Cautionary Statement Regarding Forward-Looking Statements

Transcription

1 Investor Relations Presentation March 2009

2 Cautionary Statement Regarding Forward-Looking Statements This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 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.

3 Introduction to Covanta World s largest owner/operator of Energy-from-Waste (EfW) facilities EfW Business serves two key markets: Waste Disposal Superior sustainable alternative to landfills; cleaner & preserves open spaces Generation of Clean, Renewable Energy Entire process results in net GhG reductions Complementary businesses include Biomass and other renewable energy generation Waste procurement and transfer stations

4 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 Growth: portfolio optimization, expansion and greenfield projects and M&A opportunities

5 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 produce electricity for sale Metals are retrieved and recycled Ash residue is buried or recycled for use in construction and road building applications

6 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

7 Global Drivers for EfW Increasing waste generation population growth & urbanization Landfill capacity constraints; legislative directives to reduce landfill usage Desire to improve energy security Electricity demand growing Fossil fuel reserves being depleted Increasing demand for renewable power generation Growing attention to climate change; desire to reduce greenhouse gas emissions Creation of green jobs

8 Global Waste Management EfW 0.2 Billion tons Recycling 0.5 Billion tons Landfill 1.2 Billion tons Landfill Recycling/ Composting EfW U.S. Denmark Sweden Netherlands Germany Average Italy U.K. Ireland Japan Taiwan Singapore China U.S. 90 EfW facilities Western Europe 400 EfW facilities Asia 300 EfW facilities

9 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!

10 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

11 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

12 U.S. 85% of CVA Revenues Handle over half of U.S. EfW volume (16 of 30 million tons) or 5% of postrecycled MSW Produce almost 10% of America s non-hydro renewable electricity enough to power over a million homes Operate in 18 states, concentrated in the densely populated Northeast 35 EfW; 8 biomass, 5 landfill gas & 2 hydro facilities Covanta EfW Facility Locations by State Annual Tons Processed by State Other 6% MD 4% IN 4% MI 6% HI 4% NY 18% NJ 10% Covanta CT 8% PA 10% VA 9% FL 8% MA 13%

13 Upside When Economy Rebounds Increasing Exposure to Energy Markets 1.5 million MW/HR equivalent million MW/HR equivalent 2010 Scrap Metal Recycling Prices currently depressed About 1,000 tons/day recovered and sold 2008 revenue: 3Q = $17M vs. 4Q = $6M Merchant Waste Disposal Capacity About 2.5 million tons per year Strategic locations near major population centers New capacity difficult to site and permit

14 Typical EfW Contract Structures Tip fee 13 Facilities Vast majority of the facilities owned by Covanta Covanta receives per ton fee Typically collect 100% of energy revenue and responsible for project debt service and all other costs Service Fee 11 Covanta Owned/Operated Facilities Annual service fee to operate and maintain facility Production incentives plus percentage of energy revenue Project debt service and other cost pass-throughs to client Facility capacity dedicated to one client Service Fee - 11 Covanta Operated Facilities Annual service fee to operate and maintain facility Production incentives plus percentage of energy revenue

15 Contract Rollovers Excellent Track Record Successfully extended 12 out of 12 waste contracts Near term outlook Two Electricity Sales Contracts End This Year Hempstead and Union About one million MW-Hr production Currently Above Market Wallingford converts from Service to Tip fee in 2010 Through 2011; four contracts scheduled to expire Two service fee owned Two service fee operated

16 North American Initiatives Expansions of existing EfW facilities Florida Hawaii New York Pursuing greenfield EfW projects M&A Activities EfW Biomass facilities Transfer stations Other

17 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 Stimulus bill extended PTC s for new EfW 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

18 Growth Drivers Europe 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 tip fees (>$100 per ton of MSW), taxes and electricity rates Additional opportunities in continental Europe

19 UK/Ireland EfW Initiatives Dublin: 600,000 tonne per year EfW facility million construction cost Begin construction in 2009; operations year B-O-O-T with Dublin City Council Tip fee type arrangement with merchant capacity Artist s Rendering - Dublin

