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TRANSCRIPT
Welcome
Alan Katz
Vice President, Investor Relations
2
Safe Harbor and Cautionary Statements
All information included in this Analyst Day presentation is based on continuing operations, unless otherwise noted.
Forward-Looking Statements
Certain statements in this presentation may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended
from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of
Covanta and its subsidiaries, or general industry or broader economic performance in global markets in which Covanta operates or competes, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among
other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "estimate," "project," "may," "will," "would," "could," "should," "seeks," or "scheduled
to," or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being
made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Covanta cautions investors that any
forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially
from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully grow its business as expected or close its announced or
planned acquisitions or projects in development, and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although Covanta believes that its
plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-
looking statements. Covanta's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. The forward-
looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements
whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
Note: All estimates with respect to 2015 and future periods are as of August 12, 2015. Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as
a result of new information, subsequent events or otherwise, unless otherwise required by law.
Non-GAAP Financial Measures
We use a number of different financial measures, both United States generally accepted accounting principles (“GAAP”) and non-GAAP, in assessing the overall performance of our business. The non-
GAAP financial measures of Adjusted EBITDA and Free Cash Flow, as described and used in this Analyst Day presentation, are not intended as a substitute or as an alternative to net income, cash flow
provided by operating activities or diluted earnings per share as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP. In addition,
our non-GAAP financial measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The presentations of Adjusted EBITDA and
Free Cash Flow and Adjusted EPS are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall
performance of its business and those of possible acquisition candidates, and highlight trends in the overall business. In each case, a reconciliation to the nearest GAAP measure is provided.
3
Management Overview
4
Stephen J. Jones
President &
Chief Executive Officer
Brad Helgeson
Executive Vice President &
Chief Financial Officer
Mike de Castro
Executive Vice President,
Supply Chain
Steve Bossotti
Senior Vice President
Covanta Metals Management
Alan Katz
Vice President,
Investor Relations
Matthew Mulcahy
Senior Vice President,
Head of Corporate Development
Derek Veenhof
Executive Vice President,
Sustainable Solutions
Paul Stauder
Senior Vice President,
Sustainable Solutions
Sami Kabbani
Vice President,
Energy
Agenda For The Day
5
Time Topic Presenter / Moderator
8:30 am – 8:40 am Welcome and Overview of Agenda Alan Katz
8:40 am – 9:15 am Strategic Overview Stephen J. Jones
9:15 am – 9:30 am Operations Overview Mike de Castro
9:30 am – 10:00 am State of Waste Derek Veenhof
10:00 am – 10:30 am Client Panel Moderator: Paul Stauder
10:30 am – 10:40 am Coffee Break
10:40 am – 11:05 am Energy Portfolio and Outlook Sami Kabbani
11:05 am – 11:30 am Metals Overview Steve Bossotti
11:30 am – 11:50 am Corporate Development – Business Growth Strategy Matthew Mulcahy
11:50 am – 12:20 pm Financial Review Brad Helgeson
12:20 pm – 12:25 pm Closing Remarks Stephen J. Jones
12:25 pm – 12:35 pm Break & Pick-Up Lunch
12:35 pm – 2:00 pm Panel Q&A
Key Questions for Today
6
Where are Covanta’s growth opportunities?
How are the core operations running? Discuss risks and opportunities around the core business.
Why is Covanta at an inflection point? Why will your performance in the future be
greater than in the past?
How will Covanta manage its commodity risk moving
forward?
Where are the global EfWopportunities today and how will you participate?
Are there any risks to the dividend? If no risks, why not?
Thank you for attending and we welcome your feedback
7
8
Strategic Overview
Stephen J. Jones
President & Chief Executive Officer
WHY ENERGY-FROM-WASTE? BENEFITS OF EfW
THE GLOBAL STATE OF EfW – ADDRESSABLE MARKETS
COMPANY OVERVIEW – FACTS AND FIGURES
CEO VISION – THE FIRST 200 DAYS IN OFFICE
A FOCUS ON GROWTH – COST EFFICIENCIES AND PROCESS IMPROVEMENT INITIATIVES
Discussion Topics
9
What is the Best Way to Address Waste?
10
The European Environment Agency and the U.S. EPA have both concluded that following
the waste management hierarchy generally maximizes energy savings
and minimizes greenhouse gas (GHG) emissions
REDUCE
REUSE
RECYCLE
RECOVER / ENERGY-FROM-WASTE
DISPOSE / LANDFILL
MOST DESIRABLE
LEAST DESIRABLE
EfW is Sustainable Waste Disposal
11
• Landfills are a major source of man-made methane
• Methane is 28 – 35x more potent than carbon dioxide over 100 years
• Non-sustainable use of land
• Renewable energy generation from landfills: ~65 kWh per ton of waste
• 90% reduction of waste in volume
• Clean energy generation
• Recovers metals for recycling
• Offsets on average one ton of carbon dioxide equivalent for each ton of waste processed
• Renewable energy generation from EfW: ~500 kWh per ton of waste
LANDFILL
EfW
TWO CHOICES FOR POST-RECYCLED WASTE
EfW produces over 9 times
the energy per ton compared
to landfills
And EfW is the Only Power Source Which Reduces GHGs
12
Sources: Sathaye et al. (2011) “Renewable Energy in the Context of Sustainable Development"; NREL Life Cycle Assessment Harmonization Results and Findings webpage, accessed 8/2015; U.S. EPA, NC State University, RTI International (2014) MSW Decision Support Tool.
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Coal Natural Gas Nuclear Wind Solar (PV) EfW
Life
cycl
e G
HG
Em
issi
on
s (T
on
CO
2e
/ M
Wh
)
EfW reduces GHG emissions when including avoided
landfill CH4 emissions
ELECTRICITY SOURCES: GHG COMPARISON
EfW
The U.S. is Lagging in EfW
13
U.S. Germany Austria Sweden EU 27 Avg.
Italy UK Ireland Singapore Japan Taiwan China
U.S.89 facilities
31M TPY
Europe518 facilities
101M TPY
Asia1,554 facilities
139M TPY
Landfilling
Recycling /Composting
EfW
EfW IS USED EXTENSIVELY WORLDWIDE
Source: ecoprog 2013Note: “TPY” is Tonnes per Year
(% of Municipal Solid Waste (MSW))
But EfW is Growing Globally
14
• Growth is outside of the U.S.
– International geographies support EfW as a sustainable waste and renewable power source
Data partly estimated up to 2013; 2014 onwards forecasted Source: ecoprog
0
50
100
150
200
250
300
350
400
450
-
500
1,000
1,500
2,000
2,500
3,000
2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F
Capacity (M TPY)# Facilities
Capacity (million tonnes / yr) # Facilities in Operation
Environmental Regulations Impacting Covanta
15
Direct / Indirect RuleImplementation
DateDescription Impact for CVA
Direct Clean Power Plan State plans due Summer 2016
States must develop a plan to reduce CO2 in existing coal power plants or increase renewable energy production and electric energy efficiency
Positive
IndirectMercury and Air Toxic Standards
Currently in effectEPA rule establishing national limits on the amount of mercury, acid gases, and other toxic pollution that power plants (e.g., coal and oil-fired) can emit
Positive
IndirectCross State Air Pollution Rule
Currently in effect
EPA rule requiring states to significantly improve air quality by reducing power plant emissions (SO2 and NOx) that contribute to ozone and / or fine particle pollution in other states
Positive
IndirectCarbon Pollution Standard for New Power Plants
ImmediatelyEPA rule setting standards of performance for new affected fossil fuel-fired electric utility steam generating units and stationary combustion turbines
Positive
DirectMunicipal Waste Combustor MACT
~2020 – 2022EPA is conducting a technical and residual risk review of MACT standards established in 1995 and 2005
No impact to negative impact
Covanta by the Numbers
16
30+ year operating history
41 EfW facilities in 18 states / provinces
(24 owned and 17 operated)
3,500 employees
110+ boilers
50+ turbine generators
20 million tons of waste processed
10 million MWh of power generated
500,000 gross tons of metal recovered
20 million tons of CO2 equivalent offset
OVERVIEW OF ASSETS AND ANNUAL OPERATIONS
We are the largest EfW operator in the world
Covanta is the EfW Leader
17
• CVA operates ~70% of the EfW capacity in the U.S.
