Publication of Annual Report and Accounts 2022
Source: RNS
Biffa plc
(the "Company")
Publication of Annual Report and Accounts 2022
and
Notice of Annual General Meeting
17 August 2022
The Company's Annual Report and Accounts for the year ended 25 March 2022 (the "Annual Report") and Notice of Annual General Meeting 2022 (the "Notice of Meeting") have been published on the Company's website and are available to view at www.biffa.co.uk/investors. A hard copy version of the Annual Report and Notice of Meeting will be sent to those shareholders who have elected to receive paper communications.
In compliance with Listing Rule 9.6.1, the Annual Report, Notice of Meeting and Proxy Form for the 2022 Annual General Meeting, to be held on Friday 23 September 2022, will be available for inspection at the National Storage Mechanism at data.fca.org.uk.
The final results for the year ended 25 March 2022, released by the Company on 2 August 2022 include the information required pursuant to Rule 6.3.5R of the UK Disclosure Guidance and Transparency Rules, excepting publication of the responsibility statement of the Directors in respect of the Annual Report, a description of the principal risks and uncertainties facing the Company, and the related party transactions carried out by the Company and its subsidiaries during the year, all of which are detailed below. Page and note references in the text below refer to page numbers in the Annual Report and notes to the financial statements.
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.
Sarah Parsons
Company Secretary
Enquiries:
Investors
Michael Topham, Chief Executive Officer
Richard Pike, Chief Financial Officer
Media & Analysts
Houston PR
Registered in England and Wales:
10336040
Registered office at:
Coronation Road,
Cressex,
High Wycombe,
Buckinghamshire
HP12 3TZ
LEI: 2138008RB4WDK7HYYS91
Appendix
Statement of Directors' Responsibility under the Disclosure and Transparency Rules
The Directors are responsible for preparing the Annual Report and the Group and Company Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law, the Directors are required to prepare the Group Financial Statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs). The Financial Statements also comply with the IFRSs as issued by the IASB.
The Directors have also chosen to prepare the parent company financial statements in accordance with the Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss for that period.
In preparing the parent company Financial Statements, the Directors are required to:
· Select suitable accounting policies and then apply them consistently.
· Make judgements and accounting estimates that are reasonable and prudent.
· State whether the Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements.
· Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group Financial Statements, International Accounting Standard 1 requires that Directors:
· Properly select and apply accounting policies.
· Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.
· Provide additional disclosures when compliance with the specific requirements in IFRS Standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.
· Make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Directors' Responsibility Statement
Each of the Directors, whose names and functions are listed on pages 92 and 93, confirm that, to the best of their knowledge:
· The Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole.
· The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
· The Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 5 August 2022 and is signed on its behalf by:
By order of the Board
Ken Lever
Chairman
5 August 2022
Related Party Transactions
There have been no material related party transactions in the 52 weeks ended 25 March 2022 (2021: £nil) except for key management compensation as set out in the Directors' Remuneration Report, page 126 to 140.
Details of the Directors' remuneration are set out in the Directors' Remuneration Report on pages 126 to 140. There have been no related party transactions with any Directors in the year or in the subsequent period.
During the year to 25 March 2022, the Group invested £17.4m (2021: £8.4m) in Protos ERF Ltd and Newhurst ERF Limited. The Group issued further loan notes of £7.5m (2021: £3.6m) during the period and accrued unpaid interest income of £0.8m (2021: £0.3m). As at 25 March 2022 the Group recognised outstanding loan receivable balances due from Protos ERF Ltd and Newhurst ERF Ltd of £14.3m (2021: £6.0m). Both parties can redeem the notes at any time. The annual rate of interest on the notes is 8%. This whole balance remained outstanding at year end. None of the amount is deemed to be uncollectable and no expenses have been recognised during the period in respect of bad or doubtful debts in this regard. On financial close, 25 March 2022, the Group received from the joint venture reimbursement for development costs incurred.
No Directors held any material interest in any contract with the Company or the Group in the year or subsequent period to 25 March 2022. The Group has made £5.7m (2021: £5.9m) of contributions to the defined benefit pension schemes. There are no additional related party transactions to disclose.
