Biffa plc 

FY22 HALF YEAR RESULTS

 

STRONG FIRST HALF PERFORMANCE

REVENUE AND ADJUSTED OPERATING PROFIT RESTORED TO FY20 LEVELS,  

FULL YEAR EXPECTATIONS REAFFIRMED AND DIVIDEND REINSTATED

 

18 November 2021

Biffa plc ('Biffa', 'the Group' or 'the Company') (LSE: BIFF), the UK's leading sustainable waste management company, announces its half year results for the 26 weeks ended 24 September 2021.

Michael Topham, Chief Executive of Biffa, said:

"During the first half of the year we have successfully restored Biffa's adjusted operating profit to FY20 levels, managed the impact of the supply chain challenges that are affecting the entire economy, and continued to make good progress in delivering our strategic priorities.

 

"The rebound in business performance, with volumes and pricing across most areas of the business at or above FY20 levels, is testament to the resilient characteristics of our business model and the commitment of our team. Whilst like all businesses we are currently experiencing some cost inflation, most of our business has a level of pricing flexibility meaning we are well placed to mitigate these pressures.

 

"Our significant investment programme across circular economy infrastructure projects has continued at pace, including commissioning our new plastics recycling facilities, integrating recent collections acquisitions, opening new surplus redistribution outlets and continuing construction of our energy recovery facilities. Together these investments will provide the UK with essential green economy infrastructure and services, whilst giving Biffa a solid platform for sustainable growth.

 

"We remain pleased with Biffa's performance and prospects and our expectations for the full year remain unchanged. As a result, we are pleased to have reintroduced the payment of a progressive dividend."

 

 

Financial Summary

	H1 FY22 £m	H1 FY211 £m	Change FY22 v FY21	H1 FY201 £m	Change FY22 v FY20
Statutory Revenue	671.2	482.5	39.1%	588.9	14.0%
Net Revenue²	632.8	458.8	37.9%	555.1	14.0%
Adjusted EBITDA	91.3	58.3	56.6%	86.8	5.2%
Statutory Operating Profit	(16.7)	(45.0)	n/a	33.9	n/a
Adjusted Operating Profit3	45.4	9.7	368.0%	45.7	(0.7%)
Dividend (pence)	2.20	-	n/a	2.47	n/a
Reported leverage ratio4	3.4	2.1	n/a	2.8	n/a

 

 

·	Strong financial results: Adjusted Operating Profit has recovered to FY20 levels with Group revenues in the first half 14.0% higher than during the equivalent period two years ago (H1 FY20) (2.5% excluding acquisitions). When comparing Adjusted Operating Profit in H1 FY22 with H1 FY20, a strong performance in Collections and Recycling has been offset by the expected declining contribution from Inerts and Landfill Gas. Profitability is set to further improve during H2, in line with market guidance.
·	Successfully managing supply chain challenges and inflationary pressures: Decisive steps taken to mitigate the impact of supply chain disruptions and HGV driver shortages. The business has significant pricing flexibility to enable mitigation of cost inflation.
·	Continued progress on strategic priorities: £340.8m has been invested since the September 2019 Capital Markets Day across circular economy infrastructure projects within our four strategic areas: Reduce, Recycle, Recover and Collect.  £151.6m of this was incurred in the period, including £123.7m on acquiring the Viridor Collections business and certain recycling assets and integration is on track.
·	Adjusting items: Totalled £62.1m in the period (H1 FY20: £11.8m). The main items contributing to this were the impairment of Company Shop Group's ("CSG's") goodwill (£25.0m) as a result of short term underperformance, acquisition related costs (£5.9m); the decrease in the real discount rate on landfill provisions (£16.8m); and the charge for amortisation of acquired intangible assets (£13.1m).  Statutory Operating loss for the period is £16.7m (FY21 H1: 45.0m).
·	Cash performance and Net Debt ahead of expectations: Cash management has been better than expected in the period, resulting in leverage being lower than forecast at the time of the Viridor announcement. The Group's sources of funds were also broadened with the issuance of £150m of private placement notes and we have now converted our revolving credit facility ("RCF") to a sustainability linked instrument.
·	Sustainability Strategy delivery: Key progress areas include improving our methane capture rate in our Landfill Gas business to an industry-leading 85% ahead of the recent COP26 commitments around methane reduction; opening a rail hub for inert waste in East London to further reduce the adverse impacts of road based transportation; retrofitting older trucks with software which will reduce Biffa's CO2 emissions by up to 1,500 tonnes per annum; and increasing Board diversity with the appointment for our third female Board member, Linda Morant.
·	Full year expectations reaffirmed and dividend reinstated: The Board is pleased with Biffa's strong performance and the outlook for Adjusted Operating Profit for the full year remains positive and in line with the Board's expectations. As a result, we are pleased to be reintroducing the interim dividend at 2.20p, (FY21:nil, FY20:2.47p) and are committed to paying a progressive dividend moving forward.

