WASTE AND ENVIRONMENT GROUP ANNUAL REViEW 2011An ever changing landscapeWaste and environmentalservices in the UK
Contents                                                                                 03 introduction                  ...
Introduction to our 2011Annual ReportWelcomeWelcome to the fifth edition of our annual ‘Ever changing Landscape’ series. A...
Section 1:Sector drivers
Market dynamics2011 Market Drivers                       These priorities are backed up by                  Evidencing the...
One of the hottest topics recently hasbeen the proposals to amend the Waste(England and Wales) Regulations 2011           ...
Materials pricing updatePrices on the whole have been relatively      packaging recycling targets from 69% to      equival...
Median recovered paper,                      450  glass and plastic prices                    400    Jan 2007 - Dec 2011  ...
Legislative landscapein 2011Waste policy in England 2011               by targeting appropriate measures               and...
projects can be supported under its                 not commence until late 2013, thoughprovisions around 2014.           ...
Section 2:Current issues
Funding uncertaintiesInvestor Confidence is                              amongst the pigeons. In the case of          As o...
Tax updateLandfill tax                                     mattered was the intent of the                 Operators       ...
Tax updateCapital expenditure                                 Development                                 firstly with the...
Key points for investors to consider  Projects should be fully assessed to identify all items of plant. This can be wide f...
Section 3:M&A activityand trends
Historic deal volumes– waste sectorDeal volumesDespite on-going economic uncertain-ties in the UK and European market,    ...
Deals in 2011 by type                                                    Deals by subsector                          waste...
Selected key deals in 2011      Sub-sector   Deal                            Rationale / commentary     General       Viri...
Section 4:Grant Thorntonin the waste andenvironment sector
Case study:OSS GroupOSS Group, one of the largest waste management companies in the UK,headquartered in Knowsley, has comp...
Case study:TradebeTradebe Environmental Services Limited (Tradebe) is a leading global specialist                         ...
Case study:DCC plcOakwood Fuels, based in Nottinghamshire, has been sold in a deal worth up to£30m. The company, which col...
Case study:Avondale EnvironmentalHoldingsAvondale Environmental is set to create one of Europe’s leading waste recycling  ...
Section 5:How we can help
How we can helpAbout Grant Thornton                                                                    Contact detailsGran...
Appendix A:Deals listing
Waste and recyclingDate                                                                                                   ...
Grant Thornton - An ever changing landscape: Waste and environmental services in the UK  - Waste sector report 2011
Grant Thornton - An ever changing landscape: Waste and environmental services in the UK  - Waste sector report 2011
Grant Thornton - An ever changing landscape: Waste and environmental services in the UK  - Waste sector report 2011
Grant Thornton - An ever changing landscape: Waste and environmental services in the UK  - Waste sector report 2011
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Grant Thornton - An ever changing landscape: Waste and environmental services in the UK - Waste sector report 2011

  1. 1. WASTE AND ENVIRONMENT GROUP ANNUAL REViEW 2011An ever changing landscapeWaste and environmentalservices in the UK
  2. 2. Contents 03 introduction 04 Sector drivers 11 Current issues 16 M&A activity and trends 20 Grant Thornton in the waste and environment sector 21 Case study: OSS Group 22 Case study: Tradebe 23 Case Study: DCC plc 24 Case study: Avondale 25 How we can help 27 Appendix2 An ever changing landscape Waste and environmental services in the UK 2011
  3. 3. Introduction to our 2011Annual ReportWelcomeWelcome to the fifth edition of our annual ‘Ever changing Landscape’ series. As inprevious years we have aimed to provide an overview of the key issues affecting thesector in 2011 as well as reviewing M&A trends over the last year. The sub-sectorscovered by our annual report are detailed below.Our latest edition also provides an update on key issues directly affecting yourbusiness such as the taxation regime within the waste and environmental sector andthe impact of Government policyAs ever, we would be interested in your feedback on our report. If you have anycomments please let us know by contacting either ali.sharifi@uk.gt.com ornigel.mattravers@uk.gt.com. Waste Environmental Energy Pollution support efficiency control services integrated waste Environmental Buildings Pollution control consultancies technologies Recycling Transport Compliance and Environmental Hazardous and technical advice Automation and sensing and testing clinical control systems products Carbon and other Waste technology assets trading Smart metering Clean-up and industrial and Smart grids remediation Other general commercial environmental Energy from waste services e.g. street scene, Landfill arboriculture etc. An ever changing landscape Waste and environmental services in the UK 2011 3
  4. 4. Section 1:Sector drivers