Principal Risks and Uncertainties
|
Risks |
Description |
Mitigating Actions |
Changes in Year |
|
Changes in Government policy and legal and regulatory compliance
Link to stakeholder groups Employees Customers Investors Suppliers Government & Regulators
Risk movement and level Increasing High
Strategic sustainability pillar Building a circular economy Tackling climate change
Risk impact Reputational Regulatory
|
The Group operates in a highly regulated industry and any changes to Government policy, requirements with, or failure by our staff or third parties who we do business with to comply with laws or regulations or to uphold our high ethical standards could have an adverse impact on the Group's operations and results.
A key industry area of risk is landfill tax compliance, in particular the misclassification of waste causing the incorrect rate of landfill tax to be paid.
Historically, the Group has made a number of material payments to HMRC due to what HMRC perceive to be non-compliance with landfill tax guidance.
The latest landfill tax enquiry to arise poses a significant financial risk to the business, given the scale of the protective assessments issued
There remains a high level of uncertainty around the final
|
Experienced and qualified teams, supported by external advisers where necessary, that monitor changes and plan appropriate mitigations and set policies and procedures.
Representation on the Environmental Services Association and other external bodies; liaison with policy-makers and Regulators at national and local levels; responses to Government/regulatory consultations and sustainability reporting.
Direct involvement from HMRC, on a without prejudice basis, in the design of testing procedures to ensure compliance with the desired intention of the landfill tax guidance.
Environmental compliance strategy in place including annually reviewed targets and actions at local, divisional and Group levels.
Established compliance policy and procedures are in place to manage other regulatory compliance risks, such as landfill tax, bribery, data protection, modern slavery, competition and vehicle operating licences.
Industry leader in raising awareness of modern slavery risk and founding member of the Slavery Free Alliance. Developed a three-strand strategy for dealing with modern slavery including raising awareness, strengthening our response to the threat and victim and survivor support.
Training for staff on a range of compliance topics including landfill tax procedures, modern slavery, anti-bribery, data protection and competition. |
We continue to fully co-operate with HMRC in relation to the ongoing landfill tax enquiry and are receiving advice from Ernst & Young.
An independent review was commissioned by the CEO following the Group's conviction in August 2021 for the illegal export of household waste and a report presented to the Board. Good progress has been made with the recommendations contained in the report.
We continued to work to embed data protection compliance across the Group.
See page 56 for details of modern slavery initiatives delivered during the year.
A bribery risk assessment was completed during the year and a number of areas identified where improvements could be made. New anti-bribery and gifts and hospitality policies have recently been published. |
|
Strategic/competitive threat to business model
Link to stakeholder groups Employees Customers Investors Suppliers
Risk movement and level Stable Medium
Strategic sustainability pillar Building a circular economy
Risk impact Financial |
Market disruption from the application of new technology and the advent of new business models could change the waste supply chain and adversely impact Biffa's established operating asset base of a traditional collection network and processing facilities. |
Internal business Innovation Special Interest Group focuses on market developments and acts as an incubator for ideas and new business models.
Continual competitor analysis to consider threats and changes to the landscape.
Annual strategy review to ensure that Biffa business model remains current and competitive.
Customer surveys to ensure that the Biffa offering remains relevant and compelling.
Ongoing investment in and improvement of the customer experience through digitisation, improved processes and management information. |
Collaboration has increased this year with external parties such as universities, start-ups and incubators to broaden our innovation scope.
Consortia have been joined which are aligned to our interests of digitalisation of collections, sustainable packaging and hard to recycle wastes.
The Innovation Special Interest Group has been developed as a way of our senior leaders assessing and collaborating on emerging concepts. |
|
Strategic initiatives
Link to stakeholder groups Employees Customers Investors Suppliers Government & Regulators Environment &
Risk movement and level Increasing High
Strategic sustainability pillar Building a circular economy Tackling climate change Caring for our people, supporting our communities
Risk impact Financial Operational
|
Failure to deliver strategic initiatives, such as energy recovery facilities and business transformation, acquisition integrations, commercial projects and system implementations. Business transformation is focused on our products and services, how they are sold and delivered, the technology used and the online services offered to customers.
The key M&A risks are not being able to find and secure suitable targets and risks and issues that arise post completion, that impact on the investment case.
