Ian Wakelin, chief executive of Biffa, the UK’s second largest waste management business, got his timing just right when he brought the company to the stock market last autumn. A key rationale was to provide Biffa with more financial firepower and public profile to continue its pacy acquisition strategy. It has “hoovered up” five businesses since then, taking the total to 25 deals since 2013, the latest in July involving splashing out £35 million for O’Brien Waste Recycling Solutions in the northeast of England. The month before, in its maiden annual results following the flotation, Biffa posted doubled pre-tax profits to £45m, up from £21m in the previous 12 months, on revenues of nearly £1 billion. And the share price is currently 230p, comfortably up on the float price of 180p.
“I think so,” Wakelin said, when asked if he felt that the company had therefore “delivered” to investors since going public. “[A flotation] is always a difficult process. Financial markets were uncertain just six months after the Brexit vote. But it was absolutely the right thing to do for the company and the business. We had so many opportunities to invest capital, but we did not have the balance sheet to do it. We have so much waste under our control and we have the ability to build something to add value.”
Wakelin, who after training as an accountant has been in the waste industry since the late 1980s, said Biffa’s size – it has about 10 per cent of the UK’s waste management market – means it is well placed to pick up either smaller family-run operations looking for an exit or distressed outfits, and then shake the tree for cost and revenue synergies. “We run 3,000 vehicles from 200 locations from Scotland to Cornwall. We are probably the market leader in the Scottish central belt, for instance. With that breadth of UK coverage we can get substantial synergies out of acquisitions. If we buy a waste collection business we can often take our vehicles and fill in the routes, we often don’t need a manager, back office or depots of the business we are acquiring,” Wakelin said.
There is unlikely to be any letting up in the pace of acquisitions, it seems. Biffa competes nationwide with four other main players in the sector, including the UK subsidiaries of French groups Veolia and Suez, but after that the industry is highly fragmented. “The pipeline of possible acquisitions is stronger now than when we came to market a year ago,” Wakelin said. As for a potential acquisition war-chest, the group’s strong organic profitability means the boss does not blanch at possibly spending £25m to £30m a year in enterprise value of assets.
Logistics are the lifeblood of waste management. “It’s all about truck efficiency. One of our trucks will stop 160 times a day and travel less than a kilometre. We make money when a truck is picking up, not when it’s driving. It is all about infilling routes [with additional customers],” Wakelin said.
Biffa’s main operation is collecting municipal and household waste, and also includes street cleaning, and a separate division provides collection and related services to industrial and commercial customers. Combined, the divisions provide 80 per cent of revenues and 60 per cent of group profits. Among its major business customers are John Lewis, Sainsbury’s and Gala Coral.
As mentioned, the company has a strong Scottish footprint, with facilities in Aberdeen, Inverness, Edinburgh and Glasgow that range from small depots to sizeable material recycling facilities. Its annual revenues here are currently £60m. And Wakelin praises Holyrood, which has responsibility for the environment since devolution. “It’s gone in different ways to the UK. Scotland have done better and they should be commended.” He cites the law in Scotland whereby if you are running a business generating just five kilos of used food per week you have to have it separately collected, meaning the waste is less contaminated and helping the so-called “anaerobic digestion” process that aids the production of electricity from food waste. There is no similar obligation to collect a business’s food waste separately in England and Wales.
This brings us to the differences made to the waste industry since the government introduced its landfill tax 20 years ago to make sure the UK recycled more of its waste rather than the default landfill option. “Twenty years ago we were embarrassing [on recycling] compared to other European countries. Now we are in the top ten,” Wakelin said. He is proud Biffa is present across the whole supply chain, from collection, transfer and bulking of waste to processing and treatment to landfill and end products such as commodities, electricity, gas, compost, soil and aggregates. Last year Biffa built its first aggregate recycling plant.
However, he added that the sector should not yet feel the job is done, estimating that there is shortfall of about 13 million tonnes of waste nationwide that could go to providing energy. Biffa is not resting on its laurels. At its last results, it revealed it had signed an exclusive partnership with Covanta, a leading US developer and operator of energy recovery facilities (ERFs), to explore the potential development of two major ERFs. Biffa has planning consent for a site in Leicestershire and Covanta has a presence on a site in Cheshire. Wakelin said the job now was to identify the risk/return profile of the potential undertaking, with even one site likely to cost £250m to build over a three to four year period, and Biffa would see itself as a minority partner in any hook-up. However, one advantage he saw was that Biffa had “a very strong collection business in those parts of the UK”. And he said he would also not rule out tapping investors for further capital on this or other projects in future.
Wakelin left accountancy for the waste sector and for most of the 1990s he ran the UK operations of US firm Waste Management Inc. In 2002 he left to start his own waste company Greenstar “from a garage in Oxfordshire”, spotting what he saw as the slow reaction of the industry to the direction of travel towards recycling. Greenstar was acquired by Biffa in 2010 after its own difficult period which led to it quitting the stock market in 2008. Wakelin recollects dryly that like many chief executives of companies taken over he expected to be “synergised”, but instead he was offered the top job at Biffa. He thinks it might have been partly because of Greenstar’s strong recycling profile “whereas Biffa was too much in landfill and Greenstar was a bit of a fix for that”.
Biffa works with 36 local authorities on their waste services, and Wakelin said the impact of austerity has been felt for several years now, with controversy occasionally flaring when council chiefs, strapped for cash, want to reduce the frequency of waste collections. He does not deny that negotiations occur, but said one defensive characteristic of the business is that the company and council are often locked into seven-year contracts so it needs joint agreement for changes to be made.
So, if that domestic pressure continued, is there scope for totally UK-focused Biffa to export its offering abroad? “We have no plans to do so, but it does lend itself to overseas expansion. The expertise and technology is all exportable. There’s a lot of intellectual property in the industry. But most of western Europe and North America is advanced in the sector, more so than, say, Eastern Europe and central and South America. I’m not arrogant in telling the likes of Scandinavia or France about waste management. I would only go somewhere with the business where I could add value.”
The march of the robots is said to be both an opportunity or looming shadow across many industries currently, and Wakelin gives an example even in his industry. Biffa sometimes have conveyor belts of rubbish that can be manually cleaned in the bulking and processing operations. However, he said there is an alternative infra-red beam that can be shone on the conveyor belt, spot different types of contamination, and trigger an air-jet to blow on it without human interaction.
“We are looking at robotics, even if we have not got it yet,” he said.