28th Nov 2007 07:01
Biffa Plc28 November 2007 28 November 2007 Biffa Plc Interim results for the 26 weeks ended 28 September 2007 GOOD PROGRESS IN THE FIRST HALF Financial highlights-------------------- - Revenues up 4.9% to £395.0 million (2006/07: £376.5 million) - Operating profit up 7.2% to £52.4 million (2006/07: £48.9 million) - Basic earnings per share* of 8.2 pence (2006/07: 8.0 pence) - Adjusted earnings per share** up 10.8% to 8.2 pence from 7.4 pence - Free cash flow*** at £32.2 million, an increase of 18.4% - Interim dividend of 2.3 pence per share, up 9.5% Operational highlights---------------------- - Good volume growth maintained in our national account Collection business supported by a number of major contract wins; - Excellent profit growth achieved from Landfill benefiting from the opening of new sites and above inflation unit revenue growth; - Strong trading performance in Power Generation achieved through the successful early termination of less profitable NFFO**** contracts, qualifying additional power output for ROCs*****; and - Good progress in adapting operations to new pre-treatment regulations and increasingly well positioned on alternative technologies for disposal. Martin Bettington, Chief Executive Officer of Biffa Plc commented: "In a period in which the Group has implemented substantial changes inpreparation for the pre-treatment regulations which came into effect at the endof October, we are pleased to report good growth in revenues, operating profit, adjusted earnings and free cash flow in the first half of this year. In our Collection division, operating profit levels in the second quarter ofthis year show an improving trend in comparison to last year, while our nationalaccount business growth continued. Further we have continued to see strongperformances from our Resource Recovery and Landfill and Power Generationdivisions. In the second half our priorities remain focused on delivering furtherimprovements in performance from our Collection division, while also launchingnew collection services and expanding and developing treatment facilities inresponse to some of the most significant legislative changes to affect the UKwaste industry. In line with our previous expectations, we anticipate continuing good progressfor the remainder of the year and are well positioned for the future." For further information contact: Biffa Plc Tulchan Communications Martin Bettington, Chief Executive Officer David Allchurch Tim Lowth, Finance Director Stephen Malthouse Telephone 0207 353 4200 (all day) Telephone 0207 353 4200 A presentation for analysts will be held at 9.30am today at JPMorgan Cazenove,20 Moorgate, London EC2R 6DA. The presentation will also be available atwww.biffa.co.uk. * The denominators for the purposes of calculating comparative basic and dilutedearnings per share have been adjusted to reflect the sub-division of ordinaryshares and cancellation of shares for aggregate consideration of 1p in 2006,prior to demerger from Severn Trent plc. These figures equate to the previouslydisclosed proforma earnings per share ** Adjusted earnings per ordinary share have been presented to eliminate theeffects of prior year tax credits recognised in March 2007, to adjust interestpayable in the prior year to reflect the increased borrowing costs which wouldhave been incurred had it not been part of the Severn Trent group and also toreflect the restructuring that took place on demerger *** Refer to consolidated cash flow statement for definition of 'free cash flow' **** Non Fossil Fuel Obligation ***** Renewable Obligation Certificates ================================================================================ Biffa Plc Interim Management Report For the 26 weeks ended 28 September 2007 In a period in which the Group has implemented substantial changes inpreparation for the pre-treatment regulations which came into effect at the endof October, we are pleased to report good growth in revenues, operating profit,adjusted earnings and free cash flow in the first half of this year. FINANCIAL HIGHLIGHTS - Revenues up 4.9% to £395.0 million (2006/07: £376.5 million) - Operating profit up 7.2% to £52.4 million (2006/07: £48.9 million) - Basic earnings per share* of 8.2 pence (2006/07: 8.0 pence) - Adjusted earnings per share** up 10.8% to 8.2 pence from 7.4 pence - Free cash flow*** at £32.2 million, an increase of 18.4% - Interim dividend of 2.3 pence per share, up 9.5% OPERATIONAL HIGHLIGHTS - Good volume growth maintained in our national account Collection businesssupported by a number of major contract wins; - Excellent profit growth achieved from Landfill benefiting from the opening ofnew sites and above inflation unit revenue growth; - Strong trading performance in Power Generation achieved through the successfulearly termination of less profitable NFFO**** contracts, qualifying additionalpower output for ROCs*****; and - Good progress in adapting operations to new pre-treatment regulations andincreasingly well positioned on alternative technologies for disposal. SIGNIFICANT DEVELOPMENTS The Group has continued to deliver good growth during a period of significantchange as the UK waste management industry prepared for the new pre-treatmentregulations. At the same time we made progress in the implementation of arevised pricing strategy and customer services initiatives in the local accountarena of our Collection activities. Our financial results for the 26 weeks ended 28 September 2007 reflect thiscontinued progress. Revenue increased by 4.9% to £395.0 million (2006/07: £376.5million) and operating profit increased by 7.2% to £52.4 million (2006/07: £48.9million). We generated free cash flow*** of £32.2 million compared with £27.2million in the previous year, achieved through continued improvement in workingcapital management and good control over capital expenditure. Our basic earningsper share* were 8.2 pence (2006/07: 8.0 pence), while adjusted earnings pershare** increased by 10.8% from 7.4 pence to 8.2 pence. The Board is recommending an interim dividend of 2.3 pence per ordinary share,an increase of 9.5% on last year and in line with adjusted earnings, to bepaid on 1 February 2008 to shareholders on the register on 21 December 2007. During the period we benefited from strong operational