  5. 5. Market dynamics2011 Market Drivers These priorities are backed up by Evidencing the progress that’s been national and European legislation which made, recycling rates continue toThe waste and recycling manifests itself in higher levels of waste increase with the Welsh governmentmarket in England during treatment (rather than landfill), growth recently confirming they have reached a in the use of recycled materials and 49% rate in the 4th quarter of 2011 and2011 has continued to ever increasing use of technology and have the best rate in the UK (averagedevelop in line with automation to deliver these. across the country of c. 40% in 2011 –DEFRA’s priorities which These trends are starting to become DEFRA); back in 2000/01 they were at evident in corporate activity as, for 7% and targets are now 75% for 2025are essentially driving example, landfill operators now need to and zero waste by 2050.down waste volumes add value to waste streams in order to From an investment and borrowingand increasing recycling generate returns and retain contracts. perspective the drivers remain Within some subsectors (such as wood the same, proven technology andefficiency. waste), as advancing technology is predictable or secure supply and diversifying the customer base (for off-take arrangements. The impactGovernment priorities example into biomass plants), securing of the Green Investment Bank (GIB)(source DEFRA, June 2011) long term supplies of consistent quality has yet to be determined but the first• greater focus on waste prevention waste material is becoming a key priority sectors have been announced and resource efficiency, within the priority for businesses. with commercial and industrial waste waste and resource management processing and recycling and energy sector and working with customers from waste being two of the five sectors.• achieving higher levels of recycling, GIB will be a key component of the by helping customers do the progression towards a green economy, right things complementing other green policies to• levels of quality for recyclable help accelerate additional capital into materials that enable the UK to meet green infrastructure. The Government its obligations under the revised “Our business simply will capitalise the GIB at £3 billion and Waste Framework Directive and the waste shipment controls, and couldn’t grow as a pure expects to obtain state aid approval for landfill business - we the GIB by early 2013. In advance of ensure the UK recycling system that, the Government will begin making can withstand sudden changes in needed to invest to add investments in green projects, including market specifications value to waste streams waste, from April 2012.• in keeping with localism, engaging and the MRF is just the Whilst rising finance has remained further with local communities to beginning” difficult, M&A volumes surpassed improve or maintain a high level expectations in 2011 with a record of public confidence in the waste and resource industry, and foster Derek Cooper, number of deals in the waste sector. This was driven by an increasing level of acceptance of new infrastructure. Chairman, Avondale investment by overseas parties combined Environmental Ltd with a particularly high number of acquisitions of both Paper and WEEE recycling companies. An ever changing landscape Waste and environmental services in the UK 2011 5
  6. 6. One of the hottest topics recently hasbeen the proposals to amend the Waste(England and Wales) Regulations 2011 “We continue to see the waste and environmentalwhich transpose the requirements of the space as a key growth sector, as the legislativerevised Waste Framework Directive into agenda continues to push development and growth.domestic law. These bland titles hidethe debate on ensuring the quality of That said, investment is becoming harder forrecycled materials with on one side the businesses in the sector, as availability of capitalCampaign for Real Recycling saying that becomes more limited, and uncertainty overthe European law requires collection of funding remains”separate waste streams and on the otherthe lobby that considers properly run Nigel Mattravers, Principal Consultant, Grant ThorntonMaterial Recycling Facilities (MRFs)processing comingled materials willproduce the same result. Governmenthas launched a consultation on a codeof practice for MRF operations but wecan expect that this debate will carry on Chart titlethrough 2012. Source: During 2011, the waste and £120environmental services sector indiceshave underperformed the benchmark £110FTSE 100 and All Share indices, thefirst year this has occurred. This could £100be indicative of the uncertainties withinthe environmental space. The sharp £90drop in the indices during the summerof 2011 and fluctuations during the final £80quarter of 2011 reflected the turmoil inthe financial markets due to the Greek £70bailout and Eurozone crisis. £60 11 0 1 1 1 11 11 11 11 11 11 11 11 01 01 01 01 20 20 20 20 20 20 20 20 20 /2 /2 /2 /2 4/ 5/ 6/ 7/ 8/ 9/ 0/ 1/ 2/ 2 2 3 4 /1 /0 /0 /0 /0 /0 /0 /0 /0 /0 /1 /1 /1 31 04 04 01 29 27 24 29 26 30 28 25 30 FTSE Environmental Opportunities Waste and Pollution Technology – price index £ FTSE Environmental Opportunities Energy Efficiency – price index £ FTSE Environmental Opportunities All Share – price index £ FTSE All Share – price index £ FTSE 100 All Share – price index £6 An ever changing landscape Waste and environmental services in the UK 2011
  7. 7. Materials pricing updatePrices on the whole have been relatively packaging recycling targets from 69% to equivalent, PERNS, by January 27thflat in 2011 with nearly all material types 71% for 2011 and 2012. 2012. At the same time Government hasseeing flat or decreasing prices at the end With export demand dropping at come out for consultation on a proposalof 2011 when compared with the end of the end of 2011 and fears of a possible to significantly increase the targets for2010. Recycled plastic prices continued double dip recession, more pressure packaging recycling. For plastics theto increase from the end of 2010 with is expected on PRN prices. However, target could rise from 32% now to 57%clear and blue PET reaching a high the number of exporters and UK by 2017. This dramatic increase could, inof £395 per tonne in September 2011, reprocessors accredited to issue PRNs the opinion of some observers, increasebefore decreasing back down to £310 has fallen compared to this time last the value of PRNs to £35-£65 ratherper tonne, a gain of over 10 per cent year. The decline in accreditations than the £5 now. This increase in targetscompared to the year-end price in 2010. has prompted fears that UK recycling could provide good opportunities for Plastic PRN prices increased during targets may be harder to meet in future if the plastic industry but the timescale toApril to June 2011 and then steadily less recycling is recorded because fewer deliver the necessary infrastructure willdropped towards the end of the year. reprocessors issue PRNs. According be tight.The DEFRA target for plastics recycling to Environment