28
Investor Relations Presentation September 2008

Investor Relations Presentation September 2008

Embed Size (px)

DESCRIPTION

Investor Relations Presentation September 2008. Cautionary Statement Regarding Forward-Looking Statements. - PowerPoint PPT Presentation

Citation preview

Page 1: Investor Relations Presentation September 2008

Investor Relations Presentation

September 2008

Page 2: Investor Relations Presentation September 2008

Cautionary Statement RegardingForward-Looking Statements

This presentation includes forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933, and Section 21-E of the Securities Exchange Act of 1934. Such statements include declarations regarding the intent, belief, or current expectations of the company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve a number of risks and uncertainties that can materially affect actual results as identified from time to time in the company’s reports and registration statements filed with the Securities and Exchange Commission. Forward-looking statements provided herein as of a specified date are not hereby reaffirmed or updated.

Page 3: Investor Relations Presentation September 2008

Introduction to Covanta• World’s largest owner/operator of Energy-from-Waste (EfW) facilities

• Business serves two key markets & addresses two key issues:– Waste Disposal

• Superior sustainable alternative to landfills; cleaner & preserves open spaces– Generation of Clean, Renewable Power

• Entire process results in net GhG reductions

• Complementary businesses include– Biomass and other renewable energy generation– Waste procurement and transfer stations

Page 4: Investor Relations Presentation September 2008

Key Investment Considerations• Largest player in a growing niche (EfW) with high barriers to entry

• Contracted revenues provide predictable base business

• Increasing exposure to electricity pricing provides upside when fossil fuel prices rise

• Strong balance sheet and free cash flow generation support growth initiatives

• Stability and Growth: consistent operating performance coupled with increasing expansion and greenfield opportunities

Page 5: Investor Relations Presentation September 2008

How does EfW Work?

• Municipalities and others pay us to dispose of waste

• Technologically advanced facilities combust waste, our fuel, at high temperatures

• Resulting steam is either sold directly or used to make electricity for sale

• Metals are retrieved and recycled

• Ash residue is buried or recycled for use in construction and road building applications

Page 6: Investor Relations Presentation September 2008

Benefits of EfW• Environmentally sustainable waste disposal

– Most attractive solution after recycling– Waste volume reduced by 90%– Reduces landfill usage and long-haul transport

• Generates clean, reliable energy from renewable fuels– U.S. EPA states EfW: “produces electricity with less environmental

impact than almost any other source”– Baseload power 24/7

• Reduces greenhouse gas emissions; combats global warming– 1:1 CO2 offset for each ton of waste processed

• Fewer fossil fuels burned: 1 ton of waste ≈ ¼ ton of coal

– Methane from landfills: global warming capacity 20+ times CO2

Page 7: Investor Relations Presentation September 2008

Global Drivers for EfW• Increasing waste generation – population growth & urbanization

• Landfill capacity constraints; legislative directives to reduce landfill usage

• Climbing fossil fuel prices; reserves being depleted

• Demand for renewable power generation

• Focus on energy security and diversity

• Growing attention to climate change; desire to reduce greenhouse gas emissions

Page 8: Investor Relations Presentation September 2008

Global Waste ManagementEfW 0.2 Billion tons Recycling 0.5 Billion tonsRecycling 0.5 Billion tons Landfill 1.2 Billion tons

U.S

.

Den

mar

k

Sw

eden

Net

her

lan

ds

Ger

man

y

Ave

rag

e

Ital

y

U.K

.

Irel

and

Jap

an

Tai

wan

Sin

gap

ore

Ch

ina

U.S.≈90 EfW facilities

Western Europe≈400 EfW facilities

Asia≈300 EfW facilities

Landfill

Recycling/Composting

EfW

Page 9: Investor Relations Presentation September 2008

Substantial Growth Potential• Waste generation increasing with population

and income growth

• Landfilling still the predominant disposal method– China: approximately 280 million tons– U.S.: approximately 250 million tons– UK and Ireland: approximately 50 million tons

• Reduce. Reuse. Recycle. Then recover waste to watts!

Page 10: Investor Relations Presentation September 2008

Covanta’s Competitive Advantages• Operational Expertise

– > 20 years experience; design, construction, operations & maintenance

– Operate every commercially viable EfW technology – Since 1992, EfW boiler availability generally exceeds 90%– Senior & facility management: 17+ years average experience– Recipient of numerous environmental and safety awards

• Global presence; local experts and relationships

• Willingness and ability to commit capital

• Strong track record of successful public/private partnerships

Page 11: Investor Relations Presentation September 2008

Growth Strategy• Maximize long-term value of existing portfolio

– Extend contracts for operation and waste delivery– Implement productivity enhancements– Facility expansions

• Acquisition and greenfield development :– North America – EfW, renewable energy & complementary

businesses– Europe – primarily EfW; focus on UK and Ireland– Asia – primarily EfW; focus on China

