Biffa plc

RESULTS FOR THE 52 WEEKS ENDED 25 MARCH 2022

A year of resilience and growth

 
2 August 2022

Biffa plc ("Biffa", "the Group" or "the Company") (LSE: BIFF), a leader in UK sustainable waste management, announces its results for the 52 weeks ended 25 March 2022.

Michael Topham, Chief Executive of Biffa, said:

"I am delighted with the progress we have made in the face of another eventful and challenging year. Not only have we demonstrated the resilience of our business model, resulting in record adjusted operating profits and the reinstatement of the dividend, but we have continued to invest in the infrastructure and services that are essential to the delivery of a circular economy. As we look forward, whilst being mindful of the near term challenges the UK economy is facing, we are increasingly well positioned to play a key role in the transition that our sector is embarking upon, supported by an ambitious policy agenda."

Business Highlights

·	Strong recovery from the pandemic: Record Adjusted Operating Profit delivered, with underlying Industrial & Commercial ("I&C") collection volumes slightly ahead of pre-pandemic levels, good cash performance and strong balance sheet position supporting our restored dividend.
·	Managed external challenges: Services maintained despite a difficult operating environment, with a swift and effective response to shortages of drivers, fuel and other essential supplies, resulting in all time low levels of customer churn.
·	Business model resiliency in evidence: Our services are generally essential, non-discretionary and predictable in demand. Commercial terms overall ensure good levels of pricing flexibility to protect against inflationary exposures.
·	Strategic execution: With just under £420m of discretionary capital committed between September 2019 and March 2022, we have continued to execute across our four key investment themes of Reduce, Recycle, Recover and Collect, with £171m invested in the year and good progress integrating acquisitions. Subsequent to year end a further £80m of capital has been committed to help deliver Scotland's deposit return scheme.
·	Well positioned for further growth: The UK government's ambitions and emerging policies provide a significant investment opportunity for the private sector in green economy services and infrastructure in our sector. Biffa's capabilities and solid platform for sustainable growth make us well positioned to play a leading role in this transition in the years ahead.

 

Financial Highlights

·	Trading in the second half saw continued recovery from the impact of the pandemic, with ongoing organic growth13 supported by contributions from the Viridor business acquired during the year. Performance has remained resilient in the face of significant inflationary cost pressures, supply chain challenges and driver shortages.
·	Record Group Statutory Revenue of £1,443.2m, up 39% on FY21 and up 24% on FY20, driven by organic recovery back to pre-pandemic levels, together with the contributions of Simply Waste, Company Shop Group ("CSG"), Viridor and the Biffa Polymers investments. Organic growth and acquisition growth contributed 22% and 17% respectively.
·	Group Adjusted EBITDA2 rose to £195.0m, up 41% on FY21 (£138.2m) and up 12% on FY20 (£174.0m).
·	Group Operating Profit improved to a loss of £8.3m (FY21: loss of £37.6m); (FY20: profit of £74.1m) and Adjusted Operating Profit4 more than doubled to £96.6m (FY21: £44.2m, FY20: £90.5m).
·	The adjusting items in the year excluded from Adjusted Operating Profit include acquisition-related costs (£9.4m), strategy-related and restructuring costs (£4.8m), impairment of goodwill on CSG (£25.0m), unwind of EVP balances (£20.8m), provision relating to the HMRC landfill tax enquiry (£17.0m) and amortisation of acquisition intangibles (£29.6m).
·	Group Leverage improved slightly during the year, with Covenant Basis Net Debt: EBITDA9 falling from 3.0x at March 21 to 2.9x at March 22, enabled by Net Cash Flow of £10.0m (FY21: £(57.0)m) despite the increased level of growth investment. All covenants are now measured on a post-IFRS 16 basis.
·	The proposed final dividend has been reinstated at 4.69 pence per share, bringing the total dividend for the year to 6.89 pence per share.
·	Landfill tax: o  We have been refused leave to appeal to the Supreme Court on the EVP/fluff dispute which is in relation to historical landfill tax. This outcome does not have a material impact on cash or leverage. The impacts on the financial accounts have been included in adjusting items. o  As announced on 7 June 2022, Biffa is currently the subject of an enquiry by HMRC regarding certain aspects of its landfill tax compliance, as part of an industry-wide review of the sector. A provision of £20.0m has been recognised (with a current year charge of £17.0m in adjusting items) representing Biffa's best estimate of the potential liabilities, although there is a range of potential outcomes to the enquiry which is expected to continue for some time. Refer to Note 1 to the financial statements for more detail.

 

Financial Summary

Statutory Results	FY22 £m	FY21 £m	Change %	FY20 £m	Change %
Statutory Revenue	1,443.2	1,042.0	38.5	1,163.1	24.1
Operating Profit/(Loss)	(8.3)	(37.6)	n/a	74.1	n/a
Operating Profit/(Loss) margin	(0.6%)	(3.6%)	n/a	6.4%	n/a
Profit/(Loss) Before Tax	(28.6)	(52.8)	n/a	56.4	n/a
Profit/(Loss) After Tax	(17.6)	(40.5)	n/a	45.6	n/a
Net Cash Flow	10.0	(57.0)	n/a	21.6	n/a
Basic EPS	(5.8p)	(13.7p)	n/a	18.3p	n/a
Total Dividend Per Share	6.89p	-	n/a	2.47p	n/a

 

Adjusted Results
	FY22	FY21	Change	FY20	Change
	£m	£m	%	£m	%
Statutory Revenue	1,443.2	1,042.0	38.5	1,163.1	24.1
Net Revenue1	1,363.9	988.1	38.0	1,102.8	23.7
Adjusted EBITDA2	195.0	138.2	41.1	174.0	12.1
Adjusted EBITDA margin3	13.5%	13.3%	n/a	15.0%	n/a
Adjusted Operating Profit4	96.6	44.2	118.6	90.5	6.7
Adjusted Operating Profit margin5	6.7%	4.2%	n/a	7.8%	n/a
Adjusted Profit Before Tax6	75.6	29.0	160.7	71.7	5.4
Adjusted Free Cash Flow7	25.7	33.2	(22.6)	53.6	(52.1)
Group Net Debt8	(595.8)	(456.8)	(30.4)	(425.5)	(40.0)
Net Debt:EBITDA (Covenant Basis)9	2.9x	3.0x	n/a	2.4x	n/a
Adjusted Basic EPS10	19.7p	7.7p	155.8	23.1	(14.7)

The technical notes for the tables and the commentary above can be found on page 20.

Cautionary statement regarding forward-looking statements

This announcement contains certain forward-looking statements which are based on current assumptions and estimates by the management of the Company. By their nature, forward-looking statements are subject to numerous risks and uncertainties and actual results may, and often do, differ materially from any forward-looking statements owing to factors beyond the Company's control or within the Company's control. These factors may include, for example, if the Company decides on a change of plan or strategy. Past performance cannot be relied upon as a guide to future performance and should not be taken as a representation that trends or activities underlying past performance will continue in the future.

 

Accordingly, no reliance may be placed on the figures contained in such forward-looking statements. Biffa provides no guarantee that future development and future results achieved will correspond to the forward-looking statements included here and accepts no liability if they should fail to do so.

 

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

Use of Alternative Performance Measures

Throughout the release we use a number of alternative (or non-IFRS) performance measures to assist users in understanding the performance of the business. This is in line with how management monitor and manage the business day to day. Further definitions and details are provided on page 20 and in the appendix to the financial statements.

Presentation of Results

A live webcast of the results presentation will be available at 09.00 hrs today (2 August 2022) www.biffa.co.uk/investors.

Register here https://www.lsegissuerservices.com/spark/Biffa/events/d697a50b-c26d-4696-99cc-2f95215baada

An on-demand version of the webcast, as well as the RNS and presentation documents will also be available at www.biffa.co.uk/investors.

Publication of Annual Report

The Company will publish its Annual Report and Accounts 2022 on Wednesday 17 August 2022. It will be available to view on the Company's website at www.biffa.co.uk/investors and is also being submitted to the National Storage Mechanism for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

AGM

The Group's Annual General Meeting (AGM) will take place on Friday 23 September 2022.

Rule 26.1 disclosure

In accordance with Rule 26.1 of The City Code On Takeovers And Mergers, a copy of this announcement will be available (subject to  certain restrictions relating to persons resident in restricted jurisdictions) at www.biffa.co.uk/investors/possible-offer by no later than 12 noon (London time) on the business day following the date of this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

Enquiries:

Michael Topham, Chief Executive Officer
Richard Pike, Chief Financial Officer
ir@biffa.co.uk

Media

Houston
+44 (0) 204 529 0549

biffa@houston.co.uk

 

Structure of this document

1.     Chief Executive Officer's Review

2.     Operating Performance

o  Collections

o  Specialist Services

o  Resources & Energy

3.     Chief Financial Officer's Review

4.     Technical Notes

5.     Glossary

6.     Financial Statements

1.   Chief Executive Officer's Review

A strong recovery

Biffa delivered a strong performance in the year, reporting record adjusted operating profits. Group Operating Profit improved to a loss of £8.3m (FY21: loss of £37.6m); (FY20: profit of £74.1m) and Adjusted Operating Profit⁴ more than doubled to £96.6m (FY21: £44.2m, FY20: £90.5m).

We emerged well from the pandemic and have since tackled, and continue to actively manage, a number of external challenges. Our commercial terms ensure good levels of pricing flexibility designed to protect against inflationary exposures. Whilst the evolving macro-economic and geo-political circumstances meant that it certainly wasn't the year we had expected, I am proud of our strong performance which is testament to our resilient business model, positioning in the market and our capabilities and teamwork.

With the economic recovery that followed the easing of lockdown restrictions in the early part of the year came a strong rebound in demand for the essential services that we provide, with volumes and profitability across most of our business recovering to levels at, or slightly above, pre-pandemic levels.

Overall, the financial performance of the business was in line with the Board's expectations.

We have benefited from the investments we have made over the last three years. We have seen a strong contribution from both the Viridor and Simply Waste acquisitions. We expect an increasing contribution from these, as well as from our investments in CSG and our Seaham PET recycling plant in the year ahead.

A resilient business able to manage external challenges

The business has benefited from the strength of commodity prices, but this has been offset by the impact of growing cost pressures due to shortages of key resources, supply chain challenges and a shortfall in performance at CSG. The supply chain challenges affected our ability to source items such as new vehicles, fuel and waste containers in addition to the impact of the well-publicised national shortages of qualified HGV drivers.

Through our scale, reputation and supply chain relationships we have dealt with these challenges well, although they continue to be areas that require careful management. We have engaged constructively with trade unions and have agreed meaningful pay increases to ensure that we retain our position in our sector as an employer of choice.

Managing inflation continues to be a key priority for the business. Our business generally benefits from a level of pricing flexibility that enables us to protect our profitability. Over the course of the year, we have taken appropriate action to ensure our profitability is preserved and will continue to do so as the situation evolves.

From a business perspective, the last few years have been a testing time and have shown us how unpredictable world events can be. We have faced the challenges of Brexit, the pandemic, post-pandemic supply chain challenges, inflationary pressure and now the impact of the war in Ukraine. Through this period we have  demonstrated our resilience and differentiation from our competition. Whilst certainly not immune from these events, Biffa has performed very well, demonstrating a strong rebound in demand for our services, all time low levels of customer churn and an ability to protect margins.

Climate change remains a global emergency that requires immediate action from governments and businesses alike. We deliver carbon reductions for waste producers by wholeheartedly embracing the waste hierarchy, prioritising waste prevention, closed loop recycling and energy recovery, all supported by one of the largest, most efficient business waste collection networks in the UK. In the year, we continued to make good progress with our sustainability strategy target to reduce carbon emissions by 50% from 2020 to 2030.

We have been refused leave to appeal to the Supreme Court on the previously reported EVP/fluff landfill tax disputes, and therefore the disputes are now concluded. We are also the subject of an enquiry by HMRC for certain aspects of landfill tax compliance, as part of concerns HMRC has regarding the potential misclassification of waste across the industry. The enquiry is ongoing and a provision of £20m has been recognised but there are a range of possible outcomes and it is therefore difficult to accurately ascertain the quantum of any potential liability with any certainty or precision. Further detail on both landfill tax matters can be found in the Chief Financial Officer's Review.

Strategic execution

The last two years have seen a significant period of investment for Biffa, as we have repositioned the Group around four themes of Reduce, Recycle, Recover and Collect. In doing so, we have established a business model and service proposition that helps to enable a circular economy for our customers and aligns our positioning to the objectives of our customers, regulators and society. We committed just under £420m of investment into these four areas between September 2019 and March 2022, of which £361m had been invested by March 2022. Since then we have committed a further £80m to support Scotland's implementation of a deposit return scheme, bringing our total commitment since September 2019 to c.£500m.

Reduce  - we acquired CSG in February 2021 which added a meaningful offering in waste reduction to Biffa's portfolio. CSG provides a unique offering to manufacturers and distributors of household produce, enabling surplus products that would otherwise go to waste to be redistributed through a membership-restricted outlet network. Through its activities 98 million products, totalling c.35,000 tonnes, was prevented from going to waste in the year.

Since the acquisition, we have grown the business through opening three new outlets, enabling the business to grow the amount of surplus products it can redistribute. Business performance has been challenging as shopping habits took time to normalise following the last lockdown and as previously reported, due to the short term underperformance of the business, we booked a goodwill impairment charge of £25m at the half year. However, since the final quarter of the year we have seen encouraging progress in membership, footfall and margins as a result of the recent strategic changes we have put in place, and we are confident of an improved performance in the coming year.

In addition to CSG, we made a seed investment in 'Love Junk', an online marketplace that connects upcyclers, refurbishers and reactive waste providers to people who need to dispose of waste or items they no longer need.

Recycle - Biffa is a UK leader in closed-loop, food-grade plastic recycling. Our Biffa Polymers business provides solutions for the majority of post-consumer rigid plastic packaging, helping to reduce the UK's dependence on unreliable export markets while providing raw materials that are a substitute for virgin plastic packaging to UK packaging manufacturers. Demand for our solutions has grown significantly in recent years as consumers and regulators have demanded that plastic packaging become more sustainable.

In the year we completed the commissioning of our Seaham rPET plant, gaining regulatory and customer approvals for our product. Whilst progress was slower than we had hoped, we are now supplying material to our customers who include Nestlé, Alpla and Esterform. The facility is now operating at full pellet production rate and we are focusing on optimising its operations. In addition we completed the commissioning of our rPP plant at Washington and commenced construction of our 3^rd rHDPE line at Redcar. With the introduction of the Plastics Packaging Tax from 1 April 2022, we expect to see strong demand for the material we produce.

The Viridor acquisition added to the Group's capabilities and control of feedstock for the Polymers business.

Recover - For waste that can't be reduced or recycled, energy recovery offers a cost-effective, low carbon disposal option that also contributes to the UK's energy security. Biffa is partnering with US energy recovery operator, Covanta to develop two facilities, Newhurst in Leicestershire and Protos in Cheshire. Both facilities have been in construction during the year and are on track for delivery in 2023 and 2024 respectively.