As with any such projects, there are risks that the project fails to deliver the anticipated improvements and/or benefits for the budgeted investment, adversely impacting reputation and operating results.
CSG's performance in the year was below expectations due to lower footfall and margins. |
Board and Group Executive Team sponsorship and leadership.
Selected software is a proven 'off the shelf' product.
Dedicated programme team and experienced resources recruited.
Post-investment reviews of all projects.
Change network in place to ensure line management ownership of business transformation.
Robust due diligence completed prior to financial close of ERF projects.
Proven ERF technology, substantial UK and worldwide reference plants with >30 operational treating more than 10m tonnes per annum.
ERF joint venture providing complementary skill sets and experience to minimise risk.
Limited recourse project structure.
Due diligence undertaken for all M&A transactions, including use of external advisers depending on target value and complexity. A standardised approach using an established valuation model is in place with all transaction reviewed/approved by the Investment Committee and (where appropriate) the Board.
Dedicated corporate finance expertise in place, who together with experienced Biffa subject matter experts act as senior stakeholders for the acquisition process and help drive opportunities through |
Good progress on our digital customer propositions with a new customer portal nearing completion and ready to deploy in early FY23.
New in-cab devices and software installed on our I&C and Hazardous Waste fleet.
New HR solution has been built and is entering test ready to deploy in FY23.
Transformation team remobilised following pandemic and focus on integration of the Viridor acquisition.
Next phase of transformation will focus on Finance and Procurement.
Newhurst and Protos ERF are continuing in accordance to plan.
Newhurst ERF is expected to start commissioning in September 2022. Both projects benefit from fixed time and cost contracts.
Completed the acquisition of Viridor's collections business and certain recycling assets, as well as Green Circle Polymers.
|
|
Long-term contracts
Link to stakeholder groups Employees Customers Suppliers
Risk movement and level Stable Medium
Strategic sustainability pillar Building a circular economy Caring for our people, supporting our communities
Risk impact Financial Reputational Operational |
The Group is exposed to risks inherent in long-term fixed-price contracts, in particular in its Municipal and Resources & Energy divisions and related operations.
Risks include inaccurate long-term cost estimates due to changes in the external operating environment and market dynamics that lead to material deviations from initial underlying assumptions.
|
Group Delegated Authorities Policy for the review/approval of bids by senior management, Investment Committee and the Board (depending on bid size and compliance with risk frameworks).
Material bids are compiled by dedicated development teams with significant expertise and experience. They are supported by subject matter experts as appropriate.
Protection from change of law or force majeure for unforeseen circumstances is agreed in contracts, where possible.
A contract risk framework is in place to identify key commercial/legal risks and confirm through the governance process that these have been considered and mitigated. |
The risk framework has been embedded and firmly enforced in the bidding process, with two successful tenders during the year mobilised successfully and operating at expected profit levels.
Improved capacity and capability across our project management and mobilisation facilitating a culture of continuous improvement.
Increased resourcing levels in the commercial department to build on last year's investment.
|
|
Health & Safety
Link to stakeholder groups Employees Customers Investors Suppliers Government & Regulators Environment & Communities
Risk movement and level Decreasing Medium
Strategic sustainability pillar Caring for our people, supporting our communities
Risk impact Reputational Regulatory |
Biffa's operations present inherent H&S risks to our employees, our customers and the wider public.
Violations of H&S laws/regulations could have a material adverse effect on Biffa's business and reputation.
|
Group H&S Director reports to the CEO.
Active and regular engagement by senior management including weekly reporting and calls with the Group Executive Team.
Inclusion of H&S targets and objectives within Group Balanced Business Plans with one of the five pillars being 'Safer Together'.
Existing H&S standards updated and incorporated into a new Group Integrated Management System.
Embedded policies, standards and procedures in place across Biffa for the systematic control of significant H&S risks.
Primary authority relationship with Hampshire & Isle of Wight Fire and Rescue Service enables access to advice and counsel on fire risk issues.
Maintained management system certification of ISO 45001:2018. |
A programme has been implemented to reduce serious, at fault road traffic collisions. This uses fleet intelligence software to help our drivers understand and improve their driving behaviour which will keep them, and the public, safer together.
Operations from our two major acquisitions (Viridor and Simply Waste) have been seamlessly integrated into our H&S management system, without any material impact on performance.
