Landfill changes put UK waste group under pressure

Shares in British waste management group Biffa slumped today after the company warned it expected to see growth slow at its landfill division in the year ahead.

The statement came as the firm reported an 11.1% rise in pre-tax profits to £72.8m (€107.88m) in the year to March 30, helped by a strong performance at the landfill division, which has 37 operational sites across the UK and handled 7.5 million tonnes of waste last year.

Buckinghamshire-based Biffa, which split from utility company Severn Trent last year, said revenues jumped 5.6% at the division after an increase in gate fees offset a reduction in volumes.

The company said the industry was entering a period of “considerable change” ahead of new legislation coming into effect from October requiring all waste to be sorted before its final disposal.

However, the firm said it was confident of achieving “steady progress” in the year as it prepares to launch national paper, card and glass collections and recycling service for its industrial and commercial customers. It said it will offer a treatment service to firms who do not want to pre-sort their own rubbish.

Problems at the company’s largest business, its collections division, hit group profits in the second half of the year as it readjusted its pricing structure in an attempt to boost customer retention levels. Instead of implementing across the board price rises, which had resulted in a loss of contracts, the group now sets its fees at a customer-specific level.

However, it said these measures should help boost the business in the long term after the impact of the changes, which also included customer service improvements, filtered through.

Analysts at Citigroup cut their earnings forecast by 3% for the current year after a recovery in collections took longer than they had hoped.

Andrew Fisher, head of equity analysis at Barclays Wealth, said the results could be seen as “subdued”, leading to some short-term weakness in shares.

However, he advised that Biffa’s landfill assets had “scarcity value”, while the firm’s established presence throughout the waste management sector meant it was well positioned to benefit from the ongoing outsourcing of large waste contracts and Private Finance Initiative deals.

Shares were 9% lower today.