Biffa plc 

FY21 HALF YEAR RESULTS

Resilient performance during challenging period

 

5 November 2020

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 25 September 2020.

 

Michael Topham, Chief Executive of Biffa, said:

"I am very pleased with the performance of the business and the progress we have made in delivering our strategic objectives in the first half of the year, in extremely challenging circumstances. We responded swiftly to the first wave of the pandemic and have emerged strongly in recent months with Group Net Revenue in September recovering to 93% of prior year levels. This is ahead of our base case expectations and demonstrates the resilience of our model.

 

"Our £100m equity raise in June enabled us to continue to invest in growing the business, in line with our strategy. Since June we have committed c. £40m in value-enhancing acquisitions in our I&C business and are at an advanced stage of committing in excess of a further £40m into green economy infrastructure development. These investments will help to build a stronger, more sustainable business for when we emerge from the pandemic.

 

"Whilst we are pleased with the recent momentum in our trading performance and the progress in delivering our strategic investment programme, we remain cautious in our outlook for the second half of the financial year, particularly in light of the further lockdown measures announced by the UK Government for England. Nevertheless, having successfully navigated the first lockdown, and due to the underlying strength of the Group's performance over recent months, at this stage, our expectations for the full year remain unchanged.

 

"My thanks go out to all of Biffa's stakeholders, and in particular our team, for their hard work and ongoing commitment in delivering Biffa's essential service throughout this testing time."

 

Highlights :

·	Strong recovery in second quarter: Net revenues grew from £202.5m in Q1 to £256.3m in Q2 and EBITDA recovered from £19.3m to £39.0m. I&C revenues recovered to 94% of prior year levels in September and landfill revenues recovered to 86% of prior year levels in September. However, statutory revenue decreased by 18.1% from £588.9m in H1 FY20 to £482.5m in H1 FY21.
·	Recommencement of investment programme: following the £100m equity raise (£97.7m after costs) in June, c. £40m of investment has been committed to acquisitions (including the recently announced acquisition of Simply Waste) and over £40m is being committed to plastic recycling development (Washington and Aldridge) and the Protos Energy from Waste ("EfW") development.
·	Ongoing strong cash flow management: despite underlying EBITDA falling by £28.5m to £58.3m, the Group was broadly cash flow neutral when adjusting for HMRC payment deferrals and financing activities.
·	Strengthened balance sheet: cash balances were boosted by a further £97.7m as a result of the equity raise in June. Reported net debt decreased by 31.0%  to £310.3m from £449.8m at the FY20 year end. This reduced the Group's reported debt leverage multiple to 2.1x from 2.4x at FY20 year end. The Group's covenanted leverage dropped from to 1.3x from 1.8x at the FY20 year end.
·	Various asset impairments and contract provisions are being reported: reflecting changes in accounting assumptions and various related business decisions resulting primarily from the impacts of COVID-19 ("CV-19"). This has resulted in a Statutory loss after tax for the period of £43.2m (H1 FY20 Profit after Tax £20.6m).
·	Full year expectations unchanged: the UK Government's recent announcement of a new lockdown period for England introduces further uncertainty to the Group's short-term outlook. However, having successfully navigated the first lockdown and having benefitted from stronger than initially expected trading since the easing of those restrictions, the Board's expectations for the full year remain unchanged.

 

 

Underlying Results (unaudited)	H1 FY21 £m	H1 FY 20 £m	Change £m	Change %
Statutory Revenue1	482.5	588.9	(106.4)	(18.1)
Net Revenue1	458.8	555.1	(96.3)	(17.3)
Underlying EBITDA2	58.3	86.8	(28.5)	(32.8)
Underlying Operating Profit3	9.7	45.7	(36.0)	(78.8)
Underlying Operating Profit Margin4	2.0%	7.7%	N/A	(74.0)
Underlying Profit after Tax5	1.2	29.7	(28.5)	(96.0)
Underlying Free Cash Flow6	27.6	3.9	23.7	607.7
Reported Net Debt6	310.3	449.8	(139.5)	(31.0)

 