Collect - Biffa is the largest collector of waste and recycling in the UK, and we have a long-standing ambition to grow our leading I&C business, both organically and through acquisition. Since our IPO in 2016 we have acquired and  successfully integrated 26 businesses (in addition to Simply Waste and Viridor) into our national I&C network, helping our I&C business to materially grow its revenues and margins over that time.

At the end of August 2021, we completed the acquisition of Viridor's collections business, adding £84m in revenues during FY22 and 21,000 customers to our business. Since then we have focused our efforts on integrating the business into Biffa's systems and operating network, a process that we expect to unlock c.£10m in operational synergies and take 12-18 months to complete. Integration of both the Viridor and the Simply Waste businesses is progressing to plan, and we remain on track to deliver our targeted synergies. The acquisition pipeline remains promising, and now that integration of these is nearing completion, we are starting to assess the market for further opportunities.

Since the year end, we acquired certain trade and assets of DJB Recycling Limited, a Sheffield-based waste collection and recycling business, for a maximum cash consideration of £1.9m. The business generated revenue of c.£4.7m in the last 12 months, employed 31 people, had a fleet of 13 vehicles and operated from 2 sites in Sheffield prior to completion. The deal completed on 30 June 2022.

In July 2022 we announced that Circularity Scotland Ltd (CSL), the scheme administrator for Scotland's deposit return scheme, appointed Biffa to provide collection, counting and sorting services for the billions of drinks containers which are placed on the Scottish market each year. The scheme requires highly complex operational management and Biffa's appointment is testament to our ability to manage such a programme from collection through to recycling.

From August 2023 drinks bottles and cans to carry a 20p refundable deposit. The DRS aims to reduce litter and increase recycling by at least 90% and similar schemes are likely to follow across the rest of the UK in due course.

The 10 year contract provides good margin protection with opportunity to underpin further growth of the Biffa Polymers business and we are working with the drinks industry to explore the opportunity to build a PET recycling facility in Scotland. The agreement includes c. £80m estimated capital (including property lease commitments) to be deployed by August 2023.

Well positioned for future growth

We have a well defined and ambitious investment plan that will see us continue to grow Biffa over the next few years. As we look further out, whilst being mindful of the near term challenges the UK economy is facing, we are encouraged by the secular trends affecting our industry and how they will open up opportunities for Biffa.

The UK Government, and those of the devolved nations, have ambitious plans for delivering a circular economy, including improved and more consistent collections, deposit return schemes, restrictions on exports and taxes to incentivise adoption of recycled content. After a period of extensive consultations, the direction of travel announced by the UK Government in our view balances ambition with pragmatism and, provided it is legislated well, should provide opportunities for Biffa to invest.

Delivering our sustainability commitments

We published our sustainability strategy, Resourceful, Responsible, just over two years ago. It sets out an ambitious plan for how we will continue the transformation of Biffa over the period 2020-2030.

We have made significant progress in the year. The investments we are making across our four strategic priorities will not only ensure Biffa delivers its commitment to a further 50% reduction in CO₂e by 2030 but more importantly will help our customers deliver their own sustainability commitments.

Our plan is ambitious and was not meant to be easy. One area where progress has not been as swift as we would like is in the transition to zero emissions collections where neither the supply chain nor the economic model are yet supportive of a large scale conversion. We envisage that these issues and alternative fuels will all progress over the medium term.

Nevertheless our overall reduction in CO₂e emissions since 2019 is over 208,000 tonnes, which is a 28% reduction on the 2019 baseline and 70% reduction since 2002 (scope 1 and 2). Other highlights in the year include further strides in safety, diversity and inclusion (including Board diversity), the opening of two new Community Shops by CSG and seeing the growing impact that our charity partner WasteAid is making in tackling waste issues across the world.

Our people

Biffa's success in the year could not have been achieved without the exceptional efforts of our team. We had all hoped for a more 'normal' year but it wasn't to be, and the team have had to deal with the various supply chain and inflationary challenges whilst ensuring we delivered our strategy. My thanks go to everyone at Biffa for the part they have played.

I'm pleased with the progress we have made across a number of fronts to ensure that Biffa is a safe, inclusive and engaging place to work. We continue to be a sector leader in safety, despite our accident frequency levels being somewhat higher as a result of the pandemic (which meant training for our front line and supervisory staff was more challenging), and we continue to work hard to raise awareness of particular issues that affect our operations such as the risks associated with people sleeping in or around bins. Our efforts in tackling the risk of modern slavery and in fostering diversity, equity and inclusion are of particular note.

We have been able to engage constructively with trade unions to award enhanced terms to our people. Whilst this came at substantial cost in the short term, it was undoubtedly the right thing to do and will make our business stronger in the long run.

In the context of such a challenging year for everyone, we were pleased that our employee engagement score remained at it's all time high level of 59%.

Outlook and priorities for the year ahead

I am delighted with the progress we have made in the face of another eventful and challenging year. Not only have we demonstrated the resilience of our business model, resulting in record adjusted operating profits and the reinstatement of the dividend, but we continued to invest in the infrastructure and services that are essential to the delivery of a circular economy. As we look forward, whilst being mindful of the near term challenges the UK economy is facing, we are increasingly well positioned to play a key role in the transition that our sector is embarking upon, supported by an ambitious policy agenda.

Michael Topham

Chief Executive Officer
1 August 2022

Operating Performance

The financial performance figures in this section exclude central costs incurred in the Group Business Function. For these figures, please refer to Note 2: Segmental Information in the notes to the financial statements.

Charges incurred in the year relating to the EVP dispute (£20.8m) and the HMRC landfill tax enquiry (£17.0m) have been borne by the Group Business Function.

Where appropriate, FY22 performance has been compared to FY20 as well as FY21. FY21 performance was heavily impacted by Covid-19 so FY20 offers a more like-for-like comparison.

Collections division

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

	FY22 £m	FY21 £m	Change %	FY20 £m	Change %
Statutory Revenue	873.9	677.6	29.0	781.0	11.9
I&C	690.9	495.5	39.4	603.7	14.4
Municipal	183.0	182.1	0.5	177.3	3.2
Net Revenue	873.9	677.6	29.0	781.0	11.9
Operating Profit	65.6	27.8	136.0	56.6	15.9
Operating Profit Margin	7.5%	4.1%	n/a	7.2%	n/a
Adjusted EBITDA	130.7	98.5	32.7	115.3	13.4
Adjusted Operating Profit	75.0	40.9	83.4	62.7	19.6
Adjusted Operating Profit Margin	8.6%	6.0%	n/a	8.0%	n/a

 

The division delivered a strong performance against a challenging economic backdrop coupled with tough operating conditions including driver shortages, cost inflation and supply chain issues.

Collections Net Revenue for FY22 was 12% higher than the comparable period two years ago at £874m (FY20: £781m). As a result, Adjusted EBITDA improved by 13% to £131m (FY20: £115m). Adjusted operating margins have also improved over the same period from 8.0% to 8.6%, principally due to improved underlying performance in I&C.

During the year, Biffa acquired Viridor's Collections business, broadening our customer base and solidifying our leading position in UK sustainable waste management. Integration of both this business and Simply Waste is progressing to plan and we remain on track to deliver our targeted synergies.

Industrial and Commercial

The I&C business provides waste collection and materials handling services for commercial customers, covering 95% of UK postcodes. Biffa is the largest operator in the fragmented UK I&C Collections market benefitting from scale, higher route densities and as a result, lower operating costs and a lower comparative carbon footprint than our competitors.

Performance Summary

The I&C business performed strongly in the year against challenging conditions. I&C volumes (adjusted for acquisitions) were marginally above FY20 levels which, together with the impact of acquisitions and price increases, resulted in a 14% uplift in revenues to £691m.

The I&C business has been affected by substantial inflationary cost pressures impacting the UK economy. Whilst these pressures have had a significant impact on our operating costs, pricing flexibility built into our contracts has enabled the business to pass on most of these cost increases to customers and protect our profitability.

We have also been impacted by various supply chain challenges which have affected our ability to source items such as new vehicles, fuel and waste containers. Through our scale, reputation, and supply chain relationships we have dealt with these challenges well, but they continue to be areas that require careful management. As a measure of how well we have dealt with these difficulties, SME customer churn rates continued at historically low levels at 7.2% (FY21:8.5%, FY20: 9.9%).

We have successfully managed the well-publicised national shortages of qualified HGV drivers. We engaged constructively with trade unions and have agreed meaningful pay increases to ensure that we retain our position in our sector as an employer of choice. As a result, the shortage of HGV drivers eased in the second half of the year but requires careful ongoing management.

At the end of August 2021, we completed the acquisition of Viridor's collections business, adding £84m in annualised revenues during FY22 and 21,000 customers to our business. The acquisition is a key step in our consolidation of the highly fragmented I&C collections market and we continue to expect to deliver annualised synergies of at least £10m by the end of FY23.

New corporate clients included Barnardo's and Co-Op Retail. We also secured a three-year contract with Sainsbury's to service their front of store customer recycling bins and renewed key customer contracts including Saint-Gobain Building Distribution, Dunelm, B&Q and Northumbrian Water.

During the year we supported more customers to improve the recyclability of their packaging by deploying our internal packaging expertise. This process identifies opportunities to improve the design of packaging to optimise recycling and offer alternative materials and labelling options.

We continue to develop our digital estate and have rolled out next generation in-cab devices which will further improve customer experience. We also installed energy efficient driver software, which provides data on fuel usage and wear and tear on vehicles, to further improve driving standards.

Strategy and Outlook

We will continue to drive forward our plan to consolidate the fragmented I&C collections market. Acquisitions are highly synergistic, due to the removal of duplicate routes and locations, and result in a more efficient, flexible service proposition for our customers with a lower-carbon intensity. The acquisition pipeline remains promising, and now that the integrations of the Simply Waste and Viridor businesses are nearing completion, we are starting to assess the market for further opportunities.

Since the year end, we acquired certain trade and assets of DJB Recycling Limited, a Sheffield-based waste collection and recycling business, for a maximum cash consideration of £1.9m. The business generated revenue of c. £4.7m in the last 12 months, employed 31 people, had a fleet of 13 vehicles and operated from 2 sites in Sheffield prior to completion. The deal completed on 30 June 2022.

In July we were also appointed as the logistics provider for the Deposit Return Scheme for Scotland by Circularity Scotland Ltd (CSL) with responsibility for collecting counting and sorting bottles and cans from c.30,000 locations. DRS will start in August 2023 and drinks containers will carry a 20p refundable deposit with the aim of reducing litter and increasing recycling by at least 90%.

The 10 year contract includes c. £80m estimated capital (including property lease commitments) to be deployed by August 2023. 

Supporting customers with improved digital capabilities is a key focus. We have invested in refreshing our 'Customer Zone' providing improvements to an already leading-edge customer self-service portal as well as developments in allowing customers to get quotes and book services directly which we believe will see increase revenues and improve customer service. The portal became available to customers in Q1 FY23. 

We plan to expand the services we offer our established corporate customer base and capitalise on the synergies we have available through the acquisition of CSG. We have made progress, particularly with supermarket chains in showcasing the benefits of Biffa's integrated offering. We also see opportunities to grow our SME customer base, both organically and inorganically. 

Municipal 

 

The Municipal business provides household waste and recycling collections, street cleaning and other services for households, on behalf of local authorities.

Performance Summary

The Municipal business performed well this year, despite difficult market conditions Revenues were up 3% versus FY20 at £183m.

The business continued to experience the impact of Covid-19 in the early part of the year, followed by driver shortages, supply chain issues and inflationary pressures. Some services, such as green, food and bulky waste, were temporarily suspended in the first half of FY22 with the agreement of our municipal customers; however, services have since returned to normal. The Viridor acquisition added two household waste recycling centre ("HWRC") contracts to the Municipal business. These contracts generated c£11m of revenue in FY20 (prior to acquisition) and have performed as expected since the acquisition, generating c£9m of revenue.

New contract wins in the period included a street cleansing contract with Stratford-on-Avon District Council, a further profitable eight-year extension with Manchester City Council and an extension with Cannock Council.

We continued with the roll out of the UK's largest fleet of electric Refuse Collection Vehicles ("eRCVs") in Manchester. Our 27-strong fleet is now in operation, supporting Manchester City Council's objective to be Net Zero by 2038. We are trialling eRCVs with other local authorities, such as Kent and South Oxfordshire, an electric recycling vehicle in Anglesey and electric sweepers with Stratford-on-Avon and Arun. Our scale and route density positions us well, but the transition will take time as despite the positive progress made so far, the supply chain, infrastructure and economics do not currently support a more widespread roll out.

Many local authorities are currently considering how the new Environment Act will impact them, both from a financial perspective and through changes to their operating model. This uncertainty is causing many customers to seek to extend contracts until the timing and form of the changes become clearer. The Environment Act has a particular focus on areas such as extending producer responsibility to make producers pay for the cost of collection and recycling of packaging, greater consistency of recycling collections in England and charges for single use plastics and restricting exports of waste outside the OECD countries.

Strategy and Outlook

The Municipal business is well placed to continue to deliver its growth strategy, capitalising on its scale and expertise.

In the short term the business will face ongoing inflationary pressures including driver pay and the ongoing disruptions to supply chains. However, the business benefits from higher inflation indexation that positions it well to withstand these challenges, but it will require careful management.

Looking further out, the business will seek to capitalise on the opportunities that are presented by the regulatory changes that are approaching, including rolling out food waste collection services and seeking to play a role in the delivery of deposit return schemes.

Specialist Services division

 

The Specialist Services division helps customers fulfil their sustainability ambitions by providing bespoke solutions including surplus redistribution, integrated resource management and hazardous waste services. The division contains two businesses - Industrial Services and CSG.

 

The Industrial Services business provides bespoke solutions to customers who have more complex waste requirements such as manufacturing and distribution businesses. Solutions include on site services and equipment rental ("Integrated Resource Management" or "IRM"), hazardous waste collection and treatment and packaging producer responsibility compliance services ("Biffpack").

 

The acquisition of CSG in February 2021, added waste reduction and redistribution capabilities to Biffa's range of sustainable waste management solutions. It also enables us to support customers in moving surplus products further up the waste hierarchy and to deliver on their sustainability ambitions. Alongside its core network, CSG operates Community Shop, a not-for-profit community interest company that supports some of the most deprived areas of the UK through a network of hubs which sell produce provided by donations from supplier partners at deeply discounted prices, alongside the provision of a number of community services.

 

	FY22 £m	FY21 £m	Change %	FY20 £m	Change %
Statutory Revenue	174.1	92.4	88.4	89.8	93.9
Industrial Services	103.4	86.6	19.4	89.8	15.1
Company Shop Group	70.7	5.8	1,119.0	-	n/a
Net Revenue	174.1	92.4	88.4	89.8	93.9
Operating Profit/(Loss)	(19.9)	8.2	n/a	9.5	n/a
Operating Profit Margin	(11.4%)	8.9%	n/a	10.6%	n/a
Adjusted EBITDA	11.6	11.3	2.7	11.1	4.5
Adjusted Operating Profit	5.4	8.2	(34.1)	9.5	(43.2)
Adjusted Operating Profit Margin	3.1%	8.9%	n/a	10.6%	n/a

 

The division delivered a mixed performance during the year, with a strong performance from Industrial Services being partially offset by the previously reported underperformance in CSG.

