Review: Mariana Waste Management EIS

Mariana Waste Management EIS (“MWM”) is an asset and contract-backed EIS focused on capital preservation. It invests in asset-backed companies that dispose of plastic waste that can’t be recycled. Both costs and revenues are fixed under long-term contracts from the outset. Revenues should be predictable but are not guaranteed.

Highlights

  • Target returns of £1.10 per £1.00 invested (after expenses and after three years, not guaranteed)
  • Benefit from asset and contract backing
  • Contracts with reputable waste management companies
  • Predictable, contractual long-term revenue stream
  • Environmentally friendly and sustainable
  • Demand is driven by regulation so should be immune from economic cycles
  • EIS advance assurance received on first company and will be sought on all future companies
  • Minimum investment £25,000

Overview

From Cornish beaches and seabird colonies through to the less idyllic South Bank, plastic waste is sadly everywhere. Every year the UK produces vast amounts. 

Currently, waste management companies typically take unrecyclable plastic to landfill sites. It’s expensive – it can cost upwards of £120 per tonne – and damaging to the environment. 

But there is a greener and less expensive alternative. 

The MWM EIS investee companies can dispose of this waste through a process called pyrolysis. Pyrolysis is a multi-stage thermal and distillation process which converts plastics into ungraded oils (which have a value), so the waste need not be taken to landfill sites. 

At its best, the system can provide a cost-effective, efficient, environmentally friendly and safe solution to the problem faced by many waste management companies.

Investee companies will fund the acquisition and installation of the pyrolysis plans as well as oversee ongoing maintenance. The ownership of the pyrolysis plants will provide valuable asset backing.

They will work closely with waste management companies which have a high percentage of plastic from contracts with local governments. These businesses are the ones who suffer the greatest landfill charges. One contract is already in place with a reputable waste management company in the North West which takes its plastics from a large council in the area. 

The investee companies will process a minimum of 50,000 tonnes of plastic waste a year, under long-term contracts with the waste management company, and will be paid a fixed fee per tonne. These contracts are intended to support the entirety of the £20 million fundraise. 

This contractual framework means the levels of revenue the investee companies earn will be relatively predictable. 

The product of the process (the ungraded oils) can provide additional revenue streams. They can be further refined, turned into hydraulic oil, lubricant and a number of other uses, and sold to increase potential returns for investors. 

The plan is for the investee companies to make money on both sides. Firstly, on processing waste then by selling the oil. Please remember though this is not guaranteed. Capital is at risk and you should not invest money you cannot afford to lose.

Investment process 

Mariana highlights three key aspects to making waste management investments. 

1. The projects must have proven technology 

Before investing, Mariana must be confident in the waste management technology, i.e. it needs to be satisfied the infrastructure has a track record of performance to a certain standard. 

2. The projects must have a known cost base

An element that made renewable energy investments so lucrative for EIS investors in the past was the known cost base. Equally, with infrastructure projects, Mariana considers knowing the operating, installation and maintenance cost vital as it helps reduce the investment risk. 

3. The project must yield a predictable return 

Long-term contracts will be sought from the investee companies’ counterparties. That way, returns can be estimated or projected at the point of investment. The contracts stipulate the minimum amount of waste to be processed during the term and, whenever possible, a fixed price per tonne disposed. 

The investee companies’ management may pursue opportunities to progress with other waste management projects away from pyrolysis. However, it is anticipated pyrolysis will be the main trade.  

The manager

The investment adviser and asset manager is Mariana Investments (“Mariana”).

Mariana was set up in 2009 to create and distribute innovative, high-performance investments. It is headquartered in the City of London, and offers global financial solutions ranging from Interbank Broking, Market Research, Real Estate, Tax Advisory Services to Structured Products, Funds and Tax Efficient Investments.

Elton James, co-founder, with a strong background in financial services will lead the team. He is supported by Daniel Hawkins and Malcolm Ritchie, both experienced portfolio managers.  Stephen Hanlon, a Chartered Tax Adviser and Mariana’s Head of Tax Products, is also heavily involved. Mariana will manage the operations day to day.

The investment manager is Enterprise Investment Partners (“Enterprise”), an experienced manager in the EIS sector.  It will manage the investments and will be responsible for instructing the administrator and custodian to purchase shares in the investee companies.

The administrator and custodian is James Brearley & Sons, an established investment manager and stockbroker.

Target return 

The target return is £1.10 per £1.00 invested after three years, after all expenses.  This does not include any EIS tax relief. After tax relief, the target return is 1.57x money (£1.10/70p), predicated on processing at least 50,000 tonnes of waste a year for a fixed fee. Projected sales of the ungraded oils are also factored in. 

Please note, the target return is not guaranteed. In addition, tax benefits depend on circumstances and tax rules can change. 

Exit strategy

The long-term contractual revenue stream may make the investee companies attractive to a trade buyer or an institutional investor which could provide the EIS investors with an exit targeted in year three. Similar projects have exited within 3-4 years. 

Risks

The usual risks with unquoted companies exist with this EIS offer. For instance, EIS investments are illiquid and capital is at risk. Investors should only invest money they can afford to lose.    

Specific risks to the project are below. These are not exhaustive and you should check the provider documents for full details. 

  • Operational risk – pyrolysis technology may not operate as expected and/or may be unable to scale up to large volumes of waste
  • Running and maintenance costs may exceed forecast and profits might be eroded
  • The investee companies may not be able to enter a sufficient number of contracts or may fail to agree a fixed fee 
  • Technology risk – different technologies could emerge that are more efficient or less expensive 
  • Credit risk – there is a degree of credit risk on the waste management company with whom the investee companies will contract

Fees

Enterprise, the investment manager, will charge investee companies an initial charge of 2.5% (reduced to 2% with Early Bird saving unitl 15 December 2017). There is an annual management fee of 2% plus VAT (if applicable).  

These fees are paid by the investee company rather than the investor directly, so tax relief should be obtained on the full amount of the investor’s subscription (less Wealth Club’s fee).  

There is a performance fee of 25% of the exit proceeds over £1.10. A Wealth Club fee of 1% is charged separately. 

Summary

There is a nationwide need to deal with plastic waste in an environmentally friendly and cost-effective way. As long as the process works MWM’s solution satisfies this need and could provide EIS investors with a long-term contractual revenue stream. The target return of £1.10, not guaranteed, is based on a volume of 50,000 tonnes of plastic waste which does not appear unachievable subject to the operation of the pyrolysis plants.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 24.08.2017

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Mariana Waste Management EIS

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