The British Safety Council has again awarded us a maximum five stars in their comprehensive, contemporary, and quantified audit process of our R&E division. |
|
Business continuity, cyber security and IT resilience
Link to stakeholder groups Employees Customers Suppliers
Risk movement and level Increasing High
Strategic sustainability pillar Building a circular economy
Risk impact Financial Reputational Operational |
A significant disruption to Biffa's infrastructure, including IT systems, could potentially have an impact on the activity of the Group's customers, such as increased billing times, interruptions to collection operations and processing logistics, and additional costs.
Additionally, the theft, loss, destruction, misappropriation, or release of sensitive and/or confidential information could result in business disruption, data protection breach, negative publicity or brand damage.
|
Crisis management and emergency response plans in place for key sites and operations.
Server infrastructure supporting key IT services hosted in Microsoft Azure Cloud providing resilience, failover and backup services.
ISO 27001 certification (Information Security) in place.
Cyber Essentials Plus certification in place.
Intrusion detection in place and a cloud-based 'always on' security service provided by Microsoft protecting against key cyber threats.
Cyber security education initiatives taken place.
Established data protection policy and procedures to ensure compliance. |
Cyber essentials plus certification renewed
Microsoft security score improved by 38.8%.
IT Security Manager appointed.
|
|
Availability and cost
Link to stakeholder groups Employees Customers Suppliers
Risk movement and level Increasing Medium
Strategic sustainability pillar Caring for our people, supporting our communities
Risk impact Financial Operational |
The inability to source and retain appropriately priced and skilled labour to maintain competitive advantage, could have a material adverse effect on Biffa's business results, operations, financial condition and prospects. |
Implemented market rates for key roles e.g. Drivers and Fleet Technicians to support recruitment and aide retention.
Ongoing review of the recruitment and retention of key workers such as drivers.
Benefits appropriate and comparable to market including Performance Share Plan for senior management and Sharesave Scheme for all employees.
Talent and management development programmes deployed at senior levels and progressively to other levels going forward.
Established apprenticeship programme. |
I&C pay negotiations agreed and implemented.
Municipal GMB National Agreement talks progressing well with the GMB recommending acceptance of our proposal.
We have made significant progress on our journey to becoming a Living Wage Foundation employer with 80% of our employees currently paid at or above Living Wage Foundation rates (currently excluding CSG).
Launched Advanced Leadership Programme for 17 high potential leaders.
Introduced a new suite of family friendly policies to aid retention.
|
|
Commodities market and pricing volatility
Link to stakeholder groups Customers
Risk movement and level Stable Medium
Strategic sustainability pillar Building a circular economy Tackling climate change
Risk impact Financial Operational
|
Biffa produces significant volumes of recycled commodities for resale. Commodities produced include various paper grades, card, plastics, and ferrous and non-ferrous metals.
In addition, Biffa generates power from renewable sources and changes to electricity export prices impact revenues and profits achieved.
Markets for these recyclate products have individual supply and demand dynamics impacting both price and availability of off-take. |
Ongoing monitoring and improvements to product quality within recycling processes.
Off-taker strategy review to limit dependency, where able, on non-OECD markets.
Commodity price risk sharing within long-term commercial contracts.
Working with key customers (e.g., Local Government) to agree gate fees to reflect any increased costs and dual collection methods.
Power price hedging policy in place, which is regularly reviewed.
Route to market Power Purchase Agreement with top tier off-taker gives off-take certainty and credit worthiness. |
Investment in sorting technology and process improvements to ensure we can continue to supply markets with a high-quality product and that we maximise the product captured and recycled.
Supply agreements now in place with domestic processors and EU mills for the off-take of all mixed papers. There is still 50% export of cardboard to non-OECD countries but this represents a significant transition.
Continued investment in plastic recycling has significantly reduced reliance on exports, with most of recovered plastics being processed to end destination internally.
Continued focus on minimising exposure to recycle commodity price fluctuations by risk sharing with our local authority customers.