Net Revenue for FY22 was £174m, up 94% on the comparable period two years ago due to the strong growth in Industrial Services and a full year of contribution from the CSG acquisition. Adjusted EBITDA was £12m (FY20: £11m). The division reported an operating loss of £20m after the previously reported CSG impairment charge and an Adjusted Operating Profit of £5m (FY20: £10m).

Industrial Services

Performance Summary

Industrial Services continued to perform strongly this year. Revenues in the business were £103.4m, up 15% vs FY20. Organic growth has doubled, and the business has also benefited from higher packaging recovery note ("PRN") prices.

The IRM business performed well, supported by new contract wins and retentions including Mitsubishi Chemicals and Moy Park, who are also a key supplier into CSG. Biffpack performed in line with expectations, helping customers to meet their legal compliance with packaging regulations. The Hazardous Waste business meanwhile saw further top line and margin improvements.

Industrial Services is a growing market and Biffa's unique position in having a fully integrated waste management platform means we can take advantage of cross-selling services from our I&C customer base. The business had similar challenges this year to the Collections division, with labour, fuel and supply issues. Despite these difficulties, there were no disruptions to services.

Strategy and Outlook

Through the Viridor acquisition, the Industrial Services business acquired depots in Taunton and Thurrock as well as a wastewater treatment plant in Rickmansworth, complementing the existing geographical coverage of the business. We also acquired the tanker fleet of Viridor, broadly doubling our operational fleet in the division.  Initial optimisation work has assisted a reduction in "empty miles", being the number of non-revenue earning road miles travelled, by 14%. We are confident that this will continue to improve in FY23.

We will continue to focus on organic and acquisitive growth, particularly in the Hazardous Waste sector and build on our enhanced geographical coverage and improved service delivery, which has been strengthened by the Viridor acquisition. 

Company Shop Group 

Performance Summary

The past 12 months provided unique challenges not only in terms of the macroeconomic issues highlighted above, but also Covid-19 related changes in shopping patterns. However, retailers and manufacturers have shown a clear desire and commitment to reducing food waste.

As previously reported, CSG's performance in the year was challenged as a result of lower footfall and gross margins, especially at stores which were opened immediately prior to, and during the pandemic. Due to the short term underperformance of the business, we booked an impairment charge of £25m at the half year. We continued to experience losses through the second half, however, in the final quarter of the year we saw encouraging progress in membership, footfall and margins and are confident of an improved performance in the coming year. CSG has worked collaboratively with the wider Biffa business to unlock more opportunities for customers and increase supplier volumes into CSG.

Other highlights in the year include Community Shop winning the Queen's Award for Enterprise in the Promoting Opportunity category, awarded for deep social impact that helps build stronger individuals and more confident communities. This is the third time CSG has received royal recognition, having won awards in both 2015 and 2019.  Also, the Luminary Programme, which is CSG's mentoring scheme for leaders and rising stars in the food and drink sector, won the prestigious Innovation Award at the Food and Drink Federation Awards 2021 and the Grocer Gold 'Waste Not Want Not' Award 2021.

Strategy and Outlook 

The CSG business is firmly focused on recovery, following a challenging 12 months, and returning to financial performance levels achieved prior to the pandemic. We are improving our sourcing of surplus stock, adding new supplier partners, opening new categories to consumers and leveraging Biffa's existing customer relationships with potential supply chain partners.

We anticipate that we will continue to see further improved footfall as the cost of living continues to rise and the need for discounted products grows, particularly for low-income households. Ultimately our goal is to generate long-term loyalty so we can capture and retain members in the most sustainable way.

We will seek to continue to expand our social enterprise, Community Shop, having opened Community Shop Leicester in April 2022. 

We will also be trialling the Community Shop 'On the Go' concept - a greengrocer style van that enables local people to buy fresh fruit and vegetables at convenient locations, such as schools, helping to bring the economic and social benefits of Community Shop out to vulnerable communities. We are working alongside our longstanding partner, Ocado, to launch the initiative in FY23.

Resources & Energy division

The Resources & Energy ("R&E") division focuses on the sustainable treatment, recycling, energy recovery and ultimate disposal of waste. It comprises the Recycling, Organics, Inerts and Landfill Gas businesses as well as our equity investments in two new Energy Recovery Facilities ("ERFs") which are under construction in Cheshire and Leicestershire.

 

	FY22 £m	FY21 £m	Change %	FY20 £m	Change %
Statutory Revenue	395.2	272.0	45.3	292.3	35.2
Recycling	140.8	80.6	74.7	79.5	77.1
Organics	78.0	53.6	45.5	56.9	37.1
Inerts	56.7	44.5	27.4	52.4	8.2
Landfill Gas	40.4	39.4	2.5	43.3	(6.7)
Net Revenue	315.9	218.1	44.8	232.1	36.1
Operating Profit/(Loss)	17.5	(43.9)	n/a	32.5	n/a
Operating Profit Margin	4.4%	(16.1%)	n/a	11.1%	n/a
Adjusted EBITDA	73.4	40.7	80.3	63.4	15.8
Adjusted Operating Profit	41.1	11.8	248.3	37.7	9.0
Adjusted Operating Profit Margin	10.4%	4.3%	n/a	12.9%	n/a

 

The R&E division had a strong performance this year with Net Revenues of £316m, 36% higher than the comparable period two years ago (FY20: £232m), reflecting the ongoing expansion of our Recycling business, as well as the acquisition of certain Viridor assets. Adjusted Operating margins improved year-on-year but dropped compared with FY20 from 13% to 10% as a result of the expected reduced contribution from the higher margin Inerts and Landfill Gas ("LFG") businesses, due to the closure of the Westmill landfill and LFG yields declining as expected each year, as well as the delayed contribution from the Polymers Seaham plant.

Performance Summary

Recycling

Our recycling business comprises our leading Polymers plastics business and our Materials Recycling Facilities ("MRFs").   Net Revenues in the year were up 77% on FY20 at £141m.

The Polymers business had a transitional year due to customer acceptance at the Seaham facility taking longer than anticipated. However, following the facility receiving food-grade status by the European Food Safety Authority in January 2022, we achieved customer acceptances and signed various multi-million-pound agreements with customers to supply food grade rPET pellet.  

By converting 57,000 tonnes of rPET each year, 130,000 tonnes of CO₂e[1] is saved when compared to energy recovery. We expect demand for plastics recycling will continue to strengthen following the introduction of the UK Government's Plastic Packaging Tax.

The Washington plant (rPP line) is fully commissioned and performing in line with expectations. In addition, the Aldridge upgrade was completed during the year, and we commenced construction of our third rHDPE plant at Redcar.

We saw a good performance at our MRFs again this year due to strong operational performance, improved commodity prices and a number of customer wins and retentions. This includes a six-year contract with Staffordshire Waste Partnership, a three-year extension with Durham County Council and a three-year extension with Milton Keynes Council.

Three MRFs have also been added to the Recycling business through the acquisition of Viridor and these have traded ahead of expectations. By November 2022, more than 80% of the feedstock required for the food-grade Polymers business will be internally sourced. 

Organics

The Organics business includes Biffa's anaerobic digestion ("AD"), composting and residual waste treatment assets. Assets are generally supported by long term local authority contracts. In the year the business was expanded through the addition of contract-backed assets from the Viridor acquisition.

The business had a good year, with the composting business performing strongly, AD performing in line with expectations, and the assets acquired from Viridor performing well. Net Revenues are up 37% on FY20 levels to £78m, mainly as a result of the acquired revenues from Viridor.

Inerts

Our Inerts business includes the treatment and disposal of complex construction waste and provides landfill disposal for untreatable residues.

The business saw Net Revenues up by 8% at £57m on the comparable period two years ago (FY20) due to ongoing improvements in pricing. Volumes have returned to pre-pandemic levels, as a result of a growth in tonnages from our rail hubs and in commercial waste volumes.

Our rail hubs are proving a successful gateway into landfill sites, particularly those in city centres, helping to reduce road haulage and transportation costs.  Inputs to landfill by rail have increased by 35% this year, mainly due to the opening of our third rail hub in Barking in May 2021. Since 2018, over 1.5m tonnes of inert waste has been transported by rail instead of road, saving 17,700 tonnes of CO₂e emissions.

We've had a strong improvement in environmental compliance this year, which has resulted in close to a 50% reduction in the number of complaints received from the public.

As part of our sustainability strategy, we have a target in place to manage 30% of our landfill estate for biodiversity.  In the year we worked on introducing quality measures for biodiversity and will be introducing a benchmarking survey in FY23 to align our biodiversity goals to external benchmarks.

Landfill Gas

The Landfill Gas business provides energy generation from landfill gas extraction. Profitability in FY22 was broadly consistent with FY21 due to prices achieved counteracting the expected volume declines, but was 17% lower than FY20. Margins have fallen across both FY21 and FY22.

Export power prices are 100% hedged through FY23 fixed @ £61.98 per MwH.

Energy Recovery

The treatment of general waste for energy recovery remains an important part of our investment strategy for waste which cannot be avoided, reduced or recycled.

Good progress is being made on the construction of our two energy recovery facilities, both of which are being developed in partnership with Covanta. The Newhurst facility, which is due to start its commissioning in late 2022, remains on track to begin operations in 2023. We have already secured most of the tonnage for the site, which will process residual waste sustainably, avoiding landfill and help to decrease the UK's dependence on exporting waste. The Protos facility remains on schedule for 2024 and is making good progress through its build phase, having already completed the majority of the ground engineering works.

We are investigating opportunities to increase consented capacities as well as carbon capture opportunities, with the Protos facility participating in the deployment process for BEIS Cluster Sequencing for Carbon Capture Usage and Storage.

Strategy and Outlook

Looking ahead, the priorities for the R&E division are to optimise operations (including the newly commissioned Seaham facility) while continuing the development of plastics recycling and energy recovery infrastructure.

Other priorities will include investigating the use of Artificial Intelligence and robotics to support with advanced sortation, developing our fourth rail hub to support our Inerts offer, and looking into the viability of solar energy generation on closed or restored landfill sites. We have a number of planning consultations in progress; however, it is proving to be more challenging than we first envisaged due to biodiversity requirements on the sites conflicting with our solar plans. This is something we will continue to manage to ensure the most sustainable outcome.   

We are continuing to partner with a wide variety of stakeholders across the value chain, from start-ups and academic institutions to large corporations and non-governmental bodies, to help innovate and develop new technologies, systems and services. Through partnerships, we share insights and expertise that help us to jointly tackle the key challenges our industry faces, supporting the sustainability and circularity of both our customers and the sector more broadly. 

2.   Chief Financial Officer's Review

Group Performance

Financial performance across the Group improved significantly in FY22 as the business recovered from the impact of the pandemic. Most performance measures have returned to and surpassed FY20 levels. The growth is attributed to both organic growth and acquisitions, notably the acquisition of the Viridor collections business and certain recycling assets.

Record Statutory Revenue of £1,443m was achieved, 39% higher than FY21 and 24% above FY20 (7% excluding acquisitions). The growth is attributed to both organic growth and acquisitions, notably the acquisition of the Viridor collections business and certain recycling assets.

The business has experienced significant headwinds versus FY20 including driver pay and other inflationary impacts, declines in margins in Landfill Gas ("LFG") due to expected lower volumes, and Inerts as a result of the Westmill Landfill site closure; and underperformance versus expectation in CSG and Polymers. Despite this we have been able to improve overall profits, primarily due to the flexibility built into our contracts enabling inflation recovery and contribution from Simply Waste and Viridor.

Adjusted EBITDA increased from £138m in FY21 to £195m, surpassing the £174m level achieved in FY20. A similar improvement has been seen in Operating Profit, increasing from a £38m loss in FY21 to an £8m loss despite the £25m impairment in CSG Goodwill, £21m EVP dispute write-offs and £17m charge relating to the HMRC landfill tax enquiry. Adjusted Operating Profit of £97m is an all-time record for Biffa.

The Adjusted Operating Profit Margin however fell to 6.7% in FY22 versus 7.8% in FY20, primarily because of the decline in higher margin contributions from LFG and Inerts.

The following investments have been made in the year:

·    The acquisition of the Viridor collections business and certain recycling assets for a total consideration of £131m, plus £17m of lease liabilities.

·    Further equity and shareholder loans of £25m invested into the joint ventures ("JVs") facilitating the ongoing build of our Protos and Newhurst energy recovery facilities.

·     Capital expenditure of £8m to upgrade plastics recycling plants.

The Viridor business performed strongly in the seven months of FY22 after it was acquired. The acquisition has expanded the Group's collections business and recycling capabilities, solidifying our leading position in UK sustainable waste management. The integration is ongoing, and the Group expects to benefit from further synergies in FY23.

The financial performance of CSG, acquired in February 2021, has been below expectations and as a result the acquired goodwill was impaired by £25m at half year. The factors disclosed at half year have continued to impact performance in the second half of the year, albeit a number of strategic changes have been made, and the benefits of these changes have had a positive impact on the performance in the last quarter of the year. We expect this positive trajectory to continue into FY23.

Biffa remains in a well-funded financial position at March 2022, with headroom of £341m on the rolling credit facility ("RCF") and a Covenant Basis Leverage Ratio of 2.9x, significantly below the 4.5x limit stipulated in the lending covenants. This is consistent with the guidance issued in the March 2022 Trading Update.

Group financial performance for the last three years is summarised in the table below:

	FY22 £m	FY21 £m	FY20 £m
Statutory Revenue	1,443.2	1,042.0	1,163.1
Net Revenue	1,363.9	988.1	1,102.8
Adjusted EBITDA	195.0	138.2	174.0
Operating Profit / (Loss)	(8.3)	(37.6)	74.1
Adjusted Operating Profit	96.6	44.2	90.5
Adjusted Operating Profit Margin	6.7%	4.2%	7.8%

 

Statutory Performance

To enable a better understanding of business performance, certain items are excluded when calculating the Group's business performance. These Alternative Performance Measures ("APMs") are also used to enhance the comparability of information between reporting periods and the Group's divisions.

Adjusting Items

Adjusting items are fully explained in the Appendix to the Financial Statements. The net impact of adjusting items on Profit Before Tax was a charge of £104m (FY21: £82m charge). The main adjusting items were impairment of the goodwill recognised on the Company Shop acquisition (£25m), impact of the negative outcome on the EVP dispute (£21m), recognition of a provision for the HMRC landfill tax enquiry (£17m), strategy-related costs including costs relating to the systems replacement project (£5m), acquisition-related costs (£9m) and amortisation of acquisition intangible assets (£30m). Tax relating to adjusting items was a credit of £26m (note the tax credit/charge figures in the table below sum to the total statutory tax credit/charge).

The impact of real discount rate changes on provisions was a £0.3m credit for the full year and a full reversal of the £17m charge recognised at half year. This is due to the return of the discount rate to March 2021 levels. 

