Proven strategy, Delivering results. Full year results June 2018

Transcription

1 Proven strategy, Delivering results Full year results June 2018

2 Agenda 1 Introduction & Overview: Ian Wakelin, CEO 2 Operating & Financial Review: Michael Topham, CFO 3 Strategy Execution & Conclusions: Ian Wakelin, CEO 4 Q&A 2

3 Another successful year A pleasing year of organic and acquisition growth Strong cash flow and capital structure Short term challenges in recycling markets being addressed Good momentum in strategy execution Acquisitions Small scale infrastructure Energy from waste We look forward with confidence Net Revenue 8.8% Underlying Operating Profit 10% Net Debt : EBITDA 1.9x 7 Acquisitions 47.1m invested Underlying EPS 19.2pps Notes: definitions on slides 32 & 33 3

4 A strong track record of growth Average net revenue growth 8.5% p.a. split equally between organic and acquisition 800 Strong growth in tonnages m Strong growth in margins and return on assets since Net Revenue Notes: definitions on slides 32 & 33 4

5 5 Operating & Financial Review

6 Group highlights Key trends Commentary m (unless stated) FY18 FY17 % Revenue 1, % Net Revenue % Underlying EBITDA % % margin 13.9% 13.9% Underlying Operating Profit % % margin 7.5% 7.5% Underlying Profit before Tax % Underlying Profit after Tax % Another year of strong top line growth Net revenue growth 8.8%; organic 4.4%, acquisition 4.4%. Underlying Operating Profit up 10.0% Strong growth in UPBT / UPAT due to reduced financing costs Modest leverage and significant liquidity Final dividend 4.53pps full year 6.70pps Leverage (Reported Net Debt : EBITDA) 1.9x 1.8x Dividend per share 6.70pps 2.40pps Operational KPIs FY18 FY17 % Tonnes Collected (mt) % Tonnes Processed (mt) % Tonnes Landfilled (mt) % Energy Generation (GWh) (7.0%) Growth in tonnages collected, processed and landfilled Energy production fell and prices grew in line with expectations Energy Price ( /MWh) % Notes: definitions on slides 32 & 33 6

7 Industrial & Commercial (59% Net Revenue) m (unless stated) FY18 FY17 Revenue % growth, of which - organic - acquisition 9.9% 4.4% 5.5% 9.0% 5.9% 3.1% Underlying EBITDA % margin 13.5% 12.5% Underlying Operating Profit Key commentary Organic revenue growth 4.4% Key customer wins: Bourne Leisure, KP Snacks, Arcadia and Kerry Foods Further reduction in SME customer churn Acquisition revenue growth 5.5% - annualised 45m O Brien Waste Recycling Solutions Ltd (July 2017) circa 30m annualised integration nearing completion Amber Engineering Ltd (October 2017) circa 7m annualised integration nearing completion 5 other smaller transactions total circa 8m annualised Margin enhancement, up from 7.4% to 8.4% - Profit growth of 9.7m Optimisation of costs e.g. increased RDF disposal Continued customer pricing discipline Delivery of acquisition synergies FY19 outlook % margin 8.4% 7.4% Continued organic and acquisition revenue growth More modest margin growth Strong acquisition pipeline 7

8 Municipal (20% Net Revenue) m (unless stated) FY18 FY17 Revenue Net Revenue % growth, of which - organic - acquisition 6.9% 3.9% 3.0% 15.6% 2.0% 13.6% Underlying EBITDA % margin 12.0% 13.1% Underlying Operating Profit % margin 4.5% 6.0% Key commentary Solid Net revenue growth of 6.9% - 3.9% organic, 3.0% acquisition (prior year Cory acquisition) Excellent client engagement high levels of service and client satisfaction. Six contract extensions and one new contract (Melton B.C.) Cory acquisition integration completed in line with plan during the year EBITDA broadly stable but Underlying Operating Profit reduced due to ongoing market pressures Challenges with legacy Leicester City Council integrated waste management contract. To be transferred to Energy Division from FY19 FY19 Outlook Market remains challenging Disciplined approach to capital allocation and tendering revenue likely to reduce by 6-8% in FY19 Margins broadly stable 8

