Publication of Annual Report and Accounts 2021

Risk title/description

Risk movementand Impact

Mitigating actions

Changes in year

Strategic objective

Changes in Government policy and legal and regulatory compliance

The Group operates in a highly regulated industry and any changes to Government policy, standards or legal and regulatory compliance requirements could have an adverse impact on the Group's operations and results.

Link to stakeholder groups

· Employees

· Customers

· Investors

· Suppliers

· Government and Regulators

-

· Reputational

· Regulatory

Experienced and qualified teams, supported by legal and environmental expertise, that monitor changes and plan appropriate mitigations.

Representation on the Environmental Services Association and other external bodies; liaison with policy makers and Regulators at national and local levels; responses to Government/ regulatory consultations and sustainability reporting.

Environmental compliance strategy in place including annually reviewed targets and actions at local, divisional and Group levels.

Established compliance processes in place to manage other regulatory compliance risks, such as anti-bribery and corruption, GDPR, modern slavery, competition and vehicle operating licences.

Founding member of the Slave Free Alliance and has implemented several initiatives, including a manager's guide to modern slavery, to raise awareness across the business.

Training for senior leaders and management on:

· modern slavery;

· anti-bribery and corruption;

· GDPR; and

· competition.

Further engagement with UK Government on development of new national waste policies and regulations as part of the National Resources & Waste Strategy and new internal working groups established.

Direct engagement with Scottish Government and regulators in relation to the Scotland Deposit Return Scheme roll-out planned for 1 July 2022.

Further work following publication of sustainability strategy, 'Resourceful, Responsible', in March 2O2O, in relation to climate change risk and net zero carbon by 2050 ambition and publication of new annual Sustainability Report.

Analysis of "Scope 3" (suppliers) carbon emissions to inform future Scope 3 target development and registration of Biffa with the "Science Based Targets initiative".

Continued application of the environmental compliance strategy and associated training and best practice in relation to our operational waste management sites.

Amalgamation of Environment team into new Corporate Affairs department, under a newly appointed Corporate Affairs Director.

Became a founding member of the Waste and Recycling Modern Slavery Working Group.

Teamed up with Hope for Justice for a week-long campaign using Biffa trucks to raise awareness of Modern Slavery in the communities we serve.

Partnered with Ride for Freedom, a social enterprise that undertakes cycling challenges to raise awareness of Modern Slavery.

Comprehensive review and refresh of our GDPR policy and procedures.

Building a circular economy

Tackling climate change

Strategic/competitive threat

to business model

Market disruption from the application of new technology and the advent of new business models could change the waste supply chain and adversely impact Biffa's established operating asset base of a traditional collection network and processing facilities.

Link to stakeholder groups

· Employees

· Customers

· Investors

· Suppliers

â

· Financial

Internal business innovation group focuses on market developments and acts as an incubator for ideas and new business models.

Continual competitor analysis to consider threats and changes to the landscape.

Annual strategy review to ensure that Biffa business model remains current and competitive.

Customer surveys to ensure that the Biffa offering remains relevant and compelling.

Ongoing investment in and improvement of the customer experience through digitisation, improved processes and management information.

Innovative concepts have been developed as potential projects and evaluated by the Group Executive Team.

Permanent Innovation Researcher post created to assist in ongoing horizon scanning.

Building a circular economy

Mergers and acquisitions strategy

and delivery

Biffa faces risks arising from its acquisition strategy, such as increased competition for acquisition targets or a lack of suitable targets. Additionally, acquisition integration risks and issues could arise, impacting the delivery of expected benefits, either within expected timeframes or to the extent anticipated.

Link to stakeholder groups

· Employees

· Customers

· Investors

· Government and Regulators

· Environment and Communities

â

· Financial

Group delegated authorities for the review/ approval of all transactions by senior management, Investment Committee and the Board.

Dedicated corporate finance expertise in place together with experienced Biffa subject matter experts as senior stakeholders for the acquisition process.

Board and executive level review and update included in monthly Board report summarising pipeline of identified potential targets.

Due diligence undertaken for all M&A transactions, including use of external advisers depending on target value and complexity. A standardised approach using an established valuation model is in place with all transactions reviewed/approved by the Investment Committee and (where appropriate) the Board.

