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RNS
Biffa plc  -  BIFF   

Half-year Report

Released 07:00 22-Nov-2017

RNS Number : 1651X
Biffa plc
22 November 2017
 

Biffa plc

22 November 2017

 

HALF YEAR RESULTS FOR THE 26 WEEKS ENDED 22 SEPTEMBER 2017

 

Strategy Continues to Deliver

 

 

Biffa plc ('Biffa', 'the Group' or 'the Company'), a leading UK integrated waste management company, announces its results for the 26 weeks ended 22 September 2017.

 

OVERVIEW

 

·     

Strong first half performance as expected; full year expectations unchanged

·     

Net Revenue1 up 7.8% to £481.6m (H1 17: £446.7m)

·     

Underlying EBITDA2 up 7.3% to £76.3m (H1 17: £71.1m)

·     

Underlying Operating Profit3 up 9.3% to £43.4m (H1 17: £39.7m); Underlying Operating Profit margin4 increasing to 8.1% from 8.0%

·     

Underlying Profit after Tax5 up 56.1% to £26.7m (H1 17: £17.1m); statutory Profit after Tax £23.7m (H1 17: statutory loss after tax £5.0m)

·     

Underlying EPS 10.7p (H1 17: 171p); statutory EPS 9.5p (H1 17: statutory loss per share 50.0p)

·     

Two acquisitions completed during the period, including O'Brien WRS with combined targeted annual revenue of c. £35m; three acquisitions completed post period end with targeted annual revenue of c.£8m

·     

Energy from Waste (EfW) project feasibility assessments progressing as planned

·     

Continued strong cash generation with Underlying Free Cash Flow6 of £13.3m (H1 17: £2.2m)

·     

Period end Reported Net Debt7 of £272.2m or 1.9x Underlying EBITDA8

·     

Further financial flexibility secured with an increase in facilities of £80m

·     

Interim dividend of 2.17p per share declared

 

 

Underlying Results (unaudited)

H1 18

£m

H1 17

£m

Change

£m

Change

%

Revenue

534.6

497.5

37.1

7.5

Net Revenue1

481.6

446.7

34.9

7.8

Underlying EBITDA2

76.3

71.1

5.2

7.3

Underlying Operating Profit3

43.4

39.7

3.7

9.3

Underlying Operating Profit Margin4

8.1%

8.0%



Underlying Profit after Tax5

26.7

17.1

9.6

56.1

Underlying Free Cash Flow6

13.3

2.2



Reported Net Debt7

272.2

270.2*



 

Statutory Results (unaudited)





Statutory Operating Profit

40.5

12.2

28.3


Statutory Operating Profit Margin

7.6%

2.4%



Statutory Profit/(loss) after Tax

23.7

(5.0)

28.7


Net Cash Flow

(33.1)

(10.8)



Net Debt

317.2

533.8



*Pro forma - adjusted for IPO related cash flows

 

 

Ian Wakelin, Chief Executive of Biffa, said:

 

"We are pleased to have achieved a strong performance in the first half of this year, during which we have continued to deliver on our acquisitive and organic growth strategy.

 

"Biffa maintains its market leading position as a fully integrated waste management specialist, and is well placed to leverage its scale and presence both to consolidate a fragmented market place and to further drive shareholder value by continuing to optimise and grow our existing operations.

 

"Looking ahead, we see attractive growth opportunities, including a healthy pipeline of acquisitions, of a range of sizes. We also have scope to continue to develop our infrastructure and services, taking advantage of the significant amount of waste we control. We look forward to reporting on the progress made in our EfW feasibility assessments when we announce our full year results.

 

"Our full year expectations remain unchanged and we look to the future with confidence."

 

 

DIVISIONAL PERFORMANCE

 


Net Revenue

£m

Underlying Operating Profit

£m


H1 18

H1 17

Change %

H1 18

H1 17

Change %

I&C

280.7

261.3

7.4

24.7

21.3

16.0

Municipal

97.8

89.7

9.0

4.4

5.2

(15.4)

RR&T

60.8

53.7

13.2

10.6

7.3

45.2

Energy

42.3

42.0

0.7

13.0

14.8

(12.2)

TOTAL9

481.6

446.7

7.8

43.4

39.7

9.3

 

 

Industrial & Commercial

 

·     

Revenue growth of 7.4% to £280.7m. Customer wins, continued pricing discipline and reduced customer churn delivered organic revenue growth of 3.5%, while acquisitions added 3.9% to revenues for the half

·     

Corporate customer wins include Arcadia and Kerry Foods

·     

Acquisition of O'Brien WRS completed in July 2017

·     

Underlying Operating Profit margin up to 8.8% from 8.2% due to revenue growth, cost control and delivery of synergies from prior year acquisitions

 

Municipal

 

·     

Satisfactory performance in a competitive market

·     

Revenue growth of 9.0% to £97.8m; of which organic growth was 2.9% and 6.1% relates to the acquisition of Cory in the prior year

·     

Underlying Operating Profit decreased by 15.4% to £4.4m with Underlying Operating Profit margin declining from 5.8% to 4.5%

·     

Performance and outlook moderated by continuing competitive market conditions, resulting in lower margins on new contracts

 

Resource Recovery & Treatment

 

·     

Net Revenue increase of 13.2%. Organic Net Revenue growth of 9.4%

·     

Underlying Operating Profit margin expansion from 7.0% to 9.3%

·     

Growth driven by strong landfill volumes and prices, new operations (including Biffa Polymers HDPE line) and acquisitions

·     

Strong landfill volumes and pricing expected to largely mitigate cost and price headwinds from recent changes in Chinese regulations for import of recycled commodities

 

Energy

 

·     

Net Revenue stable at £42.3m with increased energy prices offsetting the expected declines in landfill gas generation

·     

Underlying Operating Profit margin decreased to 30.7% (35.2% for H1 FY17) predominantly due to prior year non-repeating items in the West Sussex contract

·     

99% of energy output for FY18 has been forward sold at £41.66/Mwh. Landfill gas volumes declining at c.7.5% pa

 

PRESENTATION OF RESULTS

 

There will be a presentation of the results to analysts and investors at 9:30am today (22 November 2017) at Instinctif Partners, 65 Gresham Street, EC2V 7NQ. To register your attendance please contact biffa@instinctif.com

 

A live audio webcast and conference call of the presentation will be available on Biffa's website - www.biffa.co.uk. The presentation slides will be added to Biffa's website prior to the analyst meeting.

 

ENQUIRIES:

 

Investors & Analysts

Ian Wakelin, Chief Executive Officer

Michael Topham, Chief Financial Officer

ir@biffa.co.uk

 

Media

Instinctif Partners          

+44 (0) 20 7457 2020

biffa@instinctif.com

 

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

Notes:

 

'Underlying activities' 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 Revenue excluding Landfill Tax

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

3 Profit before exceptional items, amortisation of acquisition intangibles, impact of real discount rate changes to landfill provisions, finance costs and taxation

4 Calculated as a percentage of statutory revenue

5 Profit for the period as adjusted for non-underlying operating items (exceptional items, amortisation of acquisition intangibles and impact of real discount rate change to landfill provisions), non-underlying net interest items and non-underlying taxation

6 Net increase/(decrease) in cash and cash equivalents excluding dividends, restructuring and exceptional items, acquisitions, movement in financial assets and movements in borrowings or share capital (but including finance lease principal payments)

7 Excludes balances in respect of EVP instrument

8 Represents 1.9 x last twelve months' Underlying EBITDA

9 Total Underlying Operating Profit includes central costs of £9.3m (H1 2017: £8.9m)

 

 

BOARD OF DIRECTORS' STATEMENT

 

 

Biffa continues to perform well across the Group and is set to deliver another year of good growth and strong financial performance.

 

We were greatly saddened by the news of the death of our Chairman, Steve Marshall, in September. Steve had been our Chairman since June 2013 and played a major role in guiding the Group through its successes, including its IPO last year. He will be very much missed.

 

David Martin, Senior Independent Director, has assumed the role of Chairman on an interim basis. The search for a new Chairman is underway, and the Company will keep shareholders updated.