Agency data, just 49increased from 29% in 2010 to 32% exporters and 120 reprocessors werein 2011 which led to slight increases in approved to issue PRNs and their exportprice during 2011. Glass PRN price picked up duringthe beginning of 2011 from its declineat the end of 2010, reaching a high of£`13.00 per tonne before graduallydropping steadily for the rest of the year. After large fluctuations in scrap steelprices in 2010, prices remained strongand stable during 2011, although PRNprices for steel and aluminium continuedtheir downward trend during 2011. SteelPRN prices ending the year in 2011 at£2.00 per tonne, a historic low not seensince 2007. The drop in prices couldbe due to a number of factors. Duringthe recession in 2008, less overseasbuyers were purchasing materials so lessPRNs were being produced, hence thevalue increased significantly to a highof £85.00 per tonne during Novemberand December 2008. As demand hasincreased during 2010, prices havedropped. Prices may continue to staylow during 2012 as DEFRA upped steel 7
  8. 8. Median recovered paper, 450 glass and plastic prices 400 Jan 2007 - Dec 2011 350 300 Clear glass container prices Source: Letsrecycle.com – delivered to collector £ per tonne 250 Clear and light blue PET – merchant 200 News and magazines 150 – merchant 100 50 0 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 n-0 r-0 l-0 t-0 n-0 r-0 l-0 t-0 n-0 r-0 l-0 t-0 n-1 r-1 l-1 t-1 n-1 r-1 l-1 t-1 Ju Ju Ju Ju Ju Oc Oc Oc Oc Oc Ap Ap Ap Ap Ap Ja Ja Ja Ja JaMedian PRN prices – £ per 70 PRN/one tonne of mate- 60 rial Jan 2007 - Dec 2011 Glass Source: Letsrecycle.com 50 Paper £ per tonne 40 Plastics 30 Mixed energy recovery Wood 20 10 0 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 n-0 r-0 l-0 t-0 n-0 r-0 l-0 t-0 n-0 r-0 l-0 t-0 n-1 r-1 l-1 t-1 n-1 r-1 l-1 t-1 Ju Ju Ju Ju Ju Oc Oc Oc Oc Oc Ap Ap Ap Ap Ap Ja Ja Ja Ja Ja Ferrous metal prices 300 Jan 2007 - Dec 2011 250 Source: Letsrecycle.com 200 £ per tonne No 1 old steel scrap 150 No 2 new steel scrap 100 12A new production heavy steel scrap 50 0 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 n-0 r-0 l-0 t-0 n-0 r-0 l-0 t-0 n-0 r-0 l-0 t-0 n-1 r-1 l-1 t-1 n-1 r-1 l-1 t-1 Ju Ju Ju Ju Ju Oc Oc Oc Oc Oc Ap Ap Ap Ap Ap Ja Ja Ja Ja Ja8
  9. 9. Legislative landscapein 2011Waste policy in England 2011 by targeting appropriate measures and storage. Key elements of the reformDefra released the long-awaited at those households likely to need package include:waste policy review and action additional support. • a Carbon Price Floor to reduceplan for England in June 2011. The On 24 November 2011, £200m investor uncertainty, putting a fairreview brought key objectives for the of new and additional Government price on carbon and providing aGovernment in relation to the funding was announced to provide stronger incentive to invest in low-waste industry a special time-limited ‘introductory’ carbon generation The EU Waste Framework Directive offer to boost the early take up of the • the introduction of new long-termcalls for 50% of household waste to Government’s Green Deal energy contracts (Feed-in Tariff withbe recycled by 2020, to recover 70% efficiency scheme. Contracts for Difference) to provideof construction and demolition waste stable financial incentives to investby 2020 and for a 35% reduction in Electricity Market Reform in all forms of low-carbonbiodegradable municipal waste landfill On 12 July 2011 the Government electricity generation.by 2020. published ‘Planning our electric future: The Waste (England and Wales) a White Paper for secure, affordable Publication of the White Paper marksRegulations 2011 transpose the revised and low-carbon electricity’. The White the first stage of the reform process. TheEU Waste Framework Directive into Paper sets out key measures to attract Government intends to legislate for thelaw and make some changes to the way investment, reduce the impact on key elements of this package during thewaste is managed in England and Wales. consumer bills, and create a secure mix latter half of 2012, and for legislationThey came into force on 29 March 2011. of electricity sources including gas, new to reach the statute book by the end nuclear, renewables, and carbon capture of Spring 2013, so the first low-carbonEnergy Bill/Energy Act/Green Deal/Energy Company ObligationIn October 2011, the Energy Billreceived Royal Assent and becamethe Energy Act 2011. The Green Dealcreates a new financing frameworkto enable the provision of fixed On 24 November 2011, £200m of newimprovements to the energy efficiency and additional Government funding wasof households and non-domesticproperties, funded by a charge on energy announced to provide a special time-limitedbills that avoids the need for consumers ‘introductory’ offer to boost the early taketo pay upfront costs. up of the Government’s Green Deal energy The Energy Company Obligation(ECO) take over from existing efficiency scheme.obligations to reduce carbon emissions(the Carbon Emissions Reduction Target(CERT) and Community Energy SavingProgramme (CESP)), which expire atthe end of 2012. The ECO will workalongside the Green Deal finance offer An ever changing landscape Waste and environmental services in the UK 2011 9
  10. 10. projects can be supported under its not commence until late 2013, thoughprovisions around 2014. there are capital grants (RGI Premium Payments) available before then.Feed in tariffsOn 7 February 2011, the Government CRC Energy Efficiency Schemeannounced the first comprehensive The CRC is a mandatory scheme aimedreview of the Feed-in tariffs at improving energy efficiency and(FITs) scheme for small-scale low- cutting emissions in large public andcarbon electricity generation. The private sector organisations. The CRCComprehensive Review Phase 1 for began in April 2010. In June 2011 thesolar PV closed on 23 December Department of Energy and Climate2011 (discussed further in “Funding Change (DECC) published proposalsUncertainties”). In the first part of to simplify the Scheme in an effort to2012, the new tariffs for solar PV were further reduce the administrative burdenconfirmed, with FITs being reduced by on businesses. DECC will consult onover 50% from 1st April, with a further draft legislation in