9 Resource Recovery & Treatment (12% Net Revenue) m (unless stated) FY18 FY17 Revenue Net Revenue Key commentary A strong year of growing revenues and margins: Net revenue increased 13.2% (6.2% organic, 7.0% acquisition) % growth, of which - organic - acquisition 13.2% 6.2% 7.0% 2.4% (2.3%) 4.7% Margin increased from 5.8% to 6.2% Momentum in many areas: Underlying EBITDA % margin 14.6% 14.8% Underlying Operating Profit % margin 6.2% 5.8% Tonnes Landfilled (mt) Polymers HDPE line fully commissioned and delivering to plan Opening of rail hubs for transport and disposal of inactive waste Landfill volumes and pricing remain strong volumes increased 11.8% in the year New O Brien MRF commissioned and existing MRFs integrated c. 6m annualised revenue 9

10 Resource Recovery & Treatment (continued) m (unless stated) FY18 FY17 Revenue Net Revenue % growth, of which - organic - acquisition 13.2% 6.2% 7.0% 2.4% (2.3%) 4.7% Underlying EBITDA % margin 14.6% 14.8% Underlying Operating Profit % margin 6.2% 5.8% Tonnes Landfilled (mt) Key commentary Challenges in second half in MRFs due to impact of Chinese regulations impacting global recycled commodity markets Outlook: Swift and decisive response by Biffa: Focus on quality Revised terms with local authority partners Diversified end markets Modifying plant operations focus on separated paper Situation gradually stabilising: All materials sold for recycling Commodity prices modestly improving Headwinds expected to persist in FY19 but improvement thereafter As expected reduction in Underlying Operating Profit in FY19 before returning to growth Long term prospects strong many opportunities to invest to diversify and strengthen offer 10

11 Energy (9% Net Revenue) m (unless stated) FY18 FY17 Revenue % growth (all organic) 0.6% (1.8%) Underlying EBITDA % margin 38.1% 40.7% Key commentary Another strong year delivering to plan Net revenue increase of 0.6% due to stronger pricing more than offsetting decline in LFG volumes Modest profit reduction due to some non-repeating cost items in prior year Significant focus on development of future opportunities: Covanta partnership see page 23 Underlying Operating Profit % margin 32.0% 34.3% Energy Generation (GWh) Energy Price ( /MWh) Small scale EfW opportunities see page 22 FY19 Outlook Continued expected step down in LFG volumes Energy generation forward sales: FY19 89% 44.84/MWh 11

12 Non-Underlying Items m FY18 FY17 Key commentary Underlying Profit after Tax Exceptional items (7.7) (29.2) Amortisation of acquisition intangibles Landfill provision discount rate change (16.8) (14.6) 5.7 (17.9) Interest (net) (2.5) (2.1) Tax Statutory Profit after Tax 31.1 (10.9) Statutory profit after tax increased from (10.9)m to 31.1m Exceptional items include net 5.2m movement in onerous contract provisions. New provisions re Leicester City contract and a Municipal Division collection contract (noncash) Amortisation includes 2008 LBO assets (LFG intangible, customer lists) (non-cash) Landfill provision: increase in long term real discount rate (non-cash) Interest relating to EVP notional instrument (non-cash) 12

13 Group cash flow m FY18 FY17 Underlying EBITDA Working capital movement (3.3) (3.8) Capex (43.1) (46.2) Sale of fixed assets Finance lease payments (35.3) (28.9) Net interest paid (19.5) (28.5) Pension deficit payment (3.9) (3.0) Purchase of own shares to fund PSP awards (1.5) - Corporation tax re acquisitions (1.7) - Underlying Free Cash Flow Key commentary Strong underlying free cash flow performance increased by 54.2% to 44.4m Ongoing discipline in management of working capital and capital expenditure Finance lease payments increased as expected (fleet renewals) Material reductions in net interest paid (full year effect of IPO and ongoing reductions in cost of financing) 3.9m pension payment scheme has 51.3m surplus under IAS19 (FY m) 56.5m in deferred tax assets to offset against future cash tax. No tax payable on underlying business until 2020 at earliest Underpins acquisition investment strategy and dividend policy Notes: definitions on slides 32 & 33 13

14 Net debt and financing costs Net debt ( m) March 18 March 17 Cash Loans (194.7) (193.6) Finance leases (118.8) (108.9) EVP Preference instrument* (6.3) - Reported Net Debt (279.0) (246.1) Reported Net Debt: EBITDA 1.9x 1.8x Key commentary Conservative capital structure in place Leverage remains <2.0x (Reported Net Debt: Underlying EBITDA) Significant available liquidity 123.2m undrawn RCF and agreement to extend term loan if required Financing Costs ( m) March 18 March 17 Year on year reductions in cost of financing (term loan margin and finance leases) Loans (inc. RCF) Finance leases Performance bonds Landfill discount unwind Underlying finance charges * The EVP preference instrument has a book value of 46.2m. Notes: definitions on slides 32 & m has been included in Reported Net Debt as it will be payable irrespective of the outcome of the EVP dispute. See note 27 to the accounts. 14