The total cash impact of adjusting items in FY22 was an outflow of £11m (FY21: £11m outflow).

A reconciliation from Adjusted Operating Profit to Statutory Profit/(loss) after tax is set out below:

	FY22 £m	FY21 £m	Change £m	FY20 £m	Change £m
Adjusted Operating Profit	96.6	44.2	52.4	90.5	6.1
Adjusted net finance charges	(19.9)	(14.4)	(5.5)	(18.7)	(1.2)
Share of joint venture	(1.1)	(0.8)	(0.3)	(0.1)	(1.0)
Adjusted Profit Before Tax	75.6	29.0	46.6	71.7	3.9
Adjusting items:
Onerous contracts	-	(10.3)	10.3	1.5	(1.5)
Strategy-related and restructuring costs	(4.8)	0.4	(5.2)	(1.0)	(3.8)
Acquisition-related costs	(9.4)	(2.0)	(7.4)	(1.1)	(8.3)
Asset impairment	(25.0)	(21.9)	(3.1)	(3.8)	(21.2)
Unwind of EVP balances	(20.8)	-	(20.8)	-	(20.8)
Provision for HMRC landfill tax enquiry	(17.0)	-	(17.0)	-	(17.0)
Amortisation of acquisition intangibles	(29.6)	(27.4)	(2.2)	(16.9)	(12.7)
Impact of real discount rate changes on provisions	0.3	(20.6)	20.9	4.9	(4.6)
Other items	2.1	-	2.1	1.1	1.0
Statutory Profit / (Loss) Before Tax	(28.6)	(52.8)	24.2	56.4	(85.0)
Tax credit / (charge) excl. tax credit on EVP unwind	(4.5)	12.3	(16.8)	(10.8)	6.3
Tax credit on EVP unwind	15.5	-	15.5	-	15.5
Statutory Profit / (Loss) After Tax	(17.6)	(40.5)	22.9	45.6	(63.2)

 

Finance Income and Charges

Adjusted net finance charges increased £5.5m from FY21, primarily due to the higher borrowing levels required to fund the Company Shop and Viridor acquisitions. Net finance charges are more consistent year on year as both IFRIC 12 interest income and exceptional interest income have been recognised in FY22.

A breakdown of net finance charges is provided below:

 

	FY22 £m	FY21 £m	Change %	FY20 £m	Change %
Interest on net borrowings	9.7	6.7	44.8	10.7	(9.3)
Interest on lease liabilities	9.8	8.5	15.3	8.4	16.7
Unwinding of discount provision	2.4	1.8	33.3	1.6	50.0
Interest on forward contracts	0.1	0.6	(83.3)	-	100.0
Pensions and other interest	(2.1)	(3.2)	(34.3)	(2.0)	5.0
Adjusted net finance charges	19.9	14.4	38.2	18.7	6.4
IFRIC 12 provision discount unwind	0.4	-	100.0	-	100.0
Exceptional interest income	(1.1)	-	(100.0)	-	(100.0)
Discount unwind on EVP instrument and IPO costs	-	-	-	(1.1)	100.0
Net finance charges	19.2	14.4	33.3	17.6	9.1

 

Taxation

The Group remains committed to fully discharging its responsibilities in respect of all relevant tax legislation in a clear and transparent manner based on a collaborative relationship with all tax agencies. Our tax strategy is approved annually by the Board and is available on the Group's website.

The effective tax rate on Adjusted profit before tax was 20% (FY21: 22%) due to the impact of usual non-deductible tax items.

The statutory effective tax rate was 38% (FY21: 23%), significantly higher than the prevailing rate due to certain charges being disallowed for UK corporation tax and Profit before tax being at low levels. Payments in respect of corporation tax in the year were £0.3m (FY21: £0.6m). The Group's deferred tax liability balance of £32.5m (FY21: £11.1m) includes balances totalling £53.7m (FY21: £40.8m) in respect of accelerated capital allowances, previously written off goodwill and losses which will continue to moderate tax payments in future years.

Earnings per Share

Statutory basic earnings per share improved from a loss of 13.7 pence in FY21 to a loss of 5.8 pence in FY22. Adjusted basic earnings per share increased from 7.7 pence in FY21 to 19.7 pence in FY22.

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 March 2022, the IAS 19 net retirement benefit surplus was £166.1m compared to a surplus of £112.1m at 26 March 2021.

Capital Allocation

The Group seeks to balance the allocation of its discretionary capital between shareholder returns, organic growth opportunities and the Group's four key investment areas: Reduce, Recycle, Recover and Collect. The main areas of capital allocation are I&C M&A, Plastics recycling capacity, Energy Recovery ("ERF") and the Viridor business acquired during the year. 

In the year c.£8m has been invested in plastics recycling facilities, while £25.0m of investment has been made in the form of shareholder contributions to the ERF JVs. The Viridor business was acquired for a total cash consideration of £130.8m, plus £17.0m of lease liabilities.

Dividends have been reinstated for FY22. During the year an interim dividend of 2.20p was paid (FY21: nil). The Board is recommending a final dividend of 4.69p (FY21: nil).

Return on Capital

Group Adjusted Return on Capital Employed ("ROCE") increased from 1.9% in FY21 to 7.0% in FY22. The recovery did, however, stop short of the 8.9% level achieved in FY20.

Group Adjusted Return on Operating Assets ("ROOA") increased from 9.1% in FY21 to 18.2% in FY22, but again stopped short of the 19.4% level achieved in FY20.

The increased returns in FY22 are due to the improvement in Operating Profit as the Group recovers from the pandemic. Both measures above are expected to increase further in FY23 and surpass the FY20 level as CSG's performance improves and the acquired Viridor business contributes a full year of profits and delivers further synergies.

Cash Flow

Continued focus on cash delivery has resulted in strong cash generation as the business recovers from the impacts of Covid-19. A summary of the Group's cash flows is shown below:

  

		FY22 £m	FY21 £m	Change £m	FY20 £m	Change £m
Adjusted EBITDA		195.0	138.2	56.8	174.0	21.0
Working capital movement (including provisions)		(16.7)	5.0	(21.7)	15.2	(31.9)
Net capital expenditure		(68.7)	(47.9)	(20.8)	(55.8)	(12.9)
Net interest paid		(19.4)	(14.5)	(4.9)	(16.9)	(2.5)
Lease principal payments		(56.9)	(43.4)	(13.5)	(50.2)	(6.7)
Pension deficit payments		(4.3)	(4.0)	(0.3)	(4.1)	(0.2)
Employee share scheme purchase		(3.6)	(4.5)	0.9	(6.0)	2.4
Exercise of share options		0.6	4.9	(4.3)	-	0.6
Tax paid		(0.3)	(0.6)	0.3	(0.2)	(0.1)
Adjusted Free Cash Flow		25.7	33.2	(7.5)	56.0	(30.3)
Adjusting items		(10.6)	(11.0)	0.4	(14.2)	3.6
EfW JV investment	(25.0)	(9.2)	(15.8)	(7.4)	(17.6)
Acquisitions (net of cash acquired)		(122.9)	(103.1)	(19.8)	(5.1)	(117.8)
Changes in borrowings		153.9	(59.1)	213.0	0.5	153.4
Equity raise		-	97.7	(97.7)	-	-
Movement in financial assets		(4.4)	(5.5)	1.1	10.1	(14.5)
Dividends		(6.7)	-	(6.7)	(18.3)	11.6
Net cash flow		10.0	(57.0)	67.0	21.6	(11.6)

 

Adjusted free cash flow has decreased by £7.5m despite the £56.8m increase in Adjusted EBITDA, reflecting the step up in capital expenditure and lease payments and the unwinding of working capital as the Group has relaxed Covid-19 cash management procedures.

The net cash flow of £10.0m represents the ongoing investments in acquisitions, plastics recycling facilities and JV ERF construction activities. Borrowings increased by £153.9m during the year primarily to fund the Viridor acquisition.

Systems Replacement Project

A Group-wide IT system replacement programme was re-launched during the year, following the integration of the Viridor acquisition.

Accounting guidance has changed in FY22, resulting in the majority of IT-related spend on the transformation project no longer meeting the requirements for capitalisation. Instead, these Software as a Service (SaaS) costs have been expensed as incurred.

£4.6m of costs have been expensed as adjusting items in strategy-related and restructuring costs, with a similar amount treated as adjusting cash items and hence excluded from Adjusted Free Cash Flow. The Group is expected to incur costs in the range £10-15m in each of the following few years. 

Net Debt and Borrowings 

Group Net Debt is £595.8m (FY21: £456.8m), representing 3.1x Adjusted EBITDA (FY21: 3.3x). The year-on-year improvement despite the acquisition of the Viridor business demonstrates continued strong cash performance across the Group.

Covenant Basis Net Debt is £578.8m (FY21: £444.2m), representing 2.9x Covenant Basis EBITDA (FY21: 3.0x). This is consistent with the guidance issued in the March 2022 trading update and gives significant headroom against the covenant limit of 4.5x. It should be noted that currently the covenant limit is due to fall to 4.0x in September 2023.

The Group has a target leverage ratio of 3.0-3.5x on a Covenant Basis.

Covenant Basis Interest Cover is 10.7x, slightly above the FY21 level of 10.0x. This also gives satisfactory headroom against the covenant limit of 4.0x.

During the year, the RCF covenants have been changed to a post-IFRS 16 basis so that they are now closely aligned with current accounting principles. This has increased the leverage covenant limit from 3.5x to 4.5x.

There were two private placement issuances during the year. The funds from the first issuance in July 2021 were used to acquire the Viridor business with an average all in cost of 2.73%. The funds from the second issuance in February 2022 were used to significantly reduce the drawdown on the RCF with an average all in cost of 2.49%.

The covenants on the two private placements and the Group's surety lines are all consistent with those of the RCF.

Year end breakdowns of both Group Net Debt and Covenant Basis Net Debt are as follows:

	FY22 £m	FY21 £m	Change %	FY20 £m	Change %
Cash and cash equivalents	40.8	30.8	32.5	87.8	(53.5)
Bank loans (RCF)	(9.0)	(197.6)	95.4	(249.0)	96.4
Private placements	(345.0)	-	(100.0)	-	(100.0)
Lease liabilities	(276.3)	(283.7)	2.6	(258.0)	(7.1)
EVP preference liability	(6.3)	(6.3)	-	(6.3)	-
Group Net Debt	(595.8)	(456.8)	(30.4)	(425.5)	(40.0)
EVP preference liability	6.3	6.3	-	6.3	-
Other financial assets	10.7	8.7	23.0	3.3	224.2
Capitalised loan arrangement fees	-	(2.4)	100.0	(3.0)	100.0
Covenant Basis Net Debt10	(578.8)	(444.2)	(30.3)	(418.9)	(38.2)

 

Although the EVP/fluff dispute has now been concluded, there is still interest due to pre-IPO shareholders and pre IPO management. £6.3m has therefore continued to be included in Group Net Debt, in line with previous years and consistent with the arrangements put in place at the time of the Group's IPO.

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

1. Biffa's scope 1 and 2 GHG emissions

2. Biffa Polymers plastics recycling capacity

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

Our sustainability-linked finance framework is available on the Biffa investor website: www.biffa.co.uk/investors

Landfill Tax Matters

·     Historical EVP/Fluff Case: The Group has been engaged in a dispute with HMRC concerning historical landfill tax. Biffa has recently been refused leave to appeal by the Supreme Court and therefore the dispute is now concluded. The amounts originally paid to HMRC are now irrecoverable and of the £60.6m previously classified as owing to pre-IPO shareholders and pre-IPO management in the future, £7.8m will still be payable in respect of interest and a further sum, of up to £10m will be due to the same stakeholders, as and when tax deductions are obtained by the Group and approved by HMRC.

 

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

 

·     HMRC Landfill Tax Enquiry:  Biffa is currently the subject of an HMRC enquiry (the "Enquiry") primarily relating to the interpretation of the qualifying fines regime set out in in the landfill tax guidance. HMRC also raised concerns, based on its analysis of Biffa's data, over the potential conduct of Biffa and specific customers which may have led to the incorrect rate of landfill tax being paid. To date, no formal claim for tax has been received from HMRC and there is no certainty that HMRC will bring a claim in respect of the Enquiry. 

The potential liability for the relevant period could range from approximately £170,000, up to approximately £168m (being the total amount of protective assessments issued by HMRC to Biffa for the period from March 2016 to June 2020) plus penalties and interest. The total protective assessments figure has increased from the £153m figure disclosed by the Group on 7 June 2022 due to the Group subsequently receiving £15m of further protective assessments from HMRC. The protective assessments have been issued before the conclusion of the Enquiry to ensure that any claim for payment of landfill tax that may be made by HMRC because of the Enquiry is not time-barred.

A provision of £3m was recognised in the year to 26 March 2021, based on Biffa's best estimate of the liabilities at that point in time, recognising the fact that the Enquiry was at an early stage. This reflected the information that had been shared with Biffa at that time and the Directors' expectations of how the matter would be resolved. Following the receipt of further correspondence from HMRC in February 2022, the provision at the year end has been increased to £20m.

This reflects Biffa's best estimate of the potential liabilities arising from all specific amounts asserted by HMRC to date.

Further liabilities could however arise, for example in relation to the interpretation of Biffa's responsibilities under the landfill tax guidance, or in relation to Biffa and its customers' conduct, and the cost of settling any such liabilities is uncertain. The remaining amount of the total protective assessments figure has been disclosed as a contingent liability.

 

Richard Pike

Chief Financial Officer
1 August 2022

3.   Technical Notes

1.   Net Revenue - Statutory Revenue excluding landfill tax.

2.   Adjusted EBITDA - Profit/loss excluding depreciation and amortisation, adjusting items, finance costs and taxation

3.   Adjusted EBITDA margin - Adjusted EBITDA² as a percentage of Statutory Revenue

4.   Adjusted Operating Profit - Profit/loss excluding adjusting items, finance costs and taxation

5.   Adjusted Operating Profit margin - Adjusted Operating Profit⁴ as a percentage of Statutory Revenue

6.   Adjusted Profit Before Tax - Profit/loss excluding adjusting items and taxation

7.   Adjusted Free Cash Flow - Net increase/decrease in cash and cash equivalents excluding adjusting items, dividends, acquisitions, movements in borrowings

8.  Group Net Debt - Sum of bank loans, lease liabilities and EVP preference liability less cash and cash equivalents

9.   Net Debt:EBITDA (Covenant Basis) - Ratio of Covenant Basis Net Debt¹¹ to Covenant Basis EBITDA¹²

10.  Adjusted Basic EPS - Basic earnings per share excluding adjusting items

11.  Covenant Basis Net Debt - Group Net Debt less EVP preference liability and other financial assets

12. Covenant Basis EBITDA - Adjusted EBITDA² plus the impact of increasing the contribution from acquisitions during the year to a full 12 months

13.  Organic growth - Revenue growth excluding the impact of acquisitions

Further information on the alternative performance measures above is available in the appendix to the financial statements.