20 UK/Ireland EfW Initiatives (Cont d) Competitive PFI Bids Many opportunities; most decisions a year away Covanta short listed on several bids Merchant Developments Merseyside 550,000 TPY Wales 750,000 TPY Long lead time; each project holds meaningful potential

21 Growth Drivers Asia/Pacific China opportunity many facilities, but each with smaller economic impact cities with population of 1 million + Annually generating 280 million tons of waste (similar to U.S. market) Approximately 2% 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

22 China Initiatives Pursue EfW opportunities with strong local partners JVs - Chongqing Iron & Steel and Guangzhou Development Group Currently own stakes in two 1,200 metric tpd EfW facilities via JVs Increasing one to majority ownership (Fuzhou) Construction beginning on new 1,800 metric tpd facility in Chengdu SanFeng Covanta Tongqing EfW Plant Chongqing, China

23 Stable business model Attractive Economics Long-term contracted revenue stream Creditworthy clients municipalities and utilities High margins & low maintenance capital expenditure Annual maintenance capex: $60 million (<4% of revenue) Strong operating cash flow to fund growth 2008 operating cash flow: $403 million 2009 scheduled project debt payments of $169 million (with approximately $35 million funded from restricted cash) Strong balance sheet Borrowing capacity increasing as facilities become debt-free

24 Financial Summary Revenues $1.66 billion $1.43 billion Adjusted EBITDA (1) $574 million $549 million Operating Cash Flow Net Income Diluted EPS $403 million $139 million $0.90 $364 million $131 million $0.85 (1) Non-GAAP financial measure Please see fourth quarter 2008 press release for a discussion of using Non-GAAP financial measures and calculating Adjusted EBITDA.

25 Consistent Financial Performance and Growth $1,700 Revenues $1,664 ($ in millions) $1,500 $1,300 $1,100 $900 $700 $500 $300 $1,269 $1,433 $

26 Consistent Financial Performance and Growth Operating Cash Flow (1) ($ in millions) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 $403 $364 $ (1) Operating Cash Flow is defined as the GAAP measure Cash Flow Provided by Operating Activities.

27 Consistent Financial Performance and Growth $700 Adjusted EBITDA (1) $650 ($ in millions) $600 $550 $542 $549 $574 $500 $450 $ (1) Non-GAAP financial measure - Please see fourth quarter 2008 press release for a discussion of using Non-GAAP financial measures and calculating Adjusted EBITDA.

28 2009 Guidance (1) Operating Cash Flow: $325 to $375 million Adjusted EBITDA (2): $500 to $540 million Diluted EPS: $0.75 to $0.90 (1) As of February 26, This information is not being reaffirmed or updated as of the current date. (2) Please see fourth quarter 2008 press release for a discussion of using Non-GAAP financial measures and calculating Adjusted EBITDA.

29 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 Growth: portfolio optimization, expansions and greenfield projects and M&A opportunities

30 Reconciliation - Cash Flow: Adjusted EBITDA (In millions) Full Year 2007 Full Year 2008 Full Year Estimated 2009 (1) Cash Flow Provided by Operating Activities $364 $403 $325 - $375 Debt service Amortization of debt premium and deferred financing costs Other Adjusted EBITDA (2) $549 $574 $500 - $540 (1) As of February 26, This information is not being reaffirmed or updated as of the current date. (2) Please see fourth quarter 2008 press release for a discussion of using Non-GAAP financial measures and calculating Adjusted EBITDA.

31 Computation of Adjusted EBITDA (In millions) Full Year 2007 Full Year 2008 Full Year Estimated 2009 (1) Net Income $131 $139 $117 - $141 Depreciation and amortization expense Debt service Income tax expense EBITDA $470 $526 $465 - $494 Adjustments for non-cash items Loss on extinguishment of debt 32 - Minority interests Adjusted EBITDA (2) $549 $574 $500 - $540 (1) As of February 26, This information is not being reaffirmed or updated as of the current date. (2) Please see fourth quarter 2008 press release for a discussion of using Non-GAAP financial measures and calculating Adjusted EBITDA.