Biffa plc Preliminary Results FY2019

Biffa plc

5 June 2019

RESULTS FOR THE 52 WEEKS ENDED 29 MARCH 2019

Leading in UK Sustainable Waste Management

Michael Topham, Chief Executive of Biffa, said:

''I am pleased to report another year of strong performance by Biffa. We have delivered a good set of financial results for the year while making further strides in the delivery of our strategy.

Our I&C Division performed particularly well. We've had another very strong year of organic and acquisition growth coupled with a further reduction in customer churn. When we combine this with our unrelenting focus on driving operational performance improvement, this feeds through to improved underlying I&C margins.

I&C completed seven acquisitions spread across a wide area of the country, demonstrating the strength of our platform into which we can consolidate acquisitions. We have now completed 17 acquisitions since our IPO in October 2016. The pipeline of potential targets remains strong, and we expect to make further acquisitions in the coming year.

We've also successfully weathered the headwinds associated with the Chinese import restrictions on commodities and the recent market impacts in our Municipal division. Both of these areas, which have put downward pressure on our financial performance, have now stabilised.

We are proud of our leading plastics recycling capabilities and are excited at the role we are playing in this area. Biffa Polymers has delivered another strong year of progress and through our industry leading HDPE food grade production plant, 85% of milk bottles in the UK now contain Biffa recycled material. We're progressing with the PET plastic bottle recycling facility investment in Seaham, County Durham, and we can also announce today that we have committed to expand the capacity and scope of the project, increasing the total investment to £27.5m. This will take our combined plastics processing capacity to c.120,000 tonnes p.a.

Good progress has been made in evaluating the investment opportunities we have in energy from waste, alongside our partners Covanta, and we expect to be able to announce financial completion on both projects in the near term. The UK has a significant shortage of energy from waste treatment capacity and we are well placed to facilitate and invest in these much-needed facilities.

We support the ambition contained in the Government's recently announced strategy for our industry. The strategy is both supportive of our current business positioning and the direction of travel in which we are taking the company. We will continue to work closely with policy makers and are ready to help deliver the vision we all share.

Our strategic priorities are clear - growing our I&C collections business and investing in recycling and energy from waste assets - and in view of this I have decided to reorganise the Group into two divisions - Collections and Resources & Energy. This will provide a more efficient, focused structure and position us for growth in the areas where we have advantaged positions.

We are making significant progress in positioning the business for future success in an era where how we manage our waste has never been more important and I would like to thank the entire Biffa team for their continued hard work and dedication. We have made a solid start to the financial year and look forward with confidence.''

FINANCIAL HIGHLIGHTS

*Note: on a comparable 52 week period: 52 week period 

 Underlying performance measures are not defined within accounting standards and maybe applied differently by other organisations.

Performance Highlights:

- Underlying growth in Net Revenue of 4.4% to £1,030.8m (2018: £1,006.1m). 1.5% organic* and 2.9%* acquired. Underlying growth in Statutory Revenue of 3.3%* to £1,091.2m (2018: £1,076.7m)

- Growth in Underlying EBITDA of 0.5% to £150.7m, and Underlying Operating Profit of 0.6% to £81.7m; having successfully absorbed the impact of the China import restrictions on commodity prices and pressures in the Municipal division.

- Underlying PAT up 7.5% leading to Underlying EPS of 20.6p (statutory EPS of 7.2p) and an increased final dividend of 4.9 pence per share. Reduction in statutory PAT and EPS primarily due to one off exceptional items in relation to onerous contracts, legacy loan amortisation and GMP provisions. 

- Underlying Free Cash Flow up 7.7%. Following 7 acquisitions in the year, year-end Reported Net Debt up to £310.7m and leverage of 2.1x. Previously guided leverage range at 2.0-2.5x (on a pre-IFRS16 basis) Reported Net Debt : EBITDA remains unchanged.

The Board's expectations for the year ahead remain unchanged.