 

4.   Glossary

·      CSG - Company Shop Group

·      EfW - Energy from Waste

·      ERCV - Electric Refuse Collection Vehicles

·      ERF - Energy Recovery Facility

·      MRF - Materials Recycling Facility

·      HWRC - Household Waste Recycling Centre

·      GHG - Greenhouse Gas

·      HGV - Heavy Goods Vehicle

·      JV - Joint Venture

·      LFT - Landfill Tax

·      RCF - Rolling Credit Facility

·      ROCE - Return on Capital Employed

·      ROOA - Return on Operating Assets

·      rHDPE - Recycled High-density Polyethylene

·      rPET - Recycled Polyethylene Terephthalate

·      rPP - Recycled Polypropylene

·      SaaS - Software as Service

5.   Financial Statements

Consolidated Income Statement

	52 weeks ended 25 March 2022 £m	52 weeks ended 26 March 2021 £m
Revenue	1,443.2	1,042.0
Cost of sales	(1,351.5)	(1,000.3)
Gross profit	91.7	41.7
Operating costs	(75.0)	(57.4)
Impairments	(25.0)	(21.9)
Operating Loss	(8.3)	(37.6)
Finance income	3.2	3.2
Finance charges	(22.4)	(17.6)
Share of results in joint venture	(1.1)	(0.8)
Loss before taxation	(28.6)	(52.8)
Taxation	11.0	12.3
Loss for the period	(17.6)	(40.5)
Loss attributable to shareholders of the Parent Company	(17.6)	(40.5)
Basic loss per share (pence)	(5.8)	(13.7)
Diluted loss per share (pence)	(5.6)	(13.4)

 

Consolidated Statement of Other Comprehensive Income

	52 weeks ended 25 March 2022 £m	52 weeks ended 26 March 2021 £m
Loss for the period	(17.6)	(40.5)
Other Comprehensive Income/(Loss)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/(loss) on defined benefit pension scheme	48.7	(21.6)
Tax relating to items that will not be reclassified subsequently to profit or loss	(15.0)	4.1
	33.7	(17.5)
Items that may be reclassified subsequently to profit or loss:
Gain/(Loss) on fair value of cash flow hedges:
Fair value gain/(loss) arising on hedging instruments during the period	15.0	(2.6)
Net gain/(loss) on cash flow hedge in joint venture	3.5	(1.0)
Tax relating to items that may be reclassified subsequently to profit or loss	(2.2)	-
	16.3	(3.6)
Other comprehensive income/(loss) for the period, net of income tax	50.0	(21.1)
Total comprehensive income/(loss) for the period	32.4	(61.6)
Attributable to shareholders of the Parent Company	32.4	(61.6)

 

 

Consolidated Statement of Financial Position

	As at 25 March 2022 £m	As at 26 March 2021 £m
Non-current assets
Goodwill	264.3	224.3
Investment in joint venture	29.4	9.6
Other intangible assets	222.9	182.5
Property, plant and equipment	617.2	562.2
Long-term receivables	2.3	65.8
Loan to joint ventures	14.3	6.0
Derivative financial instruments	7.7	-
Retirement benefit surplus	166.1	112.1
	1,324.2	1,162.5
Current assets
Inventories	35.2	22.3
Contract assets	71.8	50.6
Trade and other receivables	207.6	141.3
Financial assets	16.3	12.8
Derivative financial instruments	4.0	0.3
Cash and cash equivalents	40.8	30.8
	375.7	258.1
Current liabilities
Lease liabilities1	(53.8)	(54.7)
Trade and other payables2	(340.7)	(257.8)
Deferred and contingent consideration	(4.2)	(9.4)
Contract liabilities	(27.1)	(19.6)
Derivative financial instruments	(0.2)	(3.0)
Provisions	(20.3)	(16.1)
	(446.3)	(360.6)
Net current liabilities	(70.6)	(102.5)
Non-current liabilities
Borrowings1	(368.3)	(245.2)
Lease liabilities1	(222.5)	(229.0)
Derivative financial instruments	-	(0.9)
Trade and other payables	(6.6)	(14.6)
Deferred consideration	(3.0)	-
Provisions	(137.4)	(101.3)
Deferred tax liability	(32.5)	(11.1)
	(770.3)	(602.1)
Net assets	483.3	457.9
Equity
Called up share capital	3.1	3.1
Share premium	247.6	247.0
Hedging reserve	9.9	(6.4)
Merger reserve	170.3	170.3
Retained earnings	52.4	43.9
Total equity attributable to shareholders	483.3	457.9

 

1      Lease liabilities, which have previously been included within borrowings (both current and non-current) are now disclosed as separate lines.

2      Corporation tax creditor is now included within trade and other payables as its size does not warrant its own line item.

 

Statement of Changes in Equity

	Called up share capital £m	Share premium £m	Hedging reserve £m	Merger reserve £m	Retained earnings £m	Total equity £m
As at 27 March 2020	2.5	235.3	(2.8)	74.4	101.6	411.0
Loss for the period	-	-	-	-	(40.5)	(40.5)
Other comprehensive loss	-	-	(3.6)	-	(17.5)	(21.1)
Total comprehensive loss	-	-	(3.6)	-	(58.0)	(61.6)
Equity raise	0.5	1.3	-	95.9	-	97.7
Issue of share capital	0.1	10.4	-	-	-	10.5
Shares purchased by employee benefits trust	-	-	-	-	(4.4)	(4.4)
Value of employee service in respect of share option schemes (excluding NICs)	-	-	-	-	3.2	3.2
Deferred tax on share-based payments	-	-	-	-	1.5	1.5
As at 26 March 2021	3.1	247.0	(6.4)	170.3	43.9	457.9
Loss for the period	-	-	-	-	(17.6)	(17.6)
Other comprehensive profit	-	-	16.3	-	33.7	50.0
Total comprehensive income	-	-	16.3	-	16.1	32.4
Exercise of share options	-	0.6	-	-	-	0.6
Shares purchased by employee benefits trust	-	-	-	-	(3.6)	(3.6)
Value of employee service in respect of share option schemes (excluding NICs)	-	-	-	-	2.7	2.7
Dividends paid	-	-	-	-	(6.7)	(6.7)
As at 25 March 2022	3.1	247.6	9.9	170.3	52.4	483.3

 

Consolidated Statement of Cash Flows

	52 weeks ended 25 March 2022 £m	52 weeks ended 26 March 2021 £m
Cash flows from operating activities
Operating Profit/(Loss)	(8.3)	(37.6)
Share-based payments	3.7	3.8
Amortisation of intangibles	30.7	28.6
Depreciation of property, plant and equipment	94.9	87.2
Impairment of assets	25.0	28.7
(Gain)/Loss on disposal of 25% right to participate in the Protos JV	-	(2.8)
(Profit)/Loss on disposal of fixed assets	(6.2)	0.3
EVP related items	20.8	-
Pension deficit payments	(4.2)	(4.0)
(Increase)/Decrease in inventories	(12.2)	(2.4)
(Increase)/Decrease in receivables	(72.7)	36.7
Increase/(Decrease) in payables	62.8	(33.8)
(Increase)/Decrease in financial assets	(3.4)	(5.5)
Increase/(Decrease) in provisions	13.7	24.3
Net cash flow from operating activities	144.6	123.5
Income tax paid	(0.3)	(0.6)
Net cash flow from operating activities	144.3	122.9

 

Consolidated Statement of Cash Flows (continued)

	52 weeks ended 25 March 2022 £m	52 weeks ended 26 March 2021 £m
Cash flows from investing activities
Purchases of property, plant and equipment	(67.2)	(45.0)
Purchases of intangible assets	(2.1)	(3.9)
Funds on long-term deposit	-	(0.1)
Business combinations	(135.8)	(119.1)
Cash acquired from business combinations	14.2	16.0
Deferred consideration	(1.2)	-
Investment in joint ventures	(17.5)	(8.4)
Sale of rights to shares in joint venture	-	2.8
Proceeds from the sale of property, plant and equipment	6.9	0.8
Loan to joint venture	(7.5)	(3.6)
Interest received	-	0.1
Net cash flow from investing activities	(210.2)	(160.4)
Cash flows from financing activities
Interest paid	(19.3)	(14.6)
Employee share scheme purchase	(3.6)	(4.5)
Exercise of share options	0.6	4.9
New loans raised	345.0	70.0
Repayment of borrowings	(191.1)	(128.6)
Extension of borrowing fees	-	(0.6)
Cash flow on settlement of derivatives	4.1	(0.4)
Equity raise	-	97.7
Lease liabilities principal payments	(53.1)	(43.4)
Dividends paid	(6.7)	-
Net cash flow from financing activities	75.9	(19.5)
Net increase in cash and cash equivalents	10.0	(57.0)
Cash and cash equivalents at the beginning of the period	30.8	87.8
Cash and cash equivalents at the end of the period	40.8	30.8

Notes to the Consolidated Financial Statements

Accounting Policies to the Group Financial Statements

Basis of Preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB'). The comparative financial information has also been prepared on this basis.

The Consolidated Financial Statements have been prepared on an historical cost basis, except for the recording of pension assets and liabilities, share based payments and the revaluation of certain derivative financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Financial Statements for 2022 have been prepared for the 52-week period ended 25 March 2022. The prior year was a 52-week period, to 26 March 2021. The upcoming year will be a 53-week period, to 31 March 2023.

The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated Financial Statements are disclosed in Note 1 to the Financial Statements.

 

1. General Information

Biffa plc (the "Group" or the "Company") is a public company by shares incorporated and registered in the UK and is the ultimate parent company. The address of the Group's registered office is Coronation Road, Cressex, High Wycombe, Buckinghamshire, HP12 3TZ. The principal activity of the Group and its subsidiaries is the provision of waste management services within the United Kingdom.

The unaudited financial information for the 52-week period ended 25 March 2022 has been based on the Company's financial statements which are prepared in accordance with United Kingdom adopted international accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). Whilst the financial information contained in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with those standards. The company expects to publish full financial statements that comply with IFRS in August 2022. The financial information presented herein has been prepared in accordance with the accounting policies expected to be used in preparing the Biffa Plc Annual Report 2022, which are the same as those used in preparing the Biffa Plc Annual Report 2021.

The financial information set out in the announcement does not constitute the Company's statutory accounts for the years ended 25 March 2022 or 26 March 2021. The financial information for the year ended 26 March 2021 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or (3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 25 March 2022 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

These financial statements are presented in Pound Sterling ('GBP') and are rounded to the nearest £0.1m.

A copy of the full Group financial statements for the period ended 25 March 2022 that comply with IFRSs will be made available at biffa.co.uk.

Going Concern

During FY22, Biffa's financial performance largely recovered from the effects of the Covid-19 pandemic and the associated lockdown measures. Revenue and Adjusted EBITDA saw significant growth to surpass FY20 levels despite the significant headwinds faced during the year. These included high inflationary cost pressures, driver shortages and supply chain disruption. This resilient performance gives the Directors confidence in the forecast financial performance for the next 12 months. Growth is expected to continue into FY23 as CSG performance recovers and further synergies are realised on the Viridor acquisition.

These forecasts, when overlaid with sensitivity analysis taking into account different scenarios for fluctuations in trading performance, show that the Group is expected to be able to comfortably operate within the current levels of the facility over the next 12 months.

The Group had unutilised committed bank facilities available of £341m as at the FY22 year end and cash and cash equivalents of £40.8m. This gives a closing leverage ratio (Net Debt / Adjusted EBITDA) of 2.9x on a covenant basis, substantially below the covenant limit of 4.5x. The large headroom on both liquidity and leverage puts the Group in a strong position to manage fluctuations in financial performance over the next 12 months.

The Group completed the acquisition of Viridor's Collections business and certain recycling assets on 31 August 2021 for a total consideration of £130.8m, with £17.0m of lease liabilities assumed.

In order to fund the Viridor acquisition, the Group arranged a private placement facility with two investors for £150m covering a term of 7 and 10 years with an average borrowing cost of 2.7%.

An additional private placement facility was arranged with three investors (two of which also invested in the £150m private placement) in February 2022, enabling the Group to reduce the drawdown on the RCF to low levels. This has a term of 8, 10 and 12 years with an average borrowing cost of 2.5%.

The cost of the commitments since the Capital Markets Day have been captured in the going concern assessments when assessing the funding requirements.

The going concern assumption has been assessed by considering a number of the principal risks in the Strategic Report. Multiple low cases have been tested, one of which involves the combination of events with a negative impact such as a recession and a large one-off cash payment in FY23 similar in amount to the sum of the protective assessments issued by HMRC on the ongoing landfill tax enquiry. The Group could continue to operate for at least the next 12 months in each of these low cases.

After careful consideration, the Board recognise the medium and long term sustainability risks arising from climate change, including cessation of renewable obligation certificates held by the landfill gas business in 2027. Short term impacts in relation to climate change are not considered to have a significant impact on the Group's business model within the going concern period.

On 7 June 2022, the Group announced it had received an unsolicited offer from affiliates of Energy Capital Partners LLC ("ECP") to purchase 100% of the share capital in Biffa plc. The Directors have considered this offer in the context of going concern and have decided that this does not affect the conclusion as to whether the going concern basis of accounting should be adopted.

Based on the above, the Directors have concluded the Group is well placed to manage its financing and other business risks satisfactorily and have a reasonable expectation that the Group will have adequate resources to continue in operation for at least 12 months from the signing date of these Consolidated Financial Statements. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements.

Key Areas of Judgement and Estimation Uncertainty

The preparation of IFRS compliant Financial Statements requires the use of accounting estimates and assumptions and also requires management to exercise its judgement in the process of applying Group accounting policies. The Group continually evaluates its estimates, assumptions and judgements based on available information and experience. As the use of estimates is inherent in financial reporting, actual results could differ from these estimates.

 

Critical Judgements

The Group also applies judgement in identifying the significant, exceptional and non-recurring items of income and expense. We have summarised the policy in more detail in the appendix.

 

1.     Legal and tax cases

The Group has provisions in place for ongoing litigation. Management exercises judgement in determining the amount of provision required. This provision is calculated using information provided by external professionals where applicable or management's best estimate.

The Group has been engaged in an EVP/fluff dispute with HMRC concerning historical landfill tax. As at 26 March 2021 £47.6m was held as a financial liability, £13.0m was held as an accrual and £63.6m was held as a prepayment. The outcome of the dispute in May 2022 has been treated as an adjusting event for the year ending 25 March 2022 in accordance with IAS 10: Events After the Reporting Period, with these amounts being adjusted accordingly.

The Group is also engaged in a dispute with HMRC in relation to the landfill tax treatment of sub-soils with low levels of contamination from asbestos. The Group has received a protective assessment of £8.5m, which has been paid. As the Group is currently disputing this assessment, and management believe it likely that they will win the dispute, the £8.5m payment is included in prepayments in the current year.

The Group is currently the subject of an HMRC enquiry regarding certain aspects of its landfill tax compliance as part of concerns it has regarding possible misclassification of waste across the industry. The potential liability for the relevant period could range from approximately £170,000 up to a possible maximum of approximately £168m (being the total amount of protective assessments issued by HMRC to Biffa for the period in question, from March 2016 to March 2020) plus penalties and interest. The protective assessments have been issued before the conclusion of the enquiry to ensure that any claim for payment of landfill tax that may be made by HMRC as a result of the enquiry, is not time-barred. There are a range of possible outcomes to the enquiry and it is difficult to accurately ascertain the quantum of any potential liability arising from the enquiry with any certainty or precision. Biffa strongly refutes HMRC's concerns. It is likely that it will be some time before the enquiry reaches a conclusion.

