Stobart has announced it has started a new venture with biomass supply and distribution firm A.W. Jenkinson Forest Products.
Stobart said on the London Stock Exchange this morning that it has taken a controlling interest in the newly formed Stobart Biomass Products Limited, together with A.W. Jenkinson Forest Products, a UK supplier of wood related biomass, which is a renewable energy source.
Stobart said that the new company has been created to source and distribute, on a long-term contractual basis, supplies of biomass fuel to the UK renewable energy market, which "has the potential to grow ten-fold in the next three to four years".
In addition, logistics giant Eddie Stobart has secured a major transportation contract with A.W. Jenkinson Forest Products for the next ten years. Stobart said the contract is expected to generate an additional pre-tax profit of £19.25m over the first five years.
Separately, Stobart said it expects to benefit from £30m a year in transport revenues from Stobart Biomass Products Limited within three years.
Under the terms of the deal Stobart said it will take a controlling interest in the new venture for £30m comprised of £15m cash and the remainder by the issue of 11,278,195 new shares in the Stobart Group, which "will be subject to a lock-in arrangement for a period of 12 months from completion".
Stobart said the new company already has its first significant contract to supply up to 750,000 tonnes of biomass fuel a year to ten potential sites over the next 20 years. In addition, Stobart Biomass Products Limited has also received contract enquiries for a further 14 million tonnes of biomass fuel over the next five years with all new contracts going through the new venture. The board estimates, based on current identifiable projects, that the market could potentially increase ten-fold in the next three to four years to 15 million tonnes a year.
Andrew Tinkler, chief executive of the 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 Stobart Ports and 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, Stobart Biomass Products Limited 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, added: "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."
Stobart said A.W. Jenkinson Forest Products is a leader in the UK for wood-related biomass and handles over 2.5 million tonnes of wood products a year.
European Union law has demanded that 15% of electricity must come from renewable sources by 2020 and the Government has set a target of 30% of electricity generation in the UK to come from renewable energy sources by 2020, with energy generated from biomass playing a significant role in this future.