 

Results

 

The Group delivered a positive set of results for the first half of the year, achieved through a combination of organic and acquisitive growth. The I&C and RR&T divisions made a strong contribution to the performance, and while the Group continues to see positive indicators overall, the trading environment remains especially competitive in the Municipal division. The Board is pleased with the progress made in expanding our services and driving additional value from existing operations across the whole business.

 

In the first half of the year, Revenues increased by 7.5% to £534.6m and Net Revenues rose 7.8% to £481.6m, driven by growth in our I&C, Municipal and RR&T divisions. Underlying EBITDA rose 7.3% to £76.3m. Underlying Operating Profit rose 9.3% to £43.4m with the Underlying Operating Profit margin increasing to 8.1% from 8.0%. Statutory Operating Profit increased to £40.5m due to a reduction in other items from £27.5m to £2.9m principally due to the impact of the increase in the real discount rate on landfill provisions. Underlying Profit after Tax for the period was £26.7m (Statutory Profit after Tax £23.7m) and Underlying Earnings Per Share 10.7p (Statutory Earnings Per Share: 9.5p).

 

Capital Allocation

 

A core part of our strategy is to invest selectively in businesses and infrastructure where we are advantaged and generate attractive returns. The Board is encouraged by the momentum of targeted acquisitive growth sustained in the year to date, which includes most notably the acquisition of O'Brien WRS in July. We will continue to pursue value-adding acquisitions and allocate capital to incremental projects that will enhance capacity or performance at existing sites, while remaining alert to opportunities, such as in Energy from Waste, that will support long-term sustainable growth.

 

Dividend

 

Reflecting the Board's continuing confidence in the prospects for the Group, we are pleased to announce an interim dividend of 2.17p per share, which will be paid on 5 January 2018 to shareholders on the register on 8 December 2017.

 

Summary

 

The growth drivers for the Group remain attractive. Biffa is well positioned in its markets and has a strong portfolio of businesses, services and capabilities. We are well placed to deliver a strong second half performance and meet our objectives for the full year.

 

CHIEF EXECUTIVE'S REVIEW

 

Operating Performance

 

Performance in the first half is in line with expectations, and our full year expectations remain unchanged. For the half year Revenue has increased by 7.5% and similarly Net Revenue has increased by 7.8% to £481.6m, driven by growth in our I&C, Municipal and RR&T divisions. Underlying Operating Profit margin has increased from 8.0% to 8.1%.

 

Industrial & Commercial

 


H1 18

£m

H1 17

£m

Change

%

Revenue

280.7

261.3

7.4

Underlying EBITDA

38.4

33.6

14.3

Underlying Operating Profit

24.7

21.3

16.0

Underlying Operating Profit Margin

8.8%

8.2%


 

I&C Net Revenue increased 7.4% to £280.7m, through a combination of organic and acquisitive growth. Organic revenue increased 3.5% with acquisitions contributing a further 3.9% to overall revenue growth. Corporate account contract wins during the period included Arcadia and Kerry Foods. We also continue to focus on improving our service to our important SME customer base and have seen customer churn reduce again in the first six months.

 

Underlying Operating Profit margin was 8.8% for the half year, having improved from 8.2% in the prior half year.  Pricing discipline has been maintained which, together with the achievement of acquisition synergies and organic growth, are expected to continue to deliver revenue and year-on-year margin growth in this division.

 

Municipal

 


H1 18

£m

H1 17

£m

Change

%

Revenue

97.8

89.7

9.0

Underlying EBITDA

11.5

11.6

(0.9)

Underlying Operating Profit

4.4

5.2

(15.4)

Underlying Operating Profit Margin

4.5%

5.8%


 

The division delivered a satisfactory performance in a competitive market. Revenue increased by 9.0% to £97.8m, of which organic growth was 2.9% and 6.1% related to the acquisition of Cory in the prior year. The performance and outlook of the division have been moderated by continuing competitive market conditions, resulting in lower margins on new contracts.

 

Resource Recovery & Treatment

 


H1 18

£m

H1 17

£m

Change

%

Revenue

113.8

104.5

8.9

Net Revenue

60.8

53.7

     13.2

Underlying EBITDA

19.4

16.3

19.0

Underlying Operating Profit

  10.6

  7.3

45.2

Underlying Operating Profit Margin

  9.3%

     7.0%


 

The division delivered a strong performance. Net Revenue increased 13.2% to £60.8m and Underlying Operating Profit improved £3.3m to £10.6m driven by landfill volumes and prices, the impact of new operations and acquisitions. Organic Net Revenue grew 9.4% whilst acquisitions contributed 3.8% to Net Revenue growth.

 

Recently there have been changes to regulations in China relating to the import of recycled commodities. We have taken steps to ensure that we are compliant with these new requirements. These changes are causing some cost and price headwinds, however we anticipate that these will be largely mitigated by stronger than previously expected landfill volumes and pricing over the remainder of the year.

 

Energy

 


H1 18

£m

H1 17

£m

Change

%

Revenue

42.3

42.0

0.7

Underlying EBITDA

15.7

17.9

(12.3)

Underlying Operating Profit

13.0

14.8

(12.2)

Underlying Operating Profit Margin

30.7%

35.2%


 

Stronger wholesale energy prices more than offset the anticipated reductions in landfill gas volumes such that Revenue grew marginally by 0.7%. Underlying Operating Profit margins decreased predominantly due to non-repeating items relating to the West Sussex contract in the prior year.

 

99% of expected energy output for FY18 has been forward sold at £41.66/Mwh.

 

Our discussions with Covanta concerning the potential development of two Energy Recovery facilities in Cheshire and Leicestershire have progressed as planned and we look forward to providing a further update when we announce our full year results. In addition, we continue to explore other smaller opportunities in the EfW market leveraging our expertise, existing energy infrastructure and control of waste supply.

 

Acquisition Strategy

 

A key part of our strategy is to supplement organic growth by making synergistic in-fill acquisitions, especially in our I&C division. We have a proven track record of identifying and integrating value-enhancing acquisitions from within our highly fragmented marketplace.

 

In July 2017 we purchased O'Brien Waste Recycling Solutions Holdings Limited, which brought in £34m of annualised revenues. One other small acquisition was also completed during the period and since the period end, a further three acquisitions have completed with targeted annual revenue of c.£8m.

 

We continue to see a strong pipeline of acquisition opportunities.

 

Acquisition

Date Acquired

Annualised Revenue

£m

Value*

£m

Trade and assets of G&S Waste Management

Mar 2017

0.3

0.2

O'Brien WRS

Jul 2017

34.4

38.2

Amber Engineering

Oct 2017

6.6

4.9

Trade and assets of HWS Waste

Nov 2017

0.5

0.2

Trade and assets of Eco Food Recycling

Nov 2017

0.7

0.7

Total


42.5

44.2

 

*Value comprises consideration plus net debt acquired

 

Operational KPIs

 

The strong performance in the period is further evidenced by our operational KPIs, with growth in tonnages collected, processed and landfilled, and a reduction in energy generation as landfill gas yields decline gradually over time. Energy prices increased from the prior year:

 


H1 18

H1 17

Change

%

Tonnes Collected (mt)

2.08

1.94

7.2

Tonnes Processed (mt)

1.74

1.65

5.5

Tonnes Landfilled (mt)

1.61

1.49

8.1

Energy generation (GWh)

236.8

251.5

(5.8)

Energy price (£/MWh)

40.0

36.1

10.8

 

Summary and Outlook

 

We are pleased to have achieved a strong performance in the first half of this year, during which we have continued to deliver on our acquisitive and organic growth strategy.

 

Biffa maintains its market leading position as a fully integrated waste management specialist, and is well placed to leverage its scale and presence both to consolidate a fragmented market place and to further drive shareholder value by continuing to optimise and grow our existing operations.

 

Looking ahead, we see attractive growth opportunities, including a healthy pipeline of acquisitions, of a range of sizes. We also have scope to continue to develop our infrastructure and services, taking advantage of the significant amount of waste we control. We look forward to reporting on the progress made in our EfW feasibility assessments when we announce our full year results.

 

Our full year expectations remain unchanged and we look to the future with confidence.

 

 

FINANCIAL REVIEW

 

Group Performance

 

Revenues increased by 7.5% from £497.5m to £534.6m, with Net Revenues increasing by 7.8% from £446.7m to £481.6m.

