PRINT THIS PAGE Managing waste in Europe: A growing opportunity31/01/2007. Source: IVCJ. Suchitra Padmanabhan, Frost & Sullivan
In this IVCJ article, Suchitra Padmanabhan, Frost & Sullivan Industry Analyst in the research firm's Environment Division, sees several areas of growth within Europe's waste management industry. She presents an overview of the industry as well as their projections for the future. Waste management has been a recurring theme across Europe as growing waste volume and the increasing complexity of waste governed by tightened regulations boost market demand and create a positive investment climate.
In Western Europe, the market is seen as a mature one, although its vast size and ongoing nature continue to make it attractive. In the long term, industry suppliers are seeking to exploit specific regional growth, technological innovation as well as strategic partnerships to optimize current market conditions.
Market opportunities
Municipal Waste
The municipal waste management market is primarily driven by legislation, and here the impact of the EU Landfill Directive continues to be felt in most countries. Restrictions on the use of landfill for the disposal of municipal solid waste (MSW) are encouraging the development of alternate technologies, with non-thermal treatment proving particularly popular. With respect to opportunities in the services sector, sorting and separation services and biological treatment are both attracting substantial investment. Thermal treatment, while somewhat less popular than it was a decade ago, continues to have a role in a number of European countries.
Frost & Sullivan current research estimates that the municipal waste management market was just over $30 billion in 2005 with a stable compound annual growth rate (CAGR) of three percent projected until 2012. Within the market, the role of the public sector in European MSW management remains strong. Despite moves in many countries to increase the involvement of private sector companies, public ownership of facilities such as landfill and thermal treatment plants remains significant. As yet, no major moves towards large scale consolidation within the market have occurred, although on a national and regional scale large waste management companies are emerging who have the potential to accelerate this process.
Overall, the Western European market for municipal waste management services has shown steady growth. This is despite a recent trend in many European countries to minimize waste volume entering the market. Waste volume has continued to show year-to-year increases in most countries, with no suggestion of any major reversal in the amount of waste being generated.
Over the medium and long terms, the European municipal waste management market is expected to continue to attract revenue as pricing factors and rising taxes raise the profile of the industry. Prices have risen in many sectors and markets, offering a boost to revenues after a period of difficult competition.
End-users, though, are looking more at service quality, technical know-how and delivery. The market has moved towards higher value pre-treatment services. More stable pricing across many sectors has also had a positive impact on the market.
Non-hazardous industrial waste management The non-hazardous industrial waste management services sector is generally the least technologically developed of European waste management markets, as the primary focus is on municipal and hazardous waste. Moreover, across Europe, market conditions are not uniform, and opportunities still exist for companies able to position themselves in the right countries or regions and service sectors. Revenues are estimated at $62 billion and growing relatively slowly at a CAGR of 1.5 percent due to an anticipated decline in waste volume generated.
A recent revenue spurt has been attributed to the buoyant economies of Southern Europe, due to an increase in industrial, commercial and construction activity. Moreover, shifting patterns of waste management that are being stimulated by legislative and regulatory changes have further supported growth in this area. The market is expected to continue growing as waste is diverted toward more value-added channels, though at a slower rate as waste volume decreases.
Hazardous waste
The Western European hazardous waste services market is currently undergoing change, principally reflecting regulation that has brought with it new opportunities. Much of the change in the market has come from an expanded definition of hazardous waste, which is supported by the changing nature of waste streams, a greater move toward waste minimization and increased levels of competition – all of which ensure that the market remains attractive.
A sizable increase in waste volume has taken place across Europe in recent years although, here again, the degree of increase varies by region. Indeed, some countries are experiencing stable and even falling hazardous waste volume as the growth in waste minimization, on-site treatment and, in some cases, deindustrialization of certain sectors impact the market negatively. Overall stability is only expected to come at the end of the decade, and even then it will not be uniform. Changes in hazardous waste treatment and disposal currently offer the best opportunity to suppliers in this sector. Restrictions on the use of landfill have resulted in opportunities for other forms of treatment, notably the recycling and/or reuse of waste as well as the use of thermal and pre-treatment processes.
Revenues in the market are estimated at $8 billion for 2005, growing at a relatively low CAGR of 1.8 percent until 2011 owing to sluggish waste volume and continuing price pressure. Overall, the hazardous waste management market is set to experience slow growth of less than two percent, indicating the impending maturity of market opportunities. In the long term, suppliers will look to exploit niche opportunities in specialist treatment and disposal areas such as recycling and reuse stabilization and thermal treatment.