Statutory Results (unaudited)	H1 FY21 £m	H1 FY20 £m	Change £m	Change %
Statutory Operating Profit	(45.0)	33.9	(78.9)	(232.7)
Statutory Operating Profit Margin	(9.3%)	5.7%	N/A	(263.2)
Statutory Profit after Tax	(43.2)	20.6	(63.8)	(309.7)
Net Cash Flow	13.4	(14.0)	27.4	(195.7)
Net Debt	351.6	491.1	(139.5)	(28.4)

PRESENTATION OF RESULTS

There will be a presentation of the results to investors, analysts and banks at 9:30am 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@houstonpr.co.uk

 

FORWARD-LOOKING STATEMENTS

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 The statutory revenue, net revenue and cost of sales for the 26 weeks ended 27 September 2019 have been decreased by £5.7m to reflect an error made in consolidating the Recycling sub-division revenue. There is no overall impact on the gross profit for the period.  For the full year FY20, the Group reported the correct balances and no restatement is required.

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. Total Underlying Operating Profit includes central costs of £5.9m (H1 2020: £8.3m)

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)

 

 

 

 

CHIEF EXECUTIVE'S REVIEW

Operating Performance

Trading for the first half recovered well, despite the challenging economic environment, and was ahead of the Group's CV-19 base case scenario. Group Net Revenues in September recovered to 93% of FY20 levels. Underlying profit contribution improved steadily month on month and the Group ceased the furloughing of employees at the end of September.  

In the period, the Group also received £10.8m in furlough payments from HMRC as part of the Coronavirus Job Retention scheme. These payments have been netted off against respective salary and wage costs.

Collections

The Collections division comprises the I&C, Municipal and Specialist Services businesses. It provides sustainable waste collections, recycling and related services to industrial, commercial, public sector and local authority customers.

	H1 FY21 £m	H1 FY20 £m	Change %
I&C	222.5	307.6	(27.7)
Municipal	91.6	86.8	5.5
Specialist services	40.7	43.6	(6.7)
Revenue	354.8	438.0	(19.0)
Underlying EBITDA	42.8	61.1	(30.0)
Underlying Operating Profit	11.1	34.7	(68.0)
Underlying Operating Profit Margin	3.1%	7.9%	(60.8)

 

As previously announced, the Group took swift action to mitigate the impact of CV-19. Against the challenging economic backdrop, Revenue in the Collections division decreased by 19.0% in H1 to £354.8m.

Underlying Operating Profit margin was 3.1% in H1, reducing from 7.9% in the prior year. This is primarily due to the reduction in I&C volumes during lockdown, which recovered steadily during the period.

 

I&C

·The I&C business saw a strong recovery in revenues from 50% of prior year levels in April, to 94% of prior year levels in September.

·Strong levels of new business despite the lockdown, including new corporate clients SSE, Parkdean Resorts and Wincanton Logistics. 

·Key customer renewals in the period included BP Retail, Severn Trent and Wolseley. 

·Successful targeting of SME volume through the Group's Telesales service, which has been enhanced by further investment in Biffa's digital offer.

·Customer retention levels remain strong with low levels of churn (<5% annualised).

·Lower ongoing unit operating costs achieved as a result of a number of enduring efficiency measures initiated during lockdown.

·Two acquisitions completed in the year to date: in September, Ward Recycling for £2.1m and a deferred consideration of up to £2.0m; and in October, Simply Waste Solutions for £35.0m, with a potential deferred consideration of up to £5.0m.

Municipal

· As expected, there continues to be a high level of demand for household waste collections.

· Service levels have been successfully maintained despite the demands associated with increased volumes.

·The Anglesey contract win during the period adds to Tandridge, Winchester and Cornwall, which will mobilise in the coming months. The Group has also negotiated profitable extensions on the Crawley, Thurrock, East Lothian and Portsmouth contracts.

·Nonetheless, the increased contribution from new contract wins during the period has been more than offset by increased costs resulting from CV-19 related staff-absenteeism.

·As previously stated, the Group has also negotiated the exit from the loss-making contract in North Somerset (NSO), which will come into effect towards the end of FY21.

 

Specialist Services

·Specialist Services performed very strongly over the period, with underlying profits up on the prior period. The resilient nature of the customer base, who are predominantly in food manufacturing and retail distribution services, has helped Specialist Services to maintain this solid performance.

·    Whilst revenues decreased in the period, this was primarily as a result of lower 'pass through' plastic PRN prices.