 

Underlying EBITDA increased by 7.3% to £76.3m with Underlying Operating Profit increasing by 9.3% to £43.4m. The principal drivers of the growth in both Underlying EBITDA and Underlying Operating Profit were the I&C and RR&T divisions. Statutory Operating Profit increased 232% to £40.5m. Underlying Profit before tax increased 39% to £33.3m. Statutory Profit before Tax increased by £32.8m to £29.2m.

 

Finance Income

 

Finance income reduced from £2.9m to £0.3m reflecting lower surplus cash balances under the Group's post-IPO capital structure.

 

Underlying Finance Charges

 

Underlying Finance charges exclude the fair value discount unwind on the EVP preference share liability. They include interest charges on the Group's borrowings, bond premiums and discount unwind on landfill provisions.

 

Underlying Finance charges reduced by £8.3m in the period. The decrease reflects the Group's reduced borrowings resulting from the Group's post-IPO capital structure.

 

Underlying Taxation

 

The effective tax rate on underlying profits was 20% (H1 2017: 28%), consistent with the prevailing rate of Corporation Tax.

 

Other Items

 

To enable additional clarity of business performance, certain items are excluded when calculating the Group's Underlying measures of performance. See below 'Basis of Preparation and Definitions'.

 

The items are more fully explained in Note 4 to the condensed consolidated financial statements and include exceptional items, amortisation of acquisition intangibles, material impacts from changes in real discount rates on landfill provisions, and the fair value discount unwind on the EVP preference shares. After tax, these items totalled £(3.0)m in the period (H1 2017: £(22.1)m). The principal reason for the significant decrease in the current half year is the impact of the increase in the real discount rate on landfill provisions, which resulted in a credit of £4.7m in the period, compared to a charge of £20.3m in the prior period.  

 

A reconciliation from Underlying Profit after Tax to Statutory Profit after Tax is set out below.

 


H1 18

(£m)

H1 17

(£m)

Underlying Profit after Tax

26.7

17.1




Exceptional items

(1.4)

0.2

Amortisation of acquisition intangibles

(6.2)

(7.4)

Impact of changes in real discount rate on landfill provisions

4.7

(20.3)

Interest (net)

(1.2)

-

Tax

1.1

5.4




Statutory Profit after Tax

23.7

(5.0)

 

Earnings per Share

 

Total statutory earnings/(loss) per share increased from (50.0) pence per share to 9.5 pence per share.

 

Underlying earnings per share decreased from 171 pence per share to 10.7 pence per share, due to the new share capital issued at the Group's IPO more than offsetting the improvement in profit after tax.

 

Dividend

 

An interim dividend of 2.17p per share has been declared and will paid on 5 January 2018 to shareholders on the register on 8 December 2017. The ex-dividend date is 7 December 2017.

 

Details of the progressive dividend policy adopted by the board are set out in the Board of Directors' Statement.

 

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 22 September 2017, the net retirement benefit surplus was £20.3m compared to a surplus of £15.4m at 24 March 2017. The change in the financial position of the scheme reflects the performance of the Scheme's assets plus the receipt of the deficit contribution by the Group.

 

The scheme had an actuarial deficit of £66.7m as at the time of the last valuation in March 2015, and an inflation-linked contribution of £3.85m from March 2017 has been agreed with the trustee of the scheme.

 

Return on Capital

 

The Group operates a disciplined approach to capital investment.

 

Group Return on Capital Employed (see Basis of Preparation and Definitions) increased from 9.7% to 10.1%.  This measure is materially affected by intangible assets held on the balance sheet which were initially recognised in 2008 upon the LBO of the Group including Landfill Gas Rights and Brand.

 

Group Return on Operating Assets (see Basis of Preparation and Definitions) increased from 26.2% to 26.7%

 

 

Cash Flow

 

A summary of the Group's cash flows is shown below:

 

 


H1 FY18

(£m)

H1 FY17

(£m)

Underlying EBITDA

76.3

71.0

Working capital

(12.4)

(16.0)

Capital expenditure

(19.4)

(19.6)

Property sales

2.0

0.4

Net interest paid

(10.5)

(14.9)

Finance lease principal payments

(17.4)

(14.9)

Pension deficit payments

(3.9)

(3.0)

Other

(1.4)

(0.8)

Underlying free cash flow

13.3

2.2




Restructuring and exceptional items

(3.1)

(2.9)

Acquisitions, including net debt repaid

(36.6)

(11.9)

Dividends paid

(6.0)

-

Movement in financial assets

(0.7)

1.8

Net cash flow

(33.1)

(10.8)




 

Underlying free cash flow improved from £2.2m to £13.3m due to improvements in underlying profitability, working capital and reduced interest payments.

 

The net working capital outflow in the period is expected to substantially reverse in the second half.

 

Capital expenditure (comprising purchases of property, plant and equipment and purchases of intangibles) remained broadly unchanged at £19.4m.

 

Net interest paid decreased due to the reduced borrowings put in place at the time of the Group's IPO.

 

Finance lease principal payments increased as expected due to phasing of the Group's ongoing vehicle replacement programme.

 

A statutory group cash flow summary is set out below:

 


H1 FY18

(£m)

H1 FY17

(£m)

Net cash from operating activities

54.9

50.1

Net cash used in investing activities

(51.5)

(31.0)

Net cash flow used in financing activities

(36.5)

(29.9)

Net decrease in cash and cash equivalents

(33.1)

(10.8)

 

 

Reported Net Debt and Borrowings

 

The Group's Reported Net Debt increased from £246.1m to £272.2m in the period, representing 1.9x last twelve months' Underlying EBITDA (H1 17: pro forma 2.1x).

 

An increase in facilities with existing lenders was completed in October 2017. This includes an option to increase the Group's term loan by £53.3m to £253.3m, and an increase of £26.7m on the existing £100m revolving credit facility.

 

The £26.1m increase in Reported Net Debt was principally due to the acquisition of O'Brien Waste Recycling Solutions Holdings Limited, which had an aggregate impact on net debts in the order of £38m, partially offset by strong underlying free cash flow performance.

 

Reported Net Debt (£m)

H1 18

H1 17



Actual

Pro forma

Cash

23.3

95.2

29.6

Loans

(194.3)

(409.2)

(200.0)

Finance leases

(101.2)

(99.8)

(99.8)

Junior shareholder loan

-

(120.0)

-

Total

(272.2)

(533.8)

(270.2)

 

Reported Net Debt excludes the Group's EVP preference share liability of £45.0m (prior year: nil) as explained in note 16. The H1 2017 pro forma Net Debt reflects the impact of the Group's IPO in October 2016, which resulted in a reduction in the Group's loans and cash balances.  

 

Landfill Tax Matters

 

We await judgment from the tax tribunal in the EVP case. We have received notification from HMRC that interest on the EVP liability (totalling £8.7m, for which funds were allocated at IPO but which remains unpaid) is not due and will not be requested. This has a near term cash benefit to the Group but 90% of this unpaid amount will ultimately be repayable to pre-IPO shareholders when the case is finally determined under the terms of the instruments put in place at IPO.

 

In a separate matter, we have recently been notified by HMRC that they disagree with our Landfill tax treatment in relation to naturally occurring soils that contain very low levels of asbestos. Biffa - along with other industry operators - has always understood this material to be subject to lower rate tax and has very strong legal advice to support its position. This concerns material landfilled between 2012 and 2015 only and the tax at stake, including interest, amounts to circa £9.2m (£7.7m post corporation tax). Since 2015, following direction from HMRC, this material has been taxed at standard rate Landfill tax.

 

We expect that HMRC will demand payment of this tax, upon which we will appeal against the assessment and vigorously defend our position. We are confident that our position is consistent with the law and the intent of the legislation.

 

The tax at stake has been disclosed as a contingent liability in note 15 to the accounts.

 

REPORTING PERIODS

 

The Group will report results for the 53 weeks to 30 March 2018. Whilst this means the results will include an additional week of trading, it also means that the 53 weeks will incorporate two more public holidays than the 52 weeks to 24 March 2017. The Directors consider these two offsetting factors to result in a negligible net impact on overall results.

 

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:

 

·     

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·     

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·     

·     

·     

·     

·     

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BASIS OF PREPARATION AND DEFINITIONS

 

The reported financial information has been prepared on the basis of Note 1 of the interim financial statements. The financial information has been prepared on the basis of results for the 26 weeks ended 22 September 2017.