15 Capital allocation Biffa s conservative leverage (1.9x EBITDA) and ample liquidity put the Group in a strong position to pursue it s strategy Discretionary capital will be allocated across the following four key priorities: Paying a growing dividend: c.35% Underlying Profit after Tax Driving growth through acquisitions: 47.1m invested in FY18: Strong future pipeline Developing infrastructure: EfW: c m potential investment in Newhurst and Protos Other processing infrastructure Maintaining conservative leverage and financing flexibility: leverage to grow in the event of EfW build out to c.2.5x Underlying EBITDA before trending down over time A strong balance sheet and a disciplined approach to capital allocation 15

16 Strategy Execution and Conclusions 16

17 Summary of Group Strategy Group strategy is clear, consistent and delivering value: 1 Grow market presence Drive organic growth through leveraging Biffa s established brand, reputation and breadth of service offering Pursue synergistic acquisitions to leverage operational platform 2 Develop services & infrastructure Leverage control of waste streams and expertise to invest in waste processing, recycling and energy recovery assets Expand service offering to meet increasingly complex needs of customers 3 Optimise systems & processes Drive value from existing operations through efficient business operations Further investment to improve efficiency of operations and enhance customer experience 17

18 Grow market presence: Organic growth Another strong year of organic growth I&C: Significant number of big corporate wins (6, with a total annual spend of c. 13.6m) SME customer churn reduced again Price increases delivered to expectations, mitigating commodity impact Increasing complexity of customer offering Municipal: Contract win (Melton) and six extensions Leveraging the power of the brand 18

19 Grow market presence: Acquisitions Another strong year for our M&A strategy 2018 Acquired revenue growth of 4.4% ( 39.7m). Acquired 7 businesses for an investment of 47.1m Geographically spread throughout the country strength of platform Acquisitions on Biffa operating platform synergy delivery progressing to plan O Brien impacted by short-term China headwinds synergies on plan Pipeline of potential acquisitions remains strong Financing in place to deliver M&A strategy Pre-synergy average EBITDA multiple of 6.3x Acquired business Location Cash plus net debt ( m) Completion date G&S Waste Management Ltd * Essex 0.2 March O Brien Waste Recycling Solutions Ltd North East 38.2 July Amber Engineering Limited South Wales 4.9 October 2017 HWS Waste Ltd * London 0.2 November 2017 Eco Food Recycling * Hampshire 0.7 November Enterprise Manchester Partnership Limited * Manchester 2.4 December Cleansing Service Group Limited * Hampshire 0.5 January 2018 * Trade and assets purchased We expect 2019 to be another strong year of acquisition growth 19

20 Develop Services and Infrastructure Rail hubs Partnership with GB Railfreight Provides convenient cost-effective disposal point in city locations for inactive waste Significantly reduces vehicle movements environmental and community benefits Manchester rail hub opened in FY2018 Leeds rail hub opened Q1 FY2019 Expect to move over 250kt by rail in FY19 Extended reach of Roxby Landfill site (Lincolnshire) Other landfills close to rail infrastructure and further city rail hubs planned Very modest capital expenditure Long term plan to increase inactive waste transported by rail including new hubs and rail-linked landfill sites 20

21 Develop Services and Infrastructure Plastics recycling rising to the challenge Plastic waste is a major area of public and policy concern Biffa Polymers a leader in plastics recycling UK s first food grade HDPE (milk bottle) recycling successfully expanded in FY17 Project cost 6.6m delivered on time and on budget Biffa recycles 780 million plastic bottles a year Plans to develop PET capabilities (drinks bottle recycling) Biffa to evaluate extending its plastic reprocessing capability to include PET 21

22 Develop Services and Infrastructure Aggregate Treatment & Recycling Facilities (ATRF) (RR&T division) First facility opened in 2015 Accepts and treats 30,000tpa Capex spend c. 1.8m per site A further three at various stages of development Small scale EfW (Energy Division) Innovative small-scale design Capable of treating c.30,000tpa Application in relatively high priced, remote disposal locations Planning permission applied for first facility in Swansea Capex spend c. 5m Expected to become operational in FY20 One call (I&C division) Emergency response for unplanned waste Launched in March 2015 Annualised revenue 5.0m 566 customers in FY18 Strong operating margins Further geographical spread planned Picture Opportunity to roll out further facilities and offerings nationwide 22