February 2012 andstep down in July and 5-10% reductions the changes will come into force fromevery six months thereafter. The tariff April 2013.is to be pegged to cost reductions andindustry growth, in order to provide an Anaerobic Digestion Strategy andelement of certainty for investment. Action Plan for England The Anaerobic Digestion Strategy andRenewable Heat Incentive Action Plan for England was publishedThe Renewable Heat Incentive for in June 2011 by DEFRA. Key actionsnon-domestic generators opened for in the Government’s Anaerobicapplications on 28 November 2011 with Digestion (AD) strategy and actionthe first successful applicants announced plan include guidance on the cost and On 7 Februaryin January 2011. The Government has benefits of AD to developers and local 2011, theprovided £860 million in funding. The authorities, evidence on the value of Governmentstart of the scheme follows a short delay digestates, developing skills and trainingwhile DECC resolved the scheme’s for AD operators, and highlighting announced the firstcompatibility with EU state aid rules ‘best practice’ projects that deliver comprehensiveand re-submitted the draft regulations community benefits. review of the Feed-into Parliament. Organisations will beable to apply to Ofgem for support tariffs (FITs) schemeunder the scheme from Monday 28 for small-scale low-November and will receive payments carbon electricityon a quarterly basis for heat generatedover 20 years. During the first quarter generation.of 2012 the Government has announcedthat support for domestic generators will10 An ever changing landscape Waste and environmental services in the UK 2011
  11. 11. Section 2:Current issues
  12. 12. Funding uncertaintiesInvestor Confidence is amongst the pigeons. In the case of As one funder commented “how do large solar farms Government did act I know what number to put into myNot Being Helped by retrospectively in withdrawing FITs financial model when the tariff couldGovernment support for such energy facilities change twice before the plant comes and this caused many well developed on line!”Nigel Mattravers, projects to collapse. The Government’s All of this debate about the FITsprincipal consultant within next action to call for consultation regime has been at a time of other on domestic solar PV tariffs with a changes with the RHI launch havingGrant Thornton’s Waste and proposal to retrospectively change the been delayed, the proposed changesEnvironment team, comments value of the tariffs, led to a court case to the banding within the RO schemeon Investor confidence in the which Government subsequently lost. and the uncertainty over the Electricitywaste sector. Although all of these actions concerned Market Reform. And at a time of only support for solar PV, the whole global investment uncertainty investorIt was always generally understood renewable funding sector became confidence in the waste sector is waning.that the British Government stuck increasingly nervous. The Government Government please stop tinkering andto agreed policies and would not act has now brought out a further give the investors certainty; the size ofretrospectively but in the last year consultation on non-solar projects and the prize does not matter at much asor so this belief has been upset by with it further uncertainty for investors. knowing what the prize will be.Government’s actions and so hasunsettled the waste funding market. Over recent years successivegovernments have encouraged newwaste treatment technologies withsupport schemes including, amongst “How do I know what number to putothers, the Renewable Obligationscheme (RO) and more latterly Feed in into my financial model when the tariffTariffs (FITs) and the Renewable Heat could change twice before the plantIncentive (RHI). Increasingly, however, comes on line!”government has sought to bring theseincentives under more regular reviewand this has brought nervousness Anonymousamongst potential investors. The firstripple in the pond of support wasfollowing a review of the RO regimefor new technologies and in particular‘grandfathering’ rights. It took a fewmonths to resolve the jitters aroundthe issue. But it was the changes to the FITsfor solar PV that really put the cat12 An ever changing landscape Waste and environmental services in the UK 2011
  13. 13. Tax updateLandfill tax mattered was the intent of the Operators customer or the landfill site operator. Landfill operators should review theirThere is a degree of uncertainty in the • The case determined that it was the business model and day to day siteWaste sector as to whether landfill intent of the owner of the material operations to establish if they intend totax is due at all where the landfill site that mattered, and the owner of the use materials for purposes outside ofoperator intends to use the materials material is the landfill site operator. the list.that pass over their weighbridge. The • The landfill site operator intended to • Those uses may not be subjectlaw has developed radically since 2008 use the material in, for example, site to landfill tax if the landfill siteand a further challenge has been raised engineering, and as such there was operator can demonstrate its intent.in the courts, the first hearing of which not a disposal for landfill For example, the majority of landfilltook place in March 2012. A significant tax purposes. sites are producers of renewableamount of landfill tax is at stake. All • If the landfill site operator intends to electricity and therefore sourceaffected businesses should make relevant use the material then it is not subject materials to use as fuel.claims to protect against time limits as it to landfill tax. • HMRC consider uses outside the listis likely to be a number of years before a The principle established in the WRG as subject to landfill tax. There are afinal decision is reached by the courts. case has wide implications for the tax, as number of challenges ongoing due a modern day landfill site is a recovery to the uncertainty regarding theWhat is the opportunity for businesses? and reuse business rather than a legal basis.