As with the municipal waste market, the key to success in hazardous waste is to capitalize on changes, many of which are being driven by legislation at a European level, yet interpreted at a national or regional level. Understanding such changes and working with the market are crucial for a company’s success. Added to this is the fact that many major producers of waste are looking for something extra from the commercial market, such as on-site support or an ability to treat a range of wastes.
Accordingly, the service offerings and other fringe benefits offer a competitive edge. This is often directly in contrast to what smaller companies are looking for in the market. Clearly understanding one’s operating segment is vital.
Emerging industrial outsourcing opportunities
Outsourcing of on-site industrial waste management to external service providers is a strongly emerging niche market throughout Europe with the main centers of activity being Germany, the UK and France. This services market has been growing across Europe, sustained by legislative pressure and deadlines that have changed the way waste is being managed. The EU Landfill Directive is one of the most powerful tools that has shaped market demand, supported technological advances and encouraged investment.
Revenue in this market segment has grown from $467 million in 2002 to $550 million in 2005 and is expected to grow at a positive CAGR of 6.9 percent until 2012. Outsourcing of industrial waste is still at a 'development to growth' stage, which has prompted high growth rates in the market. Legislative changes across Europe have directed movement of waste away from landfills as a principal disposal option. Accordingly, greater investments in on-site treatment facilities and integrated facilities management service providers have increased chances of success.
Cost savings and a positive perception of externalization remain the key driving forces supporting growth. Such outsourcing agreements are closely linked with risk management benefits. Frost & Sullivan projects that demand for outsourcing of industrial waste management will steadily rise as growing industrialization in the South, and in Central and Eastern Europe (CEE) supports demands for immediate and reliable solutions for on-site waste management.
Expectations from an outsourcing contract range from imminent cost reductions to long term benefits, including legislative compliance as well as enhanced efficiency and partial risk transfer.
This market poses different challenges to suppliers by virtue of the nature of services required. A high level of specialization and high end-user diversity has meant that service providers need to be able to invest time, resources and manpower to cater adequately to the diverse demands. The high entry barriers and complexity of contractual business mean that the market is heavily concentrated among the few international integrated service providers.
Regional comparisons
Across the waste management market in Europe with its varied segments and growth opportunities, Germany holds the largest share of revenues. This reflects a high degree of regulatory ommitment and environmental awareness, a large population base and a strong contribution from the industrial sector, which ensures the generation of the most industrial waste in Europe. Other revenue contributors are France and the UK in that order. The Benelux region and Italian markets are expected to exhibit modest growth while the Iberian region generates the smallest proportion of revenues. This low share reflects the young age of the market, the presence of cheap landfills and the high proportion of landfill waste which is managed by the public sector. Future growth opportunities are seen in emerging markets in Southern and Central & Eastern Europe as the stable markets of Western Europe experience maturity.
Gaining a winning edge
As discussed above, the European waste management market provides varied and regionspecific opportunities across the market. This is further supported by the presence of a large number of suppliers catering to this market, totaling over 5,000. This is also indicative of the high degree of fragmentation in the market with only a handful of players emerging as leaders – namely Sita and Onyx, and recently joined by Remondis, a strong competitor after taking over RWE Umwelt.
Figure 2 shows the competitive forces at work in the European waste management industry.
The major area of competition within this market is price. It is expected that this will remain the case in the future. Other important issues are quality of service and the range of services provided to large producers of waste streams. This type of customer generally finds price to be of slightly less importance as compared to smaller waste producers. Geographical coverage is also an important factor, especially for multi-site waste producing customers. Contracts here can cover comprehensive multi-site and multi-utility arrangements, which demand significant coverage of regional locations as well as industrial end-user knowledge.
Understanding that no one single approach will work across Western Europe is crucial for any company’s success in the market long-term. An offering that fits with the distinct needs of the local community is essential. This may involve building links with the public sector, modifying service aspects or even identifying strategic partners to spread business activities. Those who have mastered these opportunities are still too few as illustrated by the high degree of fragmentation that still exists. Yet, this same fragmentation illustrates the numerous prospects available for a variety of players operating in a sizable market that still offers many rewards.
This article appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit www.ivc-online.com
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