 

PRESENTATION OF RESULTS

We will be presenting these results to investors, analysts and banks at 08:00am today. The webcast and associated materials will be available on Biffa's website - www.biffa.co.uk/investors.

ENQUIRIES:

Investors & Analysts

Michael Topham, Chief Executive Officer or Richard Pike, Chief Financial Officer

ir@biffa.co.uk

Media

Houston

0204 529 0549

biffa@houston.co.uk

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the Company's business. Whilst the Company believes the expectations reflected herein to be reasonable considering the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.

 

The forward-looking statements contained in this document speak only as of the date of this announcement, and Biffa does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

NOTES:

Activities excluding Adjusting items and a number of other terms and performance measures used in this document are not defined within accounting standards and may be applied differently by other organisations. See notes to the consolidated financial statements for basis of preparation and definitions of all non-statutory measures:

1 The 26-week period ended 25 September 2020 and 27 September 2019 has been restated to reflect the Group's reorganisation into three divisions: Specialist Services (incorporating Hazardous Waste, Integrated Resource Management (''IRM''), Biffpack and CSG), Collections (incorporating I&C and Municipal), and R&E

2 Statutory revenue net of landfill tax  

3 Profit before depreciation and amortisation, Adjusting items, impact of real discount rate changes to landfill provisions, finance costs and taxation

4 Reported leverage ratio compares the Reported Net Debt against Adjusted EBITDA

 

   

      CHIEF EXECUTIVE'S REVIEW

A strong first half with good momentum for H2

Trading Performance and Outlook

We are very pleased with the performance of the Group in the period. Trading performance in the first half recovered well following the easing of lockdown restrictions. In Q1, I&C volumes recovered to 97% of the same period two years ago (FY20), and following further recovery in Q2, we exited the first half at 103% of levels experienced two years ago. We have also benefitted from higher commodity and energy prices, albeit the impact has been limited due to our well-established strategy to de-risk and hedge against these exposures. Offsetting these upsides, were the expected lower contributions from Inerts and Landfill Gas as well as our recent investments in Seaham and CSG being behind our expectations.

 

We are encouraged by this rebound in our performance and are pleased with the progress we have made in the first half. We have secured flagship customers wins in the period, both with new local authority contracts and corporate clients, and are pleased with the early trading performance of the assets acquired from Viridor on 31 August.

 

Like most businesses, we have been affected by supply chain challenges impacting the UK economy, including shortages of HGV drivers, vehicles, fuel and waste containers. We responded decisively to the challenges in the driver market by offering increased pay, amongst other measures. We have seen signs of stabilisation in recent weeks, but we will continue to monitor the situation closely.

 

Most areas of our business have a level of pricing flexibility, meaning we are well placed to mitigate the cost inflation we are experiencing through price increases that will be implemented in H2.

 

The Board is pleased with Biffa's strong performance and the outlook for the full year remains positive and in line with the Board's expectations.

 

Collections

The Collections division comprises the Industrial & Commercial (I&C) and Municipal businesses. It provides sustainable waste and recycling collections and related services to industrial, commercial, public sector and local authority customers. The division's overall Net Revenues in H1 were 4.6% higher than the comparable period two years ago (H1 FY20) at £412.7m. Operating margins have improved over the same period from 7.8% to 8.5%, principally due to improved underlying performance in I&C.

 

	H1 FY22 £m	H1 FY211 £m	Change	H1 FY20 1 £m	Change
I&C	323.4	222.5	45.3%	307.5	5.2%
Municipal	89.3	91.6	(2.5%)	86.8	2.9%
Revenue	412.7	314.1	31.4%	394.3	4.7%
Adjusted EBITDA	61.1	38.4	59.1%	56.5	8.1%
Adjusted Operating Profit	34.9	8.2	325.6%	30.8	13.3%
Adjusted Operating Profit Margin	8.5%	2.6%	n/a	7.8%	n/a

 

¹The 26-week period ended 25 September 2020 and 27 September 2019 has been restated to reflect the Group's reorganisation into three divisions: Specialist Services (incorporating Hazardous Waste, IRM, Biffpack and CSG), Collections (incorporating I&C and Municipal), and R&E. 

