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Credit crunch will hit recycling industry

The financial crisis has claimed many victims and the waste industry will not be immune to the credit crunch, industry experts have warned.

Financial advisory firm Catalyst Corporate Finance research director Mark Wilson told MRW: The waste sector is not going to be immune from the wider economic situation and as the economy goes into recession next year, minus 1% growth and bank lending contracts reduce by 10% this is likely to affect anyone participating in the waste sector.

Wilson said that as commodity prices deflate across the world waste and recycling businesses need to focus on three areas to weather the storm - cash management, restructuring operations and business models.

Wilson said that the economic climate in general will change in 12 to 18 months. He said: Bank lending will reduce by 10%, corporate, mortgage lending and acquisition finance will all be affected. There will be higher rules on lending.

He added that local councils will review their long term waste contracts over the next few years and the period of negative growth. In an economic period of negative growth projections of waste streams need to be reviewed which may affect planned projects.

Businesses will have to look more at cash management, reducing reliance on external funds, bank loans and relying more on self generated cash to generate projects and buy equipment.
They will have to look at operational efficiency and may have to lay off people.

Wilson said that the economics of the business are going to change for recycling businesses involved in plastic and metal. This will change as oil prices fall in the face of economic uncertainty.

Federation of Small Businesses environmental policy director Nyree Connell said that there was a danger that businesses will brush aside green issues as they look to tighten their belts. But she said that conservative use of materials could help them save money.

Grant Thornton associate director Nigel Mattravers said: There is still a lot of interest in the waste sector despite difficult times and a lot of investments are still being made. There is no indication of lack of interest if anything it is recession proof.

No matter what happens to the rest of the world, legislation is still there and we still need to deal with waste. The RWM conference showed that there is still a lot of money being spent and there is still a lot of money in equity houses who are looking to find a home for their money.

But Mattravers acknowledged that in the short term recycling projects may be hard to finance as banks stop lending money but banks may form club deals and get together with other banks to lend out loans to businesses.

Viridor external affairs manager Dan Cooke said: The likely effects on the retail sector may see recyclate from the sector, and to a lesser degree from households, slow down.  Recyclate and wastes from other specific sectors are also likely to be affected as we have already seen in construction materials.

 

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