Management has applied judgement in concluding on the different potential outcomes and their respective probabilities, in accordance with IAS 37: Provisions, Contingent Liabilities and Contingent Assets. It has been decided that a provision of £20.0m should be recognised at March 2022.

 

2.     Acquisition of Viridor

On 31 August 2021 the Group acquired 100% of the share capital of Syracuse Waste Limited and its subsidiaries from the Viridor Group. Syracuse Waste Limited is a specially created entity into which Viridor hived down its collections business and certain recycling assets in order to enable the sale. The deal involves the transfer of approximately 21,000 existing Viridor business waste customers alongside a network of 15 depots across the UK. The acquisition is in line with the Group's growth strategy and complements the current operations across the Collections and Resources & Energy divisions.

The accounting on the Viridor acquisition, in accordance with IFRS 3: Business Combinations, involves a number of key judgements:

• Fair valuations on all balance sheet items as at the date of acquisition, in particular tangible fixed assets;

• Whether the West Sussex Recycling contract acquired falls within the scope of IFRIC 12: Service Concession Arrangements and, if it does, whether a financial asset model, intangible asset model or bifurcated model should be adopted; and

• Allocation of consideration between the divisions within the Viridor business, which in turn affects the goodwill allocated to each cash-generating unit in the Biffa Group.

Where necessary, the Group mitigated the risk in these judgements by using external specialists.

 

Key Sources of Estimation Uncertainty

The Group has the following key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period:

 

1.     Landfill accounting

The Group operates a number of landfill sites in the UK. A significant cost of owning and operating a landfill site in the UK arises after the land-filling operation ceases due to the constructive and legal obligation to restore sites and then to care for them until it can be demonstrated that they present no ongoing risk to the environment.

A provision is made for the costs associated with restoring and maintaining its landfill sites and controlling leachate and methane emissions from the sites. A number of factors create estimate uncertainties, including the impact of regulation, climate change, accuracy of site surveys, transportation costs and changes in the real discount rate.

The provisions incorporate our best estimates of the financial effects of these uncertainties, but future changes in any of these estimates could materially impact the calculation of the provision.

The associated outflows are estimated to arise over a period of up to 60 years depending on the date of each site closure. In determining the provision, the estimates for future expenditure required to settle the obligation are inflated using a longer-term inflation rate of 3.3% and discounted using the nominal discount rate of 2.7%. The rates utilised reflect the period of the obligation on a site-by-site basis which varies between 10 and 60 years.

An increase of 1% in the real discount rate (at current cost) would result in a decrease of environmental provisions of approximately £16.0m (2021: £15.7m). A 10% increase in cash outflows would result in an increased environmental provision of £7.8m (2021: £7.7m).

Long-term after-care provisions included in landfill restoration and after-care provisions have been inflated at a rate of 3.3% (2021: 2.8%). An increase of 1% in the rate of inflation would result in an increase of environmental provisions of approximately £23.1m (2021: £22.8m).

 

2.     Retirement Benefits Accounting

The Group operates several defined benefit pension schemes which are accounted for under IAS 19 Employment Benefits. Pension accounting is a specialist area requiring the exercise of significant management judgement and the use of technical expertise to determine the surplus or deficit of the scheme in accordance with generally accepted actuarial practices. The assumptions used in valuing the defined benefit pension liabilities including the discount rate, mortality assumption and inflation level are complex and changes to the assumptions can have a material impact on the value of pension liabilities. As at the end of the financial year the Group recognised a retirement benefit surplus of £166.1m.

If the discount rate is 1% lower the defined benefit asset would decrease by £104.6 m (2021: £113.6m).

If the inflation assumption increases by 1% the defined benefit asset would decrease by £100.0m (2021: 104.0m).

If the life expectancy increases by one year for both men and women, the defined benefit asset would decrease by £14.9m (2021: £18.2m).

All pension valuations are performed as at the year end reporting date.

3.     Onerous Contract Provisions

Certain contracts held by the Group are considered onerous and long-term in nature. These contracts can be complex and contain key performance indicator clauses where penalties may be incurred in the event of noncompliance. The Group is therefore required to make operational and financial assumptions to estimate future losses over periods that can extend beyond seven years.

Variability of contract penalties, underlying delivery costs, commodity prices applied and customer claims or disputes can put additional pressure on margins and on future contract profitability, giving rise to onerous contract provisions. The Group mitigates against the risk of price movements by entering into fuel hedging arrangements. Management continue to monitor potential cost impacts on services and seek to discuss those with customers as appropriate, on a case-by-case basis.

The prediction of future events over extended periods contains inherent risk and the outcome of customer and subcontractor claims is uncertain and involves a high degree of management estimation. Management recognise the risk of future onerous contract provisions being recognised due to significant increases in certain costs as detailed above.

The Group holds two onerous contract provisions during the year relating to contracts on Mid-Kent Partnership and Leicester.

The future cash inflow from the remaining onerous contracts are highly predictable as they are fixed, based on the terms of the contract. However, the costs associated with delivering the contract can vary and assumptions on future cash outflows is considered a significant estimate when modelling the future net cash outflows on onerous contract provisions. On the Mid-Kent provision a 5% increase in future cash outflows would increase the provision by £1.2m and on the Leicester provision a 5% increase in future cash outflows would increase the provision by £1.0m.

In arriving at the onerous contract provision for the Mid-Kent Partnership contract, the Group has discounted the future cash flows using a risk-free rate of 2.5%. If this rate increased by 500 basis points the provision charge would decrease by £0.4m.

In arriving at the onerous contract provision for the Leicester contract, the Group has discounted the future cash flows using a risk-free rate of 2.8%. If this rate increased by 500 basis points the provision charge would decrease by £2.1m.

 

4.     Viridor Acquisition Accounting

The accounting relating to the Viridor acquisition involves making a number of estimates that have a significant impact on the financial position at the date of acquisition and subsequent year ends. The key estimation areas are:

·   Fair valuations applied to assets and liabilities acquired, in accordance with IFRS 3: Business Combinations

·      Intangible assets recognised on acquisition

·      £31.5m of acquisition intangibles have been recognised on acquisition, split as follows:

o  £0.3m Brand

o  £31.2m Customer and contractual relationships

·     Intangible asset of £37.5m and provision of £12.7m relating to the West Sussex Recycling contract, in accordance with IFRIC 12 Service Concession Arrangements.

The parts of the acquired business allocated to the Collections and Specialist Services operating segments contain pools of commercial customer relationships from which the business realises significant value.

The values are derived by calculating the present value of estimated future cash flows in the areas of the business the intangible assets relate to.

The inherent estimation uncertainty in the valuations of both intangible assets and tangible assets has been mitigated by using external valuation experts.

Refer to Note 3 for further information on the amounts recognised on acquisition.

 

5.     Goodwill Impairment in Company Shop Group

The Group recognised goodwill on completion of the acquisition of CSG in February 2021. The carrying value of the goodwill is dependent on future cashflows and, if these cashflows do not meet the Group's expectations, there is a risk that the assets will be impaired. The impairment review performed by the Group contains a number of significant estimates:

·      Revenue in both the short and long term

·      Gross margin in both the short and long term

·      Discount rate

Changes in these assumptions can have a significant impact on the estimated value in use. An impairment assessment was performed by the Group at half year, with the outcome being the recognition of a £25.0m impairment to goodwill due to trading under performance, in accordance with IAS 36: Impairment of Assets. An additional impairment assessment has been performed at year end, with the value in use exceeding the goodwill carrying amount and the outcome being no further impairment. This is due to improved trading in the final quarter of the year and our confidence in the potential of the business being confirmed. The value in use excludes any additional value which may be generated by future store roll-outs.

The key assumptions when calculating the value in use are detailed above. Management's calculation of value in use has been developed from forecast five-year cash flows which are prepared on the basis of past performance and expectation of future performance which considers climate change, market information and a consistent growth rate.

The valuation of the goodwill allocated to CSG has headroom of £9.0m at the end of the financial year. The pre-discount rate used in the value in use calculation was 9.75%, an increase in the pre-tax discount rate of 110 basis points would reduce headroom to nil. The short term compounded annual growth rate used was 7.71%, a reduction of 89 basis points in the short term compounded annual growth rate would reduce headroom to nil. The average gross profit margin on short and medium term cashflows used was 56.4%, a reduction of 250 basis points would reduce headroom to nil. The gross profit margin on long term cashflows used was 57.0%, a reduction of 100 basis points would reduce headroom to nil.

 

6.   HMRC Landfill Tax Enquiry

The Group operates a number of landfill sites in the UK. Operators of landfill sites are responsible for collecting Landfill Tax and paying it to HMRC. Excise Notice LFT1: a general guide to Landfill Tax ("LFT1") sets out guidance published by HMRC on the application of Landfill Tax legislation to the activities of landfill site operators such as Biffa.

In February 2020, Biffa Waste Services Limited ("BWSL") was notified by HMRC that it had concerns regarding certain aspects of Landfill Tax compliance that may have led to an underpayment of Landfill Tax and was conducting an enquiry (the "Enquiry"), primarily relating to the interpretation of the qualifying fines regime set out in LFT1.  HMRC also raised concerns, based on its analysis of BWSL's data, over the potential conduct of BWSL and specific customers which may have led to the incorrect rate of Landfill Tax being paid.

Fines are particles produced by a waste treatment process that involves an element of mechanical treatment. For a landfill site operator to treat fines as qualifying fines (meaning that Landfill Tax on such material is payable at a lower rate), it must be satisfied that the conditions set out in LFT1 have been met. These include pre-acceptance checks on customers, visual inspections of materials deposited at the landfill site and compliant loss on ignition ("LOI") tests conducted at the specified frequency (which is dependent on whether a customer is classified as low or high risk). LOI tests are laboratory tests on samples of waste to establish the amount of organic content in the waste.

In response to the concerns raised by HMRC, Biffa appointed Ernst & Young ("EY") to conduct an extensive review.

In May 2020, an interim report was submitted by EY and BWSL to HMRC addressing a number of the concerns raised by HMRC and outlining some immediate changes to processes at landfill sites operated by Biffa, which were made on a without prejudice basis, to mitigate the risk of any ongoing potential liability.

In March 2021, a disclosure report and supporting data (the "Disclosure Report"), prepared by EY and BWSL, was submitted to HMRC. The declared liability of BWSL in the Disclosure Report was approximately £170,000, with the other concerns, including those relating to the potential conduct of BWSL and specific customers, strongly refuted.

In February 2022, BWSL received a further letter from HMRC which responded to a number of specific findings in the Disclosure Report, asserted specific amounts that they considered were due and indicated that HMRC would be carrying out further work on other aspects of the Disclosure Report. Following receipt of this letter, further detailed work has been carried out by Biffa and its advisors.

Protective assessments:

HMRC has issued protective assessments totalling approximately £153m to BWSL in respect of the period from March 2016 to March 2020. In addition, in June 2022, HMRC issued approximately £15m of further protective assessments, the majority of which were in relation to the period April to June 2020, to cover the period to the end of the Disclosure Report. Consistent with their usual practice when conducting an enquiry that may result in additional liability to tax, the protective assessments have been issued by HMRC before the conclusion of the Enquiry to ensure that any claim for payment of Landfill Tax that may be made by HMRC as a result of the findings of the Enquiry is not time-barred.

These protective assessments are not necessarily an indication of what liability may ultimately arise, nor is their existence an indication that a claim will be brought against BWSL by HMRC. BWSL is not currently required to make payment to HMRC or reserve or ringfence funds for a possible payment as a result of these protective assessments, however it has made a payment on account of £170,000 for the declared liability under the Disclosure Report.

Potential outcomes and liabilities:

In Biffa's view, based on advice received to date, there are a range of possible outcomes to the Enquiry. BWSL's potential liability to Landfill Tax for the relevant period could range from approximately £170,000 (based on the declared liability in the Disclosure Report) up to approximately £168m (being the amount raised in protective assessments to date), plus potential penalties and interest. In addition, BWSL will incur further costs in conducting and responding to the Enquiry.

To date the Group has not received any formal claim from HMRC with regard to the matters that are the subject of the Enquiry.

The Enquiry is expected to continue into 2023. At the end of the Enquiry, HMRC will be required to confirm the amount of the protective assessments. If BWSL does not accept HMRC's decision, then BWSL will be entitled to request a formal statutory review by HMRC.  Assuming HMRC upholds its decision in respect of all or part of the assessments, BWSL will have 30 days from the date of HMRC's review decision to submit an appeal to the First-tier Tax Tribunal ("FTT") to challenge HMRC and formally protect BWSL's position. To bring the appeal, BWSL would be required to pay the assessed Landfill Tax to HMRC at that stage, although BWSL could make a hardship application to HMRC to secure their agreement to the deferral of the payment of the assessed tax, failing which BWSL could apply to the FTT directly on grounds of hardship. If the Enquiry resulted in BWSL being liable to pay additional Landfill Tax, such amounts should be tax deductible.

Provision (see Note 4):

A provision of £3m was recognised in the year to 26 March 2021, based on Biffa's best estimate of the liabilities at that point in time, recognising the fact that the Enquiry was at an early stage. This reflected the information that had been shared with Biffa at that time and the Directors' expectations of how the matter would be resolved.  Following the receipt of further correspondence from HMRC in February 2022, the provision at the year end has been increased to £20m.

This reflects Biffa's best estimate of the potential liabilities arising from all specific amounts asserted by HMRC to date. Further liabilities could however arise, and the cost of settling these liabilities could vary from the provision recognised. Changes to this liability in the future cannot currently be estimated.

Contingent liability (see Note 5):

As noted above, a provision has been recognised relating to specific amounts asserted by HMRC to date. 

However, broader concerns have also been raised by HMRC about how certain requirements within the qualifying fines regime set out in LFT1 were intended to be applied in practice, and the extent to which Biffa has complied with these requirements. No specific amounts have been associated with these issues to date by HMRC. 

Based on advice received to date for these areas, noting the early stages of HMRC's enquiry, it is considered that a present obligation does not exist and a liability is not probable. BWSL's potential additional liability for Landfill Tax for the relevant period could be up to approximately £154m (being the total amounts raised in protective assessments less the provision made excluding costs), plus penalties, interest and further costs in responding to the Enquiry.

Based on advice received, the Directors do not consider a liability is likely to arise in respect of these broader concerns and therefore this item is treated as a contingent liability and no provision arises for these broader concerns.

 

2. Segmental Information

 

The Group is managed by type of business and is organised into three operating divisions:

·      Collections which encompasses Municipal and Industrial & Commercial

·      Resources & Energy which consists of Inerts, Organics, Recycling and Landfill Gas sub-divisions

·      Specialist Services which includes Company Shop Group and Industrial Services

These operating divisions represent the business segments in which the Group reports its primary segment information and are consistent with the internal reporting provided to the chief operating decision maker. Head office costs are recorded within the Group Business Function ('GBF') division, however for operating and business decisions only three divisions are considered. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating divisions, has been identified as the Group Executive Team. The operations acquired as part of the Viridor acquisition have been integrated and allocated appropriately across the three operating divisions.