performances in both ourResource Recovery and Landfill and Power Generation divisions. In our ResourceRecovery and Landfill Division, our strategy to optimise the balance betweencapacity and demand once again proved to be successful, with growth of 5% inaverage unit revenues (before landfill tax) and a 10% increase in volumes,largely driven by the opening of our new site at Cottonmount in Northern Irelandin November of last year. This new site has exceeded our initial expectationsand already demonstrated good value creation. In October, we opened our secondsoil remediation clinic at our Colnbrook site, near Heathrow following asuccessful pilot at our Risley site, near Warrington, last year. In our PowerGeneration Division, we successfully negotiated the termination of lessprofitable NFFO**** contracts at our Roxby and Trecatti sites earlier thananticipated, qualifying the capacity released for ROCs*****. In our Collection Division, we enjoyed further success in the expansion of ournational account business, supported by major contract wins in the retail,transportation and pubs and restaurant sectors. In the local account sector ofthis business, we continued to progress with the implementation of our revisedpricing strategy and customer services initiatives aimed at improving customerretention levels and strengthening our customer base. For the division as awhole, operating profit levels in the second quarter of this year show animproving trend in comparison to last year. The pre-treatment regulations, which came into force in October of this year,have been one of the most significant legislative changes to affect the UK wasteindustry over the last ten years, encouraging our industry to make an importantstep from waste disposal to resources management. Over the last six months wehave made substantial changes to prepare for the new pre-treatment regulations.We have expanded our recycling collection services so that we are able to offernational coverage for card and extensive coverage for paper and glass. In orderto accommodate those customers who choose not to recycle, we are extending ourMaterial Recycling Facilities (MRFs) capacity through further development ofexisting facilities and by establishing new ones. OPERATIONAL REVIEW Collection Gross revenue (including inter- and intra-segment revenue) was £225.8 millioncompared with £226.1 million last year. The division contributed £27.0 millionto the Group's operating profits, compared with £31.2 million last year. In the largest segment of this business, the Industrial and Commercialsub-division, revenues were £177.2 million compared with £177.7 million lastyear. We continued to enjoy volume growth in our national account business,where we achieved growth of 7% year on year (2006/07: 13%) with a number ofsignificant new customers coming on stream since June. This has partiallycompensated for the volume decline in the local account arena, which experiencedan 8% year on year volume decline (2006/07: 10%). Local account volumes haveremained broadly flat since April, compared with a decline of 2% in thecomparable period in 2006/07. Overall, the Industrial and Commercialsub-division experienced a decline in volumes of 2% year on year (2006/07: 2%). Our Municipal segment continued to perform well, generating revenues of £31.4million, 4.3% ahead of last year. Revenue growth was aided by the expansion ofservices to include the collection of recyclables from the household as well asordinary waste, and the impact of our largest collection-only municipal contractwhich was awarded to us by the Metropolitan Borough of Wirral last August.During the period we successfully tendered for the renewal of two contracts;Kent Civic Amenities and Stafford Borough Council. Following the completion of plant modification works to ourmechanical-biological-treatment (MBT) plant earlier this year, the plant passedits performance trials and our operations at Leicester returned to profittowards the end of the first half. Biffa has gained considerable experience intechnologies such as MBT, in-vessel composting and anaerobic digesters, and iswell placed in the development cycle with these technologies which represent keyalternatives to landfill. Our PFI contract on the Isle of Wight continued toperform well with growth in both revenue and operating profit. Overall the Collection division's operating profit margin was 12.0% compared to13.8% in the prior year. The decline was predominantly driven by the change inour pricing strategy within our locally managed industrial and commercialcustomer base. In the second quarter the division's operating profit levelreflects a trend of improvement in comparison to last year's levelsdemonstrating the effect of our revised pricing strategy and customer serviceinitiatives in stabilising the division's profitability levels. Special Waste Gross revenue for the division was £22.8 million (16.7% was inter- orintra-segment revenue) in comparison to £24.7 million last year (15.3% inter- orintra-segment), reflecting the loss of £2.1 million revenue in respect ofservices previously supplied to Severn Trent Plc by our Industrial andEnvironmental sub-division. Operating profit was £1.6 million compared with £1.4million last year, representing an improvement in margins from 5.7% in 2006/07to 7.0%. The largest segment of this division, Recovery and Treatment, performed well,generating revenues of £10.4 million in the period, 2.0% up on last year. TheOn-Site Services sub-division, the second largest revenue contributor withinthis division, performed strongly with revenues of £5.7 million, an increase of29.5% compared with last year, as it benefited from a number of one-offcontracts arising from summer factory shutdowns. Resource Recovery and Landfill The division showed another strong trading performance in the first half of theyear. Gross revenues were 15.8% up on last year at £187.3 million (2006/07:£161.7 million) of which 25.0% was inter- or intra-segment revenue (2006/07:24.2%). Operating profits were £29.7 million compared with £24.4 million in theprevious year, a 21.7 % increase with margins improving slightly. The largest segment of this division's revenue is represented by Landfill Taxrecharged to customers and amounted to £79.9 million in the period, 17.8% up