·Key customer wins during the period included Avara Foods and Britvic.

 

Resources & Energy

The Resources & Energy division comprises the Recycling, Organics, Inerts and Landfill Gas businesses. The division focuses on the sustainable treatment, recycling, energy recovery and ultimate disposal of waste.

	H1 FY21 £m	H1 FY20 £m	Change %
Recycling1	36.8	40.2	(8.4)
Organics	27.3	29.8	(8.4)
Inerts	45.0	60.4	(25.5)
Landfill Gas	18.6	20.5	(9.2)
Revenue	127.7	150.9	(15.4)
Recycling1	36.8	40.2	(8.5)
Organics	27.3	29.8	(8.4)
Inerts	21.3	26.6	(19.9)
Landfill Gas	18.6	20.5	(9.3)
Net Revenue	104.0	117.1	(11.2)
Underlying EBITDA	19.3	32.1	(39.9)
Underlying Operating Profit	4.4	19.3	(77.2)
Underlying Operating Profit Margin	3.5%	12.8%	(71.5)

1 The statutory revenue, net revenue and cost of sales for the 26 weeks ended 27 September 2019 have been decreased by £5.7m to reflect an error made in consolidating the Recycling sub-division revenue. There is no overall impact on the gross profit for the period.  For the full year FY20, the Group reported the correct balances and no restatement is required.

 

Against the challenging economic backdrop, overall Net Revenue for the division decreased by 11.2% in H1 to £104.0m. This had a significant impact on profitability with Underlying Operating Profit reducing by 77.2% to £4.4m, and Underlying Operating Profit Margin reducing from 12.8% to 3.5%.

 

Recycling   

·The Group's rHDPE operations at Redcar continued to perform strongly during H1, reflecting its resilient nature and de-risked contracting model.

· As previously announced, short-term challenges with virgin plastic and PRN prices have resulted in weaker results from the Seaham rPET plant.

· However, strong demand is already being experienced for food grade pelleted material, with the new partnership announced with Nestlé Waters UK being the first of several contracts that will be put in place over the coming months. As a result, we are confident that performance will rebound strongly in FY22.

· Other new contract wins include KP Films and a contract extension with Nampak Plastics Europe. 

· The Materials Recycling Facilities (MRFs) delivered year-on-year progress despite commodity weakness. The MRFs segment is now generating positive Underlying EBITDA and remains on track to deliver positive Underlying EBIT once all legacy contracts roll off over the next few years.

· During the period, the appeal against the Environment Agency (''EA'') conviction regarding the export of waste paper to China was not upheld. The further case regarding export of waste paper to India and Indonesia during FY19 is due to be heard in H1 FY22. The Group strongly contests the prosecution and maintains that its paper was of good quality, entirely suitable for reprocessing by EA accredited paper mills.

 

Organics   

· The Group has seen significant volume reduction in food waste due to the CV-19 pandemic and its impact on the leisure and hospitality sectors. This has resulted in both volume and price erosion at the Poplars anaerobic digestion ("AD") plant.

· Composting volumes have remained resilient.

· Operations in the West Sussex and Leicester contracts performed steadily during the period.

 

Inerts   

· The Landfill business also saw a steady recovery in Net Revenues to 86% of prior year levels in September.

· In line with the Group's Sustainability Strategy, over 6,600 tonnes of CO₂ was saved in the period from January 2019 to March 2020 by transporting inert waste by rail rather than road, with around 850kt of annualised volume now being transported by rail.

 

Landfill Gas   

· A resilient part of the Biffa portfolio during the current year, which has been relatively unaffected by CV-19 due to electricity price hedging in place.

· 4.5% year on year volume decline is in line with expectations. 

· In addition, the Renewables Obligations Certificates (ROC) recycling benefit is lower than the prior year due to lower demand for the ROCs.

· Export power prices are 99.4% hedged through FY21 @ £51.77 per MwH. 

 

Operational KPIs

As previously reported, lockdown measures severely impacted volumes during H1 in the I&C and landfill businesses in particular, however as the business has recovered, the gap has reduced to around 10% in tonnes collected and around 23% in tonnes processed from pre- CV-19 levels. The tonnes processed decreased by more than the tonnes collected as lower I&C volumes are having a disproportionate impact on transfer volumes year on year. This, together with lower organic waste volumes, accounts for the lower processed volumes.

