UK Waste Management: market insight
Published: February 2013
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About this report
In this report we review the UK waste management market, covering the collection, treatment and disposal of municipal, commercial and industrial waste. We look at the market size and growth, macro-economic, regulatory and commercial drivers.
We review the competitive landscape, and analyse competitive differentiation of the main operators in the sector. Based on our analysis of historical drivers, macro economic and other forecasts, and our experience of having worked in the sector, we provide a sector forecast.
Why did we write this report?
The economic downturn was deeper and took longer then most had expected, and many industry sectors were affected. The UK waste management industry held up relatively well. Some operators were forced to de-leverage, there was some defensive and offensive M&A activity but most had to adapt their business models to a changing demand for their services. Overall however, the market has resilient underlying drivers.
Factors like rising direct and environmental cost of waste, landfill diversion and other waste reduction targets as well as decreasing landfill void are raising pressure on the industry. These factors push the industry to innovate and find new ways to recycle, treat waste and to recover energy.
We believe that, in order for those in the sector to make the best decisions in a complex and changing environment, they need to have the best information in a concise manner, especially in uncertain times. The aim of this report is to provide this.
This report is intended for integrated waste management operators themselves, users of their services, partners, investors, banks, analysts, consultants and other parties with interests in the sector.
What are the sources and methodology?
This report is based on
– Publicly available data including company annual reports, websites, press releases and government information and statistics
– Interviews with senior decision makers in the industry
– In-depth analysis of macro-economic environment and relevant market drivers
– Our own experience of advising both companies and investors in the waste management and adjacent sectors
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate and support conclusions.
Market growth and drivers
The UK waste management market is currently worth £9.1bn. While the prolonged economic downturn has affected some of the operators, the overall market has been resilient. The market has experienced 6.6% growth since 2006 driven by regulation like landfill diversion which in turn has stimulated the emergence and growth of waste treatment markets.
The waste management market described in this report includes several segments; collection of municipal and commercial waste; different forms of treatment types of those waste streams, recycling, generation of energy from waste and disposal.
Key industry issues
Waste volumes are the core of what has determined growth of the waste management market historically. More recent growth however is driven by the regulation that determines how much waste is allowed to be sent to landfill. EU framework directives and UK interpretations specify regulation and incentives around waste prevention, recycling, optimal use of resources, reclamation of energy from waste and aim to limit the last resort of waste disposal: landfill.
The next landfill diversion targets are for 2020, and the reduction of biodegradable municipal waste is significant (10.2 million tonne from the current 23.3). The investment
in sorting and treatment infrastructure required to meet these targets drives treatment markets over the coming years. Alongside, they have caused enthusiasm for the recovery of energy from waste.
This report provides detail on three key market segments: collection of household waste, collection of commercial & industrial waste, and treatment and disposal. The report covers different customer requirements, business models and service offerings.
The collection segment is highly fragmented, especially in commercial & industrial waste given the nature of the client base. In contrast, the treatment and energy recovery segments are capital intensive and contracts require significant finance and dedicated bid teams. As a result, these segments are more concentrated.
Barriers to entry in treatment markets are often high and important factors for the operators are scale, scope of services, and contract retention.
Most of the main waste management operators are former utilities, and the scale and financial resources of these businesses offer them significant competitive advantage. While some of these have been marred by debt related problems, they still have the scale and scope to secure large contracts, finance infrastructure and offer a broad set of services. The competitive landscape is relatively consolidated at the top tier with the top five operators accounting for 45% of the market.
Most of the larger operators have an international footprint, and offer services across waste management segments. Out of the top five operators in the UK, three are overseas groups: Veolia leads in terms of market share, Suez and FCC are the next players, both multi-national groups. Biffa and Pennon Group are home-grown.
Regulation and the need to install the infrastructure required to meet waste reduction and landfill diversion targets targets will continue to drive the waste management market, especially the treatment segment. Different methods to recover energy from waste are coming into their own and offer operators attractive revenue streams.
Recent regulation has reinforced the underlying drivers supporting longer term market growth. The amount of waste allowed to be sent to landfill is increasingly limited, as is landfill void. Prevention, recycling and recovery markets will have to make up the difference, while landfill tax (an annually increasing levy on tonnes of waste sent to landfill) will provide further stimulus.
As the UK economy recovers from the economic downturn, business activity will pick up, and create further opportunities for the operators.
The UK Waste Management market - 5
History and regulation
Market size and growth - 10
Waste Management market size & growth
Market drivers - 14
Explanation of market drivers
Drivers and their impact
Market characteristics - 19
Comparison to other sectors
Competitive landscape - 22
European waste groups
Main UK operators
Forecasts - 28
Macro economic forecasts
Key drivers forecast
Appendix - 31
List of charts
1. Components of the DEFRA waste hierarchy
2. Waste generation by type / million tonnes
3. Waste generation by source / million tonnes
4. Waste management by function or market / £m
5. Total UK waste by management method / % of total
6. Commercial & industrial (C&I) waste by client sector / million tonnes
7. UK waste management revenue / £m
8. UK waste management revenue by segment / £m
9. Non-hazardous waste sent to recycling / million tonnes
10. Incineration of non-hazardous waste / million tonnes
11. Non-hazardous waste disposal, by destination / million tonnes
12. Waste management sector turnover share of GDP, international benchmark / %
13. Waste management sector turnover per person employed, international benchmark /€000
14. UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP / % annual changes
15. UK Inflation: Consumer price index and GDP deflator / % annual change
16. UK population and household growth: historical and forecast / millions
17. UK GDP in current prices (money GDP), inflation (GDP deflator), households and real
18. GDP per head / % annual changes
19. Index of UK manufacturing output and number of enterprises
20. Waste generation, by source, million tonnes
21. Waste industry cost structure / share of 2011 turnover
22. Waste industry gross margin and turnover growth relative to other industries
23. Waste Industry concentration / % of enterprises with revenue > £5m
24. Main UK waste groups by group (global) turnover and geographical focus / £bn
25. Waste management industry estimated market revenue shares / £m
26. Waste management industry gross margin trend, by segment
27. Trends in profitability of leading UK waste operators / £m pre-tax profit, margin %
28. Profitability of UK operators / Pre-tax profit margin %, 2011
29. Revenue per employee for main UK waste operators / £'000
30. Trend in revenue per employee, main UK operators / £'000
31. UK GDP in current prices (money GDP), inflation (GDP deflator) and real GDP / % annual changes. Historical and OBR Dec 2012 forecast
32. UK Consumer Price Index and GDP deflator / % annual change. Historical and 31. OBR Dec 2012 forecast
33. Forecast UK waste management turnover / £m