BIFF.L Regulatory News (BIFF)

Biffa plc

FY23 HALF YEAR RESULTS

15 December 2022

Results for 26 weeks ended 23 September 2022

Biffa plc ('Biffa', 'the Group' or 'the Company') (LSE: BIFF), the UK's leading sustainable waste management company, announces its half year results for the 26 weeks ended 23 September 2022.

Business Highlights

Financial Highlights

Financial Summary

Statutory Results

Adjusted Results

The technical notes for the tables and the commentary above can be found on page 3.

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.

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:

Investors & Analysts

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

Media

Houston PR

0204 529 0549

biffa@houston.co.uk

Please note, there will be no presentation of results.

Technical Notes

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

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

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

4. Group leverage (Net Debt:EBITDA) (Covenant Basis) - Ratio of Covenant Basis Net Debt12 to Covenant Basis EBITDA13

5. Net Revenue - Statutory Revenue excluding landfill tax

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

7. Adjusted Operating Profit margin - Adjusted Operating Profit3 as a percentage of Statutory Revenue

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

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

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

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

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

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

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

Chief Executive's Review

Collections

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.

I&C

Statutory Revenue increased 20.9% year on year. This is primarily due to the revenue acquired with the Viridor deal, together with price increases implemented to offset inflation.

Like for like volumes have recovered and are trending slightly above pre COVID levels.

Driver shortages together with other inflationary and supply chain issues have largely been mitigated, albeit the price increases lag cost inflation, which is impacting near-term profit margins. Customer churn levels remain at all time low levels demonstrating Biffa's resilience.

In addition, Biffa acquired the trade and assets of DJB Recycling, a £4.7m revenue waste collection and recycling business for £1.9m during the first half. Post the period end, Biffa acquired the entire share capital of Forge Recycling (Holdings) Limited, a £14.9m revenue waste collection and recycling business for an upfront net cash consideration of £15.9m, with a further £5.5m payable subject to the performance of the acquired business through to the end of March 2023.

We anticipate that the second half of the year has the potential to be more challenging as we face into the onset of a likely recession. However, the business is well placed to trade through this environment, and we expect to see opportunities arising that we are well placed to capitalise on.

Municipal

Statutory Revenue increased 16.6% year on year. This is primarily due to the revenue acquired with the Viridor deal, together with ad hoc additional services in certain contracts. These revenue increases have largely mitigated inflationary pressures and as a result, the underlying profitability of the business is broadly flat year on year.

Specialist Services

The Specialist Services division comprises two distinct businesses - Industrial Services and Company Shop.

Industrial Services helps customers fulfil their sustainability ambitions by providing a unique offering to manufacturers and distributors of household produce, bespoke solutions including surplus redistribution, integrated resource management (IRM) and hazardous waste services.

Company Shop provides an unequalled model 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.

Industrial Services

Statutory Revenue increased 30.8% year on year. This is primarily due to the revenue acquired with the Viridor deal, together with new customer wins.

Both the IRM and Hazardous Waste businesses continue to make marked progress, and this is anticipated to be an ongoing trend.

PRN's reflected in Biffa's revenue are also materially up year on year, which had a negative impact on margins.

Company Shop

Statutory Revenue increased 21.3% year on year. This is due to marked progress in terms of the level of surplus material being sourced and sold.

Weekly revenue for the business started the period at around £1.6m per week and exited the period at around £1.8m per week. We anticipate this improving further in the second half to around £2m per week.

Margins also continue to improve and are trending gradually back towards pre COVID levels.

Resources & Energy ("R&E")

The 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 Energy Recovery Facilities which are nearing completion in Cheshire and Leicestershire.

Recycling

Statutory Revenue in the Recycling business increased 46.4% year on year. This is primarily due to strong performance from the Materials Recycling Facilities, ongoing strong commodity prices and increased Polymer volumes.

The rHDPE segment of the Polymers business in Redcar continues to perform strongly and the third rHDPE line is on track for commissioning in H2. The rPET operation in Seaham is improving production yields and continuing to onboard new customers.

Organics

Statutory Revenue in the Organics business increased 61.1% year on year. The improvement is entirely attributable to the assets acquired in the Viridor deal and they have benefited from the ongoing strength in commodity prices.

Inerts

Statutory Revenue in the Inerts business increased 3.9% year on year. This is due to slightly lower landfill volumes offset by higher pricing compared to H1 FY22.

Landfill Gas

Statutory Revenue in the Landfill Gas business increased 2.6% year on year. This is primarily due to stronger power prices offsetting the natural volume decline.