• World’s largest EfW operator
• Focused on asset and facility-network optimization; existing EfW facilities also positioned for expansion
Corporate Headquarters
EfW LocationsTransfer Station LocationsTSD Locations
Initial Thoughts: First 200 Days as CEO
18
• Operating capabilities and experience
• Market knowledge
• Reputation as global EfW leader
• Strong client relationships
How will we leverage our strengths and opportunities?
to create shareholder value?
STRENGTHS:
• Limited greenfield
opportunities in U.S.
• Decentralized culture
CHALLENGES:
• Potential U.S. regulation
• Commodity market exposure
• EfW growth in global markets
OPPORTUNITIES:
Maximizing Value: Strategic Objectives
Current Business
• Consistent operating performance
– Safety and environmental
excellence
– Facility availability and
production
– Investment in long-term facility
performance
• Extending long-term contracts
• Cost efficiencies and process
improvement
Long-Term Growth
Maximize Shareholder Value
• Execute on new projects
– Dublin, NYC MTS contract, Pinellas
• Organic growth
– Expand profiled waste /
environmental solutions business
– Metal recovery
• Pursue strategic investment
opportunities
– Acquisitions and new projects
– North America, Europe, Asia
Artist Rendering Dublin EfW facility
Liquid Waste Processing
NYC Waste Transport via Barge
Non-Ferrous Metal Recovery System
19
How Will We Pursue Growth?
20
Leverage productivity improvement methodologies and cost efficiency initiatives
Efficient business development
Opportunistic M&A
Continued organic growth investment
Disciplined approach – Focus on Free Cash Flow
Leveraging LEAN / Six Sigma (LSS) to Improve Performance
21
LSS program: Find variation and focus on finding / eliminating waste to
improve value
Our Goal: Limit operating waste throughout the organization and find additional revenue opportunities
How to do this:
1. Repeat best-case performance on a regular basis
2. Analyze which plants have the greatest amount of variability between best and worst performance
(seasonally / monthly / daily) and then reduce it
3. Reduce variation to bring the system under tight control, then act to raise the performance bar
Which plants have the greatest performance variability (i.e., the greatest opportunities)?
• Large, tip fee plants with significant market / seasonal fluctuations (our largest contributors)
Our Goal: Getting to the 3rd Quartile
22
Moving to the 3rd quartile would have a significant EBITDA impact
Maximum value (that’s not an outlier)
Q3 - Third quartile (75th percentile) value
Minimum value (that’s not an outlier)
Q1 - First quartile (25th percentile) value
Median (50th percentile) – Middle (top) point
Outlier(s)
**
WE WANT TO GET HERE
25% of the data
25% of the data
25% of the data
25% of the data
First Steps Towards Productivity Gains
23
• Immediate activities
– Organizational changes, more accountability, best-in-class functions
• Plant-level assessments
• Accelerate use of low-cost country sourcing
• LSS
– Looking at both revenue and cost opportunities
– Methodology works well in large plant operating environment – “stable operations”
THERE’S MORE TO COME…
We’ll have updates as we go but this could be big. Best in class operations can achieve a 3 - 5% annual reduction in the cost stack from LSS
Summary
24
• EfW is an environmentally superior technology
• International growth of EfW shows a large addressable
market for our services
• Covanta is a proven leader in EfW and has a strong
operating and service reputation
• We see exciting organic growth opportunities leveraging
current assets
• Process improvement and cost efficiencies will add further value
• Capital allocation policy will support growth and further enhance shareholder value
Thank you.
25
Operations Overview
Mike de Castro
Executive Vice President, Supply Chain
26
Discussion Topics
COVANTA’S OPERATIONS PHILOSOPHY
EfW PROJECT UPDATE
HEALTH AND SAFETY ACHIEVEMENTS
ENVIRONMENTAL PERFORMANCE
PROCESSING PERFORMANCE AND AVAILABILITY
TURBINE GENERATOR AVAILABILITY
MAINTENANCE PROGRAM
27
Focused on Operating Excellence for All Stakeholders
28
Our Goals
• The safest possible working conditions
• Environmental excellence
• World class operations and maintenance
• Total customer satisfaction
• Shareholder value
• Complex operating system with diverse assets
10+ different combustion technologies
• Continued focus on the performance and reliability of Covanta’s / client’s operating assets
• Technical standards compliance remains the foundation of our approach
Safety Excellence
EnvironmentalExcellence
World Class Operations & Maintenance
Total Stakeholder Satisfaction
110+ EfWCombustion
Units
100+ Overhead
Cranes
50+ EfW
Turbine Generators
Safety is Our First Priority
PROACTIVE CONTINUOUS IMPROVEMENT SOLID WASTE INDUSTRY COMPARISON
Industry NAICS Code (1) 2014 Total Recordable Cases
SW Collection 562111 6.4
SW Landfill 562212 5.3
SW Combustors (EfW) 562213 1.8
Covanta N / A 1.1
0.00
2.00
4.00
6.00
2011 2012 2013 2014 2015
Covanta Total Recordable Cases
BLS Total Recordable Cases SW Combustors (EfW)OSHA VPP STAR worksites
Currently 39 facilities in program
CVA CONSISTENTLY OUTPERFORMS
STEP-UP ProgramSafety Leadership TrainingISNetWorld Contractor QualificationCompanywide Safety Power Talks
OUR GOAL… Continued World-Class
Safety Culture 1) The North American Industry Classification System (NAICS) classifies business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. economy.
29
30.4% 29.9% 25.9% 26.1% 25.4% 26.9%
2009 2010 2011 2012 2013 2014
Operate Well Below Regulatory Limits
Covanta EfW Facility Emissions as a Percentage of Federal Permit Limits (2009 to 2014)
More than 5 years of operation without a single stack test failureOur Goal… Continuous Improvement
“The City is extremely pleased to continue managing our solid waste in an environmentally sustainable manner and generate clean, renewable energy locally.”
Mayor William D. Euille City of Alexandria, VA
CLEAN AIR Technology Award from the
U.S. EPA
2014
30
Plants Process ~20 Million MSW Tons and Generate ~10 Million MWh Annually
Produced over 8.5 million MWh of clean, renewable electricity
– Average Net Energy Recovery ~500 kw/ton
(Million Tons)
Convert ~20 million tons of municipal solid waste domestically into clean renewable energy
NORTH AMERICA EfW REFUSE PROCESSED (1)
15.015.8 17.0
19.0 19.0 18.5 18.4 18.719.6
2007 2008 2009 2010 2011 2012 2013 2014 2015E (2)
1) Excludes liquid waste2) Outlook as of 7/23/2015
NET ELECTRICAL POWER
EXPORT STEAM
Supplied more than 9.8 billon pounds of steam to a variety of industries – Export Steam Plants (6)
31
2014Pinellas Contract & Hudson Valley Exit
2013Camden
Acquisition
2009 / 2010Veolia Acquisition &
Detroit Exit
2012Hartford
Exit
Steady Processing Due to Excellent Availability
90.4%
91.6%91.2%
91.7%92.3% 92.5% 92.3%
2008 2009 2010 2011 2012 2013 2014
2005: 63 Units 2015: 113 Units10+ different combustion technologies
Achieved an average system availability of ~92% domestically
32
NORTH AMERICA EfW AVAILABILITY GROWTH IN NUMBER OF EfW BOILERS
Available92.3%
Scheduled Downtime
4.8%
Unscheduled Downtime
2.9%
Minimal Unscheduled Downtime: Less Than 3%
Causes of Downtime
% of Availability
Unscheduled 2.9%
Boiler 2.4%
Air Pollution Control 0.2%
Other 0.3%
• Plant availability has consistently been above 90%
• Majority of downtime (over 60%) is due to scheduled maintenance
• Primary cause for unscheduled downtime is due to boiler pressure part failure
• ~ 40% of maintenance expense and capex spent on boilers (1)
2014 SYSTEM AVAILABILITY
1) Average percent from 2009 - 2014.
