Waste management company Biffa reported 10% growth in annual underlying profit and after putting changes in place to cope with the "new norm" of tighter Chinese import regulations on recyclable commodities, chief executive Ian Wakelin has stepped down.
Chief financial officer Michael Topham, who has held divisional leadership roles before taking his current role in 2013, has been appointed as Wakelin's successor and will take over when his own replacement is found.
In the 53 weeks to end-March, the group generated £977.7m of revenue, up 8.4% with equal contributions from organic growth and the seven acquisitions made over the course of the year. These additions, made for a combined investment of £47.1m, were spread across a wide area of the UK and come from a pipeline for further purchases that was said to remain strong.
While the group's largest division, Industrial & Commercial, arm grew sales and profits, the Municipal arm's profits were hit by contract one-off costs and margin pressures from a challenging market that is expected to persist this year. Furthermore, while the Recycling arm continued to grow profits, markets continues to be challenging due to a large part to China's banning import of certain recyclable commodities, increase quality standards and seeking to reduce its dependency on imported recyclables.
"However the environmental and economic drivers of recycling remain compelling," said Wakelin, "as the actions we are taking position us well for the future."
Changes are including seeking alternative markets and renegotiating contracts with customers to share the financial burden, increasing prices as contracts are re-tendered, as well as making operational changes to produce higher quality recycled product and the ability cater for demand for separated rather than commingled collections of recyclables, a trend which Biffa expects to increase over coming years.
"We do not believe the changes introduced by China will be reversed. We believe they are the new norm for the recycling industry," Wakelin said.
As a result of these changes Biffa's key recycling assets, which are grouped in a division called Resource Recovery & Treatment, are currently loss making. Wakelin said the above actions "will return these assets to profitability over time, leaving us with a business which has greater protection from commodity price movements".
As a whole, the RR&T division still grew revenue and underlying EBITDA, to feed through to 8.9% growth in group underlying EBITDA to £150m and underlying operating profit up 10% to £81.2m.
Underlying earnings per share fell to 19.2p from 29.3p a year ago, impacted by changes in share capital after the flotation, while statutory EPS of 12.4p was up from a 9p loss per share.
Net debt swelled to £279m from £246m a year before, but a significant £44.4m of underlying free cash flow was generated, up from £28.8m, the board proposed a final dividend of 4.53p per share from 2.4p a year before.
The soon to be departing Wakelin said: "The group has many opportunities to deploy capital at attractive returns particularly in continuing to pursue our mergers and acquisitions strategy in I&C, develop further reprocessing and recycling assets in our RR&T division and in energy from waste assets in our Energy division."