• R&D – Invest in new technologies

Page 12: Investor Relations Presentation September 2008

U.S. – ≈85% of CVA Revenues• Handle over half of U.S. EfW volume (16 of 30 million tons) or 5% of post-recycled

MSW

• Produce almost 10% of America’s non-hydro renewable electricity – enough to power over a million homes

• Operate in 18 states (assumes ME acquistion closes), concentrated in the densely populated Northeast

• 35 EfW; 8 biomass (assumes ME acq. closes), 4 landfill gas facilities & 2 hydro

Covanta EfW Facility Locations by State

FL8%

MA13%

NJ10%

NY18%

VA9%

PA10%

CT8%

MI6%

I N4%

HI4%

MD4%

Other6%

Annual Tons Processed by State

Covanta

Page 13: Investor Relations Presentation September 2008

U.S. - Strong Fundamentals• Waste Disposal

– Recession resistant, non-cyclical business ; historical long-term growth rate of ≈3% – Rising prices due to capacity constraints & barriers to entry– Higher diesel costs and state landfill tax make long-haul disposal less attractive

• Power Production– Rising prices due to higher demand & higher fossil fuel prices;– Energy security concerns

• Energy-from-Waste - Opportunities for new capacity re-appearing– Growing interest in integrated waste management and renewable energy– Concern with global warming and reducing carbon footprint

Source: EPA

Average PJM Electricity Price TrendsAverage PJM Electricity Price Trends

$0$10$20$30$40$50$60$70$80$90

2002 2003 2004 2005 2006 2007 2008YTD

Dolla

rs p

er

MW

H

Source: EPA Note: PJM (Pennsylvania, New Jersey, Maryland grid) – East Zone (LMP)Source: PJM Day-Ahead Spot Market Price. 2008 YTD data through August.

Page 14: Investor Relations Presentation September 2008

Service Fee

Operated

Tip Fee Owned

Service Fee

Owned

Typical U.S. EfW Contract Structures• Waste disposal contracts are structured as either

“tip fee” or “service fee”– Service fee facilities can be owned and operated by

Covanta or just operated

– Prefer longer term contracts to ensure “fuel” supply

• Energy revenue traditionally under long-term contract; portfolio shifting to shorter term

• EfW projects generally financed with municipal bonds

– Project debt usually paid over term of waste disposal contract (≈ 20 years)

– Service fee contracts include debt service payments

– Debt free facilities after initial contract period

Facilities by Contract Type

Page 15: Investor Relations Presentation September 2008

North American Initiatives• Contract roll-overs; potential energy revenue upside

– Indianapolis and Hempstead

• Expansions of existing facilities– Florida and Hawaii

• Pursuing greenfield projects– Vancouver – Toronto– Maryland

• M&A Activities– Tulsa– Maine biomass facilities– Transfer stations

Page 16: Investor Relations Presentation September 2008

U.S. Energy Policy• Federal and numerous state laws considers EfW a renewable

energy source

• Still no comprehensive U.S. renewable energy or climate change policy– Potential upside if EfW included in Federal renewable energy portfolio

standards– Exemption from carbon caps would provide business advantage over fossil

fuels– Recognition of GhG offsets would offer substantial upside

Page 17: Investor Relations Presentation September 2008

Growth Drivers - Europe• Widespread acceptance of EfW is creating opportunities

• EU Landfill Directive: supports EfW, disincentives for landfilling– Reduce landfilling of biodegradable MSW by 65% from 1995

disposal levels by 2020

• U.K. and Ireland – Significant efforts needed to meet EU regulations– U.K. environmental agency (DEFRA) estimates EfW will need to

increase from 9% of waste disposal to 27% by 2020

– U.K. market – expect 10 million tons of new EfW capacity to be required

– High market tip fees (>$100 per ton of MSW) and electricity rates

• Additional opportunities in continental Europe

Page 18: Investor Relations Presentation September 2008

UK/Ireland Initiatives

• Dublin: 1,700 tpd facility – construction expected to begin near end of 2008• UK – Large number of municipalities considering projects

– Currently, short listed on several– Additional opportunities are unfolding each year

• Covanta Infrastructure Preparedness– Office in Birmingham being expanded to meet heightened level of activity – Employing locals with local expertise and valuable relationships

Artist’s Rendering - Dublin

Page 19: Investor Relations Presentation September 2008

Growth Drivers – Asia/Pacific

• China: significant opportunity– 160 - 170 cities with population of 1 million +– Annually generating 280 million tons of waste (similar to U.S.

market)– Approximately 2.0% of waste was converted to energy in 2005– National Plan: 30% of waste to be channeled to EfW by 2030– Estimates predict 50 million tons of new EfW capacity to be

built by 2020

Page 20: Investor Relations Presentation September 2008

China Initiatives

• Pursue bid opportunities with strong local partners– JV’s with Chongqing Iron & Steel and Guangzhou Development Group– Currently own stakes in two 1,200 tonnes per day EfW facilities via JV’s– Recent contract award for new 1,800 tonne per day facility in Chengdu

