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Waste firm profit warnings trend explained

The recent increase in Q3 profit warnings (page xx) issued by UK quoted companies has not escaped the waste industry. Shanks reported that profits for the period would be below current pre-tax profit estimates, which our analysis suggests could be as much as circa £8m below where they were last year (£38m).

There are a whole host of reasons for the rising trend in waste company profit warnings but it can be mainly attributed to lower economic activity in Europe and the UK, which means lower volumes, especially in the solid waste market and C&D waste. Slowing demand in China has also affected recyclate prices – with old KLS down over 30% since 1 April (when Shank’s new financial year began) and PET down almost 20%.

However Shanks, like many UK waste businesses, will benefit when Europe comes out of recession and its investment programmes in infrastructure allows it to capitalise on increased volumes and demand for advanced treatment.

We see access to capital being the single biggest issue facing waste businesses at the moment, although surprisingly there are lots of funders keen to invest in the sector, especially private equity. The waste infrastructure build-out is attracting new investors across the funding cycle.

One of the sub-sectors within support services with many recent profit warnings was the recruitment sector. Whilst the large quoted companies are struggling, what we have seen is smaller, specialist parties are growing strongly and attracting new investors to support their growth, as witnessed in the NES Global Talent deal we just completed with AEA Investors at £234m. This type of initative also applies to the waste industry.

Mark Wilson, partner at Catalyst Corporate Finance LLP

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