33
Turbine Generator Reliability
• Turbine generator (TG) assets – 51 EfW sets
• Historically high availability faced issues in 2012 / 2013
– Overspeed failure
– Stress corrosion cracking
• Implemented equipment upgrades and proactive inspection and
maintenance programs to address concerns
– Since 2013, completed inspections on more than
75% of turbines
• Resulting efforts improved TG performance, enhanced safety and
strengthened long-term reliability
• ~5% of maintenance expense and capex spent on turbine generators (1)
34
1) Average percent from 2009 - 2014.
GENERATOR
REDUCTION GEAR
TURBINE
97.4% 96.7%
94.6% 95.0%
97.2%
2010 2011 2012 2013 2014
TURBINE GENERATOR AVAILABILITY
Continued Focus on Maintaining Major Assets
• Most plant systems and
components have a > 50 year
useful life
• Proactively maintain and replace
assets as necessary
to ensure a high level of
performance and reliability
• Expected capital requirements
captured in current maintenance
spend run rate expect to
grow with inflation
35
Cranes
Boilers
Turbine Generator
High Energy Piping Air Pollution Control
Electrical Controls & Infrastructure
Rotating Equipment
Building & Structure Cooling Water Systems
No Change to Maintenance Spend Outlook
• 2015 EfW maintenance plan execution on track –
total maintenance spend expected to be towards
lower end of FY 2015E range
‒ 2015 EfW maintenance YTD ~70% complete
• Q2 2015 and 2015E figures reflect reclassification of
capital expenditures at service fee operated facilities
as expense (1)
‒ Impact of $14 million and ~$30 million,
respectively
‒ Total EfW maintenance spend unchanged
TOTAL COMPANY(in millions)
Q2 2014A Q2 2015A 2015E
Plant Maintenance Expense:
North America EfW (1) $59 $81 $260 - $270
Other 3 4
Total $62 $85
Maintenance Capex:
North America EfW (1) $22 $26 $65 - $75
Other 3 3 ~15
Total $25 $29 $80 - $90
Total EfW Maintenance Spend $81 $107 $325 - $345
TRENDS AND OUTLOOK:
36
1) Per adoption of FACB ASC 853 – Service Concession arrangements, effective January 1, 2015. Accounting change does not impact total EfW maintenance spend
TRENDS AND OUTLOOK
Dublin Construction Underway and on Track
• Cornerstone infrastructure to support Irish compliance with EU
waste policy and provide clean, renewable energy
• State-of-the-art 600,000 metric tonne per year, 58 MW facility
• Approximately €500 million total capital investment
• Construction began in 2014 and is expected to be completed in
2017 Financial contribution to begin in late 2017
− 22% complete (1)
− 250,000 total man-hours to date; 250 workforce on site
− 0 Lost Time Accidents
• EPC contract with Hitachi Zosen – world leader in building EfW
facilities under equipment EPC arrangements
1) As of 6/30/2015.
MILESTONE ESTIMATED DATE
Notice to proceed financial close September 2014
HZI Mobilization June 2015
Turbine delivery Q1 - Q2 2016
First refuse fire Q1 - Q2 2017
Operational commencement Q2 - Q3 2017
Performance tests & acceptance Q3 - Q4 2017
37
ARTIST RENDERING OF DUBLIN EfW FACILITY
Dublin Site Aerial
38
A
B
C D
E
A = Site B = Cooling Water
C = Laydown Property (temporary)
D = Additional Laydown Property (temporary)
E = Shellybanks Site (road)
Significant Progress Has Already Been Made in Dublin
39
Show Dublin Time Lapse Video
TRENDS AND OUTLOOK:JUNE 2015TRENDS AND OUTLOOK:PRE-SEPT 2014
Pinellas: Long-Term Contract and 3-Year Construction Project
• 10-year service agreement commenced December
2014 – with two potential 5-year extensions
• County has reserved $150 million for completion of
refurbishment projects by Covanta
– Construction timeline: 2015 – 2018
– Cost-plus basis for construction project
• Major projects include repair or replacement of:
– Combustion unit pressure parts
– Combustion systems – stoker, grates, auxiliary
burners, combustion controls
– Air pollution controls
– Ash residue
– Refuse storage and handling – refuse cranes,
refuse pit
– Electrical, mechanical, instrument, and controls
systems
– Civil / site / buildings
40
Dedicated to Continuous Improvement Across Fleet
• Our goal is world class safety, environmental and operating performance
• Continued commitment to maintaining long-term reliability and performance of our assets through leveraging
operational and maintenance knowledge, best practices and work processes
• Strong focus on plant performance and investment of capital will provide long-term reliability
• Opportunities to improve performance through:
People – Technical training and employee development
Tools – LEAN / Six Sigma, Advanced Controls
Programs – Outage optimization, boiler and TG efficiency, mechanical integrity, strategic sourcing and equipment reliability
41
Thank you.
42
The State of Waste
Derek Veenhof
Executive Vice President, Sustainable Solutions
43
OVERVIEW OF WASTE ORGANIZATION
CUSTOMER MIX
CONTRACT TERMS AND TRANSITIONS
NEW YORK CITY MTS CONTRACT
ENVIRONMENTAL SOLUTIONS OPPORTUNITY
Discussion Topics
44
Structured to Meet Business Needs
• Regional EfW General Managers oversee P&L, asset management and development responsibilities on EfW assets
• Municipal services is focused on waste supply chain assets and logistics management
• Environmental Solutions is profiled waste sales, treatment storage and disposal facilities (TSD), and on-site services
45
Sustainable Solutions
EVP
Regional EfW
General Managers (5)
Municipal Services
(NYC & Transfer Stations)
Environmental Solutions
(Profiled Waste and Related Assets)
• 2015 North America waste asset infrastructure
– 41 Energy from Waste (EfW) facilities, 18 transfer stations, 6 TSD facilities and 4 ash monofills
– Customers deliver waste into our EfW facilities, TSD facilities and transfer stations
– Ash monofills take residue from EfW process
Attractive Footprint
46
Corporate Headquarters
EfW LocationsTransfer Station LocationsTSD Locations
$538$412
$80
~60% of CVA Revenue From Waste and Service
$ Millions
Service Fee
Environmental Solutions
Tip Fee
47
• Primarily derived in North America from sustainable waste offerings to municipal, commercial and industrial customers
• Tip fee and service fee revenue make up ~92% of our waste and service revenue
2014 NORTH AMERICA WASTE AND SERVICE REVENUE: $1.03 BILLION
2014 TOTAL OPERATING REVENUE: $1.68 BILLION
• Waste volumes ~50:50 split between tip fee facilities and
service fee facilities
• Annual contracted waste volumes exceed 80% with a
weighted average term for waste contracts of 7 years
Customer Mix and Contracts Provide Stability
CustomersFacilities
0
5
10
15
20
Tip Fee
Service Fee(operated)
Service Fee(owned)
0
5
10
15
20
Municipal
Commercial
Spot
EnvironmentalSolutions
83% committed disposal capacity
Ton
s in
Mill
ion
s
48
0 5 10 15 20
Huntsville
Lancaster
Harrisburg
Hennepin
York
Montgomery
Kent
Dade
Long Beach
Lee
Pinellas
Pasco
Burnaby
Hillsborough
MacArthur
H-Power
Durham York
Average ~8 Years Remaining on Contracts at Client-Owned Facilities
YearsNote: Based on contract status as of 7/31/15.