I&C

·	During Q1, I&C volumes recovered back to 97% of the same period two years ago (FY20). Volumes continued to recover in Q2 and we exited the first half at 103% of the levels experienced two years ago. This underpinned a 5.2% increase in revenues (at £323.4m).
·	I&C has been affected by the supply chain challenges impacting the UK economy, including HGV driver, vehicle, fuel and container shortages. Service standards have been affected, to some extent, but overwhelmingly customers have remained understanding and there has been no discernible impact on customer churn (SME churn c7% annualised, versus c9% in FY20). We have seen signs of stabilisation in recent weeks, but close and ongoing management of these issues continues.
·	We have had another strong period of growth, with new corporate clients including Centrica, David Lloyd Leisure, Caffè Nero, the National Exhibition Centre (NEC), B&M Retail, Nationwide Building Society and the second phase of Barratt Developments PLC's estate.
·	Key customer renewals in the period included Mitchells & Butlers, Travelodge, BP Retail and AAH/Lloyd's pharmacy.
·	As previously reported, we have been trialling a carbon mapping tool with customers enabling them to map the carbon footprint of their waste. Following its success, the tool has been rolled out across our customer base to support them in delivering their own sustainability agendas.
·	The acquisition of Viridor's Collections business is a key step in our consolidation of the highly fragmented I&C collections market, adding c.£85m revenue (FY20), c.21,000 customers, 15 depots and c.270 vehicles to Biffa. Synergies of at least £10m are expected to be delivered within 12-18 months. Following completion of the acquisition on 31 August, the integration of the business is on track and this, together with the integration of Simply Waste, remains our main priority.

 

Municipal

 

·	The Municipal business has managed the same supply chain challenges as the I&C business. In a small number of cases, some services were temporarily suspended with the agreement of our municipal customers, but we have worked closely with them to mitigate the impact wherever possible. We have seen signs of stabilisation in recent weeks, but close and ongoing management of these issues continues.
·	During the period we secured a new contract with Stratford-upon-Avon and Warwick Councils, which will commence in August 2022. We have also signed a three-year contract extension with South Staffordshire.
·	The roll-out of the UK's largest fully electric refuse collection fleet in Manchester is well underway. Councils are looking to decarbonise their fleets by switching to electric vehicles and alternative fuels, which also forms a key area of Biffa's Sustainability Strategy.
·	The Viridor acquisition added two household waste recycling centre contracts ('HWRC') to the Municipal business. These contracts generated c.£11m of revenue in FY20 and have performed as expected since the acquisition.
·	Looking ahead, the division is well-placed to support our local government customers in meeting their new obligations including Extended Producer Responsibility for Packaging and segregated food waste collection.

 

Specialist Services

As previously announced, the Specialist Services business was separated from the Collections division, from the onset of FY22, to create a new division of the Group for external reporting purposes. The division provides bespoke solutions to customers who have more complex waste requirements such as manufacturing and distribution businesses. The acquisition of CSG in February 2021, added redistribution capabilities to Biffa's range of sustainable waste management solutions and enables us to support customers in moving surplus products further up the waste hierarchy.

The division's overall Net Revenues in the period were £81.5m. The 86.9% increase versus FY20 is mainly attributable to the acquisitions of CSG and Viridor. Viridor added c.£7m of annualised revenue to this division, added three depots and one wastewater treatment plant, which expands our liquid waste collection and treatment coverage and capabilities. The reduction in operating margins in the business is wholly attributable to CSG, where we have experienced lower footfall and associated customer spend during the period than expected.

	H1 FY22 £m	H1 FY211 £m	Change	H1 FY20 £m	Change
Industrial Services1	47.7	40.7	17.2%	43.6	9.4%
Company Shop Group2	33.8	-	n/a	-	n/a
Revenue	81.5	40.7	100.2%	43.6	86.9%
Adjusted EBITDA	7.3	4.4	65.9%	4.7	55.3%
Adjusted Operating Profit	4.4	2.9	51.7%	3.9	12.8%
Adjusted Operating Profit Margin	5.4%	7.1%	n/a	8.9%	n/a

 

¹ The 26-week period ended 25 September 2020 and 27 September 2019 has been restated to reflect the Group's reorganisation into three divisions: Specialist Services (incorporating Hazardous Waste, IRM, Biffpack and CSG), Collections (incorporating I&C and Municipal), and R&E.

² CSG was acquired by Biffa on 25 February 2021, therefore there is no revenue disclosed for H1 FY21 or H1 FY20.

Industrial Services

·     Industrial Services refers to the legacy Biffa operations of the Specialist Services division, with the Company Shop Group element summarised separately below. It includes Hazardous Waste collection and treatment, IRM and Biffpack, our producer responsibility packaging compliance scheme.

·    The business has continued to perform strongly, with an increase in revenue of 9.4% on FY20 revenues as a result of new business wins and existing contract extensions.

·     A notable contract win is Pilgrim's Pride where we provide a total waste management service, including dry waste, hazardous waste, tanker and commodity services at Pilgrim Pride's 14 sites across the UK.  

 

Company Shop Group

·    CSG performance in the period has been impacted by lower footfall and basket spend especially at stores opened immediately prior to and during the pandemic (stores opened since 2019) where the performance has been below expectations.  In response to this, management introduced various measures to seek to generate revenue growth including changing buying patterns and discounting initiatives which have reduced the gross margin compared to historic levels across all stores, both established and those opened since 2019.  We have seen some improvement in various areas of the portfolio over the last quarter and expect this trajectory to continue as customers return to more normalised shopping trends.

·     We have continued with our store roll out plan, opening a new Company Shop store in Southampton and a new Community Shop in Beechwood. We will shortly be opening a Company Shop store in South Yardley, Birmingham.