onlast year. Landfill gate fees, which exclude recharged Landfill Tax, accountedfor revenues of £63.9 million compared with £55.6 million last year, a 14.9%increase. Despite the UK landfill market experiencing a decline in volumes resulting fromthe continuing diversion of waste away from landfill sites, our landfill volumeacross all sites was up 10% to 4.0 million tonnes. This reflected the opening ofthe new Cottonmount site in Northern Ireland in November last year, and thereopening of Shakespeare Farm on the Isle of Grain. At sites that were openthroughout the first half of both years, volumes were broadly in line with lastyear. Our strategy to pursue optimisation of the value of our void continued tobe reflected in our average unit revenues (excluding landfill tax) which, forall sites, were 5% up at £16.13 per tonne in comparison to last year's levels. At the end of September our consented and operational void bank totalled 70million cubic metres, of which 11 million cubic metres is leased to anotherlandfill operator. In addition we had 6 million cubic metres of consented but asyet not operational void, while also continuing to control 29 million cubicmetres of potential void which is in development. The Recycling and Treatment activities in the division progressed well, withrecycling volumes increasing by 5%. Our soil remediation activities continue todevelop, and in October we opened our second soil remediation clinic at ourColnbrook site near Heathrow following our successful pilot at our Risley site,near Warrington last year. Power Generation The Power Generation division produced a strong performance, with gross revenuesat £13.3 million compared with £10.1 million last year. Operating profits were£5.9 million compared with £3.9 million last year, a 51.3% increase. Output that qualifies for ROCs***** attracts a substantially higher revenuepackage than the revenues earned under NFFO**** contracts. At the start of theyear we successfully negotiated the termination of less profitable NFFO**** contracts at our Roxby and Trecatti sites earlier than anticipated, qualifyingthe capacity released for ROCs*****. Operating margins increased from 38.6% in the previous year to 44.4%. The division wholly owns 66.6 MW of installed capacity, of which 66.7% nowqualifies for ROCs5 (2006/07: 31%), reflecting our successful conversion fromNFFO4 to ROCs5. The Group also has interests in a further 40.6 MW, primarilyheld through joint venture and royalty arrangements. FINANCIAL REVIEW Summary of results Revenues increased by 4.9% to £395.0 million, (2006/07: £376.5 million) andoperating profit increased by 7.2% to £52.4 million, (2006/07: £48.9 million).Profit before tax was up 1.0% to £42.0 million (2006/07: £41.6 million) afternet finance charges of £10.8 million (2006/07: £7.7 million) and share ofresults of joint ventures of £0.4 million (2006/07: £0.4 million). Our headlinetax rate was 31.4% (2006/07: 32.9%). Basic earnings per share(1) increased from8.0 pence to 8.2 pence in the period, while adjusted earnings per share2increased by 10.8% from 7.4 pence to 8.2 pence. Free cash flow3 of £32.2 million was generated in the period compared with £27.2million reflecting our continuing improvement in working capital management andcontrol over capital expenditure. Capital expenditure, net of £0.9 millionproceeds from asset sales, was £26.9 million; £4.5 million lower than last yearreflecting good capital control and to a certain extent timing differences. Netinterest payments were £10.9 million, £5.0 million higher than last yearreflecting the refinancing of our debt facilities in the run-up to the demerger.Tax payments were £2.5 million higher, following the normalisation of our taxpayments after the significant prior year tax credits received in 2005/06 and2006/07. The cash flow statement on page 7 sets out the composite parts for theGroup's free cash flow***. Free cash flow*** represented 111.8% of earnings inthe period (profit after tax). At 28 September 2007, the Group's net debt of £346.2 million was comprised of£344.9 million of unsecured borrowings less capitalised and unamortised loanissue costs of £1.3 million, £16.3 million of finance lease obligations and £0.2million of preference share debt, offset by cash at bank balances of £13.9million. Cash used for financing activities was £40.6 million, which included the 2006/07final dividend paid to shareholders amounting to £14.7 million. During the yearwe made special pension contribution payments of £5.0 million which are reportedwithin movements in working capital. Shareholders' funds were £667.8 million at 28 September 2007 compared with£656.4 million at the start of the year. A full reconciliation of the movementin shareholders' equity is set out in note 12 on page 16. Other financing matters On an IAS 19 'Employee benefits' basis, the estimated net position of theGroup's defined benefit pension schemes as at 28 September 2007 was a deficit of£4.3 million. After deferred tax, the estimated net deficit was £3.0 million. Inthe period the Group charged a service cost of £4.8 million against operatingprofits (2006/07: £5.1 million) and recognised an actuarial loss of £4.2 millionin the statement of recognised income and expense (2006/07: £3.1 million).Following the transfer of Biffa employees, who were active members in the SevernTrent Pension Scheme, into the Biffa Pension Scheme (formerly the UK WastePension Scheme) from 1 April 2007, we anticipate that the assets and liabilitiesof the Severn Trent pension scheme relating to current and former employees ofthe Group, together with the final special contribution payment to facilitatethis transfer, to be completed before the end of the financial year. Inaddition, £5 million was paid into the Biffa Pension Scheme in May 2007,pursuant to a commitment to fund a deficit arising from the former UK WastePension Scheme assets and liabilities. Principal risks and uncertainties Details of the Group's principal risks and uncertainties can be found on page17. Directorate Change Martin Bettington will be stepping down as Chief Executive Officer and leaving the Board at the end of March 2008. The Company has started the process ofappointing a successor as Chief Executive Officer in order to achieve an orderlyhandover. The Board would