 

	H1 FY21	H1 FY20	Change %
Tonnes Collected (mt)	1.8	2.0	(10.0)
Tonnes Processed (mt)	1.6	2.1	(23.8)
Tonnes Landfilled (mt)	1.2	1.5	(20.0)
Energy generation (GWh)	196.6	210.7	(6.7)
Energy price (£/MWh)	48.3	44.6	8.3

 

Strategy Update

Biffa has a clear strategy for growth which is focused on three specific opportunities: growing our leading I&C Collections platform both organically and inorganically; investing to grow our Biffa Polymers plastics recycling business; and partnering with others to develop the UK's Energy from Waste ("EfW") infrastructure.

At the Group's Capital Markets Day in September 2019, the Company set out its 3-4 year investment target of £250m.The Group now has firm plans in place to commit over 60% of that target with c. £40m already invested in acquisitions, over £40m committed to plastics recycling (Seaham, Washington and Aldridge) and £75m still expected to be fully committed in the near term to EfW (£40m Newhurst and £35m Protos). These investment plans are consistent with, and fundamental to the Group's Sustainability Strategy 'Resourceful, Responsible'.

The strategy supports Biffa's purpose 'to change the way people think about waste' and its vision to 'lead the way in UK sustainable waste management'.

 

Collections Growth

·The I&C Collections business operates in a fragmented market where scale delivers significant benefits. The Group is focused on growing organically and through synergistic acquisitions.

·In September, the Group acquired the trade and assets of Ward Recycling, an East Midlands based waste management company, for a consideration of £2.1m. A contingent payment of up to £2.0m may be payable depending on performance of the business. Ward Recycling had run rate revenues pre CV-19 of £4m and is complementary to the Group's East Midlands operations.

·In October, the Group acquired Simply Waste Solutions, a leading I&C waste collection business in the South of England, for a consideration of £35m. A potential further consideration of up to £5m may become payable, depending on the performance of the business through to 31 March 2021. For the year ending 31 March 2020, Simply Waste reported revenues of £32m, EBITDA of £5.2m, operating profit of £3.1m and had gross assets of £16.4m.

·The acquisition pipeline remains strong.

 

Leading in UK Plastics Recycling

·Biffa Polymers operates in an exciting sector, with burgeoning demand for the closed-loop, food-grade recycled plastic that the Group manufactures.

·The Group continues to make good progress with the second phase of its £27.5m investment in the Seaham rPET plastics recycling facility, which is set to become operational towards the start of FY22, subject to the second lockdown not affecting timings. The Group is beginning to enter into offtake commitments with a similar de-risked model to the existing rHDPE model. The recently announced partnership with Nestlé Waters UK was the first of these commitments, with anticipation that several more contracts will be signed over the coming months. As a result, the Group remains confident of the long term prospects of this investment.

·The construction of the £7m Washington plastics recycling facility, which was announced in January but paused during the early stages of the pandemic, has recommenced and is due to become operational towards the end of Q1 FY22, again subject to the second lockdown not affecting this timetable.

·A new £7m investment in the Aldridge plastics sorting facility is now being progressed which will support the increased feedstock needs of the Polymers business. This facility was committed to following the equity raise and is also due to become operational in early FY22. As with Seaham phase two and Washington, this timeline may be impacted by the second lockdown.

·The Group also recently announced its involvement in the Poseidon project, a cross-industry initiative aiming to create a process to chemically recycle harder grades of PET material. The Seaham facility will play a critical role in providing the feedstock for this project.

·The Group joined the OPRL (On-Pack Recycling Label) scheme to promote clearer labelling for recycling and to help increase the UK's recycling rates.

 

Developing Energy from Waste (EfW) Infrastructure

·The UK continues to have under-capacity to treat non-recyclable waste for energy recovery. Biffa, as one of the UK's largest controllers of waste feedstock through its Collections business, is well placed to unlock the development of this much needed infrastructure.

·The Group successfully broke ground at the Newhurst EfW facility in June 2020. Construction is underway and the state-of-the-art facility is expected to be completed during 2023 with no anticipated impact on timeline as a result of the second lockdown.