Financial review

Group Performance

Statutory Revenue of £825.6m is up 23.0% on H1 FY22 due to a mix of organic growth and acquisitions, notably the Viridor acquisition that completed on 31 August 2021.

Operating Profit has seen a significant improvement from a loss of £16.7m in H1 FY22 to a profit of £49.6m in H1 FY23. This is largely driven by the fall in asset impairments from £25.0m to £2.1m and a swing in the impact of real discount rate changes on landfill provisions from a charge in H1 FY22 of £16.8m to an income in H1 FY23 of £28.3m.

Excluding the impact of Adjusting Items, Adjusted Operating Profit increased from £45.4m in H1 FY22 to £49.9m in H1 FY23. The Adjusting Operating Profit Margin, however, fell from 6.8% to 6.0% as price increases lag the corresponding cost increases.

The Group remains in a well-funded position at September 2022, with headroom of £350.0m on the rolling credit facility ("RCF") and a Covenant Basis Leverage Ratio of 2.8x, significantly below the 4.25x limit stipulated in the lending covenants.

We anticipate that the second half of the year has the potential to be more challenging as we face into the onset of a likely recession. However, the business is well placed to trade through this environment, and we expect to see opportunities arising that we are well placed to capitalise on.

Group financial performance is summarised in the table below:

Statutory Performance and Adjusting Items

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 are fully explained in the Appendix to the Financial Statements. The net impact of adjusting items on Profit Before Tax was a charge of £0.3m (H1 FY22: £62.1m charge). The main items in the period were strategy-related and restructuring costs (£9.7m charge) including costs relating to the systems replacement project and amortisation of acquisition intangible assets (£12.8m charge), offset by the impact of real discount rate changes on landfill provisions (£28.3m credit).

Tax relating to adjusting items was a charge of £0.7m (H1 FY22: £2.1m credit).

The total cash impact of adjusting items in H1 FY23 was an outflow of £12.0m (H1 FY22: £5.5m outflow).

A reconciliation from Adjusted Operating Profit to Statutory Profit/(Loss) After Tax is set out below:

Finance Income and Charges

Net finance charges increased from £8.6m in H1 FY22 to £10.0m in H1 FY23 due to higher borrowing levels to fund the Viridor acquisition and recent interest rate rises.

A breakdown of net finance charges is provided below:

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 21% (H1 FY22: 9%). The statutory effective tax rate was 23% (H1 FY22: 20%). Payments in respect of corporation tax in the year were a net £0.1m inflow (H1 FY22: £0.2m outflow).

Earnings per Share

Statutory basic earnings per share improved from a loss of 8.9 pence in H1 FY22 to earnings of 9.6 pence in H1 FY23. However, adjusted basic earnings per share fell from 11.0 pence to 10.0 pence.

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 23 September 2022, the IAS 19 net retirement benefit surplus was £138.6m compared to a surplus of £139.0m at 24 September 2021.

Return on Capital

Group Adjusted Return on Capital Employed ("ROCE") increased from 6.0% for the 52 weeks ended 24 September 2021 to 7.2% for the 52 weeks ended 23 September 2022. Group Adjusted Return on Operating Assets ("ROOA") increased from 16.1% to 17.1% for the same period.

The improved returns are driven by greater Adjusted Operating Profit due to the Viridor contribution and organic growth, slightly offset by higher levels of capital. This improvement is expected to continue into H2.

Cash Flow

Adjusted Free Cash Flow grew from £12.8m in H1 FY22 to £17.3m in H1 FY23 despite the £8.5m rise in net capital expenditure, driven by an £11.9m increase in Adjusted EBITDA. 

£7.5m of the Adjusting cash items relates to the Group-wide IT systems replacement project that was re-launched in FY22.

The Group achieved a net cash outflow of £3.9m excluding movements in borrowings. A summary of the Group's cash flows is shown below:

Net Debt and Borrowings

Group Net Debt is £588.5m (H1 FY22: £579.3m), representing 2.8x Adjusted EBITDA (H1 FY22: 3.4x). The year-on-year improvement demonstrates continued strong cash performance across the Group.

Covenant Basis Net Debt is £571.7m (H1 FY22: £568.0m), representing 2.8x Covenant Basis EBITDA (H1 FY22: 3.0x). This gives significant headroom against the covenant limit of 4.25x. 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 10.1x, a fall from the H1 FY22 level of 12.1x. This also gives satisfactory headroom against the covenant limit of 4.0x.

All lending covenants are on a post-IFRS 16 basis so that they are now closely aligned with current accounting principles. The estimated impact of this is an increase to leverage ratio of approximately 1.0x.