like to thank Martin for his committed and dedicated service over nearly 20 years, especially his leadership through the demerger,and wishes him every success as he sets about the next phase of his career. OUTLOOK Since the start of the financial year the group has traded in line with ourexpectations. In our Collection division, operating profit levels in the secondquarter of this year show an improving trend in comparison to last year, whileour national account business growth continued. Further we have continued to seestrong performances from our Resource Recovery and Landfill and Power Generationdivisions. In the second half our priorities remain focused on delivering furtherimprovements in performance from our Collection division, while also launchingnew collection services and expanding and developing treatment facilities inresponse to some of the most significant legislative changes to affect the UKwaste industry. In line with our previous expectations, we anticipate continuing good progressfor the remainder of the year and are well positioned for the future. Bob Davies Chairman 27 November 2007 * The denominators for the purposes of calculating comparative basic and dilutedearnings per share have been adjusted to reflect the sub-division of ordinaryshares and cancellation of shares for aggregate consideration of 1p in 2006,prior to demerger from Severn Trent plc. These figures equate to the previouslydisclosed proforma earnings per share ** Adjusted earnings per ordinary share have been presented to eliminate theeffects of prior year tax credits recognised in March 2007, to adjust interestpayable in the prior year to reflect the increased borrowing costs which wouldhave been incurred had it not been part of the Severn Trent group and also toreflect the restructuring that took place on demerger *** Refer to consolidated cash flow statement for definition of 'free cash flow' **** Non Fossil Fuel Obligation ***** Renewable Obligation Certificates ================================================================================ CONDENSED CONSOLIDATED INCOME STATEMENT For the 26 weeks ended 28 September 2007 Notes 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Revenue 1 395.0 376.5 742.7Cost of sales (326.2) (311.6) (624.8) ----------------------------------------------- Gross profit 68.8 64.9 117.9 Distributioncosts (5.8) (4.9) (9.1)Administrativeexpenses (10.6) (11.2) (18.8)Otheroperatingincome - 0.1 0.7 ---------------------------------------------- Operatingprofit 1 52.4 48.9 90.7 Share of posttax results ofjoint ventures 0.4 0.4 0.7Finance income 2 2.7 2.5 4.3Finance charges 2 (13.5) (10.2) (22.9) ---------------------------------------------- Profit beforetaxation 42.0 41.6 72.8Taxation 3 (13.2) (13.7) (9.5) ---------------------------------------------- Profit for theperiod 28.8 27.9 63.3 ============================================== Earnings per shareexpressed in pence pershare - Basic 5 8.2p 8.0p 18.1p - Diluted 5 8.2p 8.0p 18.0p All the amounts above relate to continuing operations and are attributable toequity holders of Biffa Plc. CONDENSED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the 26 weeks ended 28 September 2007 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Profit for the periodattributable to equityholders of Biffa Plc 28.8 27.9 63.3 Actuarial (losses) /gains on defined benefitpension scheme (4.2) (3.1) 11.1 Deferred tax credit /(charge) arising fromactuarial gains orlosses 1.2 0.9 (3.3) ----------------------------------------------- Total recognised income for the period 25.8 25.7 71.1 =============================================== CONDENSED CONSOLIDATED BALANCE SHEET As at 28 September 2007 Notes 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m -----------------------------------------------Assets Non-current assets Goodwill 732.7 732.7 732.7Other intangible assets 1.4 1.4 1.3Property, plant and equipment 337.0 339.6 343.4Interest in joint ventures 0.7 0.5 0.7Other receivables and investments 0.1 0.2 0.1 ----------------------------------------------- 1,071.9 1,074.4 1,078.2 ----------------------------------------------- Current assets Inventories 2.3 3.0 2.5Trade and other receivables 158.6 148.3 142.5Cash and cash equivalents 13.9 25.2 26.9 ----------------------------------------------- 174.8 176.5 171.9 ----------------------------------------------- Current liabilities Trade and other payables (125.3) (122.1) (114.3)Current tax liabilities (18.7) (21.5) (15.1)Financial liabilities - borrowings (0.9) (13.4) (0.8)Provisions 6 (12.0) (15.4) (16.7) ----------------------------------------------- (156.9) (172.4) (146.9) ----------------------------------------------- Net current assets 17.9 4.1 25.0 ----------------------------------------------- Non-current liabilities Financial liabilities - borrowings (359.2) (364.2) (384.9)Deferred tax liabilities (2.1) (2.5) (3.4)Retirement benefit obligations 7 (4.3) (39.0) (6.2)Non-current provisions 6 (56.4) (55.6) (52.3) ----------------------------------------------- (422.0) (461.3) (446.8) ----------------------------------------------- Net assets 667.8 617.2 656.4 =============================================== Equity Called up share capital 12 35.0 711.3 35.0Capital redemption reserve 12 676.4 - 676.4Retained deficit 12(i) (43.6) (94.1) (55.0) -----------------------------------------------Total shareholders'equity 667.8 617.2 656.4 =============================================== Net debt 10 346.2 352.4 358.8Gearing (note ii) 34% 36% 35% (i) As at 28 September 2007, the Company had sufficient distributablereserves to pay the 2007/08 interim dividend. (ii) Gearing has been calculated on the basis of Debt / (Debt + Equity). CONDENSED CONSOLIDATED CASH FLOW STATEMENT For the 26 weeks ended 28 September 2007 Notes 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Cash flows from operating activities Cash generated from operations 8 73.1 70.1 125.7Interest received 0.9 1.8 3.0Interest paid (11.8) (7.7) (15.5)Tax paid (8.1) (5.6) (14.3) -----------------------------------------------Net cash fromoperating activities 54.1 58.6 98.9 ----------------------------------------------- Cash flows from investing activities Purchases of property, plant and equipment (27.8) (32.7) (73.4)Proceeds from the sale of property, plant