Biffa announces new EfW partnership with Covanta as flotation hits profits

Waste management group Biffa has announced a new partnership with Covanta to develop two new energy-from-waste (EfW) facilities in the UK, while also releasing financial results for last year that show that the group’s profits were hit by the costs of it’s flotation on the London Stock Exchange last year.

The results released yesterday (14 June) show a statutory loss of £10.9 million  for the financial year 2016/17, largely due to exceptional costs incurred in the flotation.

Biffa announces new EfW partnership with Covanta as flotation hits profitsAlthough the company saw its net revenue increase by 8.3 per cent from £830.3 million to £898.8 million and its profit after tax rise by a huge 251 per cent per cent from £10.2 million to £35.8 million, driven by strong performances in the industrial and commercial, municipal, and resource recovery and treatment divisions, Biffa posted a statutory loss due to refinancing and costs associated with its initial public offering (IPO) on the stock market. It was reported by the Financial Times that these costs amounted to £29 million.

The financial results are the first to be published since Biffa went public in October 2016, offering shares at 180 pence each, providing a market capitalisation of £450 million, while shares have increased slightly since to 195 pence each. A maiden dividend of 2.40 pence per share has been proposed to shareholders.

New EfW partnership with Covanta

The flotation was made with the intention of raising an extra £270 million to fund its continued expansion, with the company already announcing a new partnership with US waste to energy specialist Covanta, operators of the Poolbeg incinerator in Dublin, within the financial report.

The new agreement will explore the possibility of developing two large-scale EfW facilities in Leicestershire and Cheshire after Covanta stated it was only looking to develop new projects outside the US with local partners.

Commenting on the latest figures and partnership with Covanta, Ian Wakelin, Chief Executive of Biffa, said: “Biffa delivered a strong performance in the year that also saw our successful listing on the main market of the London Stock Exchange.

“As a fully integrated, market-leading waste management services provider, we have the scale and the network to act as a consolidator in a highly fragmented market place. In the year we completed five acquisitions and have a strong pipeline of acquisition opportunities. At the same time, we have continued to take actions to improve the efficiency of our operations, get closer to our customers and leverage new opportunities for investment.

“We are also pleased to have signed an exclusive partnership with Covanta, a leading developer and operator of energy recovery facilities (ERFs), to explore the potential development of two large-scale ERFs in Leicestershire and Cheshire. The UK has a significant shortage of energy from waste treatment capacity. We look forward to exploring this opportunity further.

“Our expectations for the year ahead remain unchanged and we look forward with confidence.”

The EfW capacity of the UK is a controversial matter, with Biffa forecasting in 2015 that there is a capacity gap of 15 million tonnes per year for residual waste treatment in the UK, a gap that could reduce to around 4.3 million tonnes by 2025 but ‘will not disappear completely’.

These findings contrast with those of Eunomia Research & Consulting, which has modeled capacity based on both ‘hard’ and ‘soft’ Brexits. Under a ‘soft’ Brexit, where the UK retains access to the European Single Market and sticks to EU recycling targets, the UK’s supply of capacity would exceed the available quantity of residual waste in 2020/21, or 2023/24 if the export of refuse-derived fuel (RDF) is excluded from the analysis.

Meanwhile, under what Eunomia calls a ‘worst-case’ scenario, where the UK rejects the European targets and therefore sees no reduction in residual waste arisings, there would be a capacity shortfall of 1.7 million tonnes of residual waste – or 5.3 million tonnes if RDF exports are excluded.

Changing hands

Despite the statutory loss posted by Biffa, its 2016/17 financial results indicate a strong return to the stock market after experiencing several changes of ownership in the last few years.

Biffa was taken private in 2008 in a £1.7 billion deal by Global Infrastructure Partners in partnership with Montagu Private Equity and Halifax Bank of Scotland, taking on the company from water company Severn Trent plc.

The company was then sold on to American investment firms Angelo Gordon, Avenue capital and Sankaty Advisors, and Babson Capital Europe Limited in 2012 as part of a debt restructuring package. There were rumours that a Chinese state-backed waste company was in the running in early 2016 to acquire Biffa in a £1 billion deal, but the company decided against that sale and returned to a public listing.

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