OPERATING PERFORMANCE

Industrial & Commercial

*Note: on a comparable 52 week period: 52 week period

Municipal

*Note: on a comparable 52 week period: 52 week period

1 FY18 has been restated to exclude the Leicester City Council contract which has been transferred to the Energy division with effect from the start of FY19

Resource Recovery & Treatment

* Note: on a comparable 52 week period: 52 week period

**2018 net revenue has been restated to adjust for misstated internal Landfill Tax revenues which had led to net Revenue being understated

Energy

*Note: on a comparable 52 week period: 52 week period

1 FY18 has been restated to include the Leicester City Council contract which has been transferred to the Energy division with effect from the start of FY19

PRESENTATION OF RESULTS

There will be a presentation of the results to analysts and investors at 0930 am today (5 June 2019) at Numis, 10 Paternoster Square, London EC4M 7LT. To register your attendance please contact [email protected]

A live audio webcast of the presentation will be available on Biffa's website. Please pre-register at www.biffa.co.uk . The presentation slides will be added to Biffa's website prior to the analyst meeting.

PUBLICATION OF ANNUAL REPORT

The Company will publish its Annual Report and Accounts 2019 on Tuesday 11 June 2019. This document will be available to view on the Company's website at www.biffa.co.uk and is also being submitted to the National Storage Mechanism for inspection at www.morningstar.co.uk/uk/nsm.

ENQUIRIES:

Cautionary statement regarding forward-looking statements

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the Company's business. Whilst the Company believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.

The forward-looking statements contained in this document speak only as of the date of this announcement, and Biffa does not undertake to 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 provide users with a clearer picture of 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 below

Technical Notes:

1 Revenue excluding Landfill Tax

2 Profit before depreciation and amortisation, exceptional items, impact of real discount rate changes to landfill provisions, finance costs and taxation

3 Calculated as a percentage of statutory revenue

4 Profit before exceptional items, amortisation of acquisition intangibles, impact of real discount rate changes to landfill provisions, finance costs and taxation

5 Profit before exceptional items, amortisation of acquisition intangibles, impact of real discount rate changes to landfill provisions, non-underlying net interest items and non-underlying taxation

6 Underlying profit after tax divided by weighted average number of shares in the year

7 Net increase/(decrease) in cash and cash equivalents excluding dividends, restructuring and exceptional items, acquisitions, movement in financial assets and movements in borrowings or share capital (but including finance lease principal payments)

8 Net debt excluding the EVP instrument

9 Represents 2.1x last 12 months Underlying EBITDA

10 Total Underlying Operating Profit includes central costs of £14.9m (£16.1 m in prior year)

11 IFRS15 Revenue from contracts with customers adopted in 2019.

Chairman's Statement

Well positioned for the future

My first full year as Chairman has been a busy one. I have extended my knowledge of our business by further visits to our operating locations, and there have been a number of Board changes, including the appointment of a new Chief Executive Officer and Chief Financial Officer, as outlined below, and preparations have been made for the revisions to the Corporate Governance Code.

1. Board Changes

From 29 September 2018, Michael Topham, previously Chief Financial Officer, assumed the role of Chief Executive Officer when Ian Wakelin stepped down from the Board after eight years as the Chief Executive Officer. Michael Topham worked alongside Ian for a number of those years and together they played significant leadership roles during the IPO process in 2016. Together they were instrumental in developing the initial strategy of the business and so Michael is Ian's natural successor. The Board is hugely grateful for the contribution made by Ian during his tenure as Chief Executive Officer and we wish him well for the future. Richard Pike joined the Board as Chief Financial Officer at the time of Michael's promotion and he and Michael have both settled in well to their new roles.

I am delighted to report that we have been able to attract Carol Chesney and Gab Barbaro to the Biffa Board as new Non-Executive Directors. Carol had a long and successful career with Halma plc, latterly as their Company Secretary, and has become the Chair of the Audit Committee. Gab is a senior executive with Centrica. Both have settled in quickly to their roles and have brought greater diversity and balance of experience to the Board.

2. Business and Markets

Efficient and sustainable waste management is important to us all. We have all seen the heightened publicity around the challenges we face in dealing with the growing amount of waste, especially the growth in plastic packaging. Core to the Biffa business is the efficient collection of industrial, commercial and domestic waste of different types and then, through various processes, to prioritise its recycling, and energy recovery, with disposal to landfill as a last resort. Biffa's service offerings and investments are designed to help its customers meet their own ever-increasing standards for environmental stewardship. This is a responsibility the Company and its senior management take seriously.