The two private placements that were issued in FY22 remain in place.

Breakdowns of both Group Net Debt and Covenant Basis Net Debt at the Half Years are as follows:

Landfill Tax Matters

· Historical EVP/Fluff Case: The Group has been engaged in a dispute with HMRC concerning historical landfill tax. In May 2022 Biffa was refused leave to appeal by the Supreme Court and therefore the dispute is concluded. £17.8m is owed to pre-IPO shareholders and pre-IPO management in the future, of which £7.8m is payable in respect of unpaid interest and £10.0m is payable 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.

In the accounts for the year ending 25 March 2022, a contingent liability of up to £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 was disclosed and a provision of £20.0m was recognised, reflecting Biffa's best estimate of the potential liabilities arising from all specific amounts asserted by HMRC to date. 

£1.8m has been paid to HMRC in the current period, reducing the closing provision to £18.2m. Other than this, no events have occurred since the FY22 results announcement that suggest either the contingent liability or the provision should be adjusted. Biffa has continued to cooperate with HMRC to progress the Enquiry, but the nature and timing of the outcome remain uncertain and are expected to remain uncertain for some time.

Risks & Uncertainties

The principal risks and uncertainties affecting the business activities of Biffa and the industry in which it operates remain those detailed in the Annual Report and Accounts and which are summarised as follows:

· Biffa operates in a highly regulated industry and changing regulatory requirements and standards could have an adverse impact on the Group's operations and results.

· Economic conditions in the United Kingdom may have an adverse impact on Biffa's operating performance, revenues and results.

· Despite pricing flexibility is most areas, Biffa is exposed to risks inherent in certain long-term fixed- price contracts, in particular in its Municipal and related operations.

· Fluctuations in electricity, fuel and other commodity prices could affect Biffa's operating results.

· Competition in the waste management industry could reduce Biffa's revenues and net income.

· Biffa faces risks arising from its acquisition strategy including the successful recovery of CSG's performance.

· A significant disruption to Biffa's information technology system, or delay during its migration to new systems, could adversely affect the Company's performance.

· A cyber security incident could negatively impact Biffa's business and its relationships with customers.

· Biffa may fail to identify strategic developments and may be unsuccessful in developing new technologies, or its current technological capabilities may become obsolete.

· Biffa's operations expose it to the risk of material health and safety liabilities.

· Biffa is subject to risks arising from its bonding and other financial security arrangements.

· Biffa may be subject to litigation, disputes or other legal proceedings.

· Biffa is dependent on the availability of labour.

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

· the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB), IAS 34 as adopted by the European Union and UK-adopted IAS 34;

· the half-yearly management report gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company;

· the half-yearly management report includes a fair review of the information required by:

o  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

o  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the enterprise during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Board of Directors that served during all or part of the 26-week period to 23 September 2022 and their respective responsibilities can be found on the Biffa website.

Approved by the Board and signed on its behalf by:

Richard Pike

Chief Financial Officer

14 December 2022

Consolidated Interim Income Statement

For the half year ended 23 September 2022

Consolidated Interim Statement of Comprehensive Income

For the half year ended 23 September 2022

Consolidated Interim Statement of Financial Position

As at 23 September 2022

Consolidated Interim Statement of Changes in Equity

For the half year ended 23 September 2022

Consolidated Interim Statement of Cash Flows

For the half year ended 23 September 2022

Notes to the Consolidated Interim Financial Statements

1. Basis of Preparation

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.

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

The consolidated financial statements have been prepared on the following bases:

· 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

· 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. 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

· For the 26-week period ended 23 September 2022. The comparative period is the 26-week period ended 23 September 2022

The condensed consolidated interim financial information does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006 and it has been neither reviewed nor audited. It should be read in conjunction with the Annual Report and Accounts for the year ending 25 March 2022, which is available on the Company's website. The independent auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

Alternative Performance Measures ('APMs') on the whole do not appear in the financial statements or the notes to the financial statements. Instead they have been identified, explained and reconciled in the Appendix to the financial statements.

H1 FY23 represents the 26-week period ended 23 September 2022. H1 FY22 represents the 26-week period ended 24 September 2021. H1 FY21 represents the 26-week period ended 25 September 2020. FY22 represents the 52-week period ended 25 March 2022.

1.1 Going Concern

The Group has continued its growth trajectory and saw performance in line with forecasts for the 26 weeks ending 23 September 2022, and this is expected to continue over the next 12 months.