and equipment 0.9 1.3 2.5Dividend received 0.4 0.4 0.7 ----------------------------------------------- Net cash used in investing activities (26.5) (31.0) (70.2) ----------------------------------------------- Cash flows from financingactivities Dividends paid (14.7) (65.3) (72.9)Finance lease principal payments (0.9) (0.8) (28.9)Drawdown of borrowings 35.0 332.3 368.6Repayment of borrowings (60.0) (307.7) (307.7)Settlement of interest free loan - 15.9 15.9 -----------------------------------------------Net cash flow from financing activities (40.6) (25.6) (25.0) ----------------------------------------------- Net (decrease) / increase in cash and cash equivalents (13.0) 2.0 3.7 Cash and cash equivalents at beginning of period 26.9 23.2 23.2 ----------------------------------------------- Cash and cash equivalents at end of period 13.9 25.2 26.9 =============================================== Free cash flow Net cash generated from operating activities 54.1 58.6 98.9Proceeds from the sale of property, plant and equipment 0.9 1.3 2.5Purchase of property, plant and equipment (27.8) (32.7) (73.4)Special pension contribution payments 5.0 - 12.0 ----------------------------------------------- 32.2 27.2 40.0 =============================================== NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the 26 weeks ended 28 September 2007 ACCOUNTING POLICIES This set of financial statements has been prepared using accounting policiesconsistent with International Financial Reporting Standards (IFRS) and inaccordance with IAS 34 'Interim Financial Reporting'. The same accounting policies, presentation and methods of computation arefollowed in these financial statements as applied in the Group's latest annualaudited financial statements for the 52 weeks ended 30 March 2007, prepared inaccordance with IFRSs as adopted by the European Union. Change in accounting policies In the current financial year, the Group will adopt International FinancialReporting Standard 7 'Financial Instruments: Disclosures' (IFRS 7) for the firsttime. As IFRS 7 is a disclosure standard, there is no impact of that change inaccounting policy on the half yearly financial report. Full details of thechange will be disclosed in our annual report for the 52 weeks ended 29 March2008. 1 SEGMENTAL INFORMATION The Group is managed by type of business and as such is organised into fouroperating divisions. These divisions represent the business segments in whichthe Group reports its primary segment information. Since all trading activityand operations are in the United Kingdom, there is no secondary reporting formatby geographical segment. The segment results for the 26 weeks ending 28 September 2007 are as follows: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m Revenue Collection 225.8 226.1 444.2Special Waste 22.8 24.7 49.4Resource Recovery and Landfill 187.3 161.7 319.8Power Generation 13.3 10.1 21.6Eliminations (note i) (54.2) (46.1) (92.3) ----------------------------------------------- Total 395.0 376.5 742.7 =============================================== Operating profit Collection 27.0 31.2 56.1Special Waste 1.6 1.4 2.5Resource Recovery and Landfill 29.7 24.4 47.9Power Generation 5.9 3.9 9.2Shared services and corporate costs (note ii) (11.8) (12.0) (25.0) ----------------------------------------------- Operating profit 52.4 48.9 90.7Share of post tax results of joint ventures (note iii) 0.4 0.4 0.7Finance income 2.7 2.5 4.3Finance charges (13.5) (10.2) (22.9) ----------------------------------------------- Profit before tax 42.0 41.6 72.8 =============================================== The Group's analysis of revenue by category is analysed as follows: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Provision of services 395.0 376.5 742.7Finance income 2.7 2.5 4.3Share of post tax results of joint ventures 0.4 0.4 0.7 ----------------------------------------------- 398.1 379.4 747.7 =============================================== (i) Inter and intra-segment transactions between and within divisions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. (ii) Shared services and corporate costs, which include corporate costs arising from corporate governance requirements totalled £0.8 million during the period. In the previous first half year shared services and corporate costs totalled £1.1 million, and included a management charge payable to Severn Trent Plc amounting to £0.8 million. (iii)The share of post tax results of joint ventures relates entirely to the Power Generation division. Other segment items are 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m -----------------------------------------------Capital expenditure Collection 14.4 17.0 36.0Special Waste 0.3 0.3 0.6Resource Recovery and Landfill 12.0 13.3 31.9Power Generation 0.7 1.5 4.1Shared services and corporate 0.5 0.6 1.0 ----------------------------------------------- 27.9 32.7 73.6 =============================================== Depreciation and amortisation Collection 18.2 17.2 35.7Special Waste 0.8 0.8 1.6Resource Recovery and Landfill 11.9 10.2 20.2Power Generation 1.6 1.3 2.8Shared services and corporate 0.5 0.7 1.4 ----------------------------------------------- 33.0 30.2 61.7 =============================================== There were no significant other non-cash expenses. Capital expenditure comprises additions to property, plant and equipment andintangible assets, including additions resulting from acquisitions arisingthrough business combinations. The Group also disposed of certain plant and machinery items with carryingamounts of £0.5 million for proceeds of £0.9 million. 