Project team kept in place until integration phase completed. Post-acquisition reviews to track benefit delivery with financial benefits embedded within financial planning processes (e.g. forecasts and budgets).

Despite the impact of Covid-19, we have continued our M&A strategy to support growth and completed three acquisitions during the year, including Simply Waste and Company Shop Group.

Building a circular economy

Strategic project implementation

Failure to deliver strategic projects, such as energy from waste and business transformation. EfW increases Biffa's residual waste treatment capabilities providing a secure and cost-effective disposal solution for the I&C business. Business transformation is focused on our products and services, how they are sold and delivered, the technology used and the online services offered to customers. As with any such projects, there are risks that the project fails to deliver the anticipated improvements and/or benefits for the budgeted investment, adversely impacting reputation and operating results.

Link to stakeholder groups

· Employees

· Customers

· Investors

· Suppliers

· Government and Regulators

· Environment and Communities

â

· Financial

Board and Group Executive Team engagement and leadership.

Selected software is a proven 'off the shelf' product. Independent programme assurance.

Change network in place to ensure line management ownership of business transformation.

Robust due diligence completed prior to financial close of EfW projects.

Proven EfW technology, substantial UK and worldwide reference plants with >30 operational in the UK treating more than 10m tonnes

per annum.

EfW joint venture providing complementary skill sets and experience to minimise risk.

Limited recourse project structure.

Due to the delays created by Covid-19 it was agreed to impair the incomplete work paused due to the likely need for rework of elements of the solution once the business transformation programme resumes.

New e-commerce capability launched in October 2020 to facilitate digital sales of core services.

Protos and Newhurst EfW projects successfully reached financial close and construction has commenced. Both projects benefit from fixed time and cost contracts.

Building a circular economy

Tackling climate change

Caring for our people,

supporting our communities

Long-term contracts and tendering

The Group is exposed to risks inherent in long-term fixed- price contracts, in particular in its Municipal division and related operations. Risks include inaccurate long-term cost estimates due to changes in the external operating environment and market dynamics that lead to material deviations from initial underlying assumptions.

Link to stakeholder groups

· Employees

· Customers

· Suppliers

-

· Financial

· Reputational

· Operational

Group Delegated Authorities for the review/ approval of bids by senior management, Investment Committee and the Board (depending on bid size and compliance with risk frameworks).

Material bids are compiled by dedicated development teams with significant expertise and experience. They are supported by subject matter experts as appropriate.

Protection from change of law or force majeure for unforeseen circumstances is agreed in contracts, where possible.

A contract risk framework is in place to identify key commercial/legal risks and confirm through the governance process that these have been considered and mitigated.

The risk framework has been embedded firmly in the bidding process, with four successful tenders during the year been mobilised successfully and operating at expected profit levels.

Improved capacity and capability across our project management and mobilisation facilitating a culture of continuous improvement.

Increased resourcing levels in the commercial department to build on last year's investment.

Building a circular economy

Caring for our people,

supporting our communities

Health & Safety

Biffa's operations present inherent H&S risks to our employees, our customers and the wider public.

Violations of H&S laws/ regulations could have a material adverse effect on Biffa's business and reputation.

Link to stakeholder groups

· Employees

· Customers

· Investors

· Suppliers

· Government and Regulators

· Environment and Communities

-

· Reputational

· Regulatory

Group H&S Director reports to the CEO.

Active and regular engagement by senior management including weekly reporting and calls with the Group Executive Team.

Inclusion of H&S targets and objectives within Group Balanced Business Plans with one of the five pillars being 'Safer Together'.

Embedded policies, standards and procedures in place across Biffa for the systematic control of significant H&S risks.

Primary authority relationship with Hampshire & Isle of Wight Fire and Rescue Service enables access to advice and counsel on fire risk issues.

Management system transitioned to ISO 45001:2018.

Continued roll out of the Safer Together programme.

Existing H&S standards updated and incorporated into a new Group Integrated Management System.

Covid-Secure protocols and processes implemented in accordance with UK Government guidelines.

Implementation of the new driver training programme - Streetwise developed which focuses on defensive driving behaviours.