The markets in which we operate provide opportunities for modest overall organic growth broadly in line with the growth of the economy. There are also opportunities to expand the scope of existing services and introduce new service offerings to supplement underlying market growth. Our business model positions us well in the waste management ecosystem, achieving a good balance between essential collection services and recycling, energy recovery and landfill.

3. Strategy and Capital Allocation

With Michael Topham's appointment as Chief Executive Officer Biffa has reviewed its business strategy. The overall strategy at the time of the IPO, with a focus on growth (organically and through acquisition), develop (new products and services) and optimise (systems and processes) remains in place. However, Michael, with the support of the Board, has brought some additional dimensions to it, identifying some new opportunities for growth and expansion of the business.

The Board monitors the implementation of strategy at Board meetings and periodic strategic reviews. An integral part of this is ensuring that the Group has the necessary financing and appropriate capital allocation. On the back of last years' performance and the recent refinancing, the Group continues to have the appropriate balance sheet and appetite to facilitate the various areas of growth and expansion available to it.

4. Shareholder Returns

Our financial performance is discussed in some detail by Richard Pike, our Chief Financial Officer in the Financial Review. Despite the headwinds arising from the changes in China to the regulations relating to recycling of commodities, and the cost and margin pressures of some of the Municipal contracts, we have again delivered a good set of financial results, meeting or exceeding the market's expectations for revenue, profit, cash flow, net debt and Underlying Earnings per Share. The underlying intrinsic value of the business continues to grow steadily, and it is the Board's view that Biffa remains strongly positioned over the medium and long term to deliver growth in value. The Board has proposed a final dividend of 4.90 pence per share, bringing the total dividend for the year, to 7.20 pence representing a 3.2 % yield on the year-end share price of 223.5 pence.

5. Health and Safety

 Biffa has an excellent record for Health & Safety among its peers. However, judging ourselves by our own high standards, we have been disappointed by the slight increase in the Lost Time Injury (LTI) rate this year. A renewed focus in this area aims to ensure a return to year-on-year improvement.

6. Corporate Governance

Included in the Annual Report is a large section summarising the various processes and activities of the main Board Committees. We are conscious of the growing demands placed on the business by changes to the corporate governance regime and we will endeavour to implement the requirements in the most efficient and effective manner. As a general rule, we aim to strike the right balance between the strategic and entrepreneurial management of the business and the requirements for good corporate governance.

7. Employees

I would like to thank our loyal employees for their hard work and commitment during the year. The success of our business is without doubt, dependent on their continued support. The Board was delighted to see further improvement in the overall scores of the employee engagement survey conducted recently. David Martin, our Senior Independent Director, has taken on the additional responsibility to oversee for the Board the new corporate governance requirements relating to increased workforce engagement.

8. Looking to the Future

We have demonstrated during the year our resilience in managing the short-term challenges arising from the changing markets for recycled commodities. Biffa enjoys a leading competitive position in its markets and has a number of growth projects to progress. We have a clear strategy to achieve sustainable growth in value over time and a strong Board and Group Executive Team to implement it.

Ken Lever

Chairman

5 June 2019

Chief Executive Officer's Statement

Delivering on Strategy

Annual Performance Overview

I am delighted with the progress we have made over the course of the year. We have delivered good financial results whilst making significant progress in positioning the business for future success in an era where how we manage our waste has never been more important. We have helped our customers meet ever more demanding sustainability ambitions whilst continuing to reduce the impact our own business has on the environment. The Government has recently set out an ambitious strategy for our sector and we stand ready to help implement it. In short, it has been a year of tremendous progress for the Group and I would like to thank all of my colleagues for their commitment in achieving it.