49
Average ~6 Years Remaining on Contracts at Covanta-Owned Facilities
* Service Fee (owned) facilities.
Note: Based on contract status as of 7/31/15.
50
Years0 4 8 12 16 20
Camden
Warren
Pittsfield
Lake
Indianapolis
Marion
SE Connecticut
Haverhill
Plymouth
Semass
Springfield
Tulsa
Babylon
Fairfax
Huntington
Alexandria
Delaware Valley
Bristol
Niagara
Essex
Union
Hempstead
Stanislaus
Onondaga*
*
*
*
*
Contract Transitions Represent Opportunity
• Successfully managed past contract headwinds
• Opportunity from tailwinds – we can build from a position of strength today
0
5
10
15
20
2015 2016 2017 2018 2019
Uncommitted Capacity
Committed Capacity
Tons in millions (est.)
51
EXISTING OPERATING EfW ASSETS
• 20 year base contract for providing transportation and disposal services
for two marine transfer stations (Northshore and E91st Street)
– $3 billion revenue contract (over 20 years) for ~800k tpy
– Covanta provides all MSW containers, barges, rail cars and ancillary
equipment plus labor at MTS for loading containers
onto barges
– EfW disposal is provided by Covanta Delaware Valley, PA and
Covanta Niagara, NY
New York City MTS Contract…
52
Marine transfer station
Intermodal facility
Rail transfer facility
Delaware Valley
Niagara
…Progressing Well
• NYC operations for Northshore MTS commenced in
March 2015
– Operations have been progressing satisfactorily
– Exited ramp-up phase, receiving our full service fee
– Niagara rail yard construction proceeding per plan; expecting
full operations by Q4 2015
• E91st Street MTS (pictured) is under active construction
– Awaiting notice to proceed
– Expected completion and startup late 2017
– Ramp up early 2018
53
New York City MTS in Action
54
Primary Factors Driving Tip Fee Pricing
55
• Low inflation environment negates near term benefit
• Long term protection
CPI Escalation
• Spot market needs greatest in low generation periods (winter)
Seasonality of Waste
• Transportation and disposal pressures – positive in Northeast
Transportation and Landfill
Pricing
• Very positive factor on tip fees – Key growth area
Profiled Waste
Environmental Solutions – Current State
• Profiled waste business has consistently shown 10% - 15% revenue growth on solids and liquids
– Doubled business in last five years, organically
56
~850k tons of Profiled Waste
20 million tons EfW annual capacity
Marketable capacityClient capacity
Profiled Waste
Note: Tons include both solid and liquid waste.
Environmental Solutions – Provides Growth Opportunity
• Displacement of additional ~2 million tpy of lower value waste (e.g., spot) enables a market opportunity to create incremental
value of at least $100 million from disposal of profiled waste
• Related services (e.g., on-site services, transportation, industrial recycling) create new growth revenue and profit opportunities
57
Profiled Waste could grow to ~3 million tons
Marketable capacityClient capacity
Profiled Waste
20 million tons EfW annual capacity
CVA Moves Up Waste Hierarchy
• Accentuate Covanta’s core competency and sector leading performance in safety, environmental and
sustainable practices
• Covanta Environmental Solutions’ value proposition is anchored by our unmatched network of EfW facilities
58
REDUCE
REUSE
RECYCLE
RECOVER / ENERGY-FROM-WASTE
DISPOSE / LANDFILL
MOST DESIRABLE
LEAST DESIRABLE
Environmental Solutions Growing Profiled Waste
• Covanta Environmental Solutions team –
“one stop solutions providers”
– 6 Treatment, storage and
disposal facilities
– Sales and customer support
– Environment, health and
safety personnel
– Logistics
– On-site services
59
Environmental Solutions Provides Full Suite of Service Offerings
60
Covanta ServicesInternalization
of Waste Opportunities
Expansion of Service
Opportunities
Move up Waste Hierarchy
De-packaging
Solidification
Shredding
Wastewater treatment
Material recycling and reuse
Professional services
Industrial services (cleaning, spill response, remediation, etc.)
E-waste
Logistics
Environmental Solutions – Assets
• Expand around our existing core EfW assets
– Manufacturing zone preference (auto, consumer goods, pharma)
– Develop a hub-and-spoke – consolidated material to gain efficiencies
61
Corporate Headquarters
EfW LocationsTransfer Station LocationsTSD Locations
CVA Environmental Solutions Provides Significant Growth Opportunity
• Covanta Environmental Solutions is a growth vehicle for Covanta
– EfW footprint is unmatched in North America
– Provides a network for customers requiring thermal destruction and zero landfill services for non-hazardous waste
• Covanta Environmental Solutions can grow to $250 - $300 million revenues via M&A and organic growth
– Internalization displaces MSW and provides new service revenue opportunities
• Highly complementary to our base business
62
Diversified Customer
mix
High Value Wastes
Talented Workforce
Expanded Solids and
Liquids Treatment Capability
Logistics
Focus
On-Site Services
Increase
% of Customer
Spend
New Geography
– More Gates
Thank you.
63
Covanta Client Panel
Paul Stauder
Senior Vice President, Sustainable Solutions
64
Panel Participants
• Jim Warner
– CEO, Lancaster County Solid Waste Authority
• Paul Mauriello
– Deputy Director for Waste Operations, Miami-Dade County Public Works and Waste Management Department
• Michael Jacobsen
– President - JACO Environmental, Inc.
65
Energy Portfolio and Outlook
Sami Kabbani
Vice President, Energy
66
POWER INDUSTRY PRIMER
CURRENT COVANTA EfW ENERGY BUSINESS
RISK MANAGEMENT POLICY
CHALLENGES AND OPPORTUNITIES
Discussion Topics
67
GROWTH PLAN
Changing Industry Environment
68
• Utilities are required to offer long-term Power Purchase Agreements (PPAs) to Qualifying Facilities
‒ Requirement of Public Utility Regulatory Policies Act (PURPA)
• Generally, attractive and predictable avoided-cost pricing
• Limited number of buyers (e.g., utilities)
PAST
• Utilities have limited requirements to purchase
• Highly efficient gas-fired generation and cheap shale gas
• Forward prices are relatively low and expected to be volatile
• Long-term contracts are not generally attractive at this point... with exceptions
• Capacity performance
• Regulation changes (e.g., RPS, Carbon rules (111d), MATS, MACT)
FUTURE
PAST:
PASTFUTURE:
Electric System Requires Real Time Balance Between Supply and Demand
69
GENERATION TRANSMISSION DISTRIBUTION CUSTOMER
ELECTRICITY CANNOT CURRENTLY BE STORED ECONOMICALLY
Power PlantGenerates Electricity
Transformer Steps Up Voltage For Transmission
Transmission Lines Carry Electricity Long Distances
Neighborhood Transformer Steps
Down Voltage
Distribution Lines Carry Electricity to Houses
Transformers on Poles Step Down Electricity Before it Enters Houses
Changing Industry Structure
70
Fed
era
lSt
ate
Generator A
Transmission
Distribution
Customer
Transmission Transmission
Customer
Distribution Distribution
Customer
Generator B Generator C
What is an ISO or Spot Market?
71
Key ISO Functions
1. Ensures system reliability
2. Safely operate the generation and transmission system
3. Ensures equal access to all participants
4. Operates spot markets
– Conduct auctions to match buyers and sellers
– Markets include energy, capacity, ancillary
services, and transmission rights
– Collect and distribute funds
ISOS IN THE UNITED STATESFUTUREPASTISOs IN THE UNITED STATES
Nature of Our Business
72
CONTRACTING APPROACH COVANTA DIFFERENTIATING FACTORS
• Positive fuel cost
• Reliable – 92% availability
• Renewable
• Located in populated “load” pockets
• Electricity: traditional utilities, Cities &
Munis, ISOs
• Steam: Industrial clients, refineries,
chemical, paper, district heating
• RECs: utilities and load serving entities
BASE-LOAD RENEWABLE
ENERGY
DIVERSE CUSTOMER
BASE
WH
OLE
SALE
QUALIFYING FACILITY (QF)
CONTRACT
RENEWABLE CONTRACTS
SPOT MARKET SALES
END-USER SALES
FUTUREPASTCONTRACTING APPROACH CONTRACTING APPROACHFUTUREPASTCOVANTA DIFFERENTIATING FACTORS
Multiple Sources of Energy Revenue
73
TYPICAL EFW MERCHANT PLANT
ENERGY
~80%
REC (1)
~5%
ANCILLARY
<1%~15%
CAPACITY
1) Renewable Energy Credits (REC) accounted for as a contra expense.
