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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Biffa Plc | LSE:BIFF | London | Ordinary Share | GB00BD8DR117 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 410.00 | 409.80 | 410.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMBIFF
RNS Number : 1651X
Biffa plc
22 November 2017
Biffa plc
22 November 2017
HALF YEAR RESULTS FOR THE 26 WEEKSED 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
Hot Features
Premium
-- Strong first half performance as expected; full
year expectations unchanged
-- Net Revenue(1) up 7.8% to GBP481.6m (H1 17:
GBP446.7m)
-- Underlying EBITDA(2) up 7.3% to GBP76.3m (H1
17: GBP71.1m)
-- Underlying Operating Profit(3) up 9.3% to GBP43.4m
(H1 17: GBP39.7m); Underlying Operating Profit
margin(4) increasing to 8.1% from 8.0%
-- Underlying Profit after Tax(5) up 56.1% to GBP26.7m
(H1 17: GBP17.1m); statutory Profit after Tax
GBP23.7m (H1 17: statutory loss after tax GBP5.0m)
-- 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. GBP35m; three acquisitions
completed post period end with targeted annual
revenue of c.GBP8m
-- Energy from Waste (EfW) project feasibility
assessments progressing as planned
-- Continued strong cash generation with Underlying
Free Cash Flow(6) of GBP13.3m (H1 17: GBP2.2m)
-- Period end Reported Net Debt(7) of GBP272.2m
or 1.9x Underlying EBITDA(8)
-- Further financial flexibility secured with an
increase in facilities of GBP80m
-- Interim dividend of 2.17p per share declared
H1 H1 Change Change
Underlying Results 18 17 GBPm %
(unaudited) GBPm GBPm
------------------------- ------- ------- ------- -------
Revenue 534.6 497.5 37.1 7.5
------------------------- ------- ------- ------- -------
Net Revenue(1) 481.6 446.7 34.9 7.8
------------------------- ------- ------- ------- -------
Underlying EBITDA(2) 76.3 71.1 5.2 7.3
------------------------- ------- ------- ------- -------
Underlying Operating
Profit(3) 43.4 39.7 3.7 9.3
------------------------- ------- ------- ------- -------
Underlying Operating
Profit Margin(4) 8.1% 8.0%
------------------------- ------- ------- ------- -------
Underlying Profit
after Tax(5) 26.7 17.1 9.6 56.1
------------------------- ------- ------- ------- -------
Underlying Free
Cash Flow(6) 13.3 2.2
------------------------- ------- ------- ------- -------
Reported Net Debt(7) 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 Underlying Operating
GBPm Profit
GBPm
----------- ----------------------- -------------------------
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)
----------- ------ ------ ------- ------- ------- -------
TOTAL(9) 481.6 446.7 7.8 43.4 39.7 9.3
----------- ------ ------ ------- ------- ------- -------
Industrial & Commercial
-- Revenue growth of 7.4% to GBP280.7m. 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 GBP97.8m; 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 GBP4.4m 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 GBP42.3m 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 GBP41.66/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 GBP9.3m (H1 2017: GBP8.9m)
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 GBP534.6m and Net Revenues rose 7.8% to GBP481.6m, driven by growth in our I&C, Municipal and RR&T divisions. Underlying EBITDA rose 7.3% to GBP76.3m. Underlying Operating Profit rose 9.3% to GBP43.4m with the Underlying Operating Profit margin increasing to 8.1% from 8.0%. Statutory Operating Profit increased to GBP40.5m due to a reduction in other items from GBP27.5m to GBP2.9m principally due to the impact of the increase in the real discount rate on landfill provisions. Underlying Profit after Tax for the period was GBP26.7m (Statutory Profit after Tax GBP23.7m) 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 GBP481.6m, 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 H1 17 Change
GBPm GBPm %
---------------------- ------ ------ -------
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 GBP280.7m, 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 H1 17 Change
GBPm GBPm %
---------------------- ------ ------ -------
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 GBP97.8m, 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 H1 17 Change
GBPm GBPm %
---------------------- ------ --------- ---------
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 GBP60.8m and Underlying Operating Profit improved GBP3.3m to GBP10.6m 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 H1 17 Change
GBPm GBPm %
---------------------- ------ ------ -------
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 GBP41.66/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 GBP34m 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.GBP8m.
We continue to see a strong pipeline of acquisition opportunities.
