Commercial waste boost for Biffa as margins rise
The ability to provide commercial waste customers with a spread of collection services has helped Biffa gain profitable momentum in the sector, according to the company’s chief executive Ian Wakelin.
Mr Wakelin’s upbeat comments on commercial waste work came in the wake of Biffa’s results for the year ending 25 March 2016, which showed an operating profit margin rising to 6.7% (2015: 5.6%).
The results showed revenue up by 5.6% to £927.5 million (2015: £878 million) with earnings before tax (EBITDA) up 16.4% to £122.3 million (2015: £105 million).
“This result reflects a strong operational and financial performance across the Group and is ahead of the Board’s previous expectations,” Mr Wakelin said.
He told letsrecycle.com that he was “absolutely delighted with the results. The performance of the business is very strong compared with our peers and I am strongly pleased with the performance. We have a good momentum and our operating margins are up in absolute and in percentage terms”.
And, he highlighted the importance of recent acquisitions in both the commercial and municipal sector and indicated that more acquisitions are likely this year.
Alongside the results, Biffa produced data to show that the company has a number one market position in the industrial and commercial sector which made up about 52% of its revenues in the past year.
Mr Wakelin said he was delighted “with our commercial business, 2,800 people are employed and we have 1,200 trucks up and down the country.”
The company’s success on the industrial and commercial front, in a sector where margins traditionally have been challenging, is down to a number of reasons, said the chief executive, with most notably a demand today from customers for a range of bins.
He explained: “Our commercial waste service is an absolutely great business for two or three reasons. Firstly, we provide an excellent service, it really is top class.
“And, collecting from industry has become more complicated over the last few years. Customers want more separate collections, for recycling, food waste glass and other materials. They don’t just need one container for residual waste any more. And once these different bins have been collected, they have to go to somewhere for sorting. We have the facilities to take the materials, including AD, which all provides a complete offering everywhere across the country.”
Mr Wakelin added that the “complexity of the supply chain plays into the hands of the big companies” who can provide the mix of services needed. Biffa has a range of significant contracts, he said, such as for food retailer Sainsbury’s, while recent successes have included contracts with fast-food chain KFC and clothes retailer Next.
The statement accompanying Biffa’s results put its municipal activity as contributing 17% to revenues.
On the municipal front, the chief executive said that while austerity was still affecting councils, for waste management companies local authority longer-term contracts did provide a steady income. “Yes, the market has been under pressure for the past four to five years with austerity but there are still very reliable long term contracts, for seven or 14 years. We are also seeing more and more authorities talking to us about the separate collection of food waste.”
Mr Wakelin referenced recycling targets for the municipal sector with regard to the likely outcome of Brexit, saying that he felt the 2020 50% recycling target would stay. “Assuming that it [Brexit] doesn’t come with European environmental laws, I don’t think any government is going to reverse the sustainability measures of the EU. The 50% recycling target, I think will stay. I can’t believe that we would want to get out of that and I believe we do have that built into UK regulations. After that the question is do we head for 65%?”
Energy from Waste
Biffa has been and remains a big exporter of RDF (refused-derived fuel) to the Continent as it does not have its own energy from waste facilities in the UK, although it is still a big operator in the landfill market.
Going forward, Mr Wakelin said that he would like to see more residual waste treated domestically and that as more facilities start up in the UK, more material will be moved back. And, he pointed out that the company still has a consent to develop an energy from waste plant at Shepshed in Leicestershire, which “would be built with partners”.
In 2014 Biffa had indicated the plant could be built with electricity firm SSE and Wheelabrator Technologies.
There have been strong market signals that potential suitors from the UK, China, America and elsewhere had been interested in buying the company, but Mr Wakelin said that a public listing is the favoured option. The owners of Biffa – Angelo Gordon, Avenue Capital and Sankaty Advisors – appointed Rothschild Bank to look at options for Biffa last year.
Mr Wakelin noted: “The business had had lots of interest from lots of people but I believe the right place for us to be would be on the London Stock Exchange. It would be the best outcome for the business. We are a large UK brand and employ 7,500 people and we are continuing to look at the IPO [Initial Public Offering] option.”
And, he was swift to deny any notion that the company might have too much debt for a listing to succeed. “For an initial public offering a business will raise capital as part of the listing so that it pays down debt.”
Mr Wakelin added that he was optimistic that a listing would be successful: “Frankly, given the performance in recent times, we are well placed.”
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Commercial waste boost for Biffa as margins rise (2016) Available at: http://www.letsrecycle.com/news/latest-news/commercial-waste-boost-for-biffa-as-margins-rise/ (Accessed: 11 July 2016).