 

In considering the financial performance of our principal segments, we analyse them on the basis of their underlying performance. This is the principal measure used by management to assess the business performance of the Company's underlying activities. Underlying activities exclude exceptional and other items. Note 4 explains in detail items which are excluded from our underlying profit measures.

 

The Board believes that by presenting our financial performance using underlying performance it is easier to read and interpret financial performance between periods, as underlying profit measures are more comparable having removed the distorting effect of the excluded items. Those items are more clearly understood if separately identified and analysed.

 

Accounting Basis

·      Prepared in accordance with IFRS

·      H118 represents the 26 weeks ended 22 September 2017; H117 represents the 26 weeks ended 23 September 2016; FY17 represents the 52 weeks ended 24 March 2017

Net Revenue

·      Statutory revenue excluding landfill tax, unless stated otherwise, 'revenue' refers to statutory revenue. Landfill tax is excluded as the rate is outside the Group's control

Organic Net Revenue Growth

·      The increase/(decrease) in net revenue in the period excluding net revenue from acquisitions completed in the period and net revenue from acquisitions completed in the prior period up to the anniversary of the relevant acquisition date, to the extent such net revenue falls in the current period

·      Organic net revenue growth can be expressed both as an absolute financial value and as a percentage of prior period revenue

Acquisition Net Revenue Growth

·      Acquisition Net Revenue Growth in any period represents the Net Revenue Growth in the relevant period from (i) acquisitions completed in the relevant period and (ii) acquisitions completed in the twelve months ended to the start of the relevant period up to the twelve-month anniversary of the relevant acquisition date (to the extent such Net Revenue falls in the current period). Acquisition Revenue Growth is calculated on the same basis, using revenue in place of Net Revenue.

Acquisition Net Revenue Growth Rate

·      Acquisition Net Revenue Growth Rate in any period represents the Acquisition Net Revenue Growth for the period expressed as a percentage of the prior period's Net Revenue. Acquisition Revenue Growth Rate is calculated on the same basis, using revenue in place of Net Revenue

Underlying EBITDA

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

·      Divisional underlying EBITDA is stated after allocation of shared services costs

Underlying Operating Profit

·      Profit before exceptional items, amortisation of acquisition intangibles, impact of real discount rate changes to landfill provisions, finance costs and taxation

·      Divisional underlying operating profit is stated after allocation of shared service costs

Reported Net Debt

·      Net debt excluding balances relating to EVP preference shares

Return on Capital Employed (ROCE)

·      Operating Profit excluding exceptional items and impact of real discount rate changes to landfill provisions divided by average of opening and closing shareholder's equity plus net debt (including finance leases), pensions and environmental provisions

Return on Operating Assets (ROOA)

·      Underlying Operating Profit divided by average of opening and closing Property, Plant & Equipment, plus net working capital

Underlying Free Cash Flow

·      Net increase/(decrease) in cash and cash equivalents excluding dividends, restructuring and exceptional items, acquisitions, movement in financial assets and movements in borrowings or share capital (but including finance lease principal payments)

 

 

Statement of Directors' Responsibilities

 

The 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 view 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

 

 

 

Ian Wakelin

Chief Executive Officer

22 November 2017

 

 

 

 

 

 

 

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 the 26 weeks ended 22 September 2017 which comprises the condensed consolidated interim income statement, condensed consolidated interim statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of financial position, the condensed consolidated statement of cash flows and related notes to the condensed interim financial information 1 to 17. 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.

 

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 Auditing Practices Board.  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.

 

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 and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

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

 

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 Auditing Practices Board 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 Ireland) 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 ended 22 September 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

22 November 2017


 

 

Biffa plc

22 November 2017

 

HALF YEAR RESULTS FOR THE 26 WEEKS ENDED 22 September 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 




 

 

Condensed Consolidated Interim Income Statement

For the half year ended 22 September 2017

 



26 weeks to
22 September 2017 (unaudited)

26 weeks to
23 September 2016 (unaudited)

52 weeks to
24 March 2017 (audited)


Notes

Underlying Activities¹

£m

Other Items

£m

(note 4)

 

Total

£m

Underlying Activities¹

£m

Other Items

£m

(note 4)

 

Total

£m

Underlying Activities¹

£m

Other Items

£m

(note 4)

 

Total

£m












Continuing operations:











Revenue

3

534.6

-

534.6

497.5

-

497.5

990.4

-

990.4

Cost of sales


(460.4)

(1.0)

(461.4)

(433.0)

(26.6)

(459.6)

(866.0)

(31.5)

(897.5)

Gross profit


74.2

(1.0)

73.2

64.5

(26.6)

37.9

124.4

(31.5)

92.9












Operating costs

4

(30.8)

(1.9)

(32.7)

(24.8)

(0.9)

(25.7)

(50.6)

 (30.2)

(80.8)

Operating profit

3

43.4

(2.9)

40.5

39.7

(27.5)

12.2

73.8

(61.7)

12.1












Finance income


0.3

-

0.3

2.9

-

2.9

4.9

0.6

5.5

Finance charges


(10.4)

(1.2)

(11.6)

(18.7)

-

(18.7)

(33.6)

(2.7)

(36.3)

Profit/(loss) before taxation

5

33.3

(4.1)

29.2

23.9

(27.5)

(3.6)

45.1

(63.8)

(18.7)

Taxation

 

 

(6.6)

1.1

(5.5)

(6.8)

5.4

(1.4)

(9.3)

17.1

7.8

Profit/(loss) for the period


26.7

(3.0)

23.7

17.1

(22.1)

(5.0)

35.8

(46.7)

(10.9)



Earnings/(loss) per share (pence)

6

10.7

(1.2)

9.5

171.0

(221.0)

(50.0)

29.3

(38.3)

(9.0)

 

¹ Underlying Activities excludes other items which are outlined in Note 4.


Condensed Consolidated Interim Statement of Comprehensive Income

For the half year ended 22 September 2017

 


Notes


26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks

ended

23 September

2016

£m

(unaudited)


52 weeks

ended
 24 March

2017

£m

(audited)











Profit/(loss) for the period



23.7


(5.0)


(10.9)











Other comprehensive (loss)/income









Items that will not be reclassified subsequently to income:









Actuarial gain/(loss) on defined benefit pension scheme

13


1.3


(50.5)


 

(17.6)


Deferred tax relating to items that will not be reclassified subsequently

5


(0.2)


8.8


 

3.4














1.1


(41.7)


(14.2)











Other comprehensive income









items that may be reclassified subsequently to income:









Net gains on cash flow hedge



0.3


-


0.3











Other comprehensive loss for the period, net of income tax



1.4


(41.7)


 

(13.9)











Total comprehensive income/(loss) for the period



25.1


(46.7)


(24.8)




  Condensed Consolidated Interim Statement of Financial Position
As at 22 September 2017


Notes


As at

22 September

2017

£m

(unaudited)


As at

23 September 

2016

£m

(unaudited)


As at

24 March

2017

£m

(audited)


Assets









Non-current assets









Goodwill

7


98.2


69.6


70.4


Other intangible assets



218.5


223.2


219.9


Property, plant and equipment

9


327.4


313.6


327.8


Long term receivables



75.7


9.8


75.6


Deferred tax assets



22.4


24.7


28.5


Retirement benefit surplus

13


20.3


-


15.4





762.5


640.9


737.6


Current assets









Inventories



11.9


9.2


9.1


Trade and other receivables



199.2


200.8


177.7


Property plant and equipment held for sale



0.6


-


-


Financial assets



11.3


15.7


10.7


Derivative financial assets

10


0.6


-


0.3


Current tax asset



0.2


-


-


Cash and cash equivalents



23.3


95.2


56.4





247.1


320.9


254.2


Current liabilities









Borrowings



(29.4)


(27.5)


(30.8)


Derivative financial liabilities

10


-


(1.3)


-


Trade and other payables



(239.0)


(242.4)


(230.8)


Current tax liabilities



-


(0.9)


(0.9)


Provisions

11


(10.8)


(13.2)


(10.3)


Total current liabilities



(279.2)


(285.3)


(272.8)


