Wednesday 12th July 2017
|Text too small?|
Waste Management, New Zealand's biggest waste collection and recycling company, lifted sales by 2.3 percent in 2016 through a combination of acquisitions and increased demand and says it is enjoying another year of growth.
Sales rose to $455 million in calendar 2016 from $444.8 million a year earlier, the Auckland-based company's annual accounts show. Profit fell to $11.5 million from $13.9 million as financing costs rose and the company spent more on wages, vehicle and plant operations.
Beijing Capital acquired Waste Management for $950 million from ASX-listed CleanawayWaste Management (then called Transpacific) in 2014 in the first major international foray for the Chinese water treatment, waste management, mass transit railway, toll road and property company, giving it 30 percent of New Zealand's waste management market. Chinese investors dominate the sector, as billionaire Li Ka-shing's Cheung Kong Infrastructure Holdings owns the other major player Enviro (NZ), which operates as EnviroWaste.
Together the duopoly generated $700 million of revenue in 2016. They both operate landfills, collect and process waste and have recycling and recovery operations.
Waste Management's 2016 revenue was boosted by the contribution from two acquisitions - New Zealand's only waste tyre recycling business Pacific Rubber Recycling bought for about $1.02 million last August and Tirohia Landfill near Paeroa, acquired for about $16 million on Nov. 30. The previous year it acquired the 50 percent of Living Earth it didn't already own for $18.6 million, Gordies Bins for $2.3 million and Waste Service Marlborough for $2.5 million. The company doesn't break down its revenue business, citing intense rivalry in the industry.
"It's highly competitive - just because we're the market leader doesn't mean we get it easy," said chief executive Tom Nickels. Along with the contribution from acquisitions, Waste Management had benefited from a strong economy, "particularly in the golden triangle of Auckland, Hamilton and the Bay of Plenty."
"It simply means there is more activity - we tend to track gross domestic product -building, construction activity and consumption," he said. For example, there were currently some 75 cranes up in Auckland. The building process started with preparing the land, which could involve removal of contaminated soil, while the building process generated waste and when buildings were complete they were "filled up with stuff" and that was typically wrapped in something.
EnviroWaste's 2016 revenue rose 8.7 percent to $246 million and its profit increased to $11.2 million from $8.9 million. It paid a dividend of $18.5 million, having omitted a distribution to its parent in the previous year. Company executives weren't available to comment. Contracts completed during the year included the cleanup of the MV Rena.
EnviroWaste was created in 1995 through the merger of the waste disposal operations of Infrastructure Auckland's Northern Disposal Systems and Fulton Hogan's South Island waste collection businesses. Fulton Hogan took full control in 2001 and sold to Ironbridge Capital in 2007, which in turn sold to Cheung Kong in 2013. It has 600 employees, making it more than a third of the size of Waste Management, with 1,500 workers.
Waste Management's Nickels said the change of ownership to Beijing Capital had given the company a supportive shareholder and a New Zealand focus.
"We had been capital constrained and that's no longer the case," he said. "That's enabled growth."
Asked what challenges face the waste management industry, Nickels cited two issues. With 800 vehicles and more than 800 drivers, the company operated one of New Zealand's largest fleets and the average driver age was 57. It was an issue for the whole transport sector and Waste Management's strategies ranged from a cadet scheme to upskilling mature drivers, he said.
The other issue was in the economics of recycling. Nickel cites the closure of recycling plants by the same-named but separate US company Waste Management Inc. Forbes cited Waste Management's former CEO David Steiner in October saying demand for, and profit from recycled materials such as plastics, paper, aluminium and steel was tied to demand from manufacturing economies such as China. Its recycling revenue dropped 20 percent from 2013 to US$1.2 billion, Forbes reported him as saying.
That meant Waste Management had a new paradigm for its municipal customers: "When prices are high we'll pay you to recycle. When prices are low we have to charge you".
Nickels said the economics of recycling was "a curious beast. You'd be hard-pressed to meet anybody who doesn't believe in recycling and sustainability but it is also hard to find someone prepared to pay for it."
"Every time you touch something it adds to the cost. It is very challenging," he said. "Ultimately we need to change the behaviour of consumers and creating that waste in the first place. Once you have waste it becomes cross-contaminated and there's a lot of cost in that. Is there a market that's prepared to pay for all that cost of collecting, separating and packaging it up?"
Waste Management NZ's 2016 accounts show it is carrying $717 million of debt. It has convertible notes that carry characteristics of equity and debt and are being reviewed by Inland Revenue but Nickels says any liability arising "stays with the prior ASX owner".
"We're very comfortable with where we are" in terms of debt, he said. "We're quite a strong cash generator."
Net cash flows from operations rose to $124 million last year from about $112 million the previous year.
No comments yet
NZ dollar stalls after Bascand's rate cut comments
Bascand says RBNZ will consider changing bank capital proposals
Affordable electricity key to decarbonisation - Genesis
Graeme Hart trims global packaging empire with US$615m asset sale
Stronger-than-expected inflation won't deter November rate cut - economists
Contact in talks on 13MW dairy boiler project
Restaurant Brands forecasts 10% growth in FY2020
Domestic inflation rises at fastest annual pace in eight years
16th October 2019 Morning Report
NZ dollar falls against British pound on Brexit hopes, CPI in focus