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Goodwill Collection 492.2 492.2 492.2Special Waste 34.9 34.9 34.9Resource Recovery and Landfill 180.2 180.2 180.2Power Generation 25.4 25.4 25.4 ----------------------------------------------- 732.7 732.7 732.7 =============================================== Operating Assets Collection 256.6 266.1 253.6Special Waste 19.6 20.2 18.5Resource Recovery and Landfill 187.7 173.5 180.5Power Generation 26.5 23.1 25.0Shared services and corporate 23.6 35.3 39.8 ----------------------------------------------- 514.0 518.2 517.4 =============================================== Total Collection 748.8 758.3 745.8Special Waste 54.5 55.1 53.4Resource Recovery and Landfill 367.9 353.7 360.7Power Generation 51.9 48.5 50.4Shared services and corporate 23.6 35.3 39.8 ----------------------------------------------- 1,246.7 1,250.9 1,250.1 =============================================== Segment assets consist primarily of goodwill and operating assets such asintangible assets, property, plant and equipment, inventories and receivables.Shared service and corporate assets include deferred taxation and cash. Segment Liabilities 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Collection 51.6 50.8 42.4Special Waste 7.4 7.5 8.3Resource Recovery and Landfill 98.1 95.7 96.7Power Generation 4.1 3.4 3.8Shared services and corporate 417.7 476.3 442.5 ----------------------------------------------- Group total liabilities 578.9 633.7 593.7 =============================================== Segment liabilities comprise operating liabilities. Shared service and corporateliabilities, inter alia, include retirement obligations, leasing obligations,corporate borrowing and taxation. 2 FINANCE INCOME AND CHARGES 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Finance charges: Interest on bank overdrafts and loans (11.6) (0.4) (10.0)Loan issue costs (0.2) - (0.2)Interest on obligations under finance leases (0.5) (1.4) (3.1)Interest payable to former parent (note i) - (7.2) (7.2)Interest on discounted provisions (1.2) (1.2) (2.4) -----------------------------------------------Finance charges (13.5) (10.2) (22.9)Finance income (note ii) 2.7 2.5 4.3 ----------------------------------------------- Net finance charges (10.8) (7.7) (18.6) =============================================== (i) Loans due to the former parent company, Severn Trent Plc, were settled on 9 October 2006 with borrowings drawn down from the dual tranche facility held with Barclays Capital. (ii) Finance income includes £1.7 million (2006/07: £0.7 million), comprising expected return on pension scheme assets of £6.9 million (2006/07: £5.3 million) less interest cost accrued on pension scheme liabilities of £5.2 million (2006/07: £4.6 million). 3 TAXATION The income tax charge comprises as follows: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Current tax:Corporation tax at 30% Current year 13.5 11.2 18.1 Prior year - - (4.6)Severn Trent Group relief at 30% Current year - - - Prior year - - (4.2) ----------------------------------------------- Total current tax 13.5 11.2 9.3 Deferred tax: Current year (0.3) 2.5 5.5 Prior year - - (5.3) ----------------------------------------------- Total deferred tax (0.3) 2.5 0.2 ----------------------------------------------- Total tax charge 13.2 13.7 9.5 =============================================== The rate of corporation tax will reduce from 30% to 28% from 1 April 2008. Thishas resulted in the Group's net deferred tax liability decreasing by £0.2million of which a £0.1 million increase has been reflected in the consolidatedstatement of recognised income and expense. On 21 March 2007, proposals wereannounced to phase out Industrial Building Allowances with effect from 1 April2008. This change has not yet been substantively enacted and as such is notreflected in the financial statements. 4 DIVIDENDS 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Interim paid: 2.1p per 10 pence share - - 7.4Final paid: 4.2 pence per 10 pence share 14.7 - -Dividend paid to former parent company - 65.3 65.5 ----------------------------------------------- 14.7 65.3 72.9 =============================================== The directors recommended an interim dividend in respect of the 26 weeks ending28 September 2007 of 2.3 pence per ordinary share to be paid on 1 February 2008to shareholders who are on the register at 21 December 2007. The interimproposed dividend to ordinary shareholders will absorb an estimated £8.1 millionof shareholders funds and will have no income tax consequences for the Group.These financial statements do not reflect this dividend payable. 5 EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share is calculated by dividing earningsattributable to ordinary shareholders by the weighted average number of ordinaryshares in issue during the period. Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares outstanding to assume conversion of all dilutivepotential ordinary shares. Adjusted earnings per ordinary share have beenpresented to eliminate the effects of prior year tax credits recognised in March2007, to adjust interest payable in the prior year to reflect the increasedborrowing costs which would have been incurred had it not been part of theSevern Trent group and to reflect the restructuring that took place on demerger. The denominators for the purposes of calculating comparative basic and dilutedearnings per share have been adjusted to reflect the sub-division of ordinaryshares and cancellation of shares for aggregate consideration of 1p in 2006,prior to demerger from Severn Trent plc. These figures equate to those disclosedas "proforma earnings per share" in previous reports. 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Basic earnings per share denominator (millions) 349.5 349.5 349.5Diluted earnings per share denominator (millions) 351.1 349.5 351.5Basic earnings per share (pence) 8.2 8.0 18.1Diluted earnings per share (pence) 8.2 8.0 18.0Adjusted earnings per ordinary share (pence) 8.2 7.4 13.5Diluted adjusted earnings per ordinary share (pence) 8.2 7.4 13.4 ----------------------------------------------- The reconciliation between basic and adjusted figures are as follows: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m Pence £m Pence £m Pence ----------------------------------------------- Earnings attributable to ordinary shareholders for basic earnings per share calculation 28.8 8.2 27.9 8.0 63.3 18.1Prior year tax credits - - - - (14.1) (4.0)Capital structure and interest rate - - (2.0) (0.6) (2.0) (0.6) adjustments, net of tax -----------------------------------------------Adjusted earnings 28.8 8.2 25.9 7.4 47.2 13.5 =============================================== 6 PROVISIONS Land Onerous Insurance Total reinstatement contracts and environmental £m £m £m £m ----------------------------------------------- At 31 March 2006 66.6 1.7 3.4 71.7Utilised (4.5) (0.5) (1.3) (6.3)Charge to income 4.4 - 0.9 5.3Discount elimination 