• Landfill customers should consider disposal business. • The risk of doing nothing is whether they can recover landfill tax substantial as the business exposes paid to a landfill operator where it HMRC response itself to claims from customers should not have been charged. The HMRC were aware of the wider without being able to recover landfill customers should review the last implication of the WRG case and tax from HMRC. six years. therefore introduced some new rules, • The operators should consider• Landfill operators should review the from 1 September 2009, that made making a protective claim as day to day use of materials received certain uses subject to landfill tax. a minimum. and make a claim against HMRC, limited to last four years, for recovery Uses subject to landfill tax Customers of landfill tax, where they have not • Cover material for short periods Landfill customers should review their done so already, in order that they are of time. contracts with landfill operators. able to fund any customer claims. • Temporary hard standing. If HMRC is unsuccessful in their • Cell bund. view of the legislation, then landfillWhat has created the uncertainty? • Temporary screening bund. customers may be due a repaymentA landfill tax case heard in the Summer • Material placed against the liner / of tax from the landfill site operatorof 2008 ‘HM Revenue & Customs v drainage layer to protect the liner / through contract law (depending onWaste Group Recycling,’ known in the drainage layer. the nature of their arrangement).sector as the WRG case, radically altered • Temporary storage of ash. A protective claim should bethe landscape. Uses should be identified that may considered as a minimum.• The case centred on whether the not be subject to landfill tax (i.e. uses intent to dispose of material that outside the above list). An ever changing landscape Waste and environmental services in the UK 2011 13
  14. 14. Tax updateCapital expenditure Development firstly with the phased withdrawal The sector is undertaking a significant and abolition of industrial building– tax relief amount of expenditure. It is devoting allowance in 2008 and secondly with manpower and expertise to develop the reduction in the tax depreciationBackground technologies that discover ever on plant from 25% to 20% and then aThe tax relief available on capital more innovative products from wall further reduction to 18% for the 2012expenditure is a ‘hot topic’ for any insulation to new fuels, and abilities to financial year.capital asset intensive business in these sort and recycle materials to enhance The drawback of this approach is thatchallenging economic times. This is recoverability. clearly this has had a negative impact onparticularly relevant for the Waste the long term view of investmentsector which is responsible for the Changes to tax relief over recent years in the UK waste sector it effectivelydevelopment of the next generation The Government has part funded the reduces the tax benefits ofof the UK’s waste infrastructure and reduction in the corporation tax rates such investment.contributing to the UK’s renewable from 28% to 22% by reducing the taxenergy needs. relief available on capital expenditure, Technologies A further difficulty for capital investment in the waste sector is that many technologies have ‘significant structures’ i.e. many will be housed in large buildings, which are unlikely to get tax relief for, for example: • Energy from Waste; • Composting Facilities; • Mechanical Biological Treatment; • Anaerobic Digestion; • Materials Recovery Facility. This further complicates the field, and can make policies appear to be mis- aligned - on the one hand the sector is being asked to undertake innovation and development, but at the same time there is complexity around available tax reliefs, and a decline in levels of relief available for capital investment. However despite the doom and gloom, there are still a number of tax incentives available to investors including:14 An ever changing landscape Waste and environmental services in the UK 2011
  15. 15. Key points for investors to consider Projects should be fully assessed to identify all items of plant. This can be wide for tax purposes and will include bunds, push walls, odour systems, CCTV, etc that may be building for accounting purposes. Where assets are under construction and the business is trading it is sensible to identify the plant and claim tax depreciation as the expenditure is incurred. Where a significant amount of innovation and development is undertaken, some of the expenditure should qualify for research and development tax relief. If the projects under construction are receiving capital grants or subsidies then make sure the agreements specify the funds are intended for certain capital expenditure that will not qualify for tax depreciation. A number of the projects under construction are constructed in accordance with the BREEAM standards for sustainability. This will invariably mean that there are a number of assets that qualify for enhanced capital allowances (100% tax write off in year 1). The Government has made enhanced capital allowances available in the Anaerobic Digestion i.e. biomass, and Combined Heat and Power plant sectors to specifically encourage innovation, investment, and roll out across the UK. Consider entering contracts with long term guaranteed tariffs i.e. RHI. These tariffs provide a level of return that is intended to cover the innovation and development and compensate for the capital expenditure that may not receive tax relief. If the expected economic life of the asset is less than two years is the expenditure revenue in nature and therefore tax deductible. An ever changing landscape Waste and environmental services in the UK 2011 15
  16. 16. Section 3:M&A activityand trends