During Polar Vortex
Covanta’s Premium Locations in North America
• Covanta’s merchant assets concentrated in the constrained East
74
SPOT MARKET PRICESCOVANTA OPERATIONS
41 EfW Facilities in 16 States and 2 Canadian Provinces
Corporate Headquarters
EfW Locations
Transfer Station Locations
TSD Locations
Balancing Act Between Contracts and Market
• About one third of Covanta’s energy portfolio is contracted in 2019
– Expecting to reduce exposed portfolio as we hedge generation
• Covanta’s portfolio is exposed to the right market areas
– Exposure is concentrated in Eastern PJM and ISO NE
– Both areas are actively traded with large numbers of buyers / sellers
75
2015 2016 2017 2018 2019
PJM 30% 62% 64% 59% 59%
NEPOOL 26% 14% 18% 26% 26%
NYISO 11% 5% 3% 4% 4%
Other 33% 19% 14% 11% 10%
0%
20%
40%
60%
80%
100%
2015 2016 2017 2018 2019
Exposed 1.4 2.0 3.2 4.3 4.4
Hedged 1.3 1.6 0.8 0.1 0.0
Contracted 3.1 2.9 2.4 2.1 2.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0CONTRACTING APPROACH COVANTA DIFFERENTIATING FACTORSFUTUREPASTCovanta’s EfW Portfolio – in million MWh CONTRACTING APPROACHFUTUREPASTCovanta’s Exposed EfW Position by Market Area
Drivers of PJM New Capacity Market
• Two extreme winters – no generation capacity
– 40 GWs were out-of-service during the peak of the
Polar Vortex
– Many plants did not have adequate gas supply service
– Generation was unable to provide power when
needed by PJM
– PJM was paying for capacity that did not perform
• The new market is designed to increase generator reliability
– Targeted performance requirements during
emergency events
– Very heavy penalties for non-performance
– No excuses, limited Force Majeure exceptions
76
Coal13,700MW34%
Gas Plant Outages9,700MW24%
Natural Gas Interruption
9,300MW23%
Nuclear1,400MW
3%
Other6,100MW
15%
TotalForced Outages
40,200MW(22% Total PJM
Capacity)
Source: PJM
The Emerging PJM Capacity Markets
77
• Performance measured during the summer using an
“averaging” concept
• Penalties are limited to:
‒ Refund of collected or to be
collected revenue
‒ Revenue loss, no out-of-pocket
‒ Plant deration; less capacity to
sell in future auctions
• Historically, the penalties were a non-issue for Covanta
CURRENT CAPACITY (BASE)
• Performance
‒ Measured by the hour
‒ During PJM-declared Emergency Events
• Penalties:
‒ Hourly penalty of $1,896 to $3,600/MWh
for each MW missed
‒ Penalty is capped at 1.5 times the offer
cap, ranging from $85K to $146K for each
missed MW
‒ Possible limited mitigation mechanisms
and over performance bonus
TRANSITION
NEW CAPACITY PERFORMANCE (CP)
Covanta is in High Priced Capacity Markets
Covanta’s position – 2016 / 2017 example
• Position is concentrated in the northeastern part of PJM where prices are high – in the $119 to $219/MW per day
• Only one location in the RTO region where prices are low $59
• Similar story in 2017 / 2018
78
Managing Our Market Risk Exposure
79
OBJECTIVE PROGRAM OVERVIEW
KEY OBJECTIVES
• Balance risk / reward
• Reduce downside, preserve upside
• Take risk view, not market view
• Designed to manage EfW exposure and reduce
revenue volatility for the next 12, 24, and 36
month periods
• Hedging is required when calculated risk exceeds
a pre-established thresholds
• Asset-based hedging, no speculative positions
permitted
• Operational risks mitigated by locational /
regional hedge % limits
• Various financial instruments are used to
implement required hedging (vanilla swaps,
option, collars, etc.)
Energy Portfolio Challenges and Opportunities
80
CHALLENGES OPPORTUNITIES
• Low energy price environment driven by ample
gas supply
• Limited long-term contract opportunities
• Challenging ISO and customer access rules
• Intermittent renewables creating difficulties to
control the grid stability
• Changing regulations
‒ EPA’s carbon regulations
‒ PURPA and avoided cost calculations
• Increasing demand for energy
‒ Recovering demand
‒ Return of energy-intensive industry
‒ Exports – LNG & Mexico
• New class of customers interested in stable / non-
fossil fuel pricing
• Emerging opportunities
‒ Distributed generation / microgrid
‒ Stable baseload renewable generation
‒ Flexible generation / storage
‒ Net metering
‒ New regulations
Evaluating / Pursuing New Growth Avenues
81
• Expand thermal energy sales
• Pursue favorable regulations
• Implement new energy efficiency program
• Expanded energy risk management program
• Flexible generation
• Energy storage
• Renewable generation
GET CLOSER TO CUSTOMER
ASSET OPTIMIZATION
SITE OPTIMIZATION
• Targeted marketing
• Leverage client relations
• Pursue high value opportunities
Thank you.
