its first significant contract to supply up to 750,000 tonnes of biomass fuel per year to ten potential sites over the next 20 years. In addition, SBPL has received contract enquiries for a further 14 million tonnes of biomass fuel over the next five years with all new contracts going through SBPL. Based on current identifiable projects, the Board estimates that the market could potentially increase ten-fold in the next three to four years to 15 million tonnes annually.
AWJFP is the market leader in the UKfor wood-related biomass handling over 2.5 million tonnes of wood products per year. EU law mandates that 15% of electricity must come from renewable sources by 2020 and the UK Government has set an even higher target of 30% of electricity generation in the UKto come from renewable energy sources by 2020; with energy generated from biomass playing a significant role in this future.
Access to Stobart’s logistics network and brand strength will allow AWJFP and SBPL to double deliveries from one to two thousand a day and further enhance their reputation amongst the large utility providers, which require long-term secure supply contracts. Stobart’s expertise will also bring improved efficiency to the complex biomass logistics and supply chain, which is a major component of the cost base for renewable fuels. Finite UKsupply and infrastructure means that imported wood and other biomass products are likely to become a significant source of raw material going forward which would lead to further synergies withStobartPortsand Stobart Rail divisions.
Andrew Tinkler, CEO Stobart Group, said:
"This investment and transport contract together are a strategic building block for the Stobart Group on many levels. Firstly it is expected to be earnings enhancing from day one with an expected £19m net profit for the core business in the next five years and an additional benefit of £30m revenue per annum for the new company within three years. It also offers potential to further leverage our multimodal offering through StobartPortsand Stobart Rail going forward.
"Secondly, it gives us access to, and income from, the higher margin renewable energy market, which has the potential to grow ten-fold in the next five years, driven by governmental and societal pressures for the green agenda. Partnering with the market leader will enable us to exert greater control and move up and down the supply chain as this market diversifies. And thirdly, just as we have proven with other recent investments, SBPL will become a strategic asset and platform for the development and growth of the Stobart business. In short this new partnership will drive strong returns, benefits and synergies for the Stobart Group going forward."
Allan Jenkinson, Sole Proprietor of A.W. Jenkinson Forest Products, said:
"This is the perfect partnership to take the business to the next level and capitalise on the huge growth in energy generation from renewable sources. This deal gives us access to Stobart Group’s multimodal logistics strength and expertise in the UK, which is a critical part of the biomass business as well as giving us increased scale and credibility with the large energy producers who need long term secure supply of biomass products. That, coupled with the strong cultural fit, creates a solid foundation for the future success of the new company."