·      We are also working with Biffa's existing food manufacturing and e-commerce customers to capitalise on bringing these businesses together by adding redistribution of surplus produce to Biffa's leading offering in waste management and recycling.

·    Since the acquisition, our confidence in the potential of the business has been confirmed. However due to the current trading underperformance, we have booked an impairment charge of £25m under IAS 36 based on our assessment of value in use.  This excludes any additional value which may be generated by future store roll-outs.

 

Resources & Energy ("R&E")

The division comprises the Recycling, Organics, Inerts and Landfill Gas businesses, and focuses on the sustainable treatment, recycling, energy recovery and ultimate disposal of waste. The division's overall Net Revenues for the period to September 2021 of £138.6m were 18.4% higher than the comparable period two years ago (H1 FY20), reflecting the ongoing expansion of our Recycling business as well as a strong recovery in recent months. Operating margins over this period dropped from 12.8% to 10.1% as a result of the expected reduced contribution from the higher margin Inerts and Landfill Gas sub-divisions.

 

	H1 FY22 £m	H1 FY21 £m	Change	H1 FY20 £m	Change
Recycling	59.5	36.8	61.7%	40.2	48.0%
Organics	31.4	27.3	15.0%	29.8	5.4%
Inerts	66.6	45.0	48.0%	60.4	10.3%
Landfill Gas	19.5	18.6	4.8%	20.5	(4.9)%
Revenue	177.0	127.7	38.6%	150.9	17.3%
Recycling	59.5	36.8	61.7%	40.2	48.0%
Organics	31.4	27.3	15.0%	29.8	5.4%
Inerts	28.2	21.3	32.4%	26.6	6.0%
Landfill Gas	19.5	18.6	4.8%	20.5	(4.9)%
Net Revenue	138.6	104.0	33.3%	117.1	18.4%
Adjusted EBITDA	32.5	19.3	68.4%	32.1	1.2%
Adjusted Operating Profit	17.9	4.4	306.8%	19.3	(7.3)%
Adjusted Operating Profit Margin	10.1%	3.5%	n/a	12.8%	n/a

 

Recycling 

·     Our new facilities at Seaham and Washington have completed their commissioning and at Seaham we are now moving through customer acceptance phases. This process is taking slightly longer than expected, and therefore we have sold less rPET pellet than anticipated, but we anticipate full acceptances in the near term ahead of the implementation of the new plastics tax in April 2022.

·     We had a good performance at our Material Recycling Facilities (''MRFs'') due to strong operational performance coupled with improved commodity prices. Three MRFs have been added to the Recycling business through the acquisition of Viridor and these have traded in line with expectations.

·      The division added a plastics recycling facility in Scotland as a result of the Green Circle acquisition completed in June 2021.

·    The acquisition of certain recycling assets from Viridor now positions us as the largest operator of MRFs and plastic recycling facilities (''PRFs'') across the UK and together with Green Circle, significantly strengthens the raw material supply chain into our Polymers business.

·     In July 2021, the Environment Agency was successful in its case against Biffa regarding the export of wastepaper to India and Indonesia in 2018. There are no outstanding costs associated with the case and we do not expect ongoing exposure as prior to the conviction we had ceased exporting mixed wastepaper outside the OECD.

 

Organics

 

·     The Organics business includes Biffa's existing anaerobic digestion, composting and residual waste treatment assets together with the West Sussex ('WSCC') contract (a long-term local authority integrated resource treatment contract), three composting sites and one anaerobic digestion plant that were acquired from Viridor.

 

·     The business' Net Revenues are up 5.4% on H1 FY20 levels, mainly as a result of one month of acquired revenues from Viridor.

 

Inerts  
 

·     The Inerts business saw Net Revenues up by 6% on the comparable period two years ago (H1 FY20) due to ongoing improvements in pricing. Volumes were only c2% lower than two years ago, despite the closure of the large Westmill landfill site north of London, which was substantially mitigated through the opening of our East London rail hub, as well as growth in tonnages from other rail hubs and in commercial waste volumes, due to reduced availability of RDF export outlets.

·      In the first half of FY22, our inputs to landfill by rail were up three percentage points to 23% overall due to the recovery of the construction sector and the opening of our third rail hub in Barking in May 2021. Since 2018, over 1.4m tonnes of inert waste has been transported by rail instead of road, saving 16,500 tonnes of CO₂ emissions in line with our sustainability strategy targets.
 

Landfill Gas  

·    We have improved our methane capture rate to 85%, which is industry-leading and supports the objectives of COP26 in reducing harmful methane emissions in the atmosphere. The 4.5% year on year volume decline is in line with expectations. 

·      Export power prices are 100% hedged through FY22 H2 fixed @ £61.00 per MwH. 
 