Net current (liabilities)/assets



(32.1)


35.6


(18.6)











Non-current liabilities









Borrowings



(311.1)


(601.5)


(315.5)


Trade and other payables



(13.0)


(0.1)


(13.1)


Non-current provisions

11


(94.5)


(100.3)


(98.8)


Retirement benefit obligations

13


-


(17.9)


-


Total non-current liabilities



(418.6)


(719.8)


(427.4)


Net assets/(liabilities)



311.8


(43.3)


291.6











Equity









Called up share capital



2.5


-


2.5


Share premium



235.5


-


235.5


Hedging reserves



0.6


-


0.3


Merger reserve



74.4


-


74.4


Retained deficit



(1.2)


(43.3)


(21.1)


Total equity surplus/(deficit) attributable to shareholders



311.8


(43.3)


291.6











Condensed consolidated Statement of Changes in Equity

For the half year ended 22 September 2017

 



Called up share

 capital

£m

 

Share premium

 

 

£m

Merger reserve

 

£m

Hedging  and other  reserves 

 

£m

Retained deficit

 

 

£m

Total equity

               

 

£m









As at 24 March 2017


2.5

235.5

74.4

0.3

(21.1)

291.6

Profit for the period


-

-

-

-

23.7

23.7

Other comprehensive income for the period


-

 

-

 

-

0.3

1.1

1.4

Value of employee service in respect of share option schemes


-

 

-

 

-

-

1.1

1.1

Total comprehensive income for the period


-

 

-

 

-

0.3

25.9

26.2

Transactions with owners:








Dividends paid


-

-

-

-

(6.0)

(6.0)

As at 22 September 2017 (unaudited)


2.5

235.5

74.4

0.6

(1.2)

311.8

 


Called up share

 capital

              

£m

 


Share premium

 

 

£m

Merger reserve

 

£m



Hedging and other reserves £m

Retained earnings/ (deficit)

 

£m

Total equity

 

 

           £m











As at 25 March 2016

-


-

-



-

3.4

3.4

Profit for the period

-


-

-



-

(5.0)

(5.0)

Other comprehensive income for the period

-


 

-

 

-



-

(41.7)

(41.7)

Total comprehensive income for the period

-


 

-

 

-



-

(46.7)

(46.7)

As at 23 September 2016 (unaudited)

-


-

-



-

(43.3)

(43.3)

 



 



Called up share

 capital

               

£m

 

Share premium

 

 

£m

Merger reserve

 

 

£m

Hedging and other reserves £m

Retained earnings/ (deficit)

 

£m

Total equity

               

 

£m









As at 25 March 2016


-

-

-

-

3.4

3.4

Loss for the period


-

-

-

-

(10.9)

(10.9)

Issue of share capital


2.5

261.0

-

-

-

263.5

Share issue costs


-

(25.5)

-

-

-

(25.5)

Cash flow hedges


-

-

-

0.3

-

0.3

Value of employee service in respect of share option schemes


-

-

-

-

0.6

0.6

Recognition of merger reserve


-

-

74.4

-

-

74.4

Other comprehensive income for the period


-

-

-

-

(14.2)

(14.2)

Total comprehensive income for the period


2.5

235.5

 

74.4

 

0.3

 

(24.5)

288.2

As at 24 March 2017 (audited)


2.5

235.5

74.4

0.3

(21.1)

291.6

 

 

Condensed Consolidated Statement of Cash Flows


Notes


26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks

ended

23 September 2016

£m

(unaudited)


52 weeks ended 24 March 2017

£m

(audited)


Cash flows from operating activities









Cash generated from operations

12


59.3


52.8


73.3


Restructuring and exceptional costs

4


(3.1)


(2.9)


(34.9)


Taxation (paid)/received



(1.3)


0.2


-


Net cash from operating activities



54.9


50.1


38.4











Cash flows from investing activities









Purchases of property, plant and equipment



(16.3)


(16.9)


 

(39.4)


Purchases of intangible assets



(3.1)


(2.7)


(6.8)


Acquisitions (net of cash)



(34.1)


(11.9)


(14.8)


Proceeds from the sale of property, plant and equipment



2.0


0.4


 

2.4


Interest received



-


0.1


0.3


Net cash used in investing activities



(51.5)


(31.0)


(58.3)











Cash flows from financing activities









Interest paid



(10.5)


(15.0)


(28.8)


Repayment of borrowings



(100.5)


-


(420.5)


Finance lease principal payments



(17.4)


(14.9)


(28.9)


Drawdown of new borrowings



98.0


-


245.0


Proceeds from issue of share capital



-


-


212.6


Cost of issue of share capital



-


-


(5.4)


Deposits made in respect of long term bonds



(0.1)


-


(3.7)


Dividends paid



(6.0)


-


-


Net cash flow used in financing activities



(36.5)


(29.9)


 

(29.7)











Net decrease in cash and cash equivalents



(33.1)


(10.8)


 

(49.6)


Cash and cash equivalents at the beginning of the period



56.4


106.0


 

106.0


Cash and cash equivalents at the end of the period



23.3


95.2


 

56.4


 

Notes to the Condensed Interim Financial Information

1. Basis of preparation

This condensed consolidated interim financial information for 26 weeks ended 22 September 2017 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34. "Interim Financial Reporting" as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual report dated 13 June 2017 which is available on the Company website, and has been prepared in accordance with the IFRSs as adopted by the European Union.

The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory financial statements for the 52 weeks ended 24 March 2017 were approved by the Board of Directors on 13 June 2017 and delivered to the Registrar of Companies. The independent auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

This condensed consolidated interim financial information has been reviewed, not audited. The condensed group financial statements have been prepared on the basis of the accounting policies set out in the statutory financial statements.

 

1.1 Going concern basis

The Group remains in a net current liability position and meets its day to day working capital requirements through its available bank facilities. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. As a consequence, and having reassessed the principal risks, the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

 

2. Accounting policies

Except as described below, the accounting policies and key assumptions and sources of estimation uncertainty applied are consistent with those as described in the annual report.

 

Taxes on income in the interim periods are accrued using the full year effective tax rate that would be applicable to expected total annual profit or loss.

 

3.   Segmental information

The Group is managed by type of business and is organised into four operating divisions. These divisions represent the business segments in which the Group reports its primary segment information. All trading activity and operations are in the United Kingdom and there is therefore no secondary reporting format by geographical segment. Revenue within segments is eliminated on consolidation. The Group's segmental results are as follows:

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Revenue








Industrial and Commercial


280.7


261.3


522.1


Municipal


97.8


89.7


182.2


Resource Recovery and Treatment


113.8


104.5


198.9


Energy


42.3


42.0


87.2




534.6


497.5


990.4


 

All revenue is with external third parties. There is no single customer that accounts for more than 10% of Group revenue (26 weeks to 23 September 2016: none, 52 weeks to 24 March 2017: none).

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Underlying EBITDA¹








Industrial and Commercial


38.4


33.6


65.5


Municipal


11.5


11.6


23.8


Resource Recovery and Treatment


19.4


16.3


29.5


Energy


15.7


17.9


35.5


Group costs


(8.7)


(8.3)


(16.6)


Underlying EBITDA¹


76.3


71.1


137.7


Depreciation and amortisation


(32.9)


(31.4)


(63.9)


Underlying Operating Profit²


43.4


39.7


73.8


Exceptional items (note 4)


(1.4)


0.2


(29.2)


Impact of real discount rate changes to landfill provisions


4.7


(20.3)


(17.9)


Amortisation of acquisition intangibles


(6.2)


(7.4)


(14.6)


Operating Profit


40.5


12.2


12.1


Finance income


0.3


2.9


8.1


Finance charges


(11.6)


(18.7)


(38.9)


Profit/(loss) before taxation


29.2


(3.6)


(18.7)


 

¹Underlying EBITDA represents earnings before interest, taxation, depreciation, amortisation, exceptional items and the impact of real discount rate changes to landfill provisions

²Presented before other items as disclosed in Note 4.