  17. 17. Historic deal volumes– waste sectorDeal volumesDespite on-going economic uncertain-ties in the UK and European market, 48M&A volumes surpassed expectationsin 2011 with a record number of deals in 39the waste sector. 37 This was in part driven by an increas- 33ing level of acquisitions made by over- 28seas parties (11 deals in 2011 vs 8 deals in 242010). Most notably of all however wasthe significant increase in acquisitionsof paper recycling companies (7 dealsin 2011 vs 1 deal in 2010) and WEEErecycling companies (5 deals in 2011 vs 2deals in 2010). 2006 2007 2008 2009 2010 2011 Based on figures this year we expect2012 deal volumes to remain relativelyconstant with 2011.Note on data collectionPlease note that for comparison pur-poses the deal volume charts above are 14 14for waste deals only. As we have onlystarted collecting data on energy effi-ciency and environmental services M&A 11 11recently we will only be able to provide 9 9 9historical comparisons of these ‘new’ 8subsectors from our next annual review.In the meantime please see the nextpage for further details of the full sectorbreakdown for 2011 which provides asnapshot of the market over the last12 months. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2010 2010 2010 2011 2011 2011 2011 An ever changing landscape Waste and environmental services in the UK 2011 17
  18. 18. Deals in 2011 by type Deals by subsector waste and waste management sectors,Number of deals by subsector Our sector review continues to being areas that tend to be made up ofSource: MergerStat highlight the growing importance of a large number of smaller-businesses, the consultancy and energy efficiency providing opportunities for businesses space– this sub-sector now represents to grow by consolidation. over ¼ of total deals in 2011. We forecast that the leaning towards The continued activity in the niche/specialist companies will continue consultancy and energy efficiency sub- going forward with the subcategories sectors perhaps indicates businesses of energy from waste and organic waste are buying-in these capabilities as these recycling accounting for the greatest markets remain buoyant. number of transactions, in addition to The chart also illustrates the significant opportunities in continuing concentration of deal energy efficiency. volumes in the recycling, hazardous Recycling 50% Energy efficiency 17% Consultancy 10% Hazardous and industrial waste 7% Waste management 4% Waste equipment 4% Recycling deals Sims Metal Management Limited of Medical waste 2% Once again we have broken down two UK based mobile phone Energy from waste 2% recycling by material type as this is recycling companies. Other environmental services 2% the most popular subsector in terms of The paper subsector continues to Compliance and technical 2% M&A volumes. represent around a ¼ of deals in 2011 The growing trend towards WEEE, with Spain based SAICA making two has been partially driven by the acquisitions to build on the deals in Q1 acquisitions made by Australia based involving PHS Datashred.Number of recycling deals by type In line with trends seen in previousSource: MergerStat years, organic waste also continues to represent a substantial number of deals with interest remaining in new waste General 26% treatment technologies, and in particular Paper 23% AD. Given this continuing interest in Organic 16% waste to energy technologies we would Metal 13% expect this trend to continue into 2012 WEEE 16% and beyond. Plastic 3% Glass 3%18 An ever changing landscape Waste and environmental services in the UK 2011
  19. 19. Selected key deals in 2011 Sub-sector Deal Rationale / commentary General Viridor Waste Management Mr Colin Drummond, Chief Executive of Viridor stated, “Recycling is a fast growing part of Recycling Ltd’s acquisition of Viridor’s business and accounted for around 31% of the Company’s profit contribution in Community Waste Holding the first half of financial year 2011/12. Community Waste’s operations iprovide additional Ltd for £15.75m volumes for our international trading arm. The acquisition is expected to be earnings enhancing in its first full year.” Paper Viridor Waste Management As stated above, the purchase is in line with Viridors plans to expand its waste Recycling Ltds acquisition of Martock management activities, especially in the recycling sector. Waste paper Ltd for £7.4m Organic Stobart Group Ltds Mr Andrew Tinkler, Chief Executive Officer, commented: "Since listing in 2007 we have Recycling increased its shareholding delivered consistently good performance with substantial growth in all areas of the in Stobart Biomass Products business and also been able to invest in other areas of high growth potential such as Ltd from 50 to 100% Biomass. We are now a diverse company with risk and returns spread across a number for £20m of sectors. " Hazardous DCC Environmental Britain Mr Tommy Breen, Chief Executive of DCC plc said, "The acquisition of Oakwood will and Ltds acquisition of Oakwood broaden DCC Environmentals service offering into additional complementary waste industrial Fuels Ltd for £29.681m streams in Britain and capitalise on the trend towards more sustainable waste management waste and in particular increased waste recovery and recycling. " Paper Sociedad Anonima industrias SFG managing director Mr Forbes Connor stated: “Stirling Fibre has always been a huge Recycling Celulosa Aragonesa SAs supporter of the UK paper making industry and we are delighted to be part of one of the acquisition of Stirling Fibre largest recyclers of packaging in Europe. I firmly believe that the Stirling Fibre Group is Ltd for an undisclosed sum joining the right organisation and we all look forward to developing and growing Saica Natur in the UK.” Organic 4R (Group) Ltd acquisition Mr Mike Holt, Managing Director of 4R Group, stated “We are delighted to welcome Recycling of ByProduct Recovery Ltd the ByProduct Recovery staff into 4R Group, and we see a bright future for ByProduct for an undisclosed sum Recovery. Across the Group as a whole we strive to provide industry with cost effective, environmentally beneficial options for managing wastes more sustainably, diverting waste from landfill and manufacturing recycled products as part of the drive for a greener economy.”“We are continuing to advise a high number of corporates who see acquisition as a key means ofexpanding in the waste and environmental sector. Many are seeking to secure access to waste, ascontrol of feedstocks continues to be vital across many sub-sectors.” Ali Sharifi, Partner, Grant Thornton UK LLP An ever changing landscape Waste and environmental services in the UK 2011 19
  20. 20. Section 4:Grant Thorntonin the waste andenvironment sector