1.2 - - 1.2Transfers from fixed assets / other assets (0.9) - - (0.9) ----------------------------------------------- At 29 September 2006 66.8 1.2 3.0 71.0Utilised (5.3) (0.5) (1.3) (7.1)Charge to income 4.2 - 1.5 5.7Discount elimination 1.2 - - 1.2Transfers from fixed assets / other assets (1.8) - - (1.8) ----------------------------------------------- At 30 March 2007 65.1 0.7 3.2 69.0Utilised (5.6) (0.3) (1.1) (7.0)Charge to income 5.6 - 1.2 6.8Discount elimination 1.2 - - 1.2Transfers from fixed assets / other assets (1.6) - - (1.6) -----------------------------------------------At 28 September 2007 64.7 0.4 3.3 68.4 =============================================== Provisions have been analysed between current and non-current as follows: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Current 12.0 15.4 16.7Non-current 56.4 55.6 52.3 ----------------------------------------------- 68.4 71.0 69.0 =============================================== 7 POST RETIREMENT BENEFITS The Group operates a defined benefit scheme, the Biffa Pension Scheme (formerlythe UK Waste Pension Scheme), for employees of Biffa Plc. Prior to 30 March2007, there were a number of employees who were participants in the Severn TrentPension Scheme and the Severn Trent Senior Staff Pension Scheme. With effectfrom 1 April 2007, these members joined the Biffa Pension Scheme. We anticipatethat the assets and liabilities of the Severn Trent pension scheme relating tocurrent and former employees of the Group, together with the final specialcontribution payment to facilitate this transfer, to be completed before the endof the financial year. The principal assumptions used by the actuaries were as follows: Severn Trent UK Waste Others Pension Scheme Pension Scheme 26 weeks 52 weeks 26 weeks 52 weeks 26 weeks 52 weeks to 28 to 30 to 28 to 30 to 28 to 30 September March September March September March 2007 2007 2007 2007 2007 2007 ---------------------------------------------------------------- Discount rate 5.8% 5.4% 5.8% 5.4% 5.8% 5.4%Expected return on plan assets 7.1% 6.9% 7.2% 7.2% 7.1% 6.9%Future salary increases 4.7% 4.5% 4.7% 4.5% 4.7% 5.5%Future pension increases 3.0% 3.0% 3.2% 3.0% 3.0% 3.0% ----------------------------------------------------------------- The Biffa Pension Scheme uses the mortality tables PMA92C2026 (male) /PFA92C2026 (female) with a 125% scaling for works and manual employees and 100%for staff employees. The same tables, projected to calendar year 2016, are usedfor pensioners. The Scheme also adopts the short cohort allowance for futurelongevity improvements. Formal actuarial valuations of the Group's defined benefit pension schemes,based on the projected unit method, are carried out triennially with periodicactuarial reviews. The defined benefit obligation for the Severn Trent PensionSchemes is based on the latest actuarial valuation carried out in August 2007.The Biffa Pension Scheme defined benefit obligation is based on the latestactuarial valuation carried out at 6 April 2006. The movement in the net pension deficit for the period are set out below: 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Opening net liability 6.2 33.7 33.7Current service cost 4.8 5.1 10.1Expected return on assets less interest cost (1.7) (0.7) (1.7)Normal employer contributions (5.4) (2.2) (3.8)Special employer contributions (note i) (5.0) - (21.0)Actuarial losses / (gains) 4.2 3.1 (11.1)Transfer of liabilities for former employees 1.2 - - -----------------------------------------------Closing net liability 4.3 39.0 6.2 =============================================== (i) Special pension contributions payments comprise of £5 million into the Biffa Pension Scheme. Free cash flow has been adjusted by this special payment. 8 CASH FLOWS FROM OPERATING ACTIVITIES 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Profit for the period 28.8 27.9 63.3Adjustments for: Share of post tax results of joint ventures (0.4) (0.4) (0.7) Finance income (2.7) (2.5) (4.3) Finance charges 13.5 10.2 22.9 Taxation 13.2 13.7 9.5 ----------------------------------------------- Operating profit 52.4 48.9 90.7Amortisation of intangibles 0.3 0.3 0.6Depreciation of property, plant and equipment 32.7 29.9 61.1Profit on disposal of property, plant and equipment (0.4) (0.3) (0.8)Decrease in inventories 0.2 0.2 0.7Increase in debtors (18.1) (16.8) (8.2)Increase / (decrease) in creditors 5.7 8.8 (16.6)Decrease in provisions (0.3) (0.9) (2.4)Equity share based payments 0.6 - 0.6 ----------------------------------------------- Total cash flow fromoperating activities 73.1 70.1 125.7 =============================================== 9 CONSOLIDATED MOVEMENT IN NET DEBT 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Net (decrease) / increase in cash and cash equivalents (13.0) 2.0 3.7Repayment / (increase) of borrowings and finance leases 25.9 (39.7) (47.8)Other non-cash movements (0.3) - - ---------------------------------------------- Movement in net debt in the period 12.6 (37.7) (44.1)Net debt at beginning of period (358.8) (314.7) (314.7) -----------------------------------------------Net debt at end of period (346.2) (352.4) (358.8) =============================================== 10 ANALYSIS OF NET DEBT 26 weeks to 26 weeks to 52 weeks to 28 September 29 September 30 March 2007 2006 2007 £m £m £m ----------------------------------------------- Cash and cash equivalents 13.9 25.2 26.9Finance leases (16.3) (45.3) (17.0)Bank loans (343.6) (332.3) (368.5)Preference share debt (0.2) - (0.2) ----------------------------------------------- (346.2) (352.4) (358.8) =============================================== During the period, the Group repaid loans of £25 million from its existing loanfacility. 11 CONTINGENT LIABILITIES Biffa must satisfy the financial security requirements of environmental agenciesin order to ensure that it is able to discharge the obligations in the licencesor permits that the Group holds for its landfill sites. Biffa satisfies thesefinancial security requirements by providing financial security bonds. Theamount of financial security which is required is determined in conjunction withthe regulatory agencies, as is the method by which assurance is provided. Biffahas existing bond arrangements in England and Wales of approximately £87 millionoutstanding at 28 September 2007 (30 March 2007: £81 million) in respect of theGroup's landfill sites where the Group has financial security obligations underthe Environment Agency's "fit and proper person" test. No liability is expectedto arise in respect of either bonds or guarantees. 