Financial & Divisional Performance

I am very pleased with Biffa's performance. We have delivered another year of growth in underlying revenues and profitability, paying an increased dividend whilst maintaining a strong balance sheet. We have seen further organic and acquisition growth in our I&C business, which has more than offset the anticipated challenges in the international recycled commodity markets and the lower margins we are seeing in the Municipal market. Net Revenue grew by 4.4% (on a like-for- like basis) to £1,030.8m, Underlying Operating Profit grew by 0.6% to £81.7m and Underlying Profit after Tax grew by 7.5% to £51.5m, while leverage was 2.1x Underlying EBITDA at year-end. Our statutory revenue grew from £1,076.7m to £1,091.2m, while our statutory profit after tax reduced from £31.1m to £18.0m due to the impact of some non-recurring non-cash items, for example onerous contract and GMP equalisation.

Our I&C division again performed well, with strong organic and acquisition revenue growth, and operating margins increasing to 9.1% from 8.4% last year. This was achieved despite the business experiencing lower recyclate prices and cost pressures in labour and fuel. We had a record year of new business performance and again reduced our customer attrition levels. Acquisitions once again contributed to growth, with cost synergies being delivered to plan.

Our Municipal business had a somewhat more challenging time, with margins coming under pressure as a result of higher fuel and labour costs, the expiry of some higher-margin mature contracts, and difficulties with one of our newer contracts. Whilst we have been disappointed with the results for the year, we are encouraged by the stability we have seen in trading performance in the later stages of the year, and by recent contract wins.

As anticipated, in the RR&T division, we delivered reduced profits as we worked our way through challenging recycling markets. When we entered the year, commodity prices were very depressed as a result of the changes to the import regulations in China that have impacted global recycled commodity markets. This impacted our profitability throughout the year but, as expected, in the second half of the year we saw improved trading. We also experienced reduced landfill volumes in the year, in line with our medium-term expectations. Meanwhile we benefited from some of the recent investments that we have made in soil treatment and plastic recycling operations.

Finally, in our Energy division our operating performance was once again strong and financial results benefited from higher values for renewable energy subsidies.

Government's Resources & Waste Strategy

We were pleased to see the Government publish the ambitious new Resources & Waste Strategy (RWS) for how England manages its waste (other parts of the UK have similar plans in place). Recycling levels have stopped growing and we have been calling for some time for policy intervention to help ensure that valuable resources are not lost and to minimise the impact on the environment of the way we collect, treat and dispose of our waste. We expect that the strategy will result in greater demand for our collection services, such as separate food waste collections from households and businesses, and greater demand for high- quality recycled products, such as the recycled plastics Biffa manufactures. There is no doubt in my mind that dealing with plastic waste is rightly the key issue that society - and therefore Government - are motivated by and Biffa is already taking action in this space. It was also reassuring to see that the strategy is realistic in understanding that, whilst recycling must be prioritised, there is a clear need for energy from waste infrastructure, which provides reliable low-carbon energy from waste that cannot be recycled, as well as landfill disposal. In short, the Government's strategy aligns well with our key strategic priorities and we look forward to working further with policy makers to bring the strategy into action.

Acquisitions

Over the last few years we have been supplementing organic growth in our I&C business by acquiring smaller competitors which we are able to swiftly rebrand and integrate into our operating platform. Waste collection has become far more complicated in recent years and it is a business that unquestionably lends itself to scale. By growing through acquisitions, we are able to reduce our service delivery costs whilst offering greater service quality and flexibility to our customers, while the improved route density of our operations reduces the environmental impact of our activities. During the year we completed seven acquisitions, investing a total of £47m, to bring c.£64m of revenues into the division. The most notable transactions were of Weir Waste Services Limited (WWS), a Birmingham based collection business, and Specialist Waste Recycling Limited (SWR), a nationwide waste broker. We have a strong track record in this area, delivering transactions and integrating them in a disciplined manner. We intend to continue to pursue this strategy in the year ahead and as always, we have a good pipeline of opportunities.

Energy from Waste

Our objective is always to maximise the amount of our customers' waste that can be recycled. There remains, however, a substantial amount of waste that cannot be recycled, and for which the best disposal method is energy recovery through incineration (EfW). This is acknowledged in the Government's recent RWS. However, the UK currently does not have enough EfW facilities, meaning waste is either sent to mainland Europe for incineration or is landfilled in the UK, resulting in the loss of its inherent energy value. Our control of waste volumes gives us the opportunity to unlock the development of some of these much-needed facilities. We have been working with the US EfW developer and operator Covanta over the last two years to bring two projects to fruition, in Leicestershire and Cheshire. These projects have taken a little longer than planned to reach financial close, but we are pleased with the progress we are making and hope to be able to commence construction in the coming year. This will amount to a commitment by the Group of c.£70-80m over the coming three years. Once operational, these two facilities will treat just under 25% of the current residual waste that we control in our I&C business.

