Covanta launches strategic review, appoints new management

By Erin Voegele | November 02, 2020

Covanta Holding Corp. on Oct. 29 announced the launch of a comprehensive strategic review of the company’s operations, growth priorities and capital structures. In the near term, that review is expected to focus on Covanta’s waste-to-energy business.

As part of the changes announced, Covanta’s board also appointed new leadership. Michael Ranger, Covanta’s new president and CEO, will lead the strategic review and its execution. Former president and CEO Stephen Jones is stepping down from his roles at the company, according to Covanta.

A statement released by Covanta indicates the company is a world leader in waste-to-energy, with unparalleled operational capabilities, a portfolio of irreplaceable assets that provide essential services to municipalities and commercial customers, and attractive growth opportunities. Although Covanta’s underlying business continues to perform well, the company’s said its board believes that the value of its assets are not fully reflected in the market today. Covanta said the strategic review serves as an opportunity to explore all options to enhance shareholder value, including assessing plans for each of its business lines and geographies.

During a third quarter earnings call held Oct. 30, Samuel Zell, chairman of the board at Covanta, explained that the changes announced the previous day have laid the foundation for the future of the company.

“The company has pursued several initiatives in recent years, growing our presence overseas, as well as expanding our capabilities in sustainable environmental services, metals recovery and processing, and the continuous improvement in core plant operations,” he said. “These have created value in our business, but the value has not translated into our stock price in a demonstratable fashion. Now is the time in the company's evolution to reassess our strategy, to leverage our strength, to clarify our priorities. Everything will be on the table for review including our asset and operations growth priorities and capital structure.”

Ranger said that at its core, Covanta’s waste-to-energy business is straightforward. “We provide a sustainable environmentally superior alternative to landfill,” he continued. “We operate our facilities safely and reliably. Our fuel supply for generating renewable power is also our largest revenue source. Our assets are irreplaceable and are mutually beneficial customer relationships, especially with our host municipalities are decades long. However, this business has complexities in many areas that need to be assessed, and that will be my near-term focus. We are planning a comprehensive strategic review including operations, cost structure, assets, business lines, and geographies.”

Regarding the strategic review, Ranger said that if the company believes that a course of action will increase shareholder value, Covanta will pursue it. “There are no specific preset expectations for this review, and it has no scheduled end date,” he said. “As we reach conclusion to begin to execute our plans, we will communicate them clearly. As an initial step, we are streamlining and enhancing our executive management team.”

Derek Veenhof has been named chief operating officer and is assuming responsibility for all operations and commercial activities in Covanta’s North American waste-to-energy business. Ranger said the change will drive improved accountability and more efficient decision making.

Owen Michaelson, a Covanta board member located in the U.K., will join the management team early next year as president of Covanta Europe. He will lead the company’s growing business in the U.K.

Also during the earnings call, Bradford Helgeson, executive vice president and chief financial officer of Covanta, provided a brief update of the company’s U.K. waste-to-energy projects. “Construction at the Rookery project continues to progress on schedule and we anticipate commercial operations in 2022,” he said. “At the Earls Gate project, construction has resumed following the COVID-related delays mandated by the Scottish government earlier this year. We'll provide updates on schedule for this project as construction progresses… The Newhurst project is off to an excellent start after only five months of construction and we're very excited about its progress to date. We expect commercial operations at Newhurst in 2023. On the development of the Protos project, we have commenced early works on the site and are in the final stages of the project financing process. We're still targeting financial close at this project by year end.

“In summary, our very promising growth activities in the U.K. continues to move forward and our development team is focused on additional earlier stage projects to build our pipeline,” he added. “We hope to be in a position to share details on new opportunities as they progress in coming quarters.”

Covanta reported third quarter revenue of $491 million, up from $465 million during the same period of last year. Net income was $5 million, down from $14 million. Adjusted EBITDA reached $128 million, up from $125 million reported for the same period of 2019.