Charges incurred in the year relating to the EVP dispute (£20.8m) and the HMRC landfill tax enquiry (£17.0m) have been borne by the GBF division.

During the current financial period the Group moved from recognising two operating divisions (Collections and Resources & Energy) to recognising three operating divisions (Collections, Resources & Energy and Specialist Services). Operations including Company Shop Group, Hazardous Waste, IRM and Biffpack which were formerly included in the Collections division are now reported in the Specialist Services Division. This represents a distinction from the Municipal and Industrial & Commercial operations retained within the Collections division. The prior period comparatives by division have been updated to reflect these allocations.

The Group's segmental results are as follows:

 

	2022 £m	2021 £m
Revenue
Collections	873.9	677.6
Resources & Energy	395.2	272.0
Specialist Services	174.1	92.4
Total	1,443.2	1,042.0

 

Revenue within divisions is eliminated upon consolidation. Sales between operating divisions are carried out at arm's length. There have been no other material amounts of revenue recognised in the year that relate to performance obligations satisfied or partially satisfied in previous years. Revenue received where the performance obligation will be fulfilled in the future is classified as deferred income or contract liabilities.

All trading activity and operations are in the United Kingdom and there is therefore no secondary reporting format by geographical segment. There is no single customer that accounts for more than 10% of the Group's revenue (2021: none).

 

	2022 £m	2021 £m
Operating Profit/(Loss)
Collections	65.6	27.8
Resources & Energy	17.5	(43.9)
Specialist Services	(19.9)	8.2
Group Business Function	(71.5)	(29.7)
Total	(8.3)	(37.6)

 

 

	2022 £m	2021 £m
Tangible assets net book value
Collections	319.3	264.1
Resources & Energy	226.6	194.8
Specialist Services	50.5	44.0
Group Business Function	20.8	59.3
Total	617.2	562.2

 

 

	2022 £m	2021 £m
Intangible assets net book value
Collections	21.3	14.8
Resources & Energy	121.8	101.3
Specialist Services	5.4	-
Group Business Function	74.4	66.4
Total	222.9	182.5

  

	2022 £m	2021 £m
Capital expenditure
Collections	104.1	57.3
Resources & Energy	96.2	64.1
Specialist Services	16.4	47.6
Group Business Function	7.1	9.6
Total	223.8	178.6

 

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

 

	2022 £m	2021 £m
Depreciation
Collections	55.8	51.8
Resources & Energy	29.7	28.9
Specialist Services	6.2	2.1
Group Business Function	3.2	4.4
	94.9	87.2
Amortisation
Collections	4.5	4.6
Resources & Energy	25.1	22.8
Specialist Services	-	-
Group Business Function	1.1	1.2
	30.7	28.6
Total Amortisation and Depreciation	125.6	115.8

 

 

3. Acquisitions

 

52-week period ended 25 March 2022

 

Green Circle (Polymers) Limited

On 25 June 2021, the Group acquired the trade and assets of Green Circle (Polymers) Limited in exchange for cash consideration of £5.6m and deferred cash consideration of £3.7m payable over a period of 13 years. The deferred consideration has an acquisition date fair value of £3.3m. This acquisition includes a 50,000 tonne capacity Plastics Recycling Facility ('PRF') at Grangemouth in Scotland, which helps to secure feed stock for our Seaham, Redcar and Washington Polymers plants.

Goodwill of £6.0m arising from the acquisition of Green Circle (Polymers) reflects the secured feed stock as well as being the only plastics recycling facility in Scotland putting it in an ideal position to process the materials collected through Scotland's Deposit Return Scheme ('DRS') which comes into force in 2022. The Green Circle acquisition is part of the business within the Resources & Energy division.

Since acquisition to the end of the financial year Green Circle (Polymers) has generated revenues of £4.2m and a loss before tax of £0.2m. If the Green Circle (Polymers) acquisition had been completed on the first day of the financial year, Group revenues for the year would have been £1,448.8m and Group loss for the period would have been unchanged.

At the end of the financial year the Group does not anticipate any of the trade and other receivables within Green Circle (Polymers) Limited to be irrecoverable.

 

Syracuse Waste Limited

On 31 August 2021, the Group acquired 100% of the share capital of Syracuse Waste Limited and its subsidiaries from Viridor. Syracuse Waste Limited is a specially created entity into which Viridor hived down its collections business and certain recycling assets in order to enable the sale. The deal involves the transfer of approximately 21,000 existing Viridor business waste customers alongside a network of 15 depots across the UK. The acquisition is in line with the Group's growth strategy and complements the current operations across the Collections and Resources & Energy divisions.

Goodwill of £65.4m arising from the acquisition of Syracuse Waste Limited reflects the additional national scale of the collections business, in line with the Group's strategy to consolidate the highly fragmented UK I&C collections market and become the leading UK-based integrated waste management business.

Since acquisition to the end of the financial year Syracuse Waste Limited has generated revenues of £84.0m and a profit before tax of £11.8m. If the Syracuse Waste Limited acquisition had been completed on the first day of the financial year, Group revenues for the year would have been £1,587.2m and Group loss for the period would have become a loss of £1.7m.

As at 25 March 2022, the opening balance sheet for the Viridor acquisition remains within the 12 month measurement period post acquisition and should therefore be considered provisional.

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

 

	Green Circle £m	Syracuse Waste £m	Total £m
Intangible assets	-	69.0	69.0
Property, plant and equipment	3.5	45.5	49.0
Trade and other receivables	-	17.5	17.5
Inventory	0.1	0.7	0.8
Cash and cash equivalents	-	14.2	14.2
Deferred tax liability	(0.4)	(15.0)	(15.4)
Current tax liability	-	(0.4)	(0.4)
Provisions	-	(23.1)	(23.1)
Trade and other payables	-	(26.0)	(26.0)
Borrowings	(0.3)	(17.0)	(17.3)
Total net assets	2.9	65.4	68.3
Goodwill	6.0	65.4	71.4
Total consideration
Satisfied by:
Cash	5.6	130.2	135.8
Deferred consideration	3.3	-	3.3
Corporation tax to be paid through	-	0.6	0.6
Total consideration transferred	8.9	130.8	139.7
Net cash outflow arising on acquisition:
Cash consideration	5.6	130.2	135.8
Less: cash and cash equivalent balances acquired	-	(14.2)	(14.2)
	5.6	116.0	121.6

 

Acquisition-related costs included in adjusting items amount to £9.4m (2021: £2.0m).

52-week period ended 26 March 2021

 

On 24 February 2021, the Group acquired 100% of the share capital of CSG in exchange for consideration of £93.2m, being £86.0m of cash, £2.2m of deferred consideration and £5.0m of contingent consideration based upon the performance of the acquired business. As at 26 March 2021 net assets acquired were valued at £21.2m, leading to the recognition of £72.0m of goodwill. During the current financial period and within the measurement period to 24 February 2022, two further adjustments have been made with respect to the acquisition accounting for this transaction, resulting in a decrease in goodwill recognised by £6.4m.

On 1 September 2020, the Group acquired the trade and assets including vehicles, wheelie bin and rear end load ('REL') commercial services, from Donald Ward Limited for consideration of £2.6m. Net assets of £0.8m were recognised upon acquisition in addition to £1.8m of goodwill. During the current period, outstanding contingent consideration of £0.5m was settled.

On 8 October 2020, the Group acquired 100% of the share capital of Camo Ltd (which trades under the name of Simply Waste), in addition to two dormant subsidiaries, in exchange for consideration of £32.7m. Net assets of £14.4m were recognised upon acquisition in addition to £18.3m of goodwill. During the current period, outstanding deferred consideration of £0.6m was settled.

 

4. Provision for HMRC Landfill Tax Enquiry

As set out in Note 1, Biffa Waste Services Limited ("BWSL") is currently the subject of an enquiry by HMRC regarding certain aspects of its Landfill Tax compliance (the "Enquiry"), as part of concerns HMRC has primarily relating to the interpretation of the qualifying fines regime set out in LFT1.  HMRC also raised concerns, based on its analysis of BWSL's data, over the potential conduct of BWSL and specific customers, which may have led to the incorrect rate of Landfill Tax being paid. Biffa strongly refutes HMRC's concerns, is fully co-operating with HMRC in relation to the Enquiry and is receiving advice from Ernst & Young ("EY"). To date, no formal claim for tax has been received from HMRC, there is no certainty that HMRC will bring a claim and it is likely that it will be some time before the Enquiry reaches a conclusion.

In Biffa's view, based on advice received to date, there are a range of possible outcomes to the Enquiry, and it is difficult to accurately ascertain the quantum of any potential liability with any certainty or precision. Whilst Biffa believes it has a strong defence, there remains significant uncertainty in the ultimate outcome and a provision has been recognised for £20m based on specific amounts asserted by HMRC to date and associated costs. Given the level of risk and uncertainty, and the time it will take for the Enquiry to reach a conclusion, this represents Biffa's best estimate of the potential liabilities, adopting a cautious position based on the information available to date.

 

5. 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 £86.7m outstanding at 25 March 2022 (2021: £82.9m) 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 £16.1m (2021: £14.6m) in connection with security for performance of local authority and other contracts. No liability is expected to arise in respect of these bonds. The Group also has four letters of credit in relation to the deferred equity contributions on Newhurst EfW and Protos EfW amounting to £32.2m (2021: £57.4m).

EVP/fluff Dispute

The EVP/fluff 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 came to end in May 2022. Biffa has recently been refused leave to appeal by the Supreme Court and therefore the dispute is now concluded.  The amounts originally paid to HMRC are now irrecoverable and of the £60.6m previously classified as owing to pre-IPO shareholders and pre-IPO management in the future, £7.8m will still be payable in respect of interest and a further sum, of up to £10m will be due to the same stakeholders, as and when tax deductions are obtained by the Group and approved by HMRC. 

Hazardous Soils

The Group is engaged in a dispute with HMRC in relation to the landfill tax treatment of sub-soils with low levels of contamination from asbestos relating to the period 2012 to 2016. The Group received protective assessments of £8.5m from HMRC and paid these monies to HMRC in December 2019. Although the outcome is not certain, the cash payment is held on the balance sheet within prepayments as the Group expects to successfully defend this case.

HMRC Landfill Tax Enquiry

As set out in Note 1, Biffa Waste Services Limited ("BWSL") is currently the subject of an enquiry by HMRC regarding certain aspects of its Landfill Tax compliance (the "Enquiry"), as part of concerns HMRC has primarily relating to the interpretation of the qualifying fines regime set out in LFT1.  HMRC also raised concerns, based on its interpretation of BWSL's data, over the potential conduct of BWSL and specific customers which may have led to the incorrect rate of Landfill Tax being paid. Biffa strongly refutes HMRC's concerns, is fully co-operating with HMRC in relation to the Enquiry and is receiving advice from Ernst & Young ("EY"). To date, no formal claim for tax has been received from HMRC, there is no certainty that HMRC will bring a claim and it is likely that it will be some time before the Enquiry reaches a conclusion.

Whilst a provision has been made for £20m, relating to specific amounts asserted by HMRC to date, HMRC has also raised broader concerns about certain aspects of Biffa's compliance with the qualifying fines regime set out in LFT1. 

The Directors do not consider that a liability is likely to arise for those broader concerns, and therefore this is treated as a contingent liability.

BWSL's potential additional liability for Landfill Tax for the relevant period could be up to approximately £154m (being the additional amount raised in protective assessments less the provision made, excluding costs), plus penalties, interest and further costs in responding to the Enquiry. The total protective assessments figure has increased from the amount of £153m disclosed by the Group on 7 June 2022, due to the Group subsequently receiving further protective assessments of £15m from HMRC.

The protective assessments have been issued before the conclusion of the Enquiry to ensure that any claim for payment of Landfill Tax that may be made by HMRC as a result of the Enquiry, is not time-barred.

For further information, please refer to the key source of estimation uncertainty relating to this matter in Note 1 and the related provision disclosure in Note 4.

Appendix

The Group's financial performance is analysed into three components: 'statutory performance', 'adjusted performance' and 'adjusting items'. Adjusted performance is used by management to monitor financial performance as it is considered it aids comparability of the reported financial performance year to year. The Group's income statement and segmental analysis separately identify a number of Alternative Performance Measures ('APMs') in addition to those reported under IFRS. The Directors believe that the presentation of the results in this way, which is not meant to be a substitute for or superior to IFRS measures, is relevant to an understanding of the Group's business performance trends, financial performance and position. These APMs are also used to enhance the comparability of information between reporting periods and the Group's divisions, to aid the user in understanding the performance of the business. Our APMs and KPIs are aligned to our strategy and together form the basis of the performance measures for remuneration. Consequently, APMs are consistent with how the business performance is planned and reported internally to the Board and Operating Committees to aid their decision making. 

APMs have been presented in this appendix to provide a useful tool in understanding the performance of the business. It should be noted, however, that the APMs presented in these financial statements may not be comparable with similarly titled measures presented by other companies. It is recommended that APMs are viewed as supplementary information alongside the equivalent statutory measures.

This appendix has been presented to help users of the financial statements understand the rationale behind our use of APMs, our methodology with respect to identifying adjusting items and the impact of these adjusting items on the APMs. The Group income statement does not disclose any adjusting items and has been presented as a single column showing the statutory results only. The same approach has been adopted for the Group statement of cash flows.

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 divisional Adjusted Operating Profit.

The Group's policy is to exclude items that are considered significant in nature and/or value, not in the normal course of business or are consistent with items that were separately disclosed in prior periods. Treatment as an adjusting item provides users of the accounts with additional useful information to assess the year-on-year trading performance of the Group. Management utilises an exceptional item framework that 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 adjusting items include items such as significant acquisition-related costs, write-downs or impairments of non-current assets, movements on onerous contract provisions and strategy-related and restructuring costs.

