When the big question asked is ‘why invest in waste?’, Ian Wakelin, Biffa’s chief executive, is in no doubt. “It’s absolutely needed,” he said, “the industry is never going to go away, people always need waste dealing with. Why would you invest? Because you can get a good return.”
He adds: “The industry is going through technological, investment and regulatory change and whenever you get these three together there’s an opportunity for investors to get a good return. Ride the upside that will come with these three things, and volumes of waste growth, over the next few years.”
Wakelin expects to see improving prices and argues that consolidation within the sector is the way forward. Biffa had acquired ten businesses over the past two years alone.
“The industry is now returning to a phase of growth and we are expecting waste volumes to grow very slightly in the coming years and a degree of price re-inflation. We expect to see revenue growth from those investing in the sector.
“Firstly - if you think of waste collectors for waste and the disposal of it – collections are road based that lend to ‘the more you pick up the more successful you will be’. Secondly, around processing and disposal, increasingly the technology and regulations needed require significant capital investment which tends to come from larger players. The industry might become more ‘utility like’ than it currently is.”
Wakelin says the industry was disrupted by the 2008 crash. “Up until probably five years ago the industry was in a consolidating position and there were an awful lot of deals done until 2008. Historically, this has been an industry that has gone through acquisitions and consolidations up until the recession of 2008.
“When you get a recession and falling waste volumes, everyone starts to focus internally and look at their own operations.”
But this has now changed: “I can only speak for us but we have made acquisitions that have been incredibly beneficial for us. Ultimately consolidation is about the appetite of larger players for investment. There are lots of exciting opportunities to grow.”
Wakelin has previously argued that consolidation would be fuelled by new technologies. These he said included technologies that are moving the industry away from landfill and the opportunities such as the development of RDF, which requires a transfer station and further equipment, AD and EfW. All of these require hefty investment sums which are more likely to come from larger firms.
Biffa describes itself as the largest waste management company in the UK and its latest full year figures for the group showed £916m revenue. The group has around a 10% share in the industrial and commercial collection market - which it says is a highly fragmented market - and plans to grow this share in the future. Biffa’s revenues in municipal for the full year to 2015 was £149m.
On the question of the volatility of prices, which has been cited as a barrier to growth, Wakelin argues that the industry is no longer willing to bear full responsibility for risk.
“Somebody has to bear the risk. Unfortunately the price of recycling commodities will go up or down and it could be a good or bad thing. Historically, our industry has accepted that risk but all that is changing. Really the person that’s generating that material should be responsible. It’s wrong for the industry to bear the risk – we don’t produce it or use it.”
While the huge drop in steel prices is a concern, the impact on the waste management industry as a whole is “tiny” he asserts.
“Waste management has been through a very difficult period but it has now stabilised. We are seeing prices for the collection of recyclables, and the tipping of materials, increasing so I absolutely don’t buy that prices are not increasing. We are seeing volume growth across all sectors that we operate in.
“The only place where prices are volatile are the prices of commodities and the industry should deal with it. Part of that volatility needs to be borne by the customer be that a local authority or a commercial and industrial client. The prices you charge your customer needs to be equally volatile but as an industry we are not quite there yet. We need a volatile movement in gate fees. If this doesn’t happen you will see more and more recycling plants close.”
But he added: “Don’t draw the conclusion that prices of glass, steel and paper has a major concern for the waste management industry – it’s a problem for the recycling industry.”
Biffa chief executive Ian Wakelin was talking to Katie Coyne