82
Metals Overview
Steve Bossotti
Senior Vice President, Covanta Metals Management
83
MARKET OVERVIEW AND PRICE DYNAMICS
HISTORICAL RECOVERY AND PERFORMANCE
INVESTMENTS BY METAL CATEGORY
METAL PROCESSING OPPORTUNITY
ENHANCED METALS OPPORTUNITY
ASH REUSE ACTIVITY
Discussion Topics
84
Domestic Steel Industry Summary View
85
CVA / EfW
Feeder Yards
Auto Shred
Industrial Scrap
Broker
China Turkey India
TaiwanSouth Korea
Mill:BOF / EAF
Export
Sorting /Secondary Processors
GENERATORS SORTERS / PROCESSORS
Finished Steel
Products
MILLS END PRODUCTSMARKETERS
Two methods for steel making: EAF (scrap) & BOF (iron ore)
Drivers of Ferrous Scrap Prices
Turkey
Brazil
• U.S. mill operating rates
(pricing power occurs above 75%)
• USD FX
• Value of iron ore
• Price points of imported steel billet
and semi-finished steel
• Availability of obsolete scrap
South Korea
Russia
China
Canada
Majority of steel produced from iron ore
86
At least 60% of U.S. steel production depends on HMS
Ferrous Pricing Driven by U.S. Dollar and Iron Ore
• Ferrous (Fe) market pricing down 40% since 2011; negatively correlated to USD
• At current Heavy Melt Steel (HMS) pricing our projects have ~5x EBITDA multiple
87
AVG $230
AVG $165
IRON ORE VS. HEAVY MELT STEEL GAP (2009-2015)
Drivers of Non-Ferrous Scrap Prices
88
USD INDEX VS. ALUMINUM VALUE (2010-2015)
Investments Still Make Sense Despite Market Price Volatility
• 40+ projects completed in 3 years; average investment return mid-teens
– Non-Ferrous (Non-Fe) gross tons up 126%; Ferrous gross tons up 16%
• Improved recovery results in
equivalent weight:
– 16 cars per week / facility
across the entire fleet
– 25,000 additional aluminum
cans per week
89
Zero Cost of Goods: Capturing
these metal tons offsets
approximately $16 million in
disposal cost
350,000
375,000
400,000
425,000
450,000
475,000
500,000
525,000
2011 2012 2013 2014 2015EFerrous Non-Ferrous
GROSS METAL RECOVERY SINCE PROGRAM INCEPTION
Investments Leading to Significant Recovery Increase
90
NON-FERROUS RECOVERY IMPROVEMENT VS. 2010(BASED ON GROSS TONS RECOVERED)
FERROUS RECOVERY IMPROVEMENT VS. 2010(BASED ON GROSS TONS RECOVERED)
-
5,000
10,000
15,000
20,000
25,000
30,000
Ferrous Tons Recovery from Investments
2010 2014 Incremental
-
1,000
2,000
3,000
4,000
5,000
6,000
Non-Ferrous Tons Recovery from Investments
2010 2014 Incremental
Operating Improvements Also Adding Meaningful Growth
91
NON-FERROUS RECOVERY IMPROVEMENT VS. 2010(BASED ON GROSS TONS RECOVERED)
FERROUS RECOVERY IMPROVEMENT VS. 2010(BASED ON GROSS TONS RECOVERED)
-
5,000
10,000
15,000
20,000
25,000
Ferrous Tons Recovery from Operational
2010 2014 Incremental
-
500
1,000
1,500
2,000
2,500
Non-Ferrous Tons Recovery from Operational
2010 2014 Incremental
Higher Recovery Crucial to Offsetting Impact from Price
• Metals market pricing driving $25 million decline in 2015
• Absent growth in recovery, revenues would have been down an additional $28 million + $4 million operating cost
92
$70
$95
$120
350,000
400,000
450,000
500,000
2011 2012 2013 2014 2015E
Ferrous Non-Ferrous Gross Metals Revenue ($ in Millions)
COVANTA METALS MANAGEMENT: GROSS METAL RECOVERY VS. REVENUE
Executing on Covanta Metals Management Strategy
93
1. “Base” project plan rollout
(8th inning)
• 40+ projects
implemented to date
• Created -3/8” non-ferrous
products
• 6 to 12 additional systems
opportunities
• Continue to learn and
optimize our operations
2. Processing metal
(5th inning)
• “Process” our own
ferrous to improve
quality of buyers
• Create margin through
separation of scrap grades
• Evaluation of non-ferrous
metal composition for
opportunity to create
higher grade commodities
3. Enhanced metal
(3rd inning)
• Focus on stainless steel
recovery and other “fine”
metals
• Initial full scale pilot
system installed and
being evaluated
• Design and financial
justification of 3 to 4
additional systems within
the next 12 months
4. Ash reuse
(1st inning)
• In house expertise
established
• Evaluating technology to
create aggregate fractions
for reuse in road bed and
several other applications
Create a More Sustainable Model for Metal Tons
94
Ferrous Upgrading Facility, Philadelphia Area – Q3 2015
• Upgrade ferrous metal to insure saleable product in all market conditions
• Better product will yield better quality buyers and market diversification
• Create bulk export and rail capabilities
• Evaluation underway for other key Ferrous market areas
• Similar evaluation is underway to maximize Non-Ferrous value as well
OBJECTIVES:
NEXT STEPS:
Implement Enhanced Metals Project Plan: Stainless Steel
• Hempstead enhanced recovery
system
– First in-line system of
its kind in EfW
– System started up in
Q1 2015
(< 5 months execution)
– First load of stainless steel
(mixed metal concentrate)
shipped in March
– System tuning is an ongoing
evolution to understand
metal compositional value
• Exploring additional opportunities
in various facilities
95
SENSOR SORTER TECHNOLOGY
Focus on Extracting Higher Quality Non-Ferrous Metal
96
Heavy red metals
Light white metals
Coins
Jewelry
Stainless
Mixed non-ferrous
Ash Reuse Efforts
97
Dedicated team for ash reuse
Added expertise in engineering and analysis to work with R&D
Intensive ash reuse sampling program
Analyzing chemical and geotechnical properties of ash by different fraction sizes and mapping seasonal variability
Experimentation
Conducting experiments internally and with third party organizations on reuse opportunities by fraction size based on knowledge gained from sampling program
Technology evaluation
Evaluating technology worldwide to develop best processes for EfW facilities and / or regional facilities
Testing / Evaluation of Ash Reuse
98
Experimenting with multiple ash reuse opportunities. Some notable options include:
Investigating use of bottom ash or a bottom
ash / fly ash mixture for use as cement kiln
feedstock in the production of Portland Cement
Experimenting with the use of select fractions of our bottom
ash as a substitute for natural sand and gravel (aggregate) in
the production of concrete blocks
Cement ConcreteAggregate
ASH
Summary
1) As of 6/30/2015
• Significantly increased metal recovery through new systems and operational improvements since 2011
– Invested $70 million to date(1) – at attractive rate of return
– Some additional system improvement and installation opportunities exist
• Higher recovery rates helping to offset market price decline
• Actively pursuing additional opportunities on the near and long-term horizon
– Metal processing: facility in place in greater Philadelphia exploring implementation at other plants
– Enhanced metals recovery system in place and processing at Hempstead evaluating other opportunities
– Ash reuse added personnel team is in experimentation phase
99
Thank you.
100
Corporate DevelopmentBusiness Growth Strategy
Matthew Mulcahy
Senior Vice President, Head of Corporate Development
101
GO-TO-MARKET STRATEGY
EfW MARKET DRIVERS
MARKET FOCUS
CASE STUDIES AND PIPELINE
ENHANCED METALS OPPORTUNITY
Discussion Topics
102
Go-to-Market Strategy
PROJECT DEVELOPMENT
M&A TUCK-INS
Portfolio Approachto Growth
PROJECTENHANCEMENTS
LARGE SCALEM&A
103
Multi-Pronged Approach to M&A
• Single-asset EfW plants as they become available
• Support growth of Covanta Environmental Solutions
• Increased utilization of Covanta’s existing network of infrastructure assets
• Disciplined pursuit of larger EfW assets and portfolios
TUCK-INS:
LARGE SCALE:
104
EfW Market Drivers
FAVORABLE GOVERNMENT POLICIES
WASTE AND LANDFILL DIVERSIONENVIRONMENTALRENEWABLE ENERGY
SHORTAGE OF LAND / LANDFILL SPACE
EUROPEISLAND NATIONS
CITIESURBANIZATION
LARGE URBAN POPULATIONSHEAVY INDUSTRY
AGING INTERNATIONAL FACILITIES
MANY FACILITIES ARE 40+ YEARS OLDLOW EFFICIENCY AND OUTDATED ENVIRONMENTAL CONTROL MECHANISMS
105
Where We Play Matters
Strong relationship between waste market maturity and GDP per capita
Increasing Per Capita GDP
Source: BofA Merrill Lynch
Incr
eas
ing
Envi
ron
me
nta
lR
egu
lati
on
s &
Eff
ect
ive
En
forc
em
en
t
• Majority of waste is collected
• Some source segregation
• Some regulations on solid waste management
Market Maturity Level
DEVELOPINGECONOMIESHygiene Management
DEVELOPINGWASTE MARKETSEnvironmental impacts Management
MATUREWASTE MARKETSResource Management
• Virtually all waste generated is collected and value is maximized
• Source segregation of materials; toxic materials disposed of separately
• Stringent regulations on solid waste management
• Collecting as much waste as possible, but limited by budget
• Lack of segregation of materials (“everything” in one bag)
• Little to no regulations around solid waste management
CVA “SWEET SPOT”
106
Selective Market Focus
Waste Market Maturity
Addressable Market
Government Support
Growth Potential to 2020
Market Accessibility
Investor Friendliness
Assessment Criteria ASIA (DEVELOPED)
ASIA (DEVELOPING)
AUSTRALIA & NEW ZEALAND
EUROPE (WESTERN)
EUROPE (EASTERN)
MIDDLE EAST & AFRICA
NORTH AMERICA
CENTRAL & SOUTH
AMERICA
JapanChina
SingaporeTaiwan
Representative Markets
IndiaIndonesiaThailandVietnam
AustraliaNew Zealand
Pacific Islands
UKIreland
GermanySpain
TurkeyPolandRussia
Balkans
GCCNigeriaEgypt
S. Africa
USCanada
BrazilMexico
Island nations
ATTRACTIVENESS
107
M&A
Sole Development
Development w/ Partners
-
-
-
-
-
PR
EFER
RED
A
PP
RO
AC
H
Country Capacity (1)
1 China 67.3
2 Japan 64.0
3 USA 32.8
4 Germany 27.4
5 France 17.1
6 UK 8.9
7 Italy 8.2
8 Taiwan 7.4
9 Netherlands 7.3
10 Sweden 6.3
Asia 51%
Europe 37%
North America 12%
Africa & Middle East < 1%
Market Concentration
% TOTAL CAPACITY BY REGION TOP 10 COUNTRIES BY CAPACITY (M TPY)
1) As of December 2013Source: ecoprog
85% of global EfW capacity concentrated in 10 markets
108
Between 2014 – 2023, major increase in capacity expectedAddition of 400 facilities and 100 million tons per year capacity worldwide
Note: Asia includes Australia and New Zealand. Data partly estimated up to 2013; 2014 onwards forecasted Source: ecoprog.