E.N.E.R.G.Y. wellbeing programme delivered supporting key topics such as mental health.

Caring for our people,

supporting our communities

Covid-19

The ongoing uncertainty of the timing of a return to growth following the Covid-19 pandemic. A significant reduction in demand for I&C collection services, as many customers are forced to cease or drastically reduce trading, as well as reductions in volumes into some processing facilities in the R&E division, may have an adverse impact on Biffa's operating performance, revenues and results of operations.

Link to stakeholder groups

· Employees

· Customers

· Investors

· Suppliers

· Government and Regulators

· Environment and Communities

-

· Operational

· Financial

· Reputational

The Group introduced measures to reduce costs, including furloughing over 1,800 employees; temporary pay reductions taken by the Board, the Group Executive Team and the broader Leadership group; and suspension of bonuses and pay increases.

In addition, payment deferrals were negotiated where appropriate and meaningful in areas such as indirect taxes, pensions, lease liabilities and material supplies.

Covenant amendments and additional liquidity headroom were agreed with the Group's banks.

£100m equity raise in June 2020 to help the Group continue to pursue its strategic growth plan.

An internal response team was set up to ensure we supported the health and wellbeing of our colleagues, managed business continuity, provided clear and timely communications and minimise service disruption.

All staff who could were advised to work from home and ensured the appropriate Covid-secure measures were applied across our workplaces.

Internal communications and engagement with CEO vlogs, all employee calls with the Group Executive Team, internal appreciation campaigns and our employee app, Biffa Beat all contributing.

We will continue to monitor the situation and respond to further changes where needed.

Building a circular economy

Caring for our people,

supporting our communities

Business continuity, cyber security and IT resilience

A significant disruption to Biffa's infrastructure, including IT systems, could potentially have an impact on the activity of the Group's customers, such as increased billing times, interruptions to collection operations and processing logistics, and additional costs.

Additionally, the theft, loss, destruction, misappropriation, or release of sensitive and/or confidential information could result in business disruption, breach of GDPR, negative publicity or brand damage.

Link to stakeholder groups

· Employees

· Customers

· Suppliers

-

· Financial

· Reputational

· Operational

Crisis management and emergency response plans in place for key sites and operations.

Server infrastructure supporting key IT services hosted in Microsoft Azure Cloud providing resilience, failover and backup services.

ISO 27001 certification (Information Security) in place.

Cyber Essential Plus certification in place.

Intrusion detection in place and a cloud- based 'always on' security service provided by Microsoft protecting against key cyber threats.

Cyber security education initiatives taken place.

Established GDPR policy and procedures to ensure compliance.

Cyber Essentials plus certification achieved.

Continuity Plan updated to remove dependency on office space. Plan audited and assured as part of ISO 27001.

Security and continuity mechanisms continue to function successfully under Covid conditions.

Building a circular economy

Availability of labour

The inability to source and retain appropriately priced and skilled labour to maintain competitive advantage, could have a material adverse effect on Biffa's business results, operations, financial condition and prospects.

Link to stakeholder groups

· Employees

· Customers

· Suppliers

á

· Operational

Reward framework for employees and managers aligned to the market, including Performance Share Plan for senior personnel and Sharesave scheme available to all employees.

Talent and management development programmes deployed at senior levels and progressively to other levels going forward.

Ongoing review of the recruitment and retention of key workers such as drivers.

Established apprenticeship programme.

Launched Advanced Leadership Programme for 16 high potential leaders.

Launched new additions to the suite of existing employee benefits.

Issued 'Free Shares' under the Shares Incentive Plan to the value of £300 to all eligible employees in December 2020, in recognition of employee contributions during the pandemic.

We have a stated ambition to progress towards Living Wage Foundation rates for our lower paid workers and are making steps towards that with the introduction of a threshold across the business to ensure that all our employees are paid above the National Minimum/Living Wage.

Caring for our people,

supporting our communities

Commodities market and pricing volatility

Biffa produces significant volumes of recycled commodities for re-sale. Commodities produced include various paper grades, card, plastics, and ferrous and non-ferrous metals.

In addition, Biffa generates power from renewable sources and changes to electricity export prices impact revenues and profits achieved.

Markets for these recyclate products have individual supply and demand dynamics impacting both price and availability of off-take.