  21. 21. Case study:OSS GroupOSS Group, one of the largest waste management companies in the UK,headquartered in Knowsley, has completed the acquisition of Hall and Campey OSS GroupEnvironmental Services for an undisclosed sum. OSS employs some 170 people at sites across the UK. The company, which isbacked by UK mid market private equity house Dunedin, was advised by Grant OSS GROUPThornton’s Liverpool-based corporate finance team and Pinsent Masons Manchesterbased corporate law team. OSS specialises in collecting waste lubricating oils and recycling them into Acquisition of Hall and Campey Environmentalenvironmentally-friendly alternative fuels. The company has just launched its latest Services LimitedHazardousprocessed fuel oil product, Gen3™, which has applications in industrial and process garage and workshop wasteheating, glass production, dairies, brewing and food processing. Hall and Campey is an industrial waste management company primarily £undisclosed October 2011operating in the Midlands and East Anglia, which also specialises in the disposal of Grant Thornton provided corporatesimilar waste streams. finance advisory services “OSS is a long-“Adding the regional strength of Hall and Campey to standingour existing national service creates a much stronger Grant Thorntonorganisation in terms of total UK coverage. it operates client and we are delighted to be ablesimilar services to OSS and will continue very much to close this dealas now but with the benefit of the OSS infrastructure, which will provideadditional customer services and market leading the firm with theGen3™ technology.” feedstock necessary to continue to grow and develop theirIain Lees innovative patentedActing Group Managing Director waste recoveryOSS Group process as well broadening the OSS product offering.” Mark Steel Grant Thornton An ever changing landscape Waste and environmental services in the UK 2011 21
  22. 22. Case study:TradebeTradebe Environmental Services Limited (Tradebe) is a leading global specialist Tradebe Environmentalwaste management company. Services Limited In September 2011 Tradebe acquired Solvent Resource Management Limited(SRM). The acquisition of SRM makes Tradebe the leader in the UK hazardouswaste management market. Tradebe now has 19 sites in the UK. As the market leader in the UK, Tradebe can offer a full range of hazardous wastedisposal and recycling services to Tradebe’s and SRM’s customers. Through continuing investment in acquisitions, introduction of new technologies Acquisition of Solvent Resource Managementand improvements to production facilities, Tradebe’s global sales have grown from Limited (SRM) Organic waste40 million euros in 2000 to approaching 300 million euros today. With the SRM materials disposalacquisition, Tradebe will now each year manage globally well over two million £undisclosedtonnes of waste. September 2011 Grant Thornton provided both financial and tax due diligence to Tradebe. Grant Thornton provided financial due diligence services “We are pleased to“We selected Grant Thornton to assist us in the financial have worked withand pensions due diligence work on the SRM deal due Tradebe on their acquisition of SRM.to the strength of their proposal and in particular their The acquisitionprevious work within the sector. Their due diligence of SRM will bringwork was focussed and the final report was a valuable major benefits tocontribution to the deal process setting out a clear but both Tradebe’s and SRM’s customersdetailed financial analysis of the target.” as the range of services availableRobert Allen is enhanced. WeUK Corporate Director wish Tradebe everyTradebe success with the integration of SRM and as it continues to expand. ” David Grundy Grant Thornton22 An ever changing landscape Waste and environmental services in the UK 2011
  23. 23. Case study:DCC plcOakwood Fuels, based in Nottinghamshire, has been sold in a deal worth up to£30m. The company, which collects waste lubricant oil and hazardous waste from DCC plcbusinesses, was purchased by DCC Environmental Britain, based in Ireland. SteveTooley, managing director of Oakwood Fuels, said the move would support thecompany’s rapid expansion plans. DCC is a sales, marketing, distribution and business support services group.The company completed the acquisition on behalf of its subsidiary, DCCEnvironmental Britain. Acquisition of Oakwood Fuels Bilsthorpe-based Oakwood collects refuse from businesses in a variety of sectors Limitedand converts the waste oil to processed fuel oil (PFO). Waste oil processing The PFO is then sold to customers for use in a variety of applications includingroad surfacing operations, aggregate drying, industrial and agricultural drying, £undisclosed June 2011power stations, large boilers and furnaces. Grant Thornton provided financial Oakwood, which employs 105 people in Nottinghamshire, recoded adjusted due diligence servicesoperating profit if £2.2m for the year ending 30 September 2010, on revenueof £9.3m. Grant Thornton Corporate Finance advised on this transaction. “The acquisition of Oakwood will broaden DCC Environmental’s service offering“The evolution of Oakwood in becoming a fuel into additional complementarymanufacturer has propelled the business into new waste streamsmarkets. The decision to sell the business and become in Britain andpart of a larger group will support Oakwood’s rapid capitalise on theexpansion plans whilst DCC’s own environmental arm trend towards more sustainable wastewill benefit from the technological expertise in the waste management and inprocessing sector.” particular increased waste recoverySteve Tooley and recycling.Managing DirectorOakwood Fuels Tommy Breen Chief Executive DCC plc An ever changing landscape Waste and environmental services in the UK 2011 23