·The Protos EfW project, in which Biffa has a 25% equity stake, is approaching financial close. Biffa is investing £35m over a three year period into the project, and will supply 60% of the feedstock, further underpinning offtake for its I&C business. The 400k tpa plant will generate 49MW of energy.

 

Second Lockdown

 

The UK Government's recent announcement of a new lockdown period in England introduces further uncertainty to the Group's short-term outlook.

 

In the Collections division, I&C volumes were better than expected in October, at 96% of prior year levels. During October, volumes in the 'Tier 3' lockdown category were 3% down versus the period three weeks prior, and volumes in Wales during the first week of a two week lockdown were at 80% of prior year levels. Both of these scenarios provide a helpful reference point for the upcoming lockdown period. Based on the Group's understanding of the new lockdown rules, we expect volumes to drop to c.70-75% of prior year levels during lockdown. In the Municipal business, CV-related staff absenteeism is expected to rise, but the Group will look to redeploy staff from its I&C business to backfill where required.

 

In the Resources & Energy (R&E) division, landfill volumes are unlikely to drop significantly as the construction sector is expected to remain open. In the Organics business, food waste volumes will likely be impacted due to the temporary closure of the leisure and hospitality sectors.

 

Timetables for the Seaham phase two, Washington and Aldridge projects may be at risk due to the second lockdown, however the Newhurst and Protos Energy from Waste projects should remain unaffected.

 

The Group will pursue certain cost-control measures such as the re-routing of vehicles, however this is expected to be on a much smaller scale than the previous lockdown period in H1. The Group has no current intention to re-implement the furloughing of staff.

 

 

Summary and Outlook

 

The Board is very pleased with the performance of the business and the progress made in delivering our strategic objectives in the first half of the year, in extremely challenging circumstances. The Group responded swiftly to the first wave of the pandemic and has emerged strongly in recent months with Group Net Revenue in September recovering to 93% of prior year levels. This is ahead of our base case expectations and demonstrates the resilience of our model.

 

The £100m equity raise in June enabled the Group to continue to invest in growing the business, in line with its strategy. Since June, the Group has committed c.£40m in value-enhancing acquisitions in its I&C business and is at an advanced stage of committing a further £40m into green economy infrastructure development. These investments will help to build a stronger, more sustainable business for when we emerge from the pandemic.

 

With plans to deliver the investment targeted in our strategic roadmap now well-advanced, the Group is beginning to consider new opportunities which are aligned to its core capabilities and consistent with its vision to lead in sustainable waste management.

Whilst we are pleased with the recent momentum in our trading performance and the progress in delivering our strategic investment programme, we remain cautious in our outlook for the second half of the financial year, particularly in light of the further lockdown measures announced by the UK Government for England. Nevertheless, having successfully navigated the first lockdown, and due to the underlying strength of performance over recent months, at this stage, our expectations for the full year remain unchanged.

 

The Board's thanks go out to all of Biffa's stakeholders, and in particular the Biffa team, for their hard work and ongoing commitment in delivering Biffa's essential service throughout this testing time.

 

 

 

BOARD OF DIRECTORS' STATEMENT

 

FINANCIAL REVIEW

Despite the above CV-19 impacted results, the growth drivers for the Group remain attractive and are underpinned by supportive Government legislation. Biffa is well positioned in its markets and has a strong portfolio of businesses, services and capabilities which are recovering well from the CV-19 pandemic. Whilst the Group is pleased with the recent momentum in its trading performance and the progress in delivering its strategic investment programme, it remains cautious about the second half, particularly in light of the further lockdown measures announced by the UK Government for England.

Biffa continued to provide an essential service whilst facing volume disruption in H1. The Group's performance is detailed below:

 

