Cleanaway gain puts Veolia in pole position
As Veolia sets about integrating Cleanaway into its business, Maxine Perella caught up with chief executive Cyrille du Peloux to find out what this means for the waste industry
Despite now running the UK's largest waste management company, he still finds time to oversee Veolia Environmental Services' operations in Northern Europe, to fulfil his duties as chairman of the Environmental Services Association and to personally meet the media to explain how the recent acquisition of Cleanaway fits in with the company's long-term growth strategy.
Veolia has just secured clearance from the EU competition authorities for the acquisition, and it's a frantically busy time for the company as it sets about integrating Cleanaway into its operations. Peloux says the process is effectively a "merger" as the two companies are of similar stature in the waste industry.
"The profile of Cleanaway presented a good fit with us. We both operate in the municipal, commercial and industrial markets. In terms of size, we are relatively similar. And as a [former] competitor, we knew them well - their strengths and weaknesses."
Du Peloux adds that Veolia's coverage across the UK should double as geographically, the two companies complement each other very well. Its market penetration will also deepen - Veolia currently has 50 municipal contracts with 29 local authorities/waste disposal authorities (WDAs), but with Cleanaway under its belt this will soar to 168 contracts with 69 authorities/WDAs (see box).
Du Peloux says the integration of Cleanaway will strengthen Veolia's presence in the waste sector, enabling it to deliver services of a higher standard and quality - especially in terms of managing customer requests, supervising collection rounds, truck maintenance, and health and safety.
"We will have enough activity to justify further investments in technology like GPS - which we have started in some contracts - but the fact we have become a major player will encourage us to invest more in the municipal market for collection and street cleansing."
Targeting PFI as way forward
He is also looking build on Veolia's success with PFI contracts - recently the company secured a 26-year waste management PFI contract with Nottinghamshire County Council. Although Cleanaway had yet to establish itself in that market, Du Peloux says it had created a development team for PFI which will greatly reinforce Veolia's own resources and enable the company to bid for more contracts.
This is particularly valuable as during the past three years, there has been an acceleration in local authorities looking to go down the PFI route. "Currently there are at least 10 PFI contracts in the process of being tendered a year, in the past it was one or two [contracts] a year," observes Du Peloux.
Cleanaway's reputation in the municipal market should also serve Veolia well notes Du Peloux, as a contractor's brand name is important when it comes to out-sourcing services for 25 years or so. "[LAs] need to be comfortable with the reliability and quality of the contractor - PFI is a long-term commitment."
Asked if the addition of Cleanaway makes Veolia the UK's largest waste management company by a considerable degree, Du Peloux replies: "Not considerable, there are still many players in the market, including some big players. It's still an open and highly competitive market."
Sizing up market share
I put it to Du Peloux that Veolia's market share must be around 14% if you combine the two companies - a figure which he considers for a moment.
"It is very difficult to define market share because it depends which market you are looking at. For example, when you look at the municipal market, do you include grounds maintenance or not? But if we take the scope of the market where we are active, I'd say it's between 10% to 15%."
Du Peloux is keen to emphasise how competitive the UK market is, especially compared to other countries in Europe. That said, the industry is undergoing a heavy bout of consolidation at the moment while influential bodies such as the Office of Fair Trading are calling for greater competition in municipal waste contracts.
I ask Du Peloux how a balance can be achieved in light of this, so that there is a level playing field for providers - especially new entrants to the market.
"I don't think the main problem in the UK is lack of competition," he argues. "Usually in municipal tenders you have between six to eight players, in PFI tenders there are less competitors that's true, but in terms of new entrants it's important to bring confidence to the financial community. If the financial community is not confident in the PFI waste market then there is much less competition."
Du Peloux also believes the Government has a key role to play in encouraging competition by creating more robust contractual frameworks and helping to facilitate the planning process.
"Planning creates a lot of risk in terms of construction and investment," he points out. "The most important thing is to create a good planning application system and a good PFI contractual framework - then you find the money."
Looking ahead, Du Peloux sees organic growth playing a strong part in securing future success for Veolia in the UK. "This year waste has been top of our acquisition list - it reflects the confidence that shareholders and top management at the group has in this market.
"In the future, we have no plans to make other significant acquisitions in the UK because we need time to focus on Cleanaway - we want to create a single company, with a single brand name and a single culture."
Plenty of potential
He also sees room for growth on the commercial and industrial front, through developing greater expertise around treatment and recycling activities, and by offering an integrated services approach.
Du Peloux has spent four years in the waste industry during his time at Veolia and it's clear he enjoys the challenges it brings. "Contrary to people's perceptions, it's a market which requires expertise. Waste management is a skilled business, you can't just jump into it. It's a very proactive dynamic market and you are always challenged by your competitors.
"You also have the satisfaction of being useful," he adds. "You do something which is necessary to protect people's health and the environment."