Energy Recovery

·    Solid progress is being made on the construction of our two energy recovery facilities, both of which are being developed in partnership with Covanta Green. The Newhurst facility remains on track to be delivered in 2023, with the most recent milestones including the installation of the waste grate system and boiler. The Protos facility, which broke ground earlier this year, remains on schedule for 2024 and recently began the installation of its steel framework.

Strategy Update

Biffa's business model is aligned with the waste hierarchy and underpinned by the direction of evolving UK Government policy through the Resources and Waste Strategy. The Government's recently approved Environment Bill further underpins Biffa's future aspirations with particular focus on areas such as extending producer responsibility to make producers pay for the cost of collection and recycling of packaging, greater consistency of recycling collections in England and charges for single use plastics and restricting exports of waste outside the OECD countries.

Our capital allocation is currently focused on four key areas which are aligned with the circular economy: Reduce, Recycle, Recover and Collect.

Reduce

·      Investment incurred since Capital Markets Day (CMD) in September 2019: £90.9m

·    The acquisition of CSG in February 2021 establishes Biffa as the leading enabler of the circular economy for the food manufacturing, retail and fast-moving consumer goods (FMCG) and e-commerce sectors in the UK.

·    There is considerable opportunity for CSG to innovate and grow. During the period we have experienced lower profitability, with footfall not yet recovered to FY20 levels. Nevertheless, we remain extremely confident in the potential of the business, and we were pleased to open a new Company Shop store in Southampton and a new Community Shop in Beechwood. We will also shortly be opening a new Company Shop store in South Yardley, Birmingham.

Recycle

·      Investment incurred since CMD in September 2019: £46.0m

·     Biffa has a market leading position in closed loop, food-grade plastic recycling which is in high demand. We have increased our capacity from 63,000 tonnes to c141,000 tonnes since 2019, through investments at Seaham and Washington.

·     We are progressing the development of our third HDPE line for food-grade recycled material. This new line will add an additional 14,000 tonnes of capacity and is expected to come online in Q1 FY24. This is slightly later than originally planned as we took the opportunity to locate it at Redcar, adjacent to our existing HDPE operations.

·     We benefit from control of feedstocks with c.90% expected to be sourced from our own facilities by November 2022, following the acquisition of Viridor's Recycling assets and Green Circle.

Recover

·      Investment incurred since CMD in September 2019: £33.6m

·     Energy recovery remains the best option for waste that cannot be avoided, reduced or recycled and is a better environmental alternative to landfill.

·     We have two energy recovery facilities at Newhurst and Protos currently in the build phase, which will deliver long-term, reliable, cost-effective and low-carbon disposal for 750,000 tonnes of our customers' waste that cannot be recycled. Both build projects are on schedule and are expected to be completed during 2023 for Newhurst and 2024 for Protos.

·    We are pleased with the progress made to date with these projects and see potential upsides, including a more favourable energy market, strong demand for capacity from third party waste providers and the potential to increase the consented operational capacity of the facilities, with no associated capex required.

Collect

·      Investment incurred since CMD in September 2019: £170.3m

·    Biffa continues to consolidate the fragmented UK I&C market, with 25 acquisitions having been completed since our IPO in 2016, investing in total £260m, which includes cash consideration of £122.1m in the period for the entire Viridor acquisition, which completed on 31 August 2021.

·      We are continuing to invest in our digital capabilities including our e-commerce platforms, providing additional customer features on our self-serve web portals, and introducing further digital products to market.

·     The development of non-scheduled services, such as skip hire and van collections, continues to be a focus for growth. Our digital platform enables a seamless approach to booking skips, and we continue to trial this service with our customers.  

·   Our £0.6m seed funding in LoveJunk, (a waste collection and reuse digital marketplace), will be used to support its  development and rollout across the UK. 

 

·  We have a secure foundation to grow, taking advantage of the opportunities in alternative fuels and the   deployment of electric vehicles, that the Resources and Waste Strategy in England and Environment Bill will present. 

 

Sustainability Strategy Update

Biffa's ambitious Sustainability Strategy 'Resourceful, Responsible', which closely aligns to the United Nation's Sustainable Development Goals, is built around three core pillars: building a circular economy, tackling climate change and caring for our people, supporting our communities.

Delivery progressed at pace during H1 with highlights including:

·     Improving our methane capture rate in our Landfill Gas business to an industry-leading 85% in line with the recent COP26 commitment to methane reduction by 30% by 2030

·      Opening a new rail hub in East London that will enable 250,000 tonnes of inert waste to be transported out of the capital by rail, helping to reduce traffic congestion and carbon emissions and improve air quality

·   Commissioning the UK's largest retrofit of 'Fuelsense 2.0' to older trucks which will reduce Biffa's CO₂ emissions by up to 1,500 tonnes per annum, and

·     Increasing the diversity within our Board composition, with the appointment for our third female Board member, Linda Morant. As a result, the ratio of female to male board members has increased to 43%.

We have a highly deliverable plan to reduce our Scope 1 & 2 carbon emissions by 50% from 2020 to 2030 (having already reduced them by 70% since 2002), and a credible route to Net Zero by no later than 2050.

