Roche loses his Midas touch
The appointment of a receiver to Greenstar this week is yet another blow in a rough two years for the NTR chairman
This week's appointment of a receiver to waste management company Greenstar represents the second major business setback for NTR chairman Tom Roche in just two years.
On Thursday, David Carson of Deloitte was appointed as receiver to Greenstar, Ireland's largest waste management company. Greenstar owes its banks, which include Bank of Ireland, AIB, Ulster, HSBC, Barclays, Rabobank and Bank of Scotland, more than €83m.
The appointment of a receiver became inevitable when the banks demanded the immediate repayment of the loans as Greenstar was in breach of its covenants. Greenstar's parent company, NTR, had been attempting to buy the loans from the banks at a discount.
Greenstar also owes NTR €35.5m. It is likely that most, if not all, of this money will now have to be written off by NTR following the appointment of a receiver to Greenstar.
The problems of Greenstar -- which has 80,000 residential and 15,000 business customers -- were well flagged in the NTR annual report for the year to the end of March 2012, which spoke ominously of "challenging conditions". Greenstar wrote off €34.8m on its Irish operations last year.
This writedown consisted of two parts. Greenstar took a €19.7m hit on the value of its Irish landfill sites due to tighter environmental regulations, which will force the company to close them all by 2015. In addition, it took a further €13.8m goodwill writedown against acquired goodwill.
Reading between the lines of the NTR annual report, it would appear that the aggressive Greenstar writedowns were at least in part a game of high-stakes poker between NTR and Greenstar's banks. If this was indeed the case, then the banks called NTR's bluff.
An examination of Greenstar's operating performance provides some clues as to why the banks were prepared to play hardball. It recorded an EBITDA (earnings before interest, taxation, depreciation and amortisation) of €12.9m on a turnover of €302m. This compared with an EBITDA of €30.6m on a €297m turnover the previous year.
It is, however, when one adds back depreciation (€33.1m), amortisation (€16.2m) and net interest (€7.3m) that the full horror of the picture at Greenstar emerges. Although the NTR annual report doesn't explicitly reveal the figure, it would appear that Greenstar recorded pre-tax losses of €43.7m for the year to the end of March 2012, up from a loss of €32.5m the previous year.
When these losses, a combined €76.2m, are added to the writedowns, it quickly becomes apparent that the total losses at Greenstar over the past two years comfortably exceed €110m.
How did this happen? Were we not all assured that recycling and sustainability was the way of the future? What went wrong at Greenstar?
NTR originally acquired Greenstar for €62m in 2001. Greenstar, originally Celtic Utilities, was almost 80pc owned by John Gallagher, the husband of Bernie Doyle of the eponymous hotel dynasty. Mr Roche is married to Anne Doyle, Bernie's sister.
As part of NTR, Greenstar embarked on an acquisition spree during which it seems to have overpaid for at least some assets.
The recession has also hit the waste management business hard, with overseas demand for recycled material, particularly from China, having dropped sharply, while domestically the volume of rubbish being produced by residential and business customers is well down.
This meant that, even before writing down the value of its landfill sites, Greenstar had been seriously weakened.
The Greenstar debacle is the second major business to turn sour at NTR over the past two years.
In February 2011, NTR folded most of its solar energy assets into a joint venture with US investment giant BlackRock. It took a €140m hit on these assets.
Coming within less than two years of one another, the Greenstar and solar energy disasters have tarnished Mr Roche's previously pristine reputation.
For several years during the mid to late-noughties, he resembled an Irish version of King Midas -- the figure from classical Greek mythology for whom everything he touched turned to gold.
In 2005, Jurys Doyle, the hotel group founded by Anne and Bernie Doyle's father PV Doyle, was under pressure from bidders attracted by its under-valued property assets.
However, instead of selling out on the cheap, the Doyle sisters and Mr Roche, who was a Jurys Doyle director, took the hotel group private themselves and sold off many of its assets for sky-high prices.
Jurys Ballsbridge and the neighbouring Berkeley Court Hotel went for a combined €380m to property developer Sean Dunne. Another property developer, Bernard McNamara, paid €290m for the Burlington Hotel, while, in what was surely the piece de resistance, a consortium led by financier Derek Quinlan paid a scarcely credible €1.16bn for the Jurys Inns budget hotels chain in June 2007.
Coming just two months before the credit crunch struck, the Jurys Inns sale must count as one of the best-timed deals, for the sellers at any rate, in Irish business history.
And Mr Roche wasn't done yet.
NTR, originally National Toll Roads, was founded in 1978 by Mr Roche's father Tom Roche Snr to build the East Link toll bridge in Dublin's docklands. However, it hit the jackpot following the construction of the West Link toll bridge on the M50 orbital motorway a decade later.
By the early noughties, with traffic volumes running way ahead of projections, the queues at the West Link, particularly at rush hour, had reached chronic proportions. With public anger mounting and flush with Celtic Tiger cash, the government agreed in June 2007 to pay NTR a whopping €600m in 12 annual instalments of €50m to buy back the West Link toll franchise.
NTR then turned around and sold the cash flows to a group of London financiers for €488m upfront.
However, it was Mr Roche's third deal that was probably his most spectacularly successful.
NTR had bankrolled former Bord na Mona boss Eddie O'Connor's wind energy firm Airtricity in return for a 51pc stake. Although Mr O'Connor was reluctant to sell, NTR was firmly in the driving seat when suitors came calling.
In October 2007, Airtricity's US operations were sold to German energy company E.on for €800m, while in February of the following year the rest of the company was flogged off to Scottish & Southern Energy for €1.1bn.
NTR pocketed an exceptional gain of €770m from the sale and returned a total of €258m in cash to its shareholders. With a 40pc NTR shareholding, Mr Roche and his family would have received more than €103m of this amount.
Since then, Mr Roche's Midas touch seems to have deserted him. The combined losses from Greenstar and the solar energy investments add up to more than quarter of a billion euro. This is reflected in the NTR share price, which has fallen from over €6 in 2007 to just 25 cent today.
This has seen the value of the Roche family shareholding in NTR drop from almost €500m to just €20m.
Following the Greenstar receivership, NTR's remaining Irish assets are the M7/8 Portlaoise and the N25 Waterford toll franchises, while in the United States it has increased its stake in Wind Capital from 62pc to 97pc.
After the disappointments of recent years, NTR shareholders will surely be hoping that the wind will blow more favourably for the company in future.