Europe and Asia Drive Growth
0
50
100
150
200
250
2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F
Capacity (mtnpy)
Africa & Middle East Asia Europe North America South & Central America
Projected Growth
109
Development Timetable Varies by Market
TOTALS 5+ YEARS 7+ YEARS 10+ YEARS
Average Capex (1)
1) For a 1,200 tpd facility; in USD
$ 400M$ 450M$ 120M
NORTH AMERICAWESTERN EUROPECHINA
2+ years
3+ years
3+ years
1+ years
2+ years
3+ years
1+ years
1+ years
2+ years
2+ years1+ years1+ yearsBusiness Development
RFQ / RFPProject Award
Permitting and FinancingNotice to Proceed
ConstructionCommercial Operation
110
• Capitalizing on EU landfill directives
• Waste market growth potential to 2020
• Improving investor climate
• Scheduled to become operational in late 2017
Case Study: Dublin, Ireland
111
Waste Market Maturity
Addressable Market
Government Support
Growth Potential to 2020
Market Accessibility
Investor Friendliness
• Project led by Phoenix Energy
– Local developer
• 400,000 tpy; 35 MW EfW facility in
Perth (Western Australia)
• Covanta to own majority equity in
project and serve as operator
– John Laing and Phoenix Energy
own the balance of equity
• Supported by long-term waste
supply and PPA
Case Study: Perth, Australia
112
Case Studies: Indianapolis (IN) and Huntsville (AL)
• Upgrade and expand existing EfW facility owned by Huntsville
Solid Waste Disposal Authority
• Covanta, as facility operator, will act as lead project manager
• Project driven by increased steam needs by the host (U.S. Army)
• Partnered with client to extend long-term waste agreement
and develop a state-of-the-art residential recycling facility
• ~300,000 tpy facility will process mixed MSW to recover paper, plastics,
and metals using the latest technologies
• Covanta to own and operate
• ~$45 million investment; permitting underway
113
Summary
PORTFOLIO APPROACH TO DRIVE GROWTH
Focused on activities consistent with overall strategy
Tuck-ins and large scale M&A to accelerate growth
Strategic and targeted approach to developing EfW projects
114
Thank you.
115
Financial Review
Brad Helgeson
Executive Vice President & Chief Financial Officer
116
HISTORICAL FINANCIAL PERFORMANCE
BASELINE CASH FLOW UNDERPINS DIVIDEND
FINANCIAL OUTLOOK
CAPITAL ALLOCATION
ENVIRONMENTAL SOLUTIONS OPPORTUNITY
Discussion Topics
117
2011 ContractTransitions
GrowthInvestments
CommodityPrices
ConstructionProjects
Other 2015E
-$55
-$25
+$70-$75
Historical Financial Performance
118
ADJUSTED EBITDA – 2011 vs. 2015E
Overall EBITDA Investment
Multiple of ~6x
$440M
$512M
-$75 +$70 -$55
-$25+$10~+$10
Honolulu vs. Durham-York
Construction Projects
Note: 2015E is midpoint of guidance range as of 7/22/2015.
Contract Transitions
119
• Over $100 million headwind since 2009
– Mark-to-market of 20+ year contracts to current energy and waste market prices
• Service Fee to Tip Fee contract transitions
– Re-contract with municipal client on tip fee basis
– Several variables upon transitions:
▼ Debt service revenue
▲ Revenue sharing
▼ Pass-through costs
• Energy contracts
– Generation transitions to market following original long-term PPA expiration
– 1.6 million MWh of contracts expired over the last 5 years
• Waste Tip Fee contracts
– Certain long-term contracts reset to current waste market – 2014 was key transition year
After 2015, contract transitions approximately net neutral
Growth Investment
ACCRETIVE GROWTH INVESTMENTS HAVE HELPED TO OFFSET CONTRACT TRANSITIONS TO DATE
$ (in millions) EBITDA Multiple ROIC
Metals (1) ~$70 ~5x Mid-teens
NYC MTS Contract ~$150 ~6x Low teens
Dublin EfW Facility ~$550 <9x Mid-teens (levered)
TSD Acquisitions ~$60 ~7x Low to mid-teens
1) Investments made since 2012.
120
• Key ongoing investments:
Operating Efficiently in Low Growth Environment
• While revenue growth has been challenging due to contract transitions and market environment, plants have become more cost efficient
• Total plant operating costs per ton (expense + maintenance capex) are expected to be down nearly 10% over the past 5 years in real terms
$48.90 $49.99 $50.77
$51.80 $52.28 ~$50.25
$48.90 $48.45 $48.18 $48.46 $47.75
~$44.75
2010 2011 2012 2013 2014 2015E
$/T
on
Pro
cess
ed
Nominal $ Real $
~0.5% CAGR
~(2)% CAGR
Cost Efficiency Programs + Outage Optimization = ~$1.50 per ton
Note: • North American EfW operations.• Average CPI of 2.2% from 2010 to 2015E.• Total plant operating costs = plant operating expense (excluding pass-through credits and RECs) + maintenance capex.
121
One Business, Two Cash Flow Streams
1. BASELINE OPERATIONS
Steady, highly predictable cash flow – underpins credit strength and dividend
• Irreplaceable infrastructure assets concentrated in
attractive markets with high barriers to entry
• Highly contracted revenue (>80%)
• Assumes market commodity values only at extreme
low “baseline” levels
2. COMMODITY VALUE SURPLUS
Cash flow with greater volatility – funds opportunistic capital allocation
• Market commodity sales in excess of “baseline” levels
• Commodities extracted from the waste stream are
growing value drivers for Covanta
– Contract transitions increasing CVA’s share of
energy revenue
– Growing metal recovery
122
Commodity Market Value – Volatility Above “Baseline”
• Energy: $2.00 per MMBtu natural gas
• Metal (ferrous): $190 per ton HMS #1 index
• Metal (non-ferrous): $0.40 per lb. Old Sheet and Cast (scrap aluminum) index
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 2015E
Market Energy Price
Baseline Price
ENERGY PRICE PER MWH
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
$450.00
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 2015E
Actual HMS Price
Baseline HMS
FERROUS METAL PRICE PER TON
123
BASELINE LEVELS ASSUMED:
Note: Market Energy Price represents Covanta market portfolio.
Baseline Cash Flow Underpins Dividend
• Covanta does not size dividend based on short-term or volatile cash flows (positive or negative)
• Conservative and long-term view on baseline level of cash flow:
1. Looks through working capital timing and temporary gains / losses
2. Only assumes minimal commodity value at “baseline” levels
Note: “Short-term and Non-recurring Items” includes construction project profit or loss and one-time gains. 2015E Free Cash Flow is midpoint of guidance range.