26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Underlying operating profit








Industrial and Commercial


24.7


21.3


38.5


Municipal


4.4


5.2


11.0


Resource Recovery and Treatment


10.6


7.3


11.6


Energy


13.0


14.8


29.9


Group costs


(9.3)


(8.9)


(17.2)




43.4


39.7


73.8



Segment underlying EBITDA represents the underlying profit earned by each segment without allocation of the share of depreciation and amortisation, exceptional items, the impact of real discount rate changes to landfill provisions, finance costs and income tax expense. Underlying operating profit recognises the impact of depreciation and amortisation excluding the amortisation of acquisition intangibles. These measures are both reported to the Board for the purpose of resource allocation and assessment of segment performance.

 

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Tangible and other intangible assets








Industrial and Commercial


150.1


142.8


151.0


Municipal


65.1


69.5


70.0


Resource Recovery and Treatment


97.2


81.5


89.1


Energy


186.3


197.8


192.4


Shared services and corporate


47.2


45.1


45.2




545.9


536.7


547.7


 

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Capital expenditure








Industrial and Commercial


16.7


26.8


49.3


Municipal


4.6


14.7


23.7


Resource Recovery and Treatment


14.0


5.9


25.0


Energy


0.6


2.3


3.5


Shared services and corporate


3.0


7.7


8.2




38.9


57.4


109.7


 

Capital expenditure comprises additions to intangible assets and property, plant and equipment.

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Depreciation and amortisation








Industrial and Commercial


13.7


12.3


27.0


Municipal


7.1


6.4


12.8


Resource Recovery and Treatment


8.8


9.0


17.9


Energy


2.7


3.1


5.6


Shared services and corporate


0.6


0.6


0.6




32.9


31.4


63.9


Amortisation of acquisition intangibles


6.2


7.4


14.6


Total


39.1


38.8


78.5


 

Depreciation and amortisation relates to the write down of both intangible and tangible fixed assets over their estimated useful economic lives. Amortisation of acquisition intangibles is disclosed separately in line with the segmental underlying operating profit.

 

 

4.   Other items



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Exceptional items:








Acquisition related costs


1.1


0.6


1.2


Corporate restructuring costs


0.1


-


29.1


Onerous contracts


(0.4)


(1.1)


(2.4)


Strategy related costs


0.6


0.3


1.3




1.4


(0.2)


29.2


Impact of real discount rate changes to landfill provisions


(4.7)


20.3


17.9


Amortisation of acquisition intangibles


6.2


7.4


14.6




2.9


27.5


61.7










Included within finance costs








Finance charges


1.2


-


2.6


Finance income


-


-


(4.7)


















Taxation impact of other items


1.1


5.4


17.1


 

 

Exceptional items are those that in the Directors' view are required to be separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's performance.

 

The Group's financial performance is analysed into two components; underlying performance (which excludes other items), and other items. Underlying performance is used by management to monitor financial performance as it is considered it aids comparability of the reported financial performance year to year.

 

Management utilises an exceptional framework which has been approved by the Board. This follows a three-step process which considers the nature of the event, the financial materiality involved and the particular facts and circumstances. Items of income and expense that are considered by management for designation as exceptional items include items such as corporate restructuring costs, acquisition related costs, write downs or impairments of non-current assets, movements on onerous contract provisions and strategy related costs including the implementation of Project Fusion.

 

Acquisition related costs

Acquisition related costs represents costs incurred with the acquisition of businesses and are included in operating costs.

 

The £1.2 million of acquisition related expenditure in the 52 weeks ended 24 March 2017 relates to professional fees and other costs which are directly attributable to acquisitions. This includes £0.8 million in relation to the acquisition of 100% of the issued share capital of Cory Environmental Municipal Services Limited. The acquisition related costs in the 26 weeks to 22 September 2017 principally relate to the acquisition of 100% of the issued share capital of O'Brien Waste Recycling Solutions Holdings Limited.

 

Corporate restructuring costs

Corporate restructuring costs are principally costs directly related to the Group's admission to the London Stock Exchange in October 2016 and have been recognised in operating costs.

 

Onerous contracts

Onerous contract costs reflect all movement disclosed in cost of sales on loss making contract provisions within the Municipal and Resource Recovery and Treatment divisions.

 

Strategy related costs

Strategy related costs relate to any major business turnaround and the Group's system replacement project, Project Fusion. The costs for the 26 weeks ended 22 September 2017 relate mainly to Project Fusion (£0.3 million in the 26 weeks ended 23 September 2016: £1.3 million in the 52 weeks ended 24 March 2017). All strategy related costs are included in operating costs.

Amortisation of acquisition intangibles

Amortisation of acquisition intangibles represents the amount amortised by the Group in each period in respect of intangibles from prior acquisitions, which amounts are reported separately in cost of sales from the Group's depreciation and amortisation charges for each period presented.

 

Impact of real discount rate changes to landfill provisions

The impact of real discount rate changes to landfill provisions reflects the impact on provisions which arises wholly due to the change in discount rate on landfill provisions as this is not reflective of operational performance.

 

The impact of real discount rate changes to landfill provisions from 2.3% at 24 March 2017 to 2.4% at 22 September 2017 is included in cost of sales.

 

Finance charges

Finance charges relate to the EVP debt instrument as disclosed in note 16.

 

The tax impact of other items is calculated as 20% (20%: 2016) of the expenses allowable in calculating the taxable profit.



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Segmental exceptional items:








Industrial and Commercial


0.9


0.2


0.5


Municipal


-


(0.3)


(0.8)


Resource Recovery and Treatment


(0.4)


(0.5)


(1.0)


Energy


0.1


(0.1)


0.1


Group costs


0.8


0.5


30.4




1.4


(0.2)


29.2


 

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)


Operating costs








Distribution costs


10.7


9.3


19.1


Administrative expenses


20.1


15.5


31.5




30.8


24.8


50.6


 

 

5.   Income tax recognised in profit or loss

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)

Current tax:







In respect of the current period


0.2


0.1


-

Adjustment in respect of prior periods


-


(0.4)


(0.5)



0.2


(0.3)


(0.5)

Deferred tax:







Adjustment in respect of the current period


5.9


(0.2)


(11.0)

Adjustment in respect of prior periods


-


1.0


1.2

Adjustments attributable to changes in tax rates and laws


(0.6)


0.9


2.5



5.3


1.7


(7.3)








Total tax charge


5.5


1.4


(7.8)

 

Corporation tax is calculated at 19% (26 weeks to 23 September 2016: 20%,52 weeks to 24 March 2017: 20%) of the estimated assessable profit/(loss) for the period. The charge for the period can be reconciled to the profit/(loss) per the statement of profit or loss as follows:

 



26 weeks

ended

22 September 2017

£m

(unaudited)


26 weeks ended

23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)








Profit/(loss) on ordinary activities before tax


29.2


(3.6)


(18.7)

Profit/(loss) on ordinary activities before tax multiplied by the standard rate of corporation tax in the UK of 19%


 

5.5


 

(0.7)


 

(3.7)

Expenses not deductible for tax purposes


0.7


0.8


6.6

Non-taxable income


(0.1)


(0.2)


(0.2)

Utilisation of unrecognised tax losses


-


-


(1.2)

Recognition of deferred tax on previously unrecognised losses


-


-


(12.5)

Adjustment in respect of prior periods


-


0.6


0.7

Adjustments attributable to changes in tax rates and laws


(0.6)


0.9


2.5

Total taxation


5.5


1.4


(7.8)








 

The income tax expense is based on an effective annual tax rate estimated individually for each tax jurisdiction in which the Group operates and applied to the pre-tax profit, excluding exceptional items, of the relevant entity. The effective tax rate on underlying profit before tax is 20% (23 September 2016: 28%).

The Finance Act 2016 paragraphs 4 and 5, which provides for reductions in the main rate of corporation tax from 19% to 17% effective from 1 April 2020, has been substantively enacted. As deferred tax assets and liabilities are measured at the rates that are expected to apply in the periods of the reversal, deferred tax balances at the balance sheet date have been calculated at the rate at which the relevant balance is expected to be recovered or settled which is 17%.

