Biffa plc (LON:BIFF), the UK’s leading sustainable waste management business, has issued a trading update ahead of its full year results for the 52 weeks ending 26 March 2021, which are scheduled to be announced on 26 May 2021.
Group performance in the second half has continued to be ahead of the Group’s base case expectations, with the impact of the third lockdown on earnings less severe than originally anticipated.
Group Net Revenues in the third quarter out turned at 97% of the levels achieved in the same prior year period and for the final quarter are now expected to be circa 92% of those for the respective prior year period. I&C volumes have stabilised at circa 80% of prior year levels for the fourth quarter, higher than the predicted 70-75% range reported in January. All other areas of the Group have performed in line with expectations.
Strong management of receivables and cash collection has materially reduced the need for provision for doubtful debts, resulting in a provision release in the final quarter. As a result, underlying EBIT for FY21, whilst still materially impacted by the pandemic, is now expected to be well ahead of the Board’s previous expectations, in the range of £42-44m*.
Acquisition of Company Shop Group
As announced last week, the Group has completed the acquisition of Company Shop Group (‘CSG’), the UK’s leading and largest redistributor of surplus food and household products for an initial enterprise value of £82.5m, with a deferred consideration of up to £5m based on trading performance from April to September 2021.
The acquisition of CSG is in line with Biffa’s growth strategy to leverage its position as the UK’s leading sustainable waste management company, further improving its capability to support its customers’ waste reduction and recycling targets. Biffa’s leading expertise in waste management and recycling, coupled with CSG’s unrivalled capabilities in redistributing surplus produce, will deliver a unique circular economy proposition for the food manufacturing, FMCG e-commerce and retail sectors. Further detail can be found in the associated RNS, presentation and webcast materials which are available on Biffa’s website: https://www.biffa.co.uk/investors.
The Group will be exiting FY21 with Net Debt of £440-460m (FY20 £426m), well within its covenant headroom. As a result, there is still significant balance sheet capacity for the Group to continue to pursue its pre-existing investment goals.
Additional Plastics recycling investment
The Group continues to consolidate its leadership position in food grade, closed loop plastic recycling. Phase two of the Seaham rPET plant and the previously announced projects at Washington and Aldridge are progressing to plan, and the Group expects all three to come on-line in the early part of FY22. Agreements for the sale of the output of the Seaham facility on de-risked commercial terms are in the final stages of negotiation with a select number of long-term strategic partners. The Group has recently agreed an agreement with Alpla UK Ltd, a long-standing partner alongside the previously announced partnership with Nestlé UK.
With the development projects at Seaham and Washington now nearing completion, the Group has decided to further expand its capacity in post-consumer HDPE recycling, with an additional investment of £13m to be made at its Washington facility.
Over the last decade Biffa has pioneered closed loop recycling technology for HDPE post-consumer milk bottles through its operations at Redcar with 85% of milk bottles in the UK now containing Biffa material. This additional investment at Washington will increase the Group’s HDPE milk bottle recycling capacity by a further 50% to 39,000 tonnes of input per annum (equivalent to 1.6 billion bottles a year), and will grow Biffa Polymers’ business to an annual capacity of 155,000 tonnes and revenue of c.£85m. Predominantly, the output from this facility will be used in the manufacture of new HDPE milk bottles in the UK. The investment will create a further 50 jobs and is expected to come on-line during H2 FY22.
Other Strategic Updates
Negotiations on several potential I&C acquisitions continue and the pipeline of opportunities remains strong.
The Protos and Newhurst energy from waste developments are both progressing well, in line with their construction milestones.
The Group is increasingly well placed with leadership positions across waste reduction, recycling, collections and energy recovery. Biffa’s performance over the last year demonstrates the resilience of its model as a provider of essential services, whilst the delivery of its strategic investment programme, including the earnings enhancing acquisition of CSG, enhances Biffa’s unique position at the heart of the circular economy. The Group is excited by the growth opportunities it sees, and will continue to invest to build a resilient, more sustainable business, well-positioned for a strong post pandemic future.
* FY21 Underlying EBIT Consensus is £33.8m (high: £41.0m, low: £28.5m). Further consensus detail can be found on the Company’s website: https://www.biffa.co.uk/investors/shareholder-information/analyst-consensus