TRANSPACIFIC SHARES DUMPED ON $41M LOSS
Written on the 20 February 2015 by Nick Nichols
SHARES in waste-collector Transpacific Industries Group (ASX: TPI) were dumped by investors today as the company posted a half-year loss and warned of continued tough conditions ahead.
The company's shares fell as much as 18 per cent in morning trade to a low of 73c, but recovered some ground by noon.
The $41.7 million loss for the six months to the end of December compared with a $158.6 million profit a year earlier.
The result was impacted by $82.7 million in impairments, with most of that related to the Hydrocarbons business which collects, refines and recycles used mineral oils. This division suffered due to lower oil prices impacting on demand.
A further $16.5 million was cut from the bottom line due to Transpacific grounding its truck fleet last August after a crash tragedy involving one of its vehicles in South Australia.
However, Transpacific's underlying profit also fell sharply, sliding 45.3 per cent to $22.8 million. This was attributed to the sale of the Commercial Vehicles and New Zealand business last year.
Revenue for the half year was 5.1 per cent lower at $689.5 million, while EBITDA fell 12.7 per cent to $121.8 million.
Despite the loss Transpacific is paying an interim dividend of 0.7c a share, payable on April 1.
From a divisional perspective, Cleanaway's revenues dipped 2.4 per cent to $456.3 million, matching the fall in underlying EBITDA to $96.2 million. This is due to the fall in municipal collections, a deliberate strategy that Transpacific says is aimed at focusing on contracts that deliver "adequate return on investment".
Transpacific notes that Cleanaway's EBITDA is up 5.5 per cent from the June half-year period.
Revenue in the Industrials division fell 7.2 per cent to $229.1 million, while EBITDA slipped 28.9 per cent to $31.8 million due to weakness in the manufacturing, industrial and resources sector.
Overall, the underlying EBITDA from the Australian waste management businesses is $121.8 million, down 12.7 per cent as revenues fell 4.2 per cent to $689.5 million.
CEO Bob Boucher has forecast continued weakness for the Industrial division over the rest of the year, but he says the company's acquisition of the Melbourne regional landfill business in December is an "integral component" of the company's turnaround strategy.
"The transaction secures our long-term position in the important Melbourne market, will increase our waste internalisation rates and in turn drive enhanced cash flows and returns," Boucher says.
The deal is expected to settle soon after raising no objections from the competition regulator, the ACCC.
Transpacific's turnaround strategy will target price and volume growth, improved landfill capacity, maximised productivity and what it refers to as "tuck-in" acquisitions.
"Over the past six months we have commenced a number of initiatives specifically aimed at delivering on this strategy," says Boucher.
"During the period, we completed pilot programs aimed at increasing volumes and prices in our commercial and industrial solid waste collection markets. The results from these pilot programs have been successful and we are now in the implementation phase of rolling these programs out across the rest of our operations.
"In the coming period we will accelerate the pace of projects that support the four key components of our strategy.
"This will include the next phase of our fleet management processes which have been, and will continue to be, improved following the grounding of our heavy vehicle fleet in August 2014; the aggressive rollout of the sales volume and pricing programs; as well as our system and process improvements.
"These initiatives will result in one-off costs of approximately $14 million in the second half and will lay a solid platform for future growth.
"We will also continue to take a disciplined approach towards the various value adding tuck-in opportunities that are currently under review. Our new procurement program has started to deliver clearly measurable benefits.
"Based on our current forecasts, we do not expect any improvement in market conditions for the remainder of this financial year, particularly in the resources and industrials segments.
"We believe our Cleanaway division will show increased underlying earnings in the second half, which will include part-year earnings from the Melbourne Regional landfill acquisition, however, our Industrials division is expected to continue to experience volatile market conditions with underlying earnings expected to be lower than those reported in the first half."
Author: Nick Nichols