6.   Earnings per share

From continuing and discontinued operations

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings



26 weeks

ended

 22 September

   2017

£m

(unaudited)


26 weeks

ended

 23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)










Earnings for the purposes of basic earnings per share being net profit attributable to owners


23.7


(5.0)


(10.9)










Earnings for the purposes of diluted earnings per share


23.7


(5.0)


(10.9)










Number of shares








Weighted average number of ordinary shares for the purposes of basic earnings per share


250,000,000


10,000,000


121,889,489










Weighted average number of ordinary shares for the purposes of diluted earnings per share


250,000,000


10,000,000


121,889,489


From continuing operations



26 weeks

ended

 22 September

   2017

£m

(unaudited)


26 weeks

ended

 23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)










Net profit attributable to equity holders of the parent


23.7


(5.0)


(10.9)


 

 

 

 

 

 

 

 

Earnings from continuing operations for the purpose of basic earnings per share excluding discontinued operations


23.7


(5.0)


(10.9)


 

 

 

 

 

 

 

 

Earnings from continuing operations for the purpose of diluted earnings per share excluding discontinued operations


23.7


(5.0)


(10.9)


 

The earnings per share for the period ended 23 September 2016 has been determined on the basis of the pre-IPO capital structure of Wasteholdco 1 Limited.

 

 

7.   Goodwill



Total

£m

Goodwill



As at 24 March 2017


70.9

Additions (note 8)


27.8

As at 22 September 2017


98.7




Accumulated impairment:



As at 24 March 2017


(0.5)

Impairment Charge


-

As at 22 September 2017


(0.5)




Net book amount:



As at 22 September 2017


98.2




As at 24 March 2017


70.4

 

8.   Acquisitions

 

On 5 July 2017, the Group acquired 100% of the issued share capital of O'Brien Waste Recycling Solutions Holdings Limited. O'Brien Waste Recycling Solutions Holdings Limited is a waste management business servicing commercial and local authority customers in the North East of England.

 

The preliminary amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

 

 

Preliminary total

 

 

£m

Property, plant and equipment

 

6.7

Intangible assets

 

2.5

Inventory

 

0.7

Debtors

 

6.6

Cash and cash equivalents

 

1.4

Deferred tax liability

 

(0.6)

Creditors

 

(4.7)

Borrowings

 

(4.4)

 


 

Total net assets

 

8.2

 

 

 

Goodwill

 

27.0

 

 

 

Total consideration

 

35.2

 

 

 

 

 

 

Satisfied by:

 

 

Cash

 

35.2

 

 

 

Total consideration transferred

 

35.2

 

 

 

 

 

 

Net cash outflow arising on acquisition:

 

 

 

 

 

Cash consideration

 

35.2

Less: cash and cash equivalent balances acquired

 

(1.4)

 

 

 

 

 

33.8

 

 

 

 

The fair value of the debtors includes receivables due from trade debtors with a fair value of £5.9 million and a gross contractual value of £6.0 million. The best estimate at acquisition date of the contractual cash flows not to be collected is £0.1 million.

 

No contingent liabilities were identified at the acquisition date.

 

Acquisition-related costs (included in administrative expenses) amount to £0.2 million.

 

O'Brien Waste Recycling Solutions Holdings Limited contributed £8.6 million revenue and £0.7 million to the Group's profit for the period between the date of acquisition and the balance sheet date.

 

If the acquisition of O'Brien Waste Recycling Solutions Holdings Limited had been completed on the first day of the financial year, group revenues for the period to 22 September 2017 would have increased by £17.2 million and group profit would have increased by £1.5 million.

 

The preliminary goodwill of £27.0 million arising from the acquisition represents future opportunities in the UK integrated waste management sector. None of the goodwill is expected to be deductible for income tax purposes.

 

In addition the trade and assets of G&S Waste Limited were acquired on 31 March 2017 for consideration of £0.2m, resulting in goodwill of £0.2m. A further £0.1m of consideration was paid in relation to the acquisition of Blakeley's Recycling Limited that completed in November 2016.

 

9.   Property, plant and equipment

During the 26 weeks ended 22 September 2017, the Group acquired property, plant and equipment including leased assets, but excluding property, plant and equipment acquired through business combinations, with a cost of £26.6 million (23 September 2016: £41.8 million).

 

Assets with a net book value of £1.2 million were disposed of by the Group during the 26 weeks ended 22 September 2017 (23 September 2016: £1.6 million) resulting in a net profit on disposal of £0.8 million (23 September 2016: £nil million).

 

The Group's capital commitments at 22 September 2017 were £18.2 million (23 September 2016: £18.2 million).

 

10.  Financial risk management and financial instruments

The Group's activities expose it to a variety of financial risks: market risk (including capital risk management, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group's overall risk management programmes focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the Group's financial performance.

 

The condensed interim financial statements do not include all financial risk management information and disclosures set out in the annual report and hence they should be read in conjunction with the Group's annual report. There have been no changes in the risk management policies since the year end.

 

Liquidity risk

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

·      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities

·      Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)

·      Level 3 - Inputs for the asset or liability that are not based on observable market data

 

There have been no transfers between these categories in either the current or preceding period.

 

 

The following table presents the Group's financial assets and liabilities at fair value at 22 September 2017:

 












Level 1

£m

(unaudited)


Level 2

£m

(unaudited)


Level 3

£m

(unaudited)


Total
£m

(unaudited)










Assets









Derivatives


-


0.6


-


0.6



-


0.6


-


0.6

 

The following table presents the Group's financial assets and liabilities at fair value at 23 September 2016:












Level 1

£m

(unaudited)


Level 2

£m

(unaudited)


Level 3

£m

(unaudited)


Total
£m

(unaudited)










Liabilities









Derivatives


-


1.3


-


1.3



-


1.3


-


1.3

 

The following table presents the Group's financial assets and liabilities at fair value at 24 March 2017:



Level 1

£m

(audited)


Level 2

£m

(audited)


Level 3

£m

(audited)


Total
£m

(audited)










Assets









Derivatives


-


0.3


-


0.3



-


0.3


-


0.3

 

Fair value measurement

In accordance with IFRS 13, disclosure is required for financial instruments that are measured in the Group balance sheet at fair value. The fair value of trade and other receivables, cash and cash equivalents, borrowings and trade and other payables approximates to their carrying amounts.

 

Valuation techniques and assumptions applied in determining fair values of each class of asset or liability are consistent with those used as at 24 March 2017 and reflect the current economic environment. The fair value measurements of the derivatives are classified as Level 2 in the fair value hierarchy as defined by IFRS 13.

 

 

11.  Provisions

 

 

Landfill restoration & aftercare

£m


Insurance

£m


 Other

£m


Total

£m









As at 24 March 2017

80.9


11.6


16.6


Utilised

(3.2)


0.6


(1.0)


(3.6)

Impact of change in real discount rate charged to profit and loss account

(4.7)


-


-


(4.7)

Charged/(credited) to profit and loss account

2.6


0.2


0.3


3.1

Unwinding of discount

1.2


-


-


1.2

Transfers from fixed/other assets

0.2


-


-


0.2

As at 22 September 2017

77.0


12.4


15.9


105.3

 

Provisions have been analysed between current and non-current as follows:









As at
 22 September
2017
£m

(unaudited)










Current








10.8

Non-current








94.5









105.3

 

Landfill restoration and aftercare

As part of its normal activities, the Group undertakes to restore its landfill sites and to maintain the sites and control leachate and methane emissions from the sites. Provision is made for these anticipated costs.

 

Maintenance and leachate and methane control costs are incurred as each site is filled and for a number of years post closure. Long-term aftercare provisions included in Landfill restoration and aftercare provisions have been discounted at a rate of 2.4% (24 March 2017: 2.3%)

 

Aftercare costs are incurred as each site is filled and for a number of years post closure. This period can vary significantly from site to site, depending upon the types of waste landfilled and the speed at which it decomposes, the way the site is engineered and the regulatory requirements specific to the site. The associated outflows are estimated to arise over a period of up to 60 years depending on the date of each site closure.

 

Insurance

The associated outflows are estimated to arise over a period of up to five years from the balance sheet date.

 

Other

Other provisions include a provision for dilapidations for £9.6 million (52 weeks ended 24 March 2017: £10.4 million, 26 weeks ended 23 September 2016: £10.6 million) and £2.2 million (52 weeks ended 24 March 2017: £2.7 million, 26 weeks ended 23 September 2016: £4.0 million) relating to onerous contracts. The associated outflows are estimated to arise over a period of up to 20 years from the balance sheet date.