Group £m (unless stated)	H1 FY21	H1 FY20	Change £m	Change (%)
Revenue1	482.5	588.9	(106.4)	(18.1)
Net Revenue1	458.8	555.1	(96.3)	(17.3)
Underlying EBITDA	58.3	86.8	(28.5)	(32.8)
Depreciation and amortisation	(48.6)	(41.1)	(7.5)	18.2
Underlying Operating Profit	9.7	45.7	(36.0)	(78.8)
Finance income	2.0	1.3	0.7	53.8
Finance charges	(9.1)	(10.7)	1.6	(15.0)
Share of joint venture	(0.4)	-	(0.4)	N/A
Underlying Profit before Tax	2.2	36.3	(34.1)	(93.9)
Other items:
Onerous contracts	(12.3)	2.0	(14.3)	(715.0)
Strategy related costs	(6.7)	(2.5)	(4.2)	(168.0)
Acquisition related costs	(0.2)	(0.4)	0.2	(50.0)
Asset Impairment	(8.2)	-	(8.2)	N/A
Amortisation of acquisition intangibles	(13.9)	(8.5)	(5.4)	(63.5)
Impact of changes in real discount rate on landfill provisions	(13.4)	(2.4)	(11.0)	(458.3)
Interest (net)	-	1.1	(1.1)	(100.0)
Tax charge/(credit)	9.3	(5.0)	14.3	(286.0)
Profit after Tax	(43.2)	20.6	(63.8)	(309.7)

1 The statutory revenue, net revenue and cost of sales for the 26 weeks ended 27 September 2019 have been decreased by £5.7m to reflect an error made in consolidating the Recycling sub-division revenue. There is no overall impact on the gross profit for the period.  For the full year FY20, the Group reported the correct balances and no restatement is required.

Results

·Trading for the first half performance has recovered well, despite the challenging economic environment and has remained ahead of the Group's base case scenario.

·Revenue decreased by 18.1% to £482.5m and Net Revenue decreased by 17.3% to £458.8m.

·Underlying EBITDA decreased by 32.8% to £58.3m.

·    Underlying Operating Profit at £9.7m compared with £45.7m last year and the Underlying Operating Profit margin has decreased to 2.0% from 7.7% last year for the first half period.

·Profit after tax fell by £63.8m from £20.6m in H1 FY20 to a loss before tax of £43.2m; £42.9m of this decrease was due to an increase in non-underlying costs.

Finance Income

·Finance income decreased from £2.0m to £1.3m primarily driven by returns on pension assets.

Finance Charges

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

· Finance charges decreased from £10.7m to £9.1m due to lower gearing as a result of the equity raise.

Non Underlying Items

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

Other items are fully explained in Note 4 to the condensed consolidated financial statements and include exceptional items, amortisation of acquisition intangibles and material impacts from changes in real discount rates on landfill provisions. After tax, these charges totalled £44.4m in the period (H1 FY20: £9.1m).  The main items contributing to this total were asset impairment charges relating to the Poplars AD plant (£8.2m) and the IT replacement project (£5.8m); an uplift of the onerous contract provisions of £12.3m; the decrease in the real discount rate on landfill provisions of (£13.4m); and an increase in the charge for amortisation of intangible assets of £5.4m.

Taxation

The effective tax rate on underlying profits was 47% (H1 2020: 18.2%), due to the impact of usual non deductible tax items when compared to lower underlying profits. The effective tax rate on statutory losses was 18% (H1 FY20: 19.5%).

Dividend

As previously reported, there was no final dividend declared for FY20. The Group is also not declaring an interim dividend for FY21, but understands the importance of dividends to shareholders and will seek to reintroduce the dividend as soon as it is prudent to do so.

Earnings per Share

During the year, the group issued 50 million shares as part of an equity raise and a further 4.5 million shares were issued to the Employee Benefit Trust for future share option exercises. As a result, earnings have been spread over an adjusted closing share capital balance of 286.2m shares. Total statutory earnings per share decreased from 8.2 pence per share (pps) to a loss of 15.1pps.

Underlying earnings per share decreased from 11.9 pps to 0.4 pps.

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. The Board is encouraged by the level of growth achieved from acquisitions in the prior years. During the first half of the year, Biffa has acquired one I&C business in September for a consideration of £2.1m, and a larger acquisition in October for £35m. The acquisition pipeline remains strong.

The Group is also allocating capital to EfW and PET plastic bottle recycling that will support long-term sustainable growth.

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 25 September 2020, the net retirement benefit surplus was £85.6m compared to a surplus of £124.7m at 27 March 2020.

The aggregate surplus has decreased since the FY20 year-end. The main reasons for this deterioration is the fall in corporate bond yields over the period which leads to a lower discount rate and so a higher value placed on the liabilities, as well as a rise in implied inflation over the period which further increases the value of liabilities. This negative impact was partially offset by positive returns on the Schemes' assets and the deficit contribution of circa £4.2m paid into the Biffa Defined Benefit Pension Scheme during the period.