Link to stakeholder groups

· Customers

-

· Financial

· Operational

Ongoing monitoring and improvements to product quality within recycling processes.

Off-taker strategy review to limit dependency, where able, on non-OECD markets.

Commodity price risk sharing within long-term commercial contracts.

Working with key customers (e.g. Local Government) to agree gate fees to reflect any increased costs and dual collection methods.

A draft of a quality standard for recovered paper has been prepared by a number of the UK's waste management industry companies and will be presented shortly to the Environmental Services Association (ESA - the industry trade body) for approval.

Power price hedging policy in place, which is regularly reviewed.

Route to market Power Purchase Agreement with top tier off-taker gives off-take certainty and credit worthiness.

Investment in sorting technology and process improvements to ensure we can continue to supply markets with a high quality product and that we maximise the product captured and recycled. Supply agreements now in place with domestic processors to enable a proportion of the material to remain in the UK.

Continued investment in plastic recycling has significantly reduced reliance on exports, with most of recovered plastics being processed to end destination internally.

Continued focus on minimising exposure to recycle commodity price fluctuations by risk sharing with our local authority customers. At the end of FY21, we mitigated 64% of commodity price risk through this approach.

Mid-year mixed paper imports to China ceased. Despite this, demand for fibre increased in the second half of the year, reflecting new European capacity, alongside mills strengthening stock levels should collections volumes fall significantly due to widespread lockdowns as seen earlier in the year.

The EU banned the export of contaminated and highly mixed plastic waste to non-OECD countries from 1 January 2021 and while the UK has not introduced an outright ban, these exports are now subject to prior written notification and consent. This change in legislation could positively impact our business if more recyclable mixed plastic waste is sold within the UK rather than overseas.

Building a circular economy

Tackling climate change

Finance availability/Investment

If the Group were to fail to comply with any of the financial or non-financial covenants in its credit facilities (due, for example, to deterioration in financial performance), it could result in an event of default and the acceleration of the Group's obligations to repay those borrowings, increased borrowing costs or cancellation of certain credit facilities.

Link to stakeholder groups

· Investors

â

· Financial

Significant and flexible bank funding facility with substantial headroom to enable the Group to progress strategic priorities and accommodate any downside performance risk.

£350m unsecured revolving credit facility, expiring in March 2025, with an extension of one year on 84% of the facility. As at the end of the year, £150m of the facility was undrawn.

In addition to the bank funding facility, the Group has over £140m of lease liabilities, with undrawn funding of over £30m at the end of the year.

Ongoing monitoring of financial and non-financial covenants with summary updates to the Board.

Covenant amendments and additional liquidity headroom have been agreed with the Group's banks in response to the Covid-19 crisis. The supplementary agreement was ended in February 2021 and the Group has returned to the original covenants.

In order to maintain adequate liquidity headroom post acquisition of Viridor, the Group has arranged a private placement facility with two investors for £150m covering a term of 7 and 10 years with an average borrowing cost of 2.73%.

Building a circular economy

Economic environment

Economic conditions in the UK may have an adverse impact on Biffa's operating performance, revenues and results of operations. The Group is exposed to political, social and macroeconomic risks relating to the UK's exit from the EU.

Any economic weakness that leads to reduced volumes of waste and recyclate will adversely impact the Group's business.

Furthermore, a deterioration in macroeconomic conditions may also result in increased competitive pricing pressure and increased customer turnover.

Link to stakeholder groups

· Customers

· Investors

· Suppliers

· Government and Regulators

· Environment and Communities

â

· Financial

Biffa has revenues and costs that are either directly or indirectly impacted by the value of Sterling relative to key currencies such as the US Dollar or the Euro. This provides some degree of offset and natural hedge.

We enter into forward contracts for the sale of electricity and to mitigate short-term currency exposures, improving earnings visibility in the short term.

Biffa provides services across the breadth of the UK economy and to customers in the public and private sectors. The breadth of customers offers a degree of protection against economic pressures that may affect specific areas of the economy.

We continue to monitor this risk but are confident that our existing mitigations enable the Group to minimise the impact of any weakening in economic conditions.

Building a circular economy

Caring for our people,

supporting our communities