Acquisition Date Annualised Value*
Acquired Revenue GBPm
GBPm
-------------------------- ----------- ----------- -------
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 (GBP/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 GBP497.5m to GBP534.6m, with Net Revenues increasing by 7.8% from GBP446.7m to GBP481.6m.
Underlying EBITDA increased by 7.3% to GBP76.3m with Underlying Operating Profit increasing by 9.3% to GBP43.4m. 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 GBP40.5m. Underlying Profit before tax increased 39% to GBP33.3m. Statutory Profit before Tax increased by GBP32.8m to GBP29.2m.
Finance Income
Finance income reduced from GBP2.9m to GBP0.3m 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 GBP8.3m 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 GBP(3.0)m in the period (H1 2017: GBP(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 GBP4.7m in the period, compared to a charge of GBP20.3m in the prior period.
A reconciliation from Underlying Profit after Tax to Statutory Profit after Tax is set out below.
H1 18 H1 17
(GBPm) (GBPm)
------------------------------------ -------- --------
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 GBP20.3m compared to a surplus of GBP15.4m 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 GBP66.7m as at the time of the last valuation in March 2015, and an inflation-linked contribution of GBP3.85m 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 H1
FY18 FY17
(GBPm) (GBPm)
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 GBP2.2m to GBP13.3m 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 GBP19.4m.
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 H1
FY18 FY17
(GBPm) (GBPm)
--------------------------------- -------- --------
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 GBP246.1m to GBP272.2m 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 GBP53.3m to GBP253.3m, and an increase of GBP26.7m on the existing GBP100m revolving credit facility.
The GBP26.1m 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 GBP38m, partially offset by strong underlying free cash flow performance.
Reported Net Debt (GBPm) 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 GBP45.0m (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 GBP8.7m, 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 GBP9.2m (GBP7.7m 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:
-- 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 of operations
-- 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
-- Biffa faces risks arising from its hedging
activities
-- Biffa is subject to the risk of increased
customer churn
-- Competition in the waste management industry
could reduce Biffa's revenues and net income
-- Biffa's business depends on its reputation
and the value of its brand
-- Biffa is exposed to risks and liabilities
that may not be adequately covered by insurance
and increases in insurance costs could reduce
the Company's profitability and cashflow
-- 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 cybersecurity 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
-- Provisions for landfill site closure costs
may be inadequate
-- Biffa faces risks related to its landfill
gas operations
-- Biffa operations are dependent upon it having
necessary permits under the applicable regulatory
regime, including planning permits and permissions
for the development of new sites or facilities,
as well as waste management and operator's
licences
-- 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 its senior personnel
-- Biffa may be affected by work stoppages
-- Risks related to Biffa's borrowings
-- Biffa is exposed to a number of political,
social and macroeconomic risks relating
to the United Kingdom's potential exit from
the European Union (EU)
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 * Acquisition Net Revenue Growth in any period
Growth 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 * Acquisition Net Revenue Growth Rate in any period
Growth Rate 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 before exceptional items, amortisation of
Profit 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 * Operating Profit excluding exceptional items and
(ROCE) 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 * Underlying Operating Profit divided by average of
Assets (ROOA) opening and closing Property, Plant & Equipment, plus
net working capital
------------------ -------------------------------------------------------------
Underlying
Free Cash * Net increase/(decrease) in cash and cash equivalents
Flow 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
INDEPENT 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 WEEKSED 22 September 2017
Condensed Consolidated Interim Income Statement
For the half year ended 22 September 2017
26 weeks to
26 weeks to 23 September 2016 52 weeks to
22 September 2017 (unaudited) (unaudited) 24 March 2017 (audited)
------------------------------ ------------------------------ -------------------------------
Other Other Other
Items Items Items
Underlying GBPm Underlying GBPm Underlying GBPm
Activities(1) (note Total Activities(1) (note Total Activities(1) (note Total
Notes GBPm 4) GBPm GBPm 4) GBPm GBPm 4) GBPm
------------- ------ ------- ------------- ------ ------- ------------- ------- -------
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) 610.7 (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
26 weeks 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (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
As at As at As at
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (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 Share premium Merger reserve Hedging and Retained Total equity
capital other reserves deficit
GBPm
GBPm GBPm GBPm
GBPm GBPm
---------------
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 Share premium Merger reserve Hedging and Retained Total equity
capital other reserves earnings/
GBPm (deficit)
GBPm GBPm GBPm
GBPm GBPm
--------------- ------------- -------------- ---------------
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 Share premium Merger reserve Hedging and Retained Total equity
capital other reserves earnings/
GBPm (deficit)
GBPm GBPm GBPm GBPm
GBPm
---------------
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
26 weeks 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
Underlying EBITDA(1)
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 EBITDA(1) 76.3 71.1 137.7
Depreciation and amortisation (32.9) (31.4) (63.9)
------------- ------------- ----------
Underlying Operating Profit(2) 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)
============= ============= ==========
(1)Underlying EBITDA represents earnings before interest, taxation, depreciation, amortisation, exceptional items and the impact of real discount rate changes to landfill provisions
(2)Presented before other items as disclosed in Note 4.