SanFeng – Covanta Tongxing EfW Plant – Chongqing, China

Page 21: Investor Relations Presentation September 2008

Attractive Economics• Stable business model

– Long-term contracted revenue stream– Credit-worthy clients – municipalities and utilities

• High margins and low capital expenditure requirements– Annual maintenance capex: ≈ $60 million (4% of revenue)

• Strong operating cash flow to fund growth (1)

– 2008 operating cash flow guidance: $380 to $420 million– 2008 scheduled project debt amortization of $167 million (with approximately $20 million funded from

restricted cash)

• Strong balance sheet– Borrowing power increasing as facilities become debt-free

(1) As of July 29, 2008. This information is not being reaffirmed or updated as of the current date.

Page 22: Investor Relations Presentation September 2008

Financial Summary20072007 YTD 6-30-07YTD 6-30-07 YTD 6-30-08YTD 6-30-08

Revenues $1.43 billion $685 million $812 million

Adjusted EBITDA (1) $549 million $245 million $268 million

Operating Cash Flow $358 million $146 million $160 million

Net Income $131 million $19.8 million $59.6 million

Diluted EPS $0.85 $0.13 $0.39

(1) Non-GAAP financial measure – Please see second quarter press release for discussion of use of Non-GAAP financial measures and calculation of Adjusted EBITDA.

Page 23: Investor Relations Presentation September 2008

Consistent Financial Performance and Growth

Revenues

$1,433

$1,209

$1,269

$1,050

$1,100

$1,150

$1,200

$1,250

$1,300

$1,350

$1,400

$1,450

PF2005 2006 2007

($ i

n m

illi

on

s)

Page 24: Investor Relations Presentation September 2008

Consistent Financial Performance and GrowthOperating Cash Flow (1)

(1) Operating Cash Flow is defined as the GAAP measure cash flow provided by operating activities.

(2) Includes the results for Covanta ARC Holdings from June 25, 2005 through December 31, 2005.

(3) As of July 29, 2008. This information is not being reaffirmed or updated as of the current date.

$358

$208

$311

$0

$50

$100

$150

$200

$250

$300

$350

$400

2005 (2) 2006 2007

($ i

n m

illi

on

s)

2008 Guidance: $380-$420 million (3)

Page 25: Investor Relations Presentation September 2008

Consistent Financial Performance and GrowthAdjusted EBITDA (1)

$549

$501

$542

$400

$450

$500

$550

$600

$650

$700

PF2005 (2) 2006 2007

($

in

mil

lio

ns

)

2008 Guidance: $550-$575 million (3)

(1) Please see second quarter press release for discussion of use of Non-GAAP financial measures and calculation of Adjusted EBITDA.

(2) Calculated for Covanta Energy Corporation.(3) As of July 29, 2008. This information is not being reaffirmed or updated as of the current date.

Page 26: Investor Relations Presentation September 2008

Computation of Adjusted EBITDA

(In millions)(In millions)

Full YearFull Year

20072007

YTD YTD

6-30-086-30-08

Full Year Full Year

Estimated 2008Estimated 2008

Net Income $131 $60 $140 - $155

Depreciation and amortization expense 197 100 206

Debt service 111 50 95 - 92

Income tax expense 31 34 78 - 85

EBITDA 470 $244 $519 - $538

Adjustments for non-cash items 39 20 24 – 30

Loss on extinguishment of debt 32 0 0

Minority interests 9 4 7

Adjusted EBITDA(1) $549 $268 $550 - $575

(1) As of July 29, 2008. This information is not being reaffirmed or updated as of the current date. Please see second quarter press release for discussion of use of Non-GAAP financial measures and calculation of Adjusted EBITDA.

Page 27: Investor Relations Presentation September 2008

Reconciliation - Cash Flow: Adjusted EBITDA

(In millions)(In millions)Full YearFull Year

20072007YTDYTD

6-30-086-30-08Full Year Estimated Full Year Estimated

20082008

Cash Flow Provided by Operating Activities $358 $160 $380 - $420

Debt service 111 50 95 – 92

Amortization of debt premium and deferred financing costs 11 4 7

Other 69 54 68 - 56

Adjusted EBITDA(1) $549 $268 $550 - $575

(1) As of July 29, 2008. This information is not being reaffirmed or updated as of the current date. Please see second quarter press release for discussion of use of Non-GAAP financial measures and calculation of Adjusted EBITDA.

Page 28: Investor Relations Presentation September 2008

Key Investment Considerations

• Largest player in a growing niche (EfW) with high barriers to entry

• Contracted revenues provide predictable base business

• Increasing exposure to market electricity pricing provides upside when fossil fuel prices rise

• Strong free cash flow generation and balance sheet support growth initiatives

• Stability and Growth: consistent operating performance coupled with increasing expansion and greenfield opportunities