12 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share capital Capital Retained Total redemption earnings reserve £m £m £m £m ----------------------------------------------- At 31 March 2006 711.3 - (54.2) 657.1Profit for the - - 27.9 27.9 periodActuarial losses arising on post employment obligations, - - (2.2) (2.2) including taxDividends paid - - (65.3) (65.3) in the periodValue of employee services, net of deferred tax - - (0.3) (0.3) ----------------------------------------------- At 29 September 2006 711.3 - (94.1) 617.2Profit for the - - 35.4 35.4 periodActuarial gain arising on post employment obligations, - - 10.0 10.0 including taxDividends paid - - (7.6) (7.6) in the periodCancellation of ordinary shares (676.4) 676.4 - -Value of employee services, net of deferred tax - - 1.4 1.4Shares held in trust 0.1 - (0.1) - ----------------------------------------------- At 30 March 2007 35.0 676.4 (55.0) 656.4Profit for the - - 28.8 28.8 periodActuarial loss arising on post employment obligations, - - (3.0) (3.0) including taxDividends paid - - (14.7) (14.7) in the periodValue of employee services, net of deferred tax - - 0.3 0.3 ----------------------------------------------- At 28 September 2007 35.0 676.4 (43.6) 667.8 =============================================== 13 BASIS OF PREPARATION OF FINANCIAL STATEMENTS AND STATUS OF FINANCIALINFORMATION The financial information set out above does not constitute the Group's statutory accounts for the 52 weeks ended 30 March 2007 as defined in Section 240 of the Companies Act 1985 but are derived from those accounts. Statutory accounts for 2006 and 2007 have been delivered to the Registrar of Companies. The auditors have reported on these accounts; their reports were unqualified and did not contain a statement under section 237 (2) or (3)of the Companies Act 1985. 14 WEBSITE POLICY The directors are responsible for the maintenance and integrity of the company'swebsite. Information published on the internet is accessible in many countrieswith different legal requirements. Legislation in the United Kingdom governingthe preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions. Copies of the Interim report and Financialstatements and the last Annual report and Financial statements are availablefrom the Secretary, Biffa Plc, Coronation Road, Cressex, High Wycombe, BucksHP12 3TZ and can each be downloaded or viewed via the Company's corporatewebsite, www.biffa.co.uk. PRINCIPAL RISKS AND UNCERTAINTIES The Principal Risks and Uncertainties which could prevent Biffa from achievingits objectives or otherwise affecting its value and the controls put in placearound them were set out in the 2007 Annual Report and Accounts (available onour website at www.biffa.co.uk). An annual process is conducted to identify andevaluate risks and their consequences and the controls. This includes reportsevery six months from the Chief Executive Officer to the Board on developmentsin the arrangements for managing risks. The risks and uncertainties include: - Our service offerings may fail to react to legislative and market dynamics; - The technologies we choose to employ may fail to deliver expected performance; - An uncontrolled chemical reaction may occur at a Special Waste facility; - There may be a lack of leadership continuity; - An Operator's Licence in one or more of our regions may be suspended orwithdrawn; or - Civil and/or criminal proceedings arising from a breach of Heath & Safety orEnvironmental legislation could lead to financial loss or reputational damage. No significant changes have been identified to those risks, some or all of whichhave the potential to impact our results or financial position during theremaining 26 weeks of the financial year. RESPONSIBILITY STATEMENT We confirm to the best of our knowledge: (a) the condensed set of financial statements have been prepared in accordancewith IAS 34 'Interim financial reporting'; (b) the interim management report includes a fair view of the informationrequired by DTR 4.2.7R (indication of important event during the first 26 weeksof the financial year and description of principal risks and uncertainties forthe remaining 26 weeks of the financial year); and (c) the interim management report includes a fair view of the informationrequired by DTR 4.2.8R (disclosure of related party transactions and changestherein). By order of the board Martin Bettington Tim LowthChief Executive Officer Finance Director27 November 2007 27 November 2007 ================================================================================ INDEPENDENT REVIEW REPORT TO BIFFA PLC We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the 26 weeks ended 28September 2007 which comprises the income statement, the balance sheet, thestatement of recognised income and expense, the cash flow statement and relatednotes 1 to 14. We have read the other information contained in the half-yearlyfinancial report and considered whether it contains any apparent misstatementsor material inconsistencies with the information in the condensed set offinancial statements. This report is made solely to the company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our review work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdoms' Financial Services Authority. As disclosed in the statement on accounting policies, the annual financialstatements of the group are prepared in accordance with IFRSs as adopted by theEuropean Union. The condensed set of financial statements included in thishalf-yearly financial report has been prepared in accordance with InternationalAccounting Standard 34, "Interim Financial Reporting," as adopted by theEuropean Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the accompanying interim financial information is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. Deloitte & Touche LLPChartered Accountants27 November 2007Birmingham, United Kingdom This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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