26 weeks 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 GBP1.2 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 GBP0.8 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 (GBP0.3 million in the 26 weeks ended 23 September 2016: GBP1.3 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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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
GBPm
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
GBPm
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 GBP5.9 million and a gross contractual value of GBP6.0 million. The best estimate at acquisition date of the contractual cash flows not to be collected is GBP0.1 million.
No contingent liabilities were identified at the acquisition date.
Acquisition-related costs (included in administrative expenses) amount to GBP0.2 million.
O'Brien Waste Recycling Solutions Holdings Limited contributed GBP8.6 million revenue and GBP0.7 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 GBP17.2 million and group profit would have increased by GBP1.5 million.
The preliminary goodwill of GBP27.0 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 GBP0.2m, resulting in goodwill of GBP0.2m. A further GBP0.1m 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 GBP26.6 million (23 September 2016: GBP41.8 million).
Assets with a net book value of GBP1.2 million were disposed of by the Group during the 26 weeks ended 22 September 2017 (23 September 2016: GBP1.6 million) resulting in a net profit on disposal of GBP0.8 million (23 September 2016: GBPnil million).
The Group's capital commitments at 22 September 2017 were GBP18.2 million (23 September 2016: GBP18.2 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 Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm (unaudited)
(unaudited) (unaudited) (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 Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm (unaudited)
(unaudited) (unaudited) (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 Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm (audited)
(audited) (audited) (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 Insurance Other Total
GBPm GBPm GBPm GBPm
As at 24 March 2017 80.9 11.6 16.6 109.1
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
GBPm
(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 GBP9.6 million (52 weeks ended 24 March 2017: GBP10.4 million, 26 weeks ended 23 September 2016: GBP10.6 million) and GBP2.2 million (52 weeks ended 24 March 2017: GBP2.7 million, 26 weeks ended 23 September 2016: GBP4.0 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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 GBP45.0m of liability in relation to the ongoing EVP case as detailed in note 16 (23 September 2016: GBPnil, 24 March 2017: GBP43.8m)
26 weeks 26 weeks 52 weeks
ended ended ended
22 September 23 September 24 March
2017 2016 2017
GBPm GBPm GBPm
(unaudited) (unaudited) (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 As at
22 September 24 March
2017 2017
GBPm GBPm
(unaudited) (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
GBPm
(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
GBPm
(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 GBP81.6 million outstanding at 22 September 2017 (24 March 2017: GBP82.1 million, 23 September 2016: GBP81.9 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 GBP19.4 million (24 March 2017: GBP18.6 million, 23 September 2016: GBP21.2 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 GBP62m 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 GBP9.2m (GBP7.7m 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 GBP62m 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 GBP62m, interest of GBP1.7m 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 GBP45.0m has been recognised in borrowings, (24 March 2017: GBP43.8m), an accrual of GBP13.0m has been recognised in non-current liabilities, (24 March 2017: GBP13.0m), and a non-underlying non-cash interest charge of GBP1.2m (24 March 2017: GBP1.0m) has been recognised in finance charges in respect of these obligations. The liability of GBP45.0m (24 March 2017: GBP43.8m) 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 GBP5m.
On 17 November 2017, the Group acquired the trade and assets of Eco Food Recycling Limited for consideration of GBP0.7m.
On 1 November 2017, the Group acquired the trade and assets of HWS Waste Limited for consideration of GBP0.2m.
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 GBP26.7m revolving credit facility and GBP53.3m 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FFLLLDFFLFBV
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November 22, 2017 02:01 ET (07:01 GMT)
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