 

 

12.  Cash flows from operations



26 weeks

ended

 22 September

   2017

£m

(unaudited)


26 weeks

ended

 23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)

 

 









Profit/(loss) for the period


23.7


(5.0)


(10.9)


Adjustments for:








Finance income


(0.3)


(2.9)


(5.5)


Finance charges


11.6


18.7


36.3


Taxation


5.5


1.4


(7.8)


Operating profit


40.5


12.2


12.1


Exceptional items


1.4


(0.2)


29.2


Amortisation of intangibles


7.2


8.1


15.4


Depreciation of property, plant and equipment


31.9


30.7


63.2


Profit on disposal of fixed assets


(0.8)


-


(0.9)


Increase in inventories


(2.1)


(0.8)


(0.7)


Increase in debtors


(15.4)


(22.4)


(62.1)


Increase in creditors


1.9


6.0


(1.5)


Decrease/(increase) in financial asset


(0.7)


1.8


6.9


Increase/(decrease) in provisions


(4.6)


17.4


11.7


Total cash generated from operations


59.3


52.8


73.3


 

Reconciliation of net cash flow to movement in debt

 



26 weeks

ended

 22 September

   2017

£m

(unaudited)


26 weeks

ended

 23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)










Net decrease in cash and cash equivalents


(33.1)


(10.8)


(49.6)


Net decrease/(increase) in borrowings


5.8


(17.1)


265.6


Movement in net debt in the period


(27.3)


(27.9)


216.0


Net debt at start of period


(289.9)


(505.9)


(505.9)


Net debt at end of period


(317.2)


(533.8)


(289.9)


Included within net debt is £45.0m of liability in relation to the ongoing EVP case as detailed in note 16 (23 September 2016: £nil, 24 March 2017: £43.8m)



26 weeks

ended

 22 September

   2017

£m

(unaudited)


26 weeks

ended

 23 September 2016

£m

(unaudited)


52 weeks

ended

 24 March 2017

£m

(audited)








Cash and cash equivalents


23.3


95.2


56.4

Finance leases


(101.2)


(99.8)


(108.9)

Bank loans


(194.3)


(529.2)


(193.6)

Reported net debt


(272.2)


(533.8)


(246.1)

EVP liability


(45.0)


-


(43.8)

Net debt


(317.2)


(533.8)


(289.9)

 

13.  Pension and post retirement benefits

Defined benefit schemes

The amounts recognised in the balance sheet are determined as follows:

 



As at

 22 September 2017

£m

(unaudited)


As at

 24 March 2017

£m

(audited)








Present value of funded defined benefit obligation


(486.2)


(488.7)


Fair value of funded plan assets


506.5


504.1


Net asset arising from defined benefit obligation


20.3


15.4


 

Reconciliation of opening and closing balances of the present value of the defined benefit obligation









As at
 22  September
2017
£m

(unaudited)










Benefit obligation at beginning of period








488.7

Service cost








0.6

Interest cost








7.0

Contributions by plan participants








0.1

Benefits paid








(10.2)

Benefit obligation at end of period








486.2

 

 

Reconciliation of opening and closing balances of the fair value of plan assets

 









As at
 22 September
2017
£m

(unaudited)










Fair value of plan assets at beginning of period








504.1

Interest income on scheme assets








7.2

Return on assets, excluding interest income








1.3

Contributions by employers








4.3

Contributions by plan participants








0.1

Benefits paid








(10.2)

Scheme administrative cost








(0.3)

Fair value of plan assets at end of period








506.5

 

The movement in the pension balance in the 6 months ended 22 September 2017 largely reflects the deficit contribution paid by the Scheme at the end of March 2017.The performance of the Scheme's assets was also a contributing factor.

14.  Related party transactions

The nature of related parties as disclosed in the consolidated financial statements for the Group as at and for the 52 weeks ended 24 March 2017 has not changed. Further, there have been no related party transactions in the 26 weeks to 22 September 2017.

 

15.  Contingent liabilities

The Group must satisfy the financial security requirements of environmental agencies in order to ensure that it is able to discharge the obligations in the licences or permits that the Group holds for its landfill sites. The Group satisfies these financial security requirements by providing financial security bonds. The amount of financial security which is required is determined in conjunction with the regulatory agencies, as is the method by which assurance is provided. The Group has existing bond arrangements in England and Wales of approximately £81.6 million outstanding at 22 September 2017 (24 March 2017: £82.1 million, 23 September 2016: £81.9 million) in respect of the Group's permitted waste activities where the Group has obligations under the Environment Agency's "fit and proper person" test to make adequate financial provision in order to undertake those activities. Additionally, the Group has bonds to a value of £19.4 million (24 March 2017: £18.6 million, 23 September 2016: £21.2 million) in connection with security for performance of local authority contracts and the shipment of waste under the trans-frontier shipment of waste regulations. No liability is expected to arise in respect of these bonds.

 

The Group is engaged in a dispute with HMRC in relation to the landfill tax treatment of certain materials used in the engineering of landfill sites from September 2009 to May 2012. The Group has an assessment for Landfill tax of £62m plus interest. The Group has recognised in long term debtors, the payment of the initial assessment for landfill tax but is awaiting an assessment from HMRC in relation to the expected interest which it expects to pay in the coming year and which will be recognised in long term debtors.

 

As detailed above, HMRC have notified the Group that they disagree with the Landfill tax treatment in relation to naturally occurring soils that contain very low levels of asbestos. This concerns material landfilled between 2012 and 2015 only and the tax at stake, including interest, amounts to circa £9.2m (£7.7m post corporation tax). Since 2015, following direction from HMRC, this material has been taxed at standard rate Landfill tax.

 

It is expected that HMRC will demand payment of this tax, upon which the Group will appeal against the assessment and vigorously defend the position. Having taken appropriate advice, the Group is confident that the position is consistent with the law and the intent of the legislation, and therefore that no provision is necessary.

 

16.  EVP related items

The Group is engaged in a dispute with HMRC concerning historic landfill tax.

HMRC claims that the Group is liable for £62m of Landfill tax in respect of certain waste materials deposited in Biffa's landfill sites from 2009 to 2012 ('EVP'). Biffa contests that the material was used in the sites for an engineering purpose and is not therefore subject to Landfill tax. Notwithstanding the Group's opinion on the tax treatment of this material, since 2012 all materials of this nature have been subjected to Landfill tax. The matter has been heard by the First Tier Tax Tribunal and we are awaiting judgement. Appeals to higher courts are expected following this judgement.

The contested amount was originally unpaid under a hardship agreement with HMRC but was paid to HMRC following the refinancing of the Group upon its IPO in October 2016. In addition to the payment of £62m, interest of £1.7m has been paid to date.

The Directors, having taken appropriate advice, do not believe that a liability to tax exists, and accordingly have treated the payment of the tax and associated interest as a long-term receivable.

As part of the IPO of the Group, arrangements were put in place to make certain payments to the shareholders and certain members of employee incentive schemes of the Group immediately prior to its listing, subject to and in respect of the outcome of the dispute. A liability of £45.0m has been recognised in borrowings, (24 March 2017: £43.8m), an accrual of £13.0m has been recognised in non-current liabilities, (24 March 2017: £13.0m), and a non-underlying non-cash interest charge of £1.2m (24 March 2017: £1.0m) has been recognised in finance charges in respect of these obligations. The liability of £45.0m (24 March 2017: £43.8m) in borrowings has been excluded from Reported Net Debt.

17.  Post balance sheet events

 

On 27 October 2017, the Group acquired the entire share capital of Amber Engineering Limited for consideration of £5m.

 

On 17 November 2017, the Group acquired the trade and assets of Eco Food Recycling Limited for consideration of £0.7m.

 

On 1 November 2017, the Group acquired the trade and assets of HWS Waste Limited for consideration of £0.2m.

 

The acquisition accounting remains under review for all of the above acquisitions.

 

On 20 October 2017, an extension to the existing debt facility was agreed as allowed under the existing debt facility arrangements. This includes the availability of a further £26.7m revolving credit facility and £53.3m term loan. The extension to the term loan is available on the same terms as the original facility and is available for the Group to drawdown until 31 March 2018. The extension to the original revolving credit facility is available on the same terms as the original facility and is available to the Group until one month before the final termination date. Neither of the facilities have been utilised at the date of signing.

 


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