Waste-to-energy firm Covanta Holding has announced several initiatives to improve process efficiency and reduce expenses by some $30 million across its business.
In a June 9, 2014 statement, Covanta also announced its intention to increase its quarterly cash dividend to $0.25 per share, starting with the dividend that is expected to be declared in the third quarter of 2014. Covanta held a conference call June 10, 2014 to discuss these announcements.
Covanta is targeting cost savings that would benefit Adjusted EBITDA by approximately $30 million in 2015. It is not expected that the initiatives will materially impact Adjusted EBITDA in 2014, as the costs of implementation will generally be offset by initial savings. The initiatives can be categorized under two broad themes:
1. Reducing costs of goods and services. This will be driven by:
- New strategic procurement practices to further leverage our scale and purchasing power
- A multi-year effort to increase labour efficiency during maintenance outages. This will be accomplished with a combination of best practices, enhanced planning and modest capital investments.
2. Reducing staff by improving process efficiency and implementing best practices including:
- Upgrading and leveraging existing IT systems to streamline processes
- Centralization and reorganization of certain overhead functions, including accounting, finance, and procurement.
"We recently conducted an intensive review of our internal processes and practices across the entire business with the goal of delivering our world-class service with greater cost-effectiveness,” said Anthony Orlando, Covanta's president and CEO. “As a result of this effort, we identified a number of meaningful initiatives that are being implemented over the remainder of this year. I'm confident these changes will deliver the targeted savings next year and we'll seek to increase the savings over time."
The company announced the intention of its Board of Directors to increase the quarterly dividend to an annualized rate of $1 per share, beginning in the third quarter of 2014.
Commenting on this announcement, Brad Helgeson, Covanta's Executive Vice President and CFO, stated, “Our Board's plan for the dividend underscores our collective confidence in the long-term stability of this business and its cash flow. The increased dividend would represent a modest increase in the cash payout ratio to approximately 50 per cent of anticipated run rate Free Cash Flow. Our overall capital allocation policy remains unchanged, and we believe that this higher dividend will continue to afford us with ample flexibility to continue to invest in the business for long-term growth."
Dublin Project Update
Covanta also announced that it has recently reinitiated an active effort to pursue the commencement of construction of the Dublin Waste-to-Energy project following favourable rulings by the European Commission in response to legal challenges raised against Dublin City Council in the areas of European State Aid and Procurement law.
Commenting further, Anthony Orlando said, “Now that our client has cleared this regulatory hurdle, we are fully engaged with the Dublin City Council working towards the goal of starting construction on this important project. There remains much to be done before this can happen, including project financing and other customary steps to closing the development phase. Hopefully, we'll be in a position to provide a further and more substantive update in the next 90 days.”