The Group had unutilised committed bank facilities available of £350.0m and cash and cash equivalents of £27.9m as at 23 September 2022. This gives a closing leverage ratio (Net Debt / Adjusted EBITDA) of 2.8x on a covenant basis, substantially below the covenant limit of 4.25x. 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 going concern assumption has been assessed by considering a number of the principal risks in the Annual Report and Accounts for the year ending 25 March 2022. 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 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.

On 7 June 2022, the Group announced it had received an unsolicited offer from Energy Capital Partners 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 Consolidated Financial Statements.

1.2 Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 23 September 2022. Control is achieved when the Company:

· Has the power over the investee;

· Is exposed, or has rights, to variable returns from its involvement with the investee; and

· Has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

· The size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

· Potential voting rights held by the Company, other vote holders or other parties;

· Rights arising from other contractual arrangements; and

· Any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the Income Statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.

All intra-Group transactions are eliminated as part of the consolidation process.

  2. Accounting Policies

Except as described below, the accounting policies and key assumptions applied are consistent with those as described in the Annual Report and Accounts for the year ending 25 March 2022.

Critical judgements

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 is 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 an immaterial amount 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 further speculation at this stage to the potential liability would therefore be misleading. 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 at this point that a provision of £18.2m should be recognised.

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 involved 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. The majority of these judgements were made in the year ending 25 March 2022, but some additional adjustments have been made in the current period.

The 12-month measurement period expired during the period.

Key sources of estimation uncertainty

Environmental and aftercare commitments

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 estimation uncertainty, including the impact of regulation, transportation costs, inflation 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 longer-term inflation rates of and discounted using the nominal risk-free discount rates. The rates used reflect the period of the obligation on a site-by-site basis which varies between 10 and 60 years.

Refer to Note 10 for more information.

Retirement benefits

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.

Refer to Note 13 for more information.

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 non-compliance. 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, inflation rates, 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 onerous contract provisions for three contracts:

· Mid-Kent Partnership

· Leicester City Council

· Epping Forest District Council

Refer to Note 10 for more information.

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 period 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 and provision relating to the West Sussex Recycling contract, in accordance with IFRIC 12: Service Concession Arrangements. The balances recognised at 25 March 2022 have been subsequently adjusted in the current period.

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 7 for more information.

HMRC landfill tax enquiry

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 an immaterial amount 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, and the Enquiry itself is expected to continue into 2023 and potentially beyond.

At 23 September 2022 a provision of £18.2m is held in relation to the Enquiry. 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.

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.

Corporation tax calculations

Taxes on income in the interim periods are accrued using the full year effective tax rate that would be applicable to expected total annual profit or loss.

New and amended IFRS Standards that are effective for the current year

At the date of authorisation of these financial statements, the amendments below are effective for reporting periods beginning on or after 1 January 2022 but have not impacted on the Group's reporting:

· Amendments to IAS 16: Property, Plant and Equipment - Proceeds before intended use

· Amendments to IFRS 3: Business Combinations - Reference to the Conceptual Framework

· Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets - Onerous contracts

The only amendment to impact the Group is the update to IAS 37. This clarifies that the costs of fulfilling a contract should include an allocation of other costs that relate directly to fulfilling contracts in addition to the incremental costs. The Group's accounting policy previously only included incremental direct costs. The adoption of this amendment has not caused a change in the onerous contract provisions balance at 23 September 2022, and no retrospective adjustments have been made.

At the date of approval of these financial statements there were no new IFRSs or IFRS Interpretation Committee interpretations which were early adopted by the Group.

The new standards and amendments below are effective for reporting periods beginning on or after 1 January 2023 but are not expected to have a significant impact on the Group's reporting:

· IFRS 17: Insurance Contracts

· Amendments to IAS 1: Presentation of Financial Statements - Classification of liabilities as current or non-current; Disclosure of accounting policies

· Amendments to IAS 12: Income Taxes - Deferred tax related to assets and liabilities arising from a single transaction

· Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors - Definition of accounting estimates

3. Segmental Information

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

· Collections which encompass Municipal and Industrial & Commercial

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

· Specialist Services which include 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. Group Business Function costs represent shared services and corporate costs (including, inter alia, Board and corporate costs, finance, HR, IT, legal and insurance, external affairs and Safety, Health, Environment and Quality Management ('SHEQ')) remaining after allocation to operating divisions.

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

The Group's segmental results are as follows:

All revenue is with external third parties. There is no single customer that accounts for more than 10% of Group revenue (26 weeks to 24 September 2021: none, 52 weeks to 25 March 2022: none). 

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