FINANCIAL REVIEW

The Group has recovered strongly from the impact of the pandemic, with Adjusted Operating Profit having recovered to FY20 levels. Group revenues in the first half were 14.0% higher than the equivalent period two years ago (H1 FY20) (2.5% excluding acquisitions). When comparing Adjusted Operating Profit in H1 FY22 with H1 FY20, a strong performance in Collections and Recycling has been offset by the expected declining contribution from Inerts and Landfill. Profitability is set to further improve during H2, in line with previous guidance.

We have generated a statutory loss after tax of £26.8m as a result a range of Adjusting items in the period including an impairment charge in relation to CSG as a result of short term underperformance, acquisition costs in relation to Viridor, increased intangible amortisation costs and a material adjustment to landfill provisions resulting from movements in the discount rate.

Biffa has remained well funded, with strong cash management in the period and leverage remains well inside the level forecast at the time of the Viridor announcement. Our source of funds was broadened with the issuance of £150m of private placement notes. We have also converted our RCF to a sustainability linked instrument and amended our forward covenant measures such that they will be tested on a post IFRS16 basis.

We therefore remain well positioned to deliver our growth strategy across our four investment areas: Reduce, Recycle, Recover and Collect.

Our financial performance is detailed below:

 

Group £m (unless stated)	H1 FY22	H1 FY21	H1 FY20
Revenue	671.2	482.5	588.9
Net Revenue	632.8	458.8	555.1
Operating Profit	(16.7)	(45.0)	33.9
Finance income	1.6	2.0	1.3
Finance charges	(10.2)	(9.1)	(10.7)
Share of joint venture profit before tax	(0.3)	(0.4)	-
Profit before tax	(25.6)	(52.5)	25.6
Tax charge	(1.2)	9.3	(5.0)
Profit after tax	(26.8)	(43.2)	20.6
Operating Profit	(16.7)	(45.0)	33.9
Depreciation and amortisation	45.9	48.6	41.1
EBITDA	29.2	3.6	75.0
Adjusting items	62.1	54.7	11.8
Adjusted EBITDA	91.3	58.3	86.8
Operating Profit	(16.7)	(45.0)	33.9
Onerous contracts	(0.1)	12.3	(2.0)
Strategy related costs	1.4	0.9	2.5
Acquisition related costs	5.9	0.2	0.4
Asset Impairment	25.0	14.0	-
Amortisation of acquisition intangibles	13.1	13.9	8.5
Impact of changes in real discount rate on landfill provisions	16.8	13.4	2.4
Adjusted Operating Profit	45.4	9.7	45.7

 

Results

·     Biffa has shown a strong recovery in the first half with Group revenues up 14.0% to £671.2m and Net Revenue also increasing 14.0% to £632.8m compared to H1 FY20.

·      Adjusted Operating Profit was at £45.4m compared with £45.7m to H1 FY20. The Adjusted Operating Profit margin has decreased to 6.8% from 7.8% from H1 FY20 mainly as a result of declining contribution from the Inerts and Landfill Gas businesses.

·      Profit after tax fell by £47.4m from £20.6m in H1 FY20 to a loss after tax of £26.8m; primarily due to an increase in asset impairment provisions, acquisition related costs, amortisation of intangibles and the change in the real discount rates on landfill provisions.

Finance Income

·     Finance income increased from £1.3m to £1.6m on H1 FY20 primarily driven by returns on pension assets.

Finance Charges

·    Finance charges includes interest charges on the Group's borrowings, bond premiums and discount unwind on landfill provisions.

·    Finance charges decreased from £10.7m to £10.2m on H1 FY20 due to lower gearing as a result of the equity raise which took place in June 2020.

Adjusting Items

To enable additional clarity of business performance, certain items are excluded when calculating the Group's Adjusting measures of performance. See section entitled 'Basis of Preparation' within the notes to the financial statements.

Adjusting items are fully explained in Note 4 to the condensed consolidated financial statements and include Adjusting items, amortisation of acquisition intangibles and material impacts from changes in real discount rates on landfill provisions. Before tax, these charges totalled £62.1m in the period (H1 FY20: £11.8m). The main items contributing to this total were the impairment of CSG's goodwill (£25.0m), acquisition related costs (£5.9m); the decrease in the real discount rate on landfill provisions (£16.8m); and the charge for amortisation of acquired intangible assets (£15.6m).

Taxation

The effective tax rate on Adjusted profit before tax was 21% (H1 FY20: 18.2%), due to the impact of usual non-deductible tax items. The effective tax rate on statutory losses was 20% (H1 FY20: 19.5%).

Dividend

As previously reported, there was no final dividend declared for FY21 due to the impacts of the pandemic. We are pleased to be reintroducing the interim dividend at 2.20p, (HY21:nil, HY20:2.47p) and expect to pay a progressive dividend moving forward.

