Waste Management Review talks to some of Australia’s largest waste management companies about the role of scalability in the future of the waste sector.
This article is the second in a three part series featuring Bingo Industries, Cleanaway, Corio Waste Management and SUEZ.
With more than 300 sites, 115 prized infrastructure assets and around 6000 employees and 4950 vehicles, Cleanaway is Australia’s largest waste management company.
At the heart of its approach to scaling up and supporting Australia’s recycling woes is Cleanaway’s Footprint 2025 strategy – a plan to significantly grow its infrastructure by 2025. Launched in 2015, Footprint 2025 continues to expand.
It’s already done so in 2019 with a new waste transfer station and resource recovery facility in Sydney licensed to process 300,000 tonnes of putrescible waste per annum. In addition, its recent infrastructure moves also include a new South East Melbourne Organics Facility, a 50 per cent stake in ResourceCo’s process engineered fuel facility in Sydney and a transfer station in Perth.
Official data on market share is difficult to come by, but CEO Vik Bansal estimates the company controls around the mid to high 20 per cent of the total waste management market.
Its annual report shows the integration of Toxfree is on track to achieve a $35 million synergy target by June 2020. Cleanaway’s acquisition of Toxfree in 2018 was unopposed by the ACCC and concluded that increased vertical integration would be unlikely to substantially lessen competition due to competitive constraints imposed by alternative suppliers.
The official review shows customers can and do disaggregate contracts if they are dissatisfied with pricing and/or service levels. Likewise, there are other large suppliers present in multiple waste streams and geographical areas throughout Australia.
Cleanaway’s net revenue, which represents gross revenue less landfill levies collected and passed through the customer, increased by 35 per cent in 2018-19 to $2.11 billion compared to the prior corresponding period. Its growth was driven by a combination of organic growth and the Toxfree acquisition.
“We have spent about $150 million building prized waste infrastructure across the country which includes transfer stations, resource recovery centres, used oil refinery and liquid, hazardous and non-hazardous waste processing facilities organically and via the acquisition of Toxfree,” Vik says.
Its earnings before interest, tax, depreciation and amortisation increased 34 per cent to $433.7 million in 2018-19 due to improved profit performances across solid waste services, industrial and waste services and liquid waste and health services. In its annual report, Cleanaway highlights itself as having an excellent balance sheet with debt ratios well within banking covenant requirements.
The annual report declares volatility in the commodities supply chain has led to increased sorting costs and instability in commodity pricing. Vik has often maintained Australia’s recycling crisis presents an opportunity rather than a threat to the viability of the sector.
“It is the right thing for the waste industry in Australia and in general. There is something not right about waste going to developing countries and them sorting it out. We just don’t want that to happen,” Vik says.
He says that being a publicly listed entity places additional pressure on Cleanaway as a company, but it’s a challenge it is pleased to take on.
“Because we are a listed entity and have to go to market every six months, our changes become a lot more visible than an international subsidiary or a company which is not listed,” he says.
The positive side effect of market fluctuations is that Cleanaway has fast-tracked much of its Footprint 2025 strategy to support the local marketplace.
Following the collapse of SKM Recycling Group, Cleanaway Waste Management acquired the senior secured debt in the group for around $60 million with the exception of its glass recovery services business. This includes the property, plant and equipment from a network of five recycling sites, comprising three materials recovery facilities (MRFs), a transfer station in Victoria and a MRF in Tasmania. SKM also has two sites in South Australia.
KordaMentha have been appointed the receivers of the group. At the time of Waste Management Review’s interview with Vik, Cleanaway was looking to acquire the assets and return them to a sustainable footing as part of the sale process being undertaken by the receivers.
Prior to the publication date, Cleanaway was successful in its bid for SKM assets with completion of the process on track for the end of October. One of its sites in the network includes an advanced plastic sorting facility in Victoria.
Commenting on the acquisition, Vik said significant progress had been made in clearing waste stockpiles from the sites, repairing plant and equipment and bringing the sites to required safety, environmental and operational standards.
“We expect to gradually restore operations in Victoria over the coming months,” he said.
Speaking to Waste Management Review, Vik agrees some systematic changes are needed to support the future viability of the industry. However, he concedes collection will be difficult to consolidate due to the low barriers to entry.
“There is something fundamentally wrong about the industry structure. Aside from Visy, there is not even a single big waste management player which is upstream and vertically integrated. There is not even a single big waste management player in commingled recycling in Victoria.