Return on Capital

The Group operates a disciplined approach to capital investment.

Group Return on Capital Employed (see Basis of Preparation and Definitions) decreased from 8.9% to 4.0%. This decrease is driven by the reduction in operating profit.

Group Return on Operating Assets (see Basis of Preparation and Definitions) decreased from 19.4% to 11.9%. This has been impacted by the decrease in underlying operating profit and an increase in operating assets following investments in the plastics processing plants, M&A activity and replacement capex.

 

Cash Flow

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

	H1  FY21 (£m)	H1   FY20 (£m)
Underlying EBITDA	58.3	86.8
Working capital	17.6	(14.9)
Net capital expenditure	(20.7)	(26.1)
Net interest paid	(7.2)	(8.3)
Finance lease principal payments	(16.6)	(23.5)
Pension deficit payments	(4.2)	(4.1)
Purchase of own shares	0.4	(6.0)
Underlying free cash flow	27.6	3.9
Restructuring and exceptional items	(1.6)	(3.2)
Acquisitions	(2.1)	(2.5)
Investment in associates	(2.1)	-
Dividends paid	-	(12.2)
Changes in net borrowings	(102.4)	(3.0)
Equity Raise	97.7	-
Movement in financial assets	(3.7)	3.0
Net cash flow	13.4	(14.0)

 

Underlying free cash flow of £27.6m compares to £3.9m last year, despite the fall in underlying profitability. This is due to strong management of working capital, a £25.8m HMRC VAT deferral (due March 2021), and the deferral of finance lease principal payments of £8.3m. Net cashflow was broadly cash flow neutral when adjusting for HMRC payment deferrals and financing activities.

Capital expenditure (comprising purchases of property, plant and equipment and purchases of intangibles) is down on last year at £20.7m from £26.1m due to pausing non-essential capital expenditure prior to the equity raise.

As previously reported, no final dividend was declared for FY20.

Interest payments are down £1.1m from £8.3m in the prior period to £7.2m, as a result of lower borrowings following the equity raise.

As a consequence, net cash flow before funding activities improved from an outflow of £11.0m in the first half of last year to an inflow of £18.1m for the first half of this year.

A statutory group cash flow summary is set out below:
 

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

 

Reported Net Debt and Borrowings

Group Reported Net Debt is £310.3m (H1 FY20: £449.8.m), representing 2.1x Underlying EBITDA (H1 FY20: 2.9x). When looked at on a pre-IFRS16 basis for bank covenant testing, net debt : EBITDA at the half year was 1.3x (H1 FY20:1.9x).

The funds from the equity raise in June were used to reduce the Revolving Credit Facility (RCF) borrowings in the short tem whilst investment opportunities materialised.

 

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

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 (£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.

Landfill Tax Matters

Biffa won the Upper Tax Tribunal for the EVP case. However, HMRC have been granted leave to appeal to the Court of Appeal which will be heard in March 2021.

In regards to the Group's landfill tax dispute on hazardous soils, an assessment of £8.5m was paid to HMRC in December 2019. The Group has appealed against the assessment to the First Tier Tax Tribunal and will vigorously defend its position as it is confident that its position is consistent with the law and the intent of the legislation. The Company is currently waiting for a court date, which is anticipated for 2021. HMRC also issued an interest assessment in September 2020 of £0.6m, which was paid. The original assessment and interest being disputed has been disclosed as a contingent liability in note 15 to the accounts.

 

Reporting Periods

The Group will report 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

· Biffa faces risks arising from the CV-19 pandemic

· Biffa is exposed to risks inherent in 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

· 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

 

Potential Impact of Brexit

The Board have re-reviewed the potential impact of Brexit, given the imminence of the separation date. The impact on the Group is still expected to be relatively limited given that it operates primarily within the UK. Principal risks include the impact of foreign exchange movements, particularly in relation to RDF exports, possible imposition of tariffs on capital goods and a potential constraint of labour supplies, all of which have mitigating actions.

 

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 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

5 November 2020

 

 

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 25 September 2020 which comprises the Condensed Consolidated Interim Income, Condensed Consolidated Interim Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Statement of Cash Flows and related notes 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 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.

 

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 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 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 six months ended 25 September 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

5 November 2020