Further Investment in Plastics Recycling

The UK urgently needs to increase the amount of plastic that is recycled. Here in the UK Biffa is leading the way. We are a leading operator in closed loop plastic recycling in the UK, with an established presence in HDPE milk bottle recycling. We have been recycling post- consumer HDPE milk bottles back into food grade HDPE, which is used in the manufacture of new milk bottles, here in the UK for a decade. During the year we took the decision to build a PET plastic drinks bottle recycling facility. This project is attractive as it capitalises on our established capabilities in this field and the control of feedstock we enjoy through our collections and sorting activities. It comes at a time when demand for recycled food grade raw materials for plastic packaging is growing and is set to be further supported by recently announced Government policies such as a plastic tax and the introduction of deposit return schemes, which were key features of the Government's RWS. It is anticipated that this project will enter production during 2020 and will be another key step in the further growth of our Biffa Polymers business.

Sustainability Activities

In the last year we have made enormous progress both in making our own business activities more sustainable, and in delivering more sustainable solutions for our customers. For example, in terms of overall carbon emissions we have received from Carbon Saver their Gold Award for year-on-year carbon emission reductions for 12 successive years now, assisted by on-going diversion of biodegradable waste from landfill and routing and operational efficiencies achieved through business acquisitions.

Whilst there is always much more to do to improve the way the UK deals with its waste, we should reflect on how fortunate we are that we have well-developed waste management systems. That is not the case in much of the developing world and I am delighted that, at Biffa, we have recently been able to back the charity WasteAid, which helps communities in Africa manage their waste in a more sustainable manner.

Employee Satisfaction and Engagement

We are fortunate at Biffa that we have a clear purpose as an organisation, and my colleagues and I are motivated by the positive impact that our activities are having on the environment. I am determined to continue to make Biffa a better place to work and I am pleased with the progress we have made in the year.

Our safety performance in the past few years has improved significantly, and we remain a leader in our sector. It was disappointing that this year our safety performance as measured by our LTI rate deteriorated somewhat, but this trend belies the huge progress we are making in this area and I remain confident that as time passes, our safety performance will exceed past records.

Looking at the nations' demographic, I see a great opportunity for Biffa to enhance our gender and ethnicity diversity and I am committed to making an impact in this area. It may take us some time, but we will be setting ambitious targets for the business, a first for Biffa.

Securing and developing our people for future business requirements remains of strategic importance to us. As part our response to this, we have been pleased to see the number of employees on an increasing variety of apprenticeship programmes continue to grow.

Employee engagement is at the core of our People strategy. Every year we measure employee engagement through a confidential survey and put in place focused action plans to address emerging priorities.

Brexit

As the service we provide is predominantly delivered locally to UK-based customers, the impact of Brexit on our business is not as significant as it is to other businesses. Key risks for the Group include foreign exchange movements, imposition of tariffs and potential constraint of labour supplies. As a Board we will continue to closely monitor developments in the UK Government's Brexit plans and any potential impacts on the Group and so like most businesses we are keen to have certainty over how Brexit will be implemented.

Organisation Changes

I am fortunate to have taken over a business with a clear strategy that is delivering for all of its stakeholders. There is, however, a need to change the way that we are organised to ensure we best capitalise on the significant opportunities available to us. I have therefore implemented a more focused, two-division structure, with effect from FY20 comprising Collections and Resources & Energy.

Our Collections division, led by Jeff Anderson, incorporates all of our collection services, comprising I&C, Municipal and Hazardous Waste (which previously was part of our RR&T division). Its priorities are to continue to pursue the organic and acquisitive growth of the I&C business, to stabilise and selectively grow our Municipal offer and to grow our Hazardous Waste and other specialist services offers through cross-selling of services to our I&C customer base. All of our collections services will benefit from the same operational rigour that has underpinned the successful growth of the I&C business in recent years.