Earnings per Share

Earnings have been spread over a closing share capital balance of 302.5m shares. Total statutory earnings per share improved to a loss of 8.9 pence per share (''pps'') from a loss of 15.1pps in HY21.

Adjusted Earnings per share increased from 0.4pps in HY21 to 11.0pps.

Capital Allocation

A core part of the Group's strategy is to selectively invest in businesses and infrastructure where it has a structural advantage and can generate attractive returns, as well as paying a progressive dividend.

·      Reduce: Company Shop was acquired in February, and this provides us with a strategic springboard into the area of waste avoidance.

·    Recycle: Investment in food grade plastic recycling continues with our Seaham and Washington facilities now going through commissioning. We acquired the trade and assets of Green Circle Polymers Limited, which is Scotland's only postconsumer plastics recycling facility, for a total consideration of £8.9m. We also acquired certain recycling assets from Viridor which now positions us as the largest operator of MRFs and PRFs across the UK and together with Green Circle, significantly strengthens the raw material supply chain into our Polymers business.

·      Recover:  Progress on the construction of both Newhurst and Protos energy recovery facilities continues on track.

·    Collect: Consolidating the I&C market is a core part of this and the acquisition of Viridor's collections business enabled us to make a substantive step forward in this regard.

Retirement Benefits

The Group operates a defined benefit pension scheme for certain employees, which is closed to new entrants, and which closed to future accrual for the majority of its members as at 1 November 2013. At 24 September 2021, the net retirement benefit surplus was £139.0m compared to a surplus of £112.1m at 26 March 2021.

 

The aggregate surplus has increased since the FY21 year-end. The main reasons for this improvement are                     positive returns on the Schemes' assets and the deficit contribution of circa £4.3m paid into the Biffa Defined Benefit Pension Scheme over the half-year period. These positive impacts have been partially offset by a fall in corporate bond yields over the period, which led to a lower discount rate and so a higher value placed on the liabilities, as well as a rise in expectations of future inflation over the period, which further increased the value of liabilities.

 

In addition to being in surplus on an accounting basis, the scheme is also in surplus when assessed under actuarial technical provisions. As a result, plans are being pursued to move to a self-sufficiency position over the next few years.

Return on Capital

Group Return on Capital Employed (see Basis of Preparation and Definitions) increased to 4.3% from 1.9%.

Group Return on Operating Assets (see Basis of Preparation and Definitions) increased from 11.9% to 16.1% which is consistent with FY20 levels. This has been driven by the increase in Adjusted Operating Profit.

Cash Flow

A summary of the Group's Cash Flow is shown below:

	H1 FY22 (£m)	H1   FY21 (£m)	H1 FY20 £m
Adjusted EBITDA	91.3	58.3	86.8
Working capital	(10.0)	17.6	(14.9)
Net capital expenditure	(28.3)	(20.7)	(26.1)
Net interest paid	(7.8)	(7.2)	(8.3)
Finance lease principal payments	(27.3)	(16.6)	(23.5)
Pension deficit payments	(4.3)	(4.2)	(4.1)
Purchase of own shares	(0.6)	0.4	(6.0)
Tax paid	(0.2)	-	-
Adjusted Free Cash Flow	12.8	27.6	3.9
Adjusting items	(5.5)	(1.6)	(3.2)
Acquisitions (net of cash acquired)	(114.7)	(2.1)	(2.5)
Investment in associates	(10.0)	(2.1)	-
Dividends paid	-	-	(12.2)
Loans to joint ventures	(4.3)	-	-
Changes in net borrowings	150.5	(102.4)	(3.0)
Equity Raise	-	97.7	-
Movement in financial assets	0.8	(3.7)	3.0
Net cash flow	29.6	13.4	(14.0)

 

 

Adjusted Free Cash Flow of £12.8m compares to £3.9m in H1 FY20, as a result of improved EBITDA and ongoing progress in working capital management.  

A cash consideration of £122.1m was paid for Viridor and an initial consideration of £5.8m was paid for Green Circle. The total cash outflow for acquisitions presented above is net of cash acquired and the combined deferred consideration on both deals is currently estimated at £13.4m.

The Group undertook a private placement raising £150m in order to maintain adequate funding headroom following the acquisition of Viridor.

As a consequence, net cash flow improved from an outflow of £14.0m in the first half of FY20 to an inflow of £29.6m for the first half of this year.

A statutory group cash flow summary is set out below:
 

	H1 FY22 (£m)	H1 FY21 (£m)	H1 FY20 £m
Net cash from operating activities	72.1	66.7	67.0
Net cash used in investing activities	(157.3)	(25.0)	(27.9)
Net cash flow used in financing activities	114.8	(28.3)	(53.1)
Net increase/(decrease) in cash and cash equivalents	29.6	13.4	(14.0)

 

Reported Net Debt and Borrowings

Group Reported Net Debt is £579.3m (H1 FY21: £310.3m), representing 3.4x Adjusted EBITDA (H1 FY21: 2.1x). When looked at on a pre-IFRS16 basis for bank covenant testing, net debt: EBITDA at the half year was 2.4x (H1 FY21:1.3x). This is ahead of the forecast position of 2.6-2.7x that we expected when we completed the Viridor acquisition.