“China’s National Sword has triggered the industry structure to go back on a balanced, even, long-term sustainable footing and hence our interest in SKM assets.”
“A company like Cleanaway cannot have a Footprint 2025 strategy flowing through without commingled assets in Victoria. That is part and parcel of a vertically integrated waste management company.”
It was speculated that Cleanaway was interested in buying SKM’s glass recycling business not covered by the receivership. Vik says that while Cleanaway was initially interested in this, the acquisition is now in doubt given the scale of glass stockpiles.
Instead, should Cleanaway acquire SKM’s assets, Vik says Cleanaway will look at building its own glass beneficiation plant.
He says that Cleanaway’s future focus will be to become a downstream processor.
“We see ourselves investing in plastic pelletising and going downstream on glass crushers,” Vik says.
Vik says that Cleanaway’s view is that Australia needs to move to a harmonised national four-bin system with mandatory FOGO and glass bins the key to improving commodity value.
“We are ready to invest a lot more in different parts of the country if we can see that certainty of policy and harmonisation,” he says, adding there is a fair amount of Footprint 2025 still to be revealed.
Likewise, he says that whenever Cleanaway invests, it looks at the entire value chain, including location, policy framework and its total market share.
Vik says that each state should have a container deposit scheme but recognises it might be difficult to harmonise all at a national level.
He says this system would then become best practice through better education, investment in infrastructure and manufacturer and consumer acceptance of recycled material as the final piece of the circular economy puzzle.
Footprint 2025 is going from strength to strength as Cleanaway in October announced a joint venture with Macquarie Capital’s Green Investment Group to develop a waste-to-energy (WtE) project in Western Sydney.
A site has been acquired for a potential facility in Eastern Creek and an environmental impact statement is being prepared and released for public consultation early next year. The site is expected to cut Western Sydney’s annual landfill volumes by 500,000 tonnes – almost a third of the red bin waste generated per year in the local area.
Trevor Thornton is a lecturer in hazardous materials management at Deakin University and has prior experience with the Environment Protection Authority Victoria.
He says the metropolitan areas certainly benefit, but one concern would be whether the same level of service is afforded to regional areas.
“I’ve heard some issues about large companies that get a statewide contract but just outsource a lot of the more distant rural areas under their banner, but they don’t get the same service to the client.
“But I think in the main, if you’ve got five or six companies offering the complete service, I think that’s a good thing.”
Likewise, he believes the purchase of ailing companies such as SKM can only be a good thing, and that if additional oversight is required, that would be a matter for the ACCC.
He says the trend towards consolidation in Australia would mirror that of other more populous nations such as the US, Canada and parts of Europe.
Mathew Dickens, CEO of Corio Waste Management, a family-owned business focused on waste collection and organic waste treatment based in Geelong, sees an opportunity from consolidation to compete with the major players.
“Consolidation does lead to less competition, but it can also mean the acquirer has more to lose as you have most of the market share and that can only go in one direction, but for companies my size it creates opportunity,” he says.
Mathew says with further consolidation, Corio can aim to compete on service standards, respond quickly to changing customer requirements and provide a point of difference as a family-owned business.
“From a customer perspective it [further consolidation] would mean less choice and higher prices, and that’s not a problem for us as we don’t compete on the basis of price. We know what our costs are because we measure and analyse them all the time,” he says.
He says that Corio tends to focus on what it can offer in terms of variety and frequency of service, collection standards and customer service.
Mathew says the recent consolidations are nothing new but rather history repeating itself in an industry cycle where consolidation inspires new entrants into the industry.
In the US, integrated companies such as Waste Management Inc, Clean Harbors, Republic Services and Advanced Disposal dominate the market.
Mathew points out that Republic Services is an example of smaller operators merging to become a larger organisation, a trend that could always repeat itself locally.
Republic Services is one of the largest providers of non-hazardous solid waste and owns around 207 transfer stations and 190 landfills, according to Superperformance SAS data.
He says there will still be room for niche, specialised operations that handle smaller volumes.
“If there is going to be a remanufacturing industry that’s developed onshore, you need to spread that risk,” he says.
Mathew says that Corio remains focused on growing its organic waste collections in Geelong and Melbourne treated at its composting facility
based in Shepparton.
“We want to build tunnel composting facilities in other regions in Victoria. It relies on government contracts, but we’re confident we can make it happen,” he says.
Next week’s instalment features an interview with SUEZ CEO Mark Venhoek.
Click here to read part one.