Our Resources & Energy division, led by Mick Davis, incorporates all of our waste treatment and disposal activities, including recycling, energy and landfill. Its priorities are to capitalise on the clear opportunities we have in plastic recycling and energy from waste.

I am confident that organising our business into these two divisions will provide clearer strategic prioritisation and capital allocation, accelerate our growth, and deliver operational best practice and Group synergy.

Biffa's Outlook

We have had a good year, growing our business and making progress in all of our key strategic priorities. We are set to grow our business further next year.

As we look further out, Biffa is well positioned to adapt as society and the economy evolve. At our core, we are a service business and stand ready to provide the services needed to ensure that our country receives the much-needed change in how it manages its waste. Our business model aligns us well with the ambitions of our customers and the Government.

As a Group we recognise that we have an important role to play in how our society and the economy function and that what we do matters to our stakeholders. To that end we have defined our purpose as:

"To change the way people think about waste."

This is what guides the team, and I am privileged to lead it.

Michael Topham

Chief Executive Officer

5 June 2019

Financial Review

Continued Strong Momentum

Group Performance

I am pleased in my first year as CFO to be able to present a good set of financial results. Whilst our headline statutory revenue paints a picture of modest growth, this belies the underlying picture. First, because the current year is a 52-week period versus a 53-week period last year. As such the headline growth rates are understated by around 2%. And second, because the business has had to cope with both the ongoing impact of the China import restrictions, which depressed commodity prices and the deterioration in Municipal performance. As such, we exit the year with a really solid performance.

Other Items

To enable a better understanding of business performance, certain items are excluded when calculating the Group's underlying measures of performance as follows:

(i) Items recur most years but that we feel will aid the user by excluding from underlying performance - amortisation of acquisition intangibles, acquisition related costs, movement on landfill provisions as a result of discount rate changes and strategy related costs; and

(ii) Other one-off items which are considered exceptional - onerous contract provisions, GMP equalisations costs, and legacy loan amortisation write-offs.

In the second category, the onerous contract provision movement relates to the long-term contract with Leicester City Council, together isolated underperforming Municipal contracts.

A reconciliation from Underlying Profit After Tax to statutory profit after tax is set out below:

Finance Charges

Underlying financing costs fell significantly compared to the prior year, driven by lower average cost to loan borrowings and the natural decline of the number of older, more expensive finance leases. A breakdown in net finance charges is below:

Taxation

The Group's tax strategy is approved annually by the Board and is available on the Group's website. 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.

The effective tax rate on underlying profits was 20% (prior year 20%), slightly higher than the prevailing rate due to certain charges being disallowed for UK corporation tax. Payments in respect of corporation tax in the year were £0.2m (prior year £1.7m). The Group's deferred tax balance of £2.1m includes balances totalling £48.7m in respect of Accelerated Capital Allowances, previously written off goodwill and losses which will continue moderate tax payments in future years.

Earnings per Share

Underlying Earnings per Share rose by 7.3% to 20.6 pence from 19.2 pence in the prior year. However, Total Earnings per Share reduced to 7.2 pence (prior year 12.4 pence) as a result of the higher exceptional, non-underlying items in the year.

Dividend

The Board continues to pursue a progressive dividend policy, aiming to distribute c.35% of Underlying Profit after Tax split approximately one-third (interim) and two-thirds (final). The Directors recommend a final dividend of 4.90 pence per share, bringing the total dividend payable in respect of the year to 7.20 pence per share (prior year 6.70 pence per share). The year-end dividend is expected to total £12.3m and, if approved, will be paid on 19 July 2019 to those shareholders on the register as at 28 June 2019.

Retirement Benefits

The Group operates defined pension schemes for certain employees. These are closed to new members and to future accrual (except for a small number of members who have protected entitlements under local Government contracts). At 29 March 2019, the net retirement surplus was £79.0m (prior year £51.3m). The Biffa Pension Scheme had an actuarial deficit of £29.2m at the time of the last valuation in March 2018 (compared to £66.7m in March 2015), and an inflation-linked annual payment of £4.0m has been agreed with the Trustee of the scheme.