Of the EVP preference liability, £6.3m has been included within Reported Net Debt as it will be payable to EVP Preference Shareholders irrespective of the outcome of the EVP dispute. The remainder of (£41.3m) has been excluded on the basis that it will only become payable subject to the outcome of the EVP dispute and will be funded by recovery of funds from HMRC.

We have now agreed with our banking syndicate to move our covenants to a post-IFRS 16 basis so that it aligns with current accounting principles. This adds 1.0x to our various covenanted metrics.

The funds from the private placement issuance in July 2021 were used to fund the acquisition of the Viridor business.

	H1 FY22 (£m)	H1 FY21 (£m)	H1 FY20 £m
Cash	60.4	101.2	52.2
Loans	(348.4)	(147.1)	(245.2)
Finance leases	(285.0)	(258.1)	(250.5)
EVP preference liability	(6.3)	(6.3)	(6.3)
Reported Net Debt	(579.3)	(310.3)	(449.8)

In order to align our funding strategy with our sustainability strategy, we have established a Sustainability-Linked Finance Framework linked to two KPIs:

1.   Biffa's scope 1 and 2 GHG emissions

2.   Biffa Polymers plastics recycling capacity

The interest rate margin under our RCF will be adjusted based on performance against sustainability targets linked to the above KPI's. We will report our progress on these targets annually within the Annual and Sustainability Reports.

Our sustainability-linked finance framework will be published on the Biffa investor website in December: www.biffa.co.uk/investors

Landfill Tax Matters

The Group is currently engaged in the following disputes with HMRC:

·      EVP: The Group is engaged in a dispute with HMRC concerning historical landfill tax. Biffa was unsuccessful in its Court of Appeal hearing held in March 2021 and is seeking leave to appeal to the Supreme Court.

·      Hazardous Waste: As previously disclosed, HMRC assessed Biffa for £8.5m of landfill tax relating to the period 2012 to 2016. Biffa paid these monies to HMRC in December 2019 and is appealing the assessment.  The cash payment is held on the balance sheet within prepayments as we expect to successfully defend this case.

Reporting Periods

The Group reported full year results for the 52 weeks to 26 March 2021. The prior year comparisons are in relation to the 52 weeks ended 27 March 2020.

Risks & Uncertainties

The principal risks and uncertainties affecting the business activities of Biffa and the industry in which it operates remain those detailed in the Annual Report and Accounts and which are summarised as follows:

 

·	Biffa operates in a highly regulated industry and changing regulatory requirements and standards could have an adverse impact on the Group's operations and results.
·	Economic conditions in the United Kingdom may have an adverse impact on Biffa's operating performance, revenues and results.
·	Despite pricing flexibility is most areas, Biffa is exposed to risks inherent in certain long-term fixed-price contracts, in particular in its Municipal and related operations.
·	Fluctuations in electricity, fuel and other commodity prices could affect Biffa's operating results.
·	Competition in the waste management industry could reduce Biffa's revenues and net income.
·	Biffa faces risks arising from its acquisition strategy including the successful recovery of CSG's performance.
·	A significant disruption to Biffa's information technology system, or delay during its migration to new systems, could adversely affect the Company's performance.
·	A cyber security incident could negatively impact Biffa's business and its relationships with customers.
·	Biffa may fail to identify strategic developments and may be unsuccessful in developing new technologies, or its current technological capabilities may become obsolete.
·	Biffa's operations expose it to the risk of material health and safety liabilities.
·	Biffa is subject to risks arising from its bonding and other financial security arrangements.
·	Biffa may be subject to litigation, disputes or other legal proceedings.
·	Biffa is dependent on the availability of labour.

 

Statement of Directors' Responsibilities

Biffa's half year financial information is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half year report in accordance with the Disclosure and Transparency Rules (DTR) of the United Kingdom's Financial Conduct Authority

We confirm that to the best of our knowledge:

a)    The condensed set of financial statements has been prepared in accordance with IAS 34'Interim Financial Reporting' as issued by the International Accounting Standards Board and adopted by the European Union;

b)    The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)    The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

 

By Order of the Board

Richard Pike

Chief Financial Officer

17 November 2021

 

INDEPENDENT REVIEW REPORT TO BIFFA PLC

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for 26 weeks ended 24 September 2021 which comprises the Condensed Consolidated Interim Income Statement, the Condensed Consolidated Interim Statement of Comprehensive Income, the Condensed Consolidated Interim Statement of Financial Position, the Condensed consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the group will be prepared in accordance with the IFRSs as adopted by the United Kingdom. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks period ended 24 September 2021 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Use of our report

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Deloitte LLP

Statutory Auditor

Birmingham, United Kingdom

17 November 2021