23 Develop Services and Infrastructure Energy from waste: a strategic opportunity Background: Substantial infrastructure deficit of ERF s in the UK. Biffa as the largest collector of waste has an interest in ensuring dependable cost-effective disposal outlets are built Proven technology Partnership with Covanta Progress since last update: Market analysis completed and demand verified Detailed design completed and short-list of EPC contractors identified. Indicative pricing received Strong expressions of interest from lenders expect leverage of c.60 70% Business case and equity returns attractive Biffa s share of equity for each project expected to be 50% Expect to proceed subject to final evaluation Targeting financial close on the first site in 2018 and second site in 2019, with 3 year construction UK Residual Waste Treatment Gap (Mtpa) RDF Export Existing EfW Capacity Expected EfW Capacity Residual waste suitable for EfW Source: Reality Gap report Indicative investment metrics (per site) Capital cost m Capacity 350ktpa Biffa s share of equity 50% Biffa s equity contribution 36m 52m Leverage 60 70% Equity IRR Mid-teens Biffa s tonnage commitment c.70% 23

24 Optimise Systems and Processes Doing more with what we have Optimising fleet operations On board weighing On board cameras Vehicle telemetry Online sales Driving e-commerce Richer customer functionality Leveraging the value of the brand Delivering acquisition synergies Automating MRF operations Duplicate routes and locations Back office activities Internalising sub-contracted work Procurement benefits Glass upgrade facility Paper optical sorting Project Fusion: new IT platform MS Dynamics Multi-year project Improved customer experience More efficient frontline and back office operations 24

25 Conclusions Proven strategy, Delivering results Another strong year, delivering good returns despite some challenges Disciplined approach to capital allocation with multiple opportunities to invest whilst paying a growing dividend Acquisitions Small scale processing infrastructure Energy from Waste Noticeable change in public sentiment Blue Planet effect Policy environment responding Government Resources and Waste Strategy, EU Circular Economy Biffa well positioned in key markets We look forward with confidence 25

26 Q&A 26

27 Appendix 27

28 Summary balance sheet m, as at March 2018 March 2017 Goodwill and intangibles Property, Plant & Equipment Deferred tax assets Funds on long term deposit Long term debtors Pension surplus Non-current assets Financial Assets Working capital and other (49.1) (57.7) Provisions (106.4) (109.1) Reported Net Debt (272.7) (246.1) EVP instrument (46.2) (43.8) Net assets Return on Capital Employed ( ROCE ) Return on Operating Assets ( ROOA ) 9.8% 9.9% 27.2% 27.6% Key commentary Goodwill and intangibles includes legacy balances originally arising from Biffa s LBO in 2008 (landfill gas rights and brand) Increase in PPE relates to acquisitions in the year, ongoing fleet replacement and investment in infrastructure Deferred tax position includes: Losses, ACAs and previously written-off goodwill total 56.5m will offset against future tax cash (42.0)m in respect of intangibles, pension etc. noncash Long term debtors predominantly represents EVP and interest Pension surplus increased due to strong asset performance and actuarial / demographic changes Financial assets relate to insurance captive Provisions include landfill restoration and aftercare ( 74m) ROCE and ROOA broadly stable 28

29 Net cashflow m FY18 FY17 Underlying free cash flow IPO items: - Exceptionals - (31.4) Key commentary Net cashflow significantly improved: Improved Underlying Free Cashflow Non-repeating IPO-related cashflows Offset by higher M&A outlay and dividends - EVP prepayment and interest - (63.6) - Changes in borrowings and share capital on IPO Changes in borrowings (4.4) - Other exceptionals (4.3) (3.5) Acquisitions (41.0) (14.8) Movement in financial asset Net Dividends cash flow (15.6) (11.4) (49.6) - Net cashflow (15.6) (49.6) Notes: definitions on slides 33 & 34 29

30 Other items Tax Underlying effective rate slightly above prevailing rate Deferred tax asset of 14.5m includes 56.5m to offset against future cash tax (ACA s, losses, previously written off goodwill) No corporation tax payable until 2020 at the earliest IAS19 position 51.3m surplus (March 2017: 15.4m surplus) Pension Assets 524.1m (net of (0.8)m restriction); liabilities 472.8m Payment of c 4.0m p.a. to fund actuarial deficit Dividend of 4.53p per share proposed Dividend Ex-dividend date of 5 July 2018, payable 27 July 2018 Total dividend for the year 6.70p per share Reporting periods FY18 is a 53 week year including 9 public holidays FY17 is a 52 week year including 7 public holidays We view these items to be offsetting and year-on-year comparisons to be robust Provisions & contingent liabilities Landfill provision reduced by 5.7m due to change in real discount rate included in other items in P&L Onerous contract provisions provision increased from 2.7m to 7.7m following review of long-term contracts (Net 5.2m charged to other items ) Landfill tax hazardous soils dispute potential exposure of 8.6m No provision made. 30