Capital Allocation

The Group maintains a strong capital base in order to pursue its growth plans, whilst maintaining stakeholder confidence.

The Group seeks to balance the allocation of its discretionary capital between shareholder returns, acquisitions and organic growth. 

Acquisitions

The Group continued to deliver against its growth strategy by completing seven acquisitions for £47m during the year - WWS on 17 August 2018 for £16.1m, SWR on 12 March 2019 for £25.8m, and five smaller trade and assets acquisitions for a total consideration of £5.0m.

Cash Flow

Strong cash flow delivery in the year enabled further significant investment in acquisitions, together with a higher dividend.

A summary of the Group's cash flows is shown below:

Underlying Free Cash Flow increased by £3.4m in the year, driven primarily by lower interest costs and finance lease payments partly offset by higher capex, whilst net cash flow has increased significantly as a result of higher RCF drawings, partly off-set by a higher dividend payment.

Net Debt and Financing Facilities

In March 2019, the Group refinanced its bank borrowings with a new unsecured revolving credit facility of £350m. This facility has an initial five-year term expiring in March 2024, but with an option to extend for up to a further two years. The RCF will provide the Group with a lower than average cost of debt, an increased maturity profile, and improved covenants. The refinancing will result in interest cost savings for the Group of around £3.5m per annum (being a combination of lower margin and lower arrangement fees for amortisation). Unamortised arrangement fees of £3.8m relating to the old facilities have been written off within non-underlying interest charges in the current year results.

Reported Net Debt at year-end breaks down as:

Reported Net Debt excludes £42.3m (prior year £39.9m) of EVP preference instrument liability in respect of the EVP Dispute. £6.3m of the EVP preference instrument liability is included in Reported Net Debt as it will be payable irrespective of the outcome of the dispute and is therefore considered core debt.

EVP Dispute

The Group is engaged in a dispute with HMRC concerning historic Landfill tax. The Upper Tax Tribunal hearing for this dispute is scheduled for November 2019.

Financial Reporting Council (FRC) Information Request

In February 2019 the Group received a request for information on the reporting treatment of certain areas from the FRC following a review of the Group's 2018 Annual Report and Accounts. The request focused on four main areas - alternative performance measures, landfill restoration and aftercare provisions, pension schemes, and service concession arrangements. The Group responded fully and on a timely basis to the FRC, enabling the FRC to close their enquiry in early May 2019. As a result of the enquiry the Group has made a number of small disclosure changes which it has adopted for the first time in this set of Financial Statements.

IFRS 16 Leases

The Group will be adopting IFRS 16 with effect from its new financial year. It does not intend to restate the current year financial statements. Adoption of IFRS 16 has no effect on how the business is run, nor on the cash flows for the Group.

Reporting Periods

The Financial Statements for 2019 have been prepared for the 52-week period ended 29 March 2019. The prior year was a 53-week period, to 30 March 2018. The upcoming year will also be a 52-week period, up to 27 March 2020.

Richard Pike

Chief Financial Officer5 June 2019

BASIS OF PREPARATION AND DEFINITIONS

The financial information has been based on the Company's financial statements which are prepared with International Financial Reporting Standards (IFRS) as adopted for use in the EU. Whilst information contained in this preliminary announcement has been prepared in accordance with the 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 June 2019. The financial information has been prepared under the same accounting policies as the 2018 financial statements.

The financial information set out above does not constitute the Company's statutory accounts for 29 March 2019 or 30 March 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditor has reported on those accounts; the reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s.498 (2) or (3) Companies Act 2006.

In considering the financial performance of our principal segments, we analyse them on the basis of their underlying performance. This is the principal measure used by management to assess the business performance of the Company's underlying activities. Underlying activities exclude exceptional and other items.

The Board believes that by presenting our financial performance using underlying performance it is easier to read and interpret financial performance between periods, as underlying profit measures are more comparable having removed the distorting effect of the excluded items. Those items are more clearly understood if separately identified and analysed.

Consolidated Income Statement

Other items includes exceptional items, the impact of real discount rate changes to landfill provisions and amortisation of acquisition intangibles.

Consolidated Statement of Other Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Principal Risks and Uncertainties