ESTET Conference: Wednesday 18th September

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ESTET Conference Wednesday 18th September

Requiring Political Leadership
Investors should assume that Merrill Lynch is
seeking or will seek investment banking or other
business relationships with the companies in this
report.
Merrill Lynch Global Securities Research
Economics Group Global Fundamental Equity
Research Department
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Business Service Market Development
Source Merrill Lynch Equity Research
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UK Waste Companies - Ranked By Pro Forma 2001
Revenues
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Europe's Top 12 Waste Companies In 2001
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Europes Leading Waste Industry Participants
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Corporate Activity in UK Waste Industry
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Europes Huntergatherers in Waste Management
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European Waste Overview

• European consolidation slowed temporarily to
  allow digestion of 2000s exceptional deal flow
• Onyx and Sita now looking to add US disposal and
  treatment assets
• Increasing interest in niche activities - for
  example to exploit WEEE opportunities
• Expect consolidation to accelerate through
  remainder of 2002 and into 2003

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Comparative Deal Multiples 2000
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Waste Key Trends / Characteristics
Economic Regulation Indirect Environmental
Regulation Tightening Barriers to
Entry Rising Opportunities for New
Services Shifting Priorities Increased
Treatment Technology Capture Corporate
Activity Deals Pending? Market Place Dynamics
Satisfactory / Weak in Places Profits
Trend Steady / Flattening
Source Merrill Lynch
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Ownership of UK Landfill (m3) Reserves Autumn
2002
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UK Industry Hierarchy Municipal Waste
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UK Solid Waste to Landfill
(1) Source HM Customs Excise (2) Source
Merrill Lynch estimates
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Why The UK Will Remain Landfill Dependant

• UK moving away from landfill - but probably
  rather slower than current government targets
• Reiterated targets of substantial increases MSW
  recycling
• Changes to planning procedures - increase chances
  of success
• Mechanisms for achievement are not yet in place
• NIMBYism
• Barriers to planning approvals for
  waste-to-energy
• Demand for recovered materials
• Who carries the economic risks?

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Anticipated Market Developments
Implications of Changing UK Practices

• Near term void usage greater than new permits,
  which leads to further shrinkage of overall
  reserves - demand / supply imbalance greatest in
  south-east of England
• Waste-to-energy still delivers 30-35 of original
  weight in ash for disposal
• Municipal contracts likely to become the preserve
  of the few (or consortiums) who can
• collect from households
• separate recoverable materials
• manage recycling value chain
• operate waste-to-energy or bio MRFs
• provide landfill options near term

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Shanks Group vs. Waste Recycling Group
Source Datastream
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Comparative Characteristics
SKS WRG Geography UK UK
100 Benelux Operational Diversity Landfill gt
80 volumes Recycling to landfill Thermal
Destruction Technology bioMRFs ----- Corporat
e Ownership ----- Kelda (46) Accounting
Conservative Under review MIS Establish
ed Needing improvement
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Foot Mouth Boosts in 2001

• 22 of carcasses disposed of to landfill -
  primarily in Cumbria Dumfries
• Landfill site operators received substantial
  sums according to the NAO report
• None of the top 10 recipients of collection /
  disposal payments (10m or more) were waste
  services specialists - other than private
  companies
• We believe that these one-off revenues and
  profits were concentrated in the July/September
  quarter of 2001
• Severn Trent identified 5m profits one-off
  benefit to Biffa in 2001/02 alone, yet across
  both financial years received revenues lt10m
• Shanks has indicated that benefits were modest

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Der Grüne Punkt

• Germanys DSD should not be a role model for the
  UK
• Almost 2bn pa of revenues, but precious little
  profits (if any!)
• Under investigation by the Bundeskartellamt,
  which currently tolerates the restrictions on
  competition
• In mid 2003, new 3 year DSD service contracts
  will be let following competitive tender

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