31 Other items (continued) Divisional split Leicester long-term contract (FY18 revenues 19.9m, underlying EBIT (1.1)m) moved from Municipal division to Energy division from April 2018 IFRS 15 Implementation from FY19 Revenue impact immaterial (<1% reduction), no impact on profit EVP Dispute Tax under dispute ( 63m) fully paid post-ipo no value at risk to post-ipo investors Contingent value instrument (EVP preference liability) exposes pre-ipo shareholders to substantially all of potential recovery Interest on tax ( 8.7m) not payable payment to be made pre-ipo investors instead upon final determination of case First tier tax tribunal found in HMRC s favour. Judgment appealed and will be heard by upper tribunal 31

32 Financial definitions Accounting Basis Prepared in accordance with IFRS FY17 represents the 53 weeks ended 30 March 2018; FY17 represents the 52 weeks ended 24 March 2017; Net Revenue Statutory revenue excluding landfill tax, unless stated otherwise, revenue refers to statutory revenue Organic Net Revenue Growth Acquisition Net Revenue Growth Acquisition Net Revenue Growth Rate Underlying EBITDA Underlying Operating Profit Underlying Profit after Tax Return On Capital Employed (ROCE) Return On Operating Assets (ROOA) Underlying Free Cash Flow Reported Net Debt The increase/(decrease) in net revenue in the period excluding net revenue from acquisitions completed in the period and net revenue from acquisitions completed in the prior period up to the anniversary of the relevant acquisition date, to the extent such net revenue falls in the current period Organic net revenue growth can be expressed both as an absolute financial value and as a percentage of prior period revenue Acquisition Net Revenue Growth in any period represents the Net Revenue Growth in the relevant period from (i) acquisitions completed in the relevant period and (ii) acquisitions completed in the twelve months ended to the start of the relevant period up to the twelve-month anniversary of the relevant acquisition date (to the extent such Net Revenue falls in the current period). Acquisition Revenue Growth is calculated on the same basis, using revenue in place of Net Revenue. Acquisition Net Revenue Growth Rate in any period represents the Acquisition Net Revenue Growth for the period expressed as a percentage of the prior period s Net Revenue. Acquisition Revenue Growth Rate is calculated on the same basis, using revenue in place of Net Revenue Profit before depreciation and amortisation, exceptional items, impact of real discount rate changes to landfill provisions, finance costs and taxation Divisional underlying EBITDA is stated after allocation of shared services costs Profit before exceptional items, amortisation of acquisition intangibles, impact of real discount rate changes to landfill provisions, finance costs and taxation Divisional underlying operating profit is stated after allocation of shared service costs Profit for the period as adjusted for non-underlying operating items (exceptional items, amortisation of acquisition intangibles and impact of real discount rate change to landfill provisions), non-underlying net interest items and non-underlying taxation Operating Profit excluding exceptional items and impact of real discount rate changes to landfill provisions divided by average of opening and closing shareholder s equity plus net debt (including finance leases), pensions and environmental provisions Underlying Operating Profit divided by average of opening and closing Tangible Fixed Assets plus net working capital 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) Net debt excluding EVP instrument 32

33 Financial definitions Tonnes Collected Tonnes Collected is calculated as total waste tonnages collected from customers by Biffa operations. Excludes sub-contracted services and haulage / internal movements Tonnes Processed is calculated as the tonnages received in the period subjected to processing activities at Biffa operated sites. Processing activities includes (i) sorting, baling and transfer; (ii) RDF preparation; (iii) soils and aggregates processing; (iv) composting; (v) plastics recycling; (vi) hazardous waste processing; (vii) anaerobic digestion; and (viii) mechanical and biological treatment. Tonnes Processed Where materials are subjected to more than one processing activity the tonnes are counted in respect of each process to which the material is subjected. Tonnages that have not been subjected to any processing activity and are disposed of in landfill and soils received at landfill sites for restoration are excluded. Excludes any processing activity carried out by third parties on Biffa s behalf. Where waste is not weighed (e.g. some hazardous wastes), tonnages are estimated. Tonnes Landfilled Tonnes Landfilled is calculated as total waste tonnages accepted for disposal at a Biffa operated landfill site. Excludes sites managed by third parties. Excludes non-waste materials (e.g. restoration soils) that are not subject to Landfill Tax 33