Eco Investor March 2016

Core Securities

Transpacific Now Cleanaway

It has taken many years so it is not before time that Australia's biggest waste management company looks like it may finally be getting its act together. Transpacific Industries has completed its name change to Cleanaway Waste Management, and reported a half year profit of $23 million to turnaround last year's December half loss of $42 million. Revenue also went up, by 8 per cent to $747 million.

The saga of how it got there is far too long to recount but it involved huge debt, private equity backing and major restructuring and asset sales. Thankfully, all that is history. The balance sheet is now respectable and the company is much better focused both operationally and on share holder returns. The focus now seems to be where it should be - on present and future business.

Chief executive Vik Bansal said trading conditions are flat so the positive December half results reflect the early success of initiatives underway across the company. These include the recently acquired Melbourne Regional Landfill, a new value operating model, a realignment of growth initiatives, simplification of the group's organization and operating structure, and cost savings. The company has targeted a $30 million permanent reduction in its costs by 30 June 2017.

A more disciplined approach to capital expenditure and a review of rectification and remediation spending should increase free cash flows in the future.

The simplification of its structure has seen Cleanaway introduce a new reporting structure. Its two main operating segments are now Solids, and Liquids & Industrial Services. Solids is divided into Solids - Collections, and Solids - Post Collections. The former is all types of solid wastes from its commercial and industrial, municipal and residential collection services. The latter is the ownership and management of waste transfer stations and landfills.

Under this structure, Mr Bansal estimates that both segments will increase earnings (EBITDA) for this financial year.

While he expects market conditions to show little change, he believes the initiatives across the company will benefit its trading performance.

The half year earnings per share were 1.5 cents. The interim fully franked dividend of 0.8 cents per share is up on the 0.7 cents per share for the previous December half.

Cleanaway is changing its chairman with Martin Hudson to retire before the annual general meeting after being a director for seven years and chairman for three years. Non-executive director Mark Chellew will become deputy chairman and succeed Mr Hudson as chairman. Mr Chellew has more than 30 years of experience in industrial markets in Australia and overseas.

Despite some big movements up and down, Cleanaway's share price has been trending upwards since it touched a three year low last September of 57 cents and is now around 80 cents. (ASX: CWY)






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