WRAP will wrap up Recycling Fund
The Government-backed Waste & Resources Action Programme has confirmed it is scrapping a major fund used to support the recycling industry - as exclusively revealed by edie on Monday.The Recycling Fund, designed to support start-up businesses and SMEs, has only made two investments since its launch in 2003, committing a total of £828,000.
The first was in a start-up company dealing with End of Life Vehicle waste and the second was to expand the capacity of a company recycling construction, demolition and commercial waste.
As these companies grew, however, they required additional capital, which the Recycling Fund was unable to provide under State Aid conditions, which block investment in companies that are able to attract private investors.
The two investments that were undertaken were monitored carefully, and Impax, the fund managers, offered additional support including input at board level.
The recycling activities of both these companies are now continuing under new ownership, but there will be no return to the original equity investors in the businesses, including the Recycling Fund.
Other funding streams such as the eQuip equipment lease guarantee scheme and Business Development Service are going from strength to strength, says WRAP.
"WRAP's financial support for the businesses in the recycling sector is already having a positive impact," said WRAP's Chief Executive Jennie Price in a statement prepared for edie.
"And we've seen the number and scale of these businesses increase much more rapidly than expected, which is highly encouraging.
"At the same time, however, it has become clear that the Recycling Fund will not be in a position to fulfil its original objective, which was to invest £5.5 million in 10 to 15 start-up businesses and SMEs within an initial three year period.
"Following discussions with the co-investors and fund managers, therefore, the decision has been taken to terminate its activities.
"The Fund has been constrained by changes in market conditions, including the increasing engagement of commercial funds in the sector.
"It was also required to operate within State Aid restrictions, which included only being able to invest in deals that had already been turned down by commercial equity providers.
"On a positive note, the deal shaping activities of the fund managers have improved the viability of many of the business propositions reviewed for the Fund, and at least eight of those companies have gone on to raise commercial finance.
"In addition, the bulk of WRAP's investment in the Fund - £3.4 of the £4 million - remains intact and we have significantly increased our level of expertise in SME equity finance. There is still a need to support the recycling sector in securing commercial investment and we are currently in discussions with Defra and the Devolved Administrations on the best ways to achieve this."
Asked why the funds couldn't be shifted into other WRAP initiatives, Bevis Watts, head of business support for the organisation, told edie: "We're having discussions with Defra and the devolved administrations into how we can recycle the funds into a different type of investment support.
"The demands we anticipate for [eQuip and the Business Development Service] is actually in our programme budget for the next two years. What happens to those funds in 18 months' time is another debate, but I don't think putting more money into them at this stage is the best thing to do."
He said the pilot hadn't failed due to a lack of interest.
"The key statistic is that we've looked at over 200 start-up businesses and business plans for existing companies," he said.
"There have been two successful applicants but there have been a lot more that wanted to take it up but state aid restrictions prevented that to a certain degree and we are not allowed to compete with private investors.
"We're still aware that there is a high demand for investment capital out there and we're going to try to do what we can to ensure it's met."
More equity funds, investors and banks are prepared to back recycling businesses now than might have been the case when the pilot was launched, he said, and WRAP could justly claim part of the credit for that success story.
"That's partly through the splash that WRAP has created and our efforts to increase the profile of recycling markets," he said.
"Also, investors see that legislation now has teeth and they see that compared with three to five years ago the market has some certainty."
Mr Watts claimed that scrapping the fund would have a minimal impact on recycling overall in the UK and, ironically, might even prove beneficial in the long run.
"It was not a light hearted decision on our part to wind this up," he said.
"We've tried this for three years but the pilot hasn't worked so we're not taking it to the next step.
"What it does mean is all our staff and resources that we've been using on this can be better spent supporting the sector in other ways."