  24. 24. Case study:Avondale EnvironmentalHoldingsAvondale Environmental is set to create one of Europe’s leading waste recycling Avondale Environmentalcentres following a £17m funding package put together in Manchester, led by HSBC LimitedCorporate Banking. The landfill operator is developing its existing site at Falkirk,near junction 4 of the M9 motorway, into a leading edge recycling facility. It willprocess some 200,000 tonnes of household and commercial rubbish, vastly reducingthe amount going into landfill. The Manchester office of HSBC provided the funding from their corporate andasset finance teams and the Manchester office of Grant Thornton advised Avondale Fund raisingthroughout the funding process. Development of a waste Avondale has a range of public and private sector contracts in Central and recycling facilityNorthern Scotland and it is intended that this new facility will facilitate improvedrecycling rates for both domestic and commercial waste in the region. £17m May 2011 Grant Thornton provided corporate finance advisory services“This is an excellent result, “We are delighted towe’re really pleased to see support our long standingthe project progress; it customer with a packagewill keep the business at which will drive the next “We’ve nurtured our plans overthe forefront of a dynamic phase of its growth. The a number ofwaste management industry move highlights our support years, includingin the UK.” for the business’ investment taking the in environmental innovation, scheme throughAndrew Stubbs and our confidence in theAssociate Director planning, soGrant Thornton management team’s ability we’re obviously to deliver.” delighted to have reached Steve Sherratt this significant Senior Corporate Banking Manager milestone.” HSBC NorthWes Derek Cooper Director Avondale Environmental24 An ever changing landscape Waste and environmental services in the UK 2011
  25. 25. Section 5:How we can help
  26. 26. How we can helpAbout Grant Thornton Contact detailsGrant Thornton UK LLP is one of the largest accountancy and advisory firms in the If you would like further informationUK. A leading financial and business adviser, we have over 200 partners and 4,000 regarding Grant Thornton, pleasestaff based in 28 locations nationwide. contact one of the following members ofRecognising the importance of a sector focus, we operate through sector teams, the waste and recycling group:providing industry-specific, reliable and candid solutions to the challenges facing Northtoday’s businesses. Each partner-led team is staffed by sector specialists who have Ali Sharifi – Partnerimmense experience and know-how in their chosen field. This approach gives our Manchesterclients a high quality service based on sound market understanding. T +44 (0)161 953 6350 E ali.sharifi@uk.gt.comWe offer a range of services to waste and environmental businesses, such as mergersand acquisitions advice, as well as fund raising, and have been successful in raising Mark Burke – Partner Leedsfunds despite the difficult banking environment. In addition, we can provide T +44 (0)113 200 1527specialised advice in a variety of areas including; E mark.t.burke@uk.gt.com South West• Contract tendering Nigel Mattravers –Director Bristol• Project finance advice T +44 (0)117 305 7699• Project appraisal E nigel.mattravers@uk.gt.com• Transactional tax advice Mark Naughton – Director• Money saving ideas in relation to environmental tax incentives Bristol• Valuations T +44 (0)117 305 7712 E mark.c.naughton@uk.gt.com• Feasibility studies• Policy implementation Scotland Nathan Goode – Partner• Corporate structuring advice Edinburgh• Internal audit reviews of environmental activities T +44 (0)131 659 8513 E nathan.goode@uk.gt.com East Tim Blois – Director Milton Keynes T +44 (0)1908 359 582 E tim.m.blois@uk.gt.com South East Peter Dawson – Partner London T +44 (0)20 7728 3197 E peter.dawson@uk.gt.com Northern Ireland Charlie Kerlin – Director Belfast T +44 (0)28 9031 6510 E charlie.kerlin@uk.gt.com26 An ever changing landscape Waste and environmental services in the UK 2011
  27. 27. Appendix A:Deals listing
  28. 28. Waste and recyclingDate Deal valuecompleted Target name Target business description Acquiror name £000’s GBP11/01/2011 Britcare Ltd Waste disposal services Tradebe Ltd n.a.14/01/2011 Swinnerton Environmental Ltd Waste management services Viridor Ltd n.a.27/01/2011 Redeem Ltd Printer cartridge and mobile phone Mbi Team - United Kingdom n.a. recovery services31/01/2011 International Recycling Ltd Waste processing and trading services Ciparo Bv n.a.03/02/2011 Northumberland Waste Waste management services The Durham Company Ltd n.a. Services Ltd07/02/2011 Martock Waste Paper Ltd Paper recovery and recycling services provider Viridor Waste Management Ltd 7,40009/02/2011 Singh (UK) Ltd Waste processing services Valens Resources Group Plc n.a.17/02/2011 CK Polymers Ltd Plastic recycling services Private Group led by management n.a. of CK Polymers Ltd21/02/2011 Oklm Recycling Waste processing services Sutco Recyclingtechnik n.a. Technology Ltd GmbH & Co04/03/2011 Shred Easy Ltd Confidential data destruction and recycling PHS Datashred n.a. services14/03/2011 Hewitt International Ltd Vehicle salvage disposal services Copart UK Ltd n.a.16/03/2011 Wales Environmental Ltd Liquid waste management services MBO Team n.a.25/03/2011 Shredsecure Ltd Confidential paper and document PHS Datashred n.a. shredding services04/04/2011 Premier Waste Management Waste management services HW Martin n.a. Ltd’s Commercial And Industrial Waste Business21/04/2011 Stobart Biomass Products Ltd Biomass fuel distribution services Stobart Group Ltd 20,000.0026/04/2011 Halstead Renewable Power Developer of AD power Countrystyle Recycling n.a.05/05/2011 Reynolds Boughton Ltd Waste handling and military vehicles manufacturer Skan Group Holdings Ltd n.a.09/05/2011 Dunn Brothers (1995) Ltd Metal recycling services Sims Group UK Ltd n.a.11/05/2011 Recycle-Direct.Com Ltd Recycling waste services Green Recycling Ltd n.a.17/05/2011 North East Recycling Ltd’s Recycling services Newport Paper Company Ltd n.a. assets01/06/2011 Smash And Grab Bottle crushing machinery SWR Waste Management n.a.01/06/2011 Ml Oils Ltd Waste oil procurement and handling services Verta Energy Trading Ltd n.a.07/06/2011 Storm Recycling Ltd Cardboard and plastics recycling services Viridor Waste Management Ltd 1,70014/06/2011 Recycled Glass Products Ltd Household products from recycled glass Collingham Ventures Ltd n.a. manufacturer23/06/2011 Oakwood Fuels Ltd Waste oil and hazardous waste collection DCC Environmental Britain Ltd n.a. services28 An ever changing landscape Waste and environmental services in the UK 2011

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