 

APM	Closest equivalent statutory measure	Definition and reconciliation
Net Revenue	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. See table below for reconciliation.
Organic Net Revenue Growth	Revenue	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. Where comparative periods differ in duration, the KPI is adjusted on a pro-rata basis. Organic Net Revenue Growth can be expressed both as an absolute financial value and as a percentage of prior period revenue. Organic Net Revenue Growth is presented to demonstrate to users of the financial statements the growth attributed to organic growth rather than as a result of acquisition. See table below for reconciliation.
Acquisition Net Revenue Growth	Revenue	Acquisition Net Revenue Growth in any period represents the Net Revenue Growth in the relevant period from (i) acquisitions completed in the relevant period and (ii) any acquisitions completed in the 12 months prior to the relevant period up to the 12-month anniversary of the relevant acquisition date (to the extent such Net Revenue falls in the current period). Acquisition Revenue Growth is calculated on the same basis, using revenue in place of Net Revenue. Acquisition Net Revenue Growth is presented to demonstrate the level of growth achieved as a direct result of the Group's acquisition strategy. See table below for reconciliation.
EBITDA	Profit for the Year	Profit before depreciation, amortisation, net finance costs and taxation.
Adjusted EBITDA	Operating Profit	Profit before depreciation and amortisation, adjusting items, changes to landfill provisions, net finance costs and taxation. Adjusted Divisional EBITDA is stated after allocation of shared service costs. Adjusted EBITDA is presented because it is widely used by analysts and investors to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures, tax positions, the cost and age of tangible assets and the extent to which intangible assets are identifiable. See table below for reconciliation.
Operating Profit	Profit for the Year	Profit before net finance costs and taxation.
Adjusted Operating Profit	Operating Profit	Profit before adjusting items, amortisation of acquisition intangibles, impact of real discount rate changes to landfill provisions, net finance costs and taxation. Adjusted Divisional Operating Profit is stated after allocation of shared service costs. See table below for reconciliation.
Profit Before Tax	Profit for the Year	Profit Before Taxation.
Adjusted Profit Before Tax	Profit for the Year	Profit Before Tax excluding adjusting items, amortisation of acquisition intangibles and the impact of real discount rate changes to landfill provisions.
Adjusted Profit for the Year	Profit for the Year	Profit excluding adjusting items, amortisation of acquisition intangibles and the impact of real discount rate changes to landfill provisions.
Adjusted EPS	EPS	Adjusted Profit for the year divided by the weighted average number of shares in issue during the year.
Adjusted Free Cash Flow	Net Cash from Operating Activities	Net increase/(decrease) in cash and cash equivalents excluding dividends, restructuring costs, adjusting items, acquisitions, movement in financial assets and movements in borrowings or share capital (but including finance lease principal payments). This measure reflects the cash generated in the period excluding adjusting items and forms part of management incentives.
Adjusted Return on Operating Assets	N/A	Adjusted Operating Profit divided by the sum of average of opening and closing Property, Plant & Equipment, plus average of opening and closing net working capital. See table below for reconciliation.
Adjusted Return on Capital Employed ('ROCE')	N/A	Adjusted Operating Profit less amortisation of acquisition intangibles divided by the average of opening and closing shareholders' equity, Net Debt (including lease liabilities), pensions and environmental provisions.
Group Net Debt	Bank and Other Borrowings	Bank and other borrowings plus lease liabilities and EVP preference liability, less cash and cash equivalents. See table below for reconciliation.
Covenant Basis Net Debt	Bank and Other Borrowings	Bank and other borrowings plus lease liabilities, less relevant financial assets and cash and cash equivalents. This is the measurement that our lenders use when assessing covenant compliance. See table below for reconciliation.
Covenant Basis Leverage Ratio	Bank and Other Borrowings	Ratio of Covenant Basis Net Debt to Covenant Basis EBITDA (Adjusted EBITDA plus the impact of increasing the contribution from acquisitions during the financial year to a full 12 months). See calculation in table below.

 

 

	2022 £m	2021 £m
Adjusted EBITDA
Collections	130.7	98.5
Resources & Energy	73.4	40.7
Specialist Services	11.6	11.3
Group Business Function	(20.7)	(12.3)
Adjusted EBITDA	195.0	138.2
Depreciation and internally generated amortisation	(96.0)	(87.2)
Other impairments	-	(6.8)
IFRIC 12 timing adjustment	(2.4)	-
Adjusted Operating Profit	96.6	44.2
Adjusting items	(75.6)	(33.8)
Amortisation of acquisition intangibles	(29.6)	(27.4)
Impact of real discount rate changes to provisions	0.3	(20.6)
Operating Profit/(Loss)	(8.3)	(37.6)
Finance income	3.2	3.2
Finance charges	(22.4)	(17.6)
Share of results in joint venture	(1.1)	(0.8)
Profit/(Loss) before taxation	(28.6)	(52.8)

 

Adjusting items

 

Acquisition-related costs

Delivery of the Group's strategy includes investment in acquisitions that enhance the quality of its operations. The exclusion of significant items arising from M&A activity is designed by the Board to align short-term operational decisions with this longer-term strategy. Accordingly, amounts arising on acquisitions are excluded from adjusted business performance. The £9.4m (2021: £2.0m) of acquisition-related expenditure in the 52-week period ended 25 March 2022 relates to professional fees and other costs which are directly attributable to acquisitions.

 

Asset impairments

There is a £25.0m one-off cost related to the impairment of the goodwill that had been recognised in the current year on CSG, which was acquired in February 2021. The prior financial period saw a total asset impairment charge of £21.9 million, which consisted of a one-off impairment of £8.2m to the Poplars Anaerobic Digestion plant in the R&E division and a £13.7m impairment to the Project Fusion intangible asset within the Group Business Function division.

 

Strategy-related and restructuring costs

Strategy-related costs of £4.8m (2021: £0.4m credit) arise from Group-wide initiatives to reduce the ongoing cost base and improve efficiency in the business. These costs are substantial in scope and impact, and do not form part of activities that the Directors would consider part of our operational performance. Adjusting for these charges provides a measure of operating profitability that is comparable over time. Within the strategy-related costs is £4.6m relating to the systems replacement project which does not qualify for capitalisation (2021: £nil).

 

Amortisation of acquisition intangibles

This charge of £29.6m (2021: £27.4m) represents the amounts amortised by the Group in each period in respect of intangibles from prior acquisitions, which are reported separately from the Group's depreciation and amortisation charges. The performance of the acquired business is assessed as part of the Group's adjusted operational results. The Group uses this adjusting item to improve the comparability of information between reporting periods and its divisions to aid the users of the Financial Statements in understanding the activities taking place across the Group. The current year charge includes £2.0m of amortisation relating to the IFRIC 12 intangible asset recognised on the acquisition of the Viridor business.

 

Impact of real discount rate changes to long-term provisions

The impact of real discount rate changes on long-term provisions reflects the impact on provisions which arises wholly due to the change in discount rate on provisions. Within the current financial period a credit of £0.3m was recognised (2021: £20.6m charge). This is not reflective of operational performance.

 

EVP/fluff dispute

The Group has been engaged in a dispute with HMRC concerning historical landfill tax. Biffa was unsuccessful in its Court of Appeal hearing held in March 2021 and has recently been refused leave to appeal by the Supreme Court.  The amounts originally paid to HMRC are now deemed irrecoverable and up to £17.8m will be payable to EVP preference shareholders and ex-management in the future.

The £20.8m charge to the income statement is the net impact of impairing the £63.6m prepayment to nil and reducing the corresponding liabilities from £60.6m to £17.8m.

Provision for HMRC landfill tax enquiry

Biffa is currently the subject of an enquiry by HMRC regarding certain aspects of its landfill tax compliance. Biffa strongly refutes HMRC's concerns, is fully co-operating with HMRC in relation to the enquiry and is receiving advice from Ernst & Young (EY). To date, no formal claim for tax has been received from HMRC, there is no certainty that HMRC will bring a claim and it is likely that it will be some time before the enquiry reaches a conclusion. Refer to Note 1 to the financial statements for more detail.

A provision of £20.0m has been recognised at March 2022, increasing from the £3.0m held at March 2021. This represents Biffa's best estimate of the potential liabilities. However there is a range of possible outcomes to the enquiry and it is difficult to accurately ascertain the quantum of any potential liability with any certainty or precision. The £17.0m charge in the current year has been treated as an adjusting item.

 

IFRIC 12 adjustments

The adoption of IFRIC 12: Service Concession Arrangements, results in large accounting adjustments that are not reflective of the operational performance of the contracts that are within the scope of this guidance. The purpose of these adjustments is to reverse the impact of IFRIC 12 in the Adjusted Performance.

Under IFRIC 12 depreciation on reverting PPE items is reversed out. The adjustment below reinstates this depreciation.

Also, under IFRIC 12 a provision for future capital expenditure that must be incurred in order to fulfil the contract is captured upfront and recognised as a provision, with the corresponding discount unwind being recognised within net finance costs. The adjustment below reserves this charge from the Adjusted Performance.

The net impact of these IFRIC 12 adjustments is a £1.0m credit to the Income Statement, which is treated as an adjusting item.

 

Onerous Contracts

Onerous contract costs reflect the additional profit and loss movements on legacy contracts that became onerous in prior years due to exceptional circumstances. At the end of the financial year the Group had two onerous contract provisions for Mid-Kent and Leicester. Any utilisation of the provision or cash settlement on those contracts is also treated as adjusting items accordingly. At the point at which a contract is no longer considered to be onerous whether by completion or settlement it is no longer considered to be an adjusting item, and treated as part of business performance before adjusting items.

 

	2022 £m	2021 £m
Adjusting items:
Acquisition-related costs	9.4	2.0
Onerous contracts	-	10.3
Asset impairments	25.0	21.9
EVP dispute	20.8	-
Provision for HMRC landfill tax enquiry	17.0	-
IFRIC 12 depreciation adjustment	(1.4)	-
Strategy-related and restructuring costs/(gain)	4.8	(0.4)
	75.6	33.8
Other adjusting items:
Amortisation of acquisition intangibles	29.6	27.4
Impact of real discount rate changes to provisions	(0.3)	20.6
	104.9	81.8
Finance income adjusting items:
Exceptional net interest income	(1.1)	-
Unwind of discounting on IFRIC 12 provision	0.4	-
	(0.7)	-
Total adjusting items before tax	104.2	81.8
Taxation impact of adjusting items	(26.4)	(18.7)
Total adjusting items, net of tax	77.8	63.1

 

 

	2022 £m	2021 £m
Divisional adjusting items:
Collections	9.4	12.0
Resources & Energy	23.6	55.7
Specialist Services	25.3	1.1
Group Business Function	46.6	13.0
	104.9	81.8

 

 

	2022 £m	2021 £m
Revenue
Collections	873.9	677.6
Resources & Energy	395.2	272.0
Specialist Services	174.1	92.4
	1,443.2	1,042.0

 

 

	2022 £m	2021 £m
Revenue Reconciliation Statutory to Net Revenue
Statutory Revenue	1,443.2	1,042.0
Landfill Tax	(79.3)	(53.9)
Net Revenue	1,363.9	988.1

 

 

	2022 £m	2021 £m
Net Revenue split by division
Collections	873.9	677.6
Resources & Energy	315.9	218.1
Specialist Services	174.1	92.4
Net Revenue	1,363.9	988.1

 

 

	2022 £m	Growth factor
FY21 Net Revenue	988.1
Acquisition revenue growth	179.9	18%
Organic revenue growth	195.9	20%
FY22 Net Revenue	1,363.9

 

 

	2021 £m	Growth factor
FY20 Net Revenue	1,102.8
Acquisition revenue growth	13.3	1%
Organic revenue growth	(128.0)	(12%)
FY21 Net Revenue	988.1

 

 

	2022 £m	2021 £m
Depreciation
Collections	55.8	51.8
Resources & Energy	29.7	28.9
Specialist Services	6.2	2.1
Group Business Function	3.2	4.4
	94.9	87.2
Amortisation
Collections	4.5	4.6
Resources & Energy	25.1	22.8
Specialist Services	-	-
Group Business Function	1.1	1.2
	30.7	28.6
Total Amortisation and Depreciation	125.6	115.8

 

Included withing the amortisation charge above is £29.6m (2021: 27.4m) amortisation of acquisition intangibles.

 

	2022 £m	2021 £m
Adjusted Operating Profit/(Loss)
Collections	75.0	40.9
Resources & Energy	41.1	11.8
Specialist Services	5.4	8.2
Group Business Function	(24.9)	(16.7)
	96.6	44.2

 

 

Other performance measures

In addition to the adjusting items disclosed above, the Group uses Return on Operating Assets and Return on Capital Employed as performance measures. These are aligned to the strategy and are reported internally to the Board and Operating Committees to aid their decision making. These are calculated as below:

 

	2022 £m	2021 £m
Adjusted Return on Operating Assets
Adjusted Operating Profit1	96.6	44.2
Average of property, plant and equipment2	589.7	545.0
Average net working capital3	(58.2)	(58.8)
Total average of property, plant and equipment plus net working capital	531.5	486.2
Adjusted Return on Operating Assets⁴	18.2%	9.1%

 

1   Operating Profit/(Loss) before finance costs, adjusting items and taxation

2   Average of opening and closing net book value of property, plant and equipment

3   Average of the opening and closing net of inventories, trade and other receivables, trade and other payables and contract liabilities

4   Adjusted Operating Profit/(Loss) divided by the average of opening and closing PP&E plus net working capital

	2022 £m	2021 £m
Adjusted Return on Capital Employed
Adjusted Operating Profit	96.6	44.2
Amortisation of acquisition intangibles	(29.6)	(27.4)
Adjusted Operating Profit less amortisation of acquisition intangibles	67.0	16.8
Average of shareholders' equity1	470.6	434.4
Average Net Debt2	547.0	482.5
Average retirement benefits3	(139.1)	(118.4)
Average environmental provisions4	72.5	63.8
	951.0	862.3
Adjusted Return on Capital Employed5	7.0%	1.9%

 

1   Average of opening and closing shareholders' equity in 2022 and 2021

2   Average of opening and closing Net Debt in 2022 and 2021

3   Average of opening and closing retirement benefits in 2022 and 2021

4   Average of opening and closing environmental provisions in 2022 and 2021

5   Adjusted Operating Profit less amortisation of acquisition intangibles divided by the average of opening and closing shareholders' equity, net debt (including lease liabilities), pensions and environmental provisions.

 

Adjusted Earnings per Share

Basic Earnings per Ordinary Share are based on the Group profit for the year and a weighted average of 305,323,888 (2021: 294,645,659 ) Ordinary Shares in issue during the year.

Adjusted Earnings per Ordinary Share has been presented to eliminate the effects of adjusting items, amortisation of acquisition intangibles and the impact of the change in the real discount rate to landfill provisions. The presentation shows the trend in Adjusted Earnings per Ordinary Share that is attributable to the trading activities of the Group. The reconciliation between these figures for the Group is as follows:

 

	2022		2021
	Loss for the period £m	Earnings per Share pence	Loss for the period £m	Earnings per Share pence
Basic earnings per share	(17.6)	(5.8)	(40.5)	(13.7)
Adjusting items	77.8	25.5	63.1	21.4
Adjusted basic earnings per share	60.2	19.7	22.6	7.7

 

 

	2022		2021
	Loss for the period £m	Earnings per Share pence	Loss for the period £m	Earnings per Share pence
Diluted earnings per share	(17.6)	(5.6)	(40.5)	(13.4)
Adjusting items	77.8	24.9	63.1	20.9
Adjusted diluted earnings per share	60.2	19.3	22.6	7.5

 

 

	2022 £m	2021 £m
Total number of weighted Ordinary Shares	305.7	297.8
Shares held in employee benefit trust in respect of share options	(0.4)	(3.2)
Weighted average number of Ordinary Shares for the purposes of basic Earnings per Share	305.3	294.6
Effect of potentially dilutive Ordinary Shares:
Impact of share options	6.8	7.2
Weighted average number of Ordinary Shares for the purposes of diluted Earnings per Share	312.1	301.8