At the end of FY22, we mitigated 63% of commodity price risk through this approach. This fell slightly from FY21 due to certain contracts acquired from Viridor. On a like-for- like basis (excluding Viridor) our mitigation increased from 64% to 67%. |
|
Finance availability/
Link to stakeholder groups Investors
Risk movement and level Decreasing Low
Strategic sustainability pillar Building a circular economy
Risk impact Financial
|
If the Group were to not maintain adequate cash balances, the Group would be unable to pay suppliers, payroll and other creditors in a timely manner or on agreed terms. This could result in delays or ceasing of operations, both of which could lead to reputational damage and a deterioration in financial performance.
If the Group were to fail to comply with any of the financial or non-financial covenants in its credit facilities (due, for example, to deterioration in financial performance), it could result in a default and the acceleration of the Group's obligations to repay those borrowings, increased borrowing costs or cancellation of certain credit facilities.
A large one-off cash outflow, similar in amount to the total protective assessments issued by HMRC as part of the ongoing HMRC landfill tax enquiry, would increase the risk of covenant non-compliance. |
Significant and flexible bank funding facility with substantial headroom to enable the Group to progress strategic priorities and accommodate any downside performance risk. As at the end of the year, the Group held a cash balance of £40.8m.
£350m unsecured revolving credit facility expiring in March 2025, with 84% of the facility available until March 2026. As at the end of the year, £341m of the facility was undrawn. Drawdowns can be requested and processed at short notice if the need arises.
In addition to the bank funding facility, the Group has over £50m of undrawn asset financing facilities, although these are uncommitted.
Ongoing monitoring of financial and non-financial covenants with regular updates to the Board.
Incorporate cash performance and funding requirement considerations into budgeting and forecasting processes.
Consider the impact on covenants when making key strategic decisions such as acquisitions, disposals and capital expenditure.
Ongoing monitoring of the status of the HMRC landfill tax enquiry with regular updates to the Board.
The Group has significant headroom on the lending covenants and intends to maintain high levels of headroom going forward. This, combined with the flexibility in the business model, enables the Group to mitigate any financial risks that materialise. |
The Group has arranged a private placement with two lenders for £150m covering a term of 7 and 10 years with an average borrowing cost of 2.73%.
The Group has arranged an additional private placement with three lenders for £195m covering a term of 8, 10 and 12 years with an average borrowing cost of 2.49%.
The covenants on the revolving credit facility have been changed to a post-IFRS 16 basis so that they are more closely aligned with current accounting principles. This has increased the covenant metrics by 1.0x. The covenants on the private placements are consistent with those of the rolling credit facility.
The Group has established a sustainability-linked finance framework which aligns the Group's funding with the sustainability strategy.
The Group has recognised a provision of £20m in relation to the HMRC landfill tax enquiry. This is accompanied by a contingent liability disclosing that the protective assessments issued by HMRC sum to £168m plus penalties and interest.
Covenant basis leverage ratio was 2.9x at |
|
Economic environment
Link to stakeholder groups Customers Investors Suppliers Government & Regulators Environment & Communities
Risk movement and level Increasing High
Strategic sustainability pillar Building a circular economy Caring for our people, supporting our communities
Risk impact Financial |
Economic conditions in the UK may have an adverse impact on the Group's operational and financial performance.
The Group exposure includes: Political, social and macroeconomic risks relating to the UK's exit from the EU. Any economic weakness that leads to reduced volumes of waste and recyclate. A deterioration in macroeconomic conditions resulting in increased pricing pressure and customer turnover.
|
The Group has revenues and costs that are impacted by the value of Sterling relative to key currencies such as the US Dollar or the Euro. This provides some degree of offset and natural hedge.
To improve short-term earnings visibility and reduce the susceptibility of financial performance to price fluctuations, the Group enters into forward contracts for:
The sale of electricity.
Short-term currency exposures.
The purchase of fuel.
During the year the Group held interest rate swaps to reduce exposure to the impact of rate fluctuations on the rolling credit facility interest charge. This arrangement was terminated towards the end of the year when the drawdown on the facility fell to low levels, thus reducing the exposure significantly.
Biffa provides services to customers in the public and private sectors right across the UK economy. The breadth of customers offers a degree of protection against economic pressures that may affect specific markets and industries. |
The Group continues to monitor this risk, specifically the impact of increasing interest rates, inflationary pressures and supply chain constraints, and remains confident that existing mitigations enable the impact of any weakening conditions to be minimised.
|
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