($ in millions) 2011 2012 2013 2014 2015E
Free Cash Flow $ 298 $ 277 $ 245 $ 240 $ 150
Exclude: Working Capital Changes 7 (21) (33) 5 (35)
Exclude: Short-term and Non-recurring Items 13 23 15 (1) (13)
Exclude: Commodity Value Surplus Above Baseline 95 57 60 87 37
Free Cash Flow Baseline $ 183 $ 218 $ 203 $ 149 $ 161
Current Dividend as % of FCF Baseline 72% 61% 65% 88% 82%
124
Long-Term Outlook: Baseline Operations
125
• Contract transitions approximately net neutral after 2015
• Consistent operating availability / production
• Waste revenue
– Majority of revenue contracted with CPI escalators
– Merchant price drivers: MSW market and profiled
waste growth
• Plant operating costs
– Maintenance spend (expense + capex) in range
around current run rate + inflation
Increased lifecycle investment offset by outage
efficiencies
– Other expenses – assume inflation (+/-)
• Continuous improvement initiatives offer potential upside to
baseline operations
KEY MODEL ASSUMPTIONS:
2016
2017
2018
KEY MODEL ASSUMPTIONS:KEY EVENTS:
▲ Fairfax facility tip fee transition
▲ Durham-York operations
▲ NYC Queens MTS full year
▼ Sale of China assets
▼ PPA expirations in New England
▲ Dublin facility online
▲ NYC Manhattan MTS online
0.00
1.25
2.50
3.75
5.00
0.00
15.00
30.00
45.00
60.00
2014 2015E 2016E 2017E 2018E 2019E 2020E
Long-Term Outlook: Commodity Market Value
126
ENERGY: COVANTA IS POSITIONED TO BENEFIT FROM LONG-TERM ENERGY RECOVERY
FORWARD ENERGY PRICES
200
250
300
350
400
450
Natural Gas ($/MMBtu)
$2.00 $3.54 $5.00
VALUE OF ENERGY PORTFOLIO – 2020
$275 -$325
~$360
$400 -$450
$ M
illio
ns
Notes: • Projected portfolio values based on assumed relationships between natural gas and electricity prices in Covanta markets (primarily PJM East and NEPOOL). • Illustrative only, as natural gas “rule of thumb” can change over time. • ~$45 million of increase in value of energy portfolio (2015E – 2020E) related to service fee to tip fee contract transitions.• Energy portfolio values include capacity revenue.
Baseline Commodity
Value Assumed
Current Forward
Prices
Elec
tric
ity
–P
JM E
ast
($/M
Wh
)
Natural Gas
PJM East
Nat
ura
l Gas
($/M
MB
tu)
Long-Term Outlook: Commodity Market Value (cont’d)
127
METALS: CURRENT PRICING AT SIGNIFICANT DISCOUNT TO HISTORICAL AVERAGES
$36$43
$58$66
$13
$24
1) At midpoint of 2015 outlook.
VALUE OF METAL PORTFOLIO (FE AND NON-FE)
$ M
illio
ns
$36 $43$58 $66
$13
$23
$24$25
0
25
50
75
100
BaselineLevel
Assumed
2015E 10-YearAverage
5-YearAverage
(1)
$49
$66
$82$91
FENon-FE
Balance Sheet Strategy
• Shareholder friendly, but prudent capital allocation and
financial policy
• Committed to maintaining current “4 B” credit ratings profile
• Utilize balance sheet capacity to fund accretive growth
investments opportunistically
• Leverage outlook:
– Anticipate returning to mid 4x range in 2016, excluding
Dublin non-recourse project debt
– Return to ~4x leverage unadjusted by 2018 with full
contribution from Dublin and NYC contract
• Maintain ample liquidity
– ~$425 million available under revolving credit facility
at 6/30/2015
128
$1.96 $2.02 $2.04
$2.27 $2.30
3.8x4.0x
4.3x
5.3x 5.2x
12/31/2012 12/31/2013 12/31/2014 6/30/2015 12/31/2015E
Net Debt Net Debt / Adjusted EBITDA
NET DEBT ($B) AND LEVERAGE RATIOS
~
Growth Investment Outlook
• Existing pipeline of committed investments:
129
• All remaining committed investments (NYC, Essex, Dublin) financed efficiently
(in millions) 2015E Remaining Committed
Organic growth investments $25 $-
New York City MTS contract ~$40 ~$20
Essex County EfW emissions control system ~$35 ~$55
Dublin EfW facility construction $200 - $225 ~$225 - $250
Acquisitions $48 –
Total growth investments ~$350 - $375 ~$325 - $375
Excluding non-recourse financing ~ $200 - $225 $75
Capital Allocation Priorities
130
1. Dividend
• Goal and expectation to grow dividend consistently by growing underlying sustainable cash flow
• Underpinned by baseline Free Cash Flow; anticipate payout at ~50% of overall Free Cash Flow over long-term
• Next priority for cash flow and capital resources if investment meets strict criteria:
‒ Return clearly exceeds cost of capital on risk-adjusted basis
‒ Accretive to Free Cash Flow per share
‒ Consistent with Covanta’s strategy and core competencies
• Cost of capital hurdles:
‒ WACC: ~7%
‒ Cost of Equity: ~9-10%
• Alternative (opportunity cost) for every growth investment
• Repurchased $447 million (18% of outstanding shares) from 2010 to 2013
2. Growth Investment
3. Repurchase Stock
4. Repay Debt
• No plan to pro-actively repay debt near-term given current pipeline of accretive growth investments
Covanta Investment Thesis
• Strong baseline of infrastructure cash flow underpins dividend
– Irreplaceable and highly contracted assets
– ~5% dividend yield
– Targeting annual dividend growth as sustainably grow cash flow
• Significantly levered to long-term commodity price recovery
• Increasing clarity on improving financial results
– Contract transitions largely completed
– Visibility to contribution from new investments
– Upside from continuous improvement initiatives
• Capital allocation strategy to maximize shareholder value
– Opportunities for continued accretive investment
– Alternative is to buy back stock
• “Free option” on regulatory framework that further recognizes benefits of EfW
131
Thank you.
132
Appendices
134
Non-GAAP Reconciliation: Adjusted EBITDA & Free Cash Flow – Continuing Operations
($ in millions) 2011 2012 2013 2014 LTM 6/30/2015 2015E (1)
Net Income (Loss) from Continuing Operations Attributable to Covanta Holding Corporation $93 $136 $43 $(2) $(42)
Operating loss related to Insurance subsidiaries 3 10 2 2 1
Depreciation and amortization expense 192 194 209 211 203
Debt service expense 122 145 159 147 135
Income tax expense 60 31 43 15 (6)
Reversal of uncertain tax positions related to pre-emergence tax matters (24) - - - -
Non-cash liability to pre-petition creditors 15 - - - -
Gain related to trust distribution - - (4) - -
Net (gains) write-offs - (57) 15 64 72
Defined benefit pension plan settlement expense (gain) - 11 (6) - -
Loss on extinguishment of debt 1 3 1 2 2
Gain on sale of business (9) - - - -
Net income (loss) attributable to noncontrolling interests in subsidiaries 5 2 (1) 1 1
Other adjustments:
Debt service billings in excess of revenue recognized 22 9 9 2 1
Severance and reorganization costs - - 2 9 8
Capital type expenditures at service fee operated facilities (2) - - - - 22
Non-cash compensation expense 17 16 15 17 20
Other non-cash items 15 7 7 6 11
Subtotal other adjustments 54 32 33 34 62
Total adjustments 419 371 451 476 470
Adjusted EBITDA $512 $507 $494 $474 $428 $420 - $460
1) As of 7/22/2015.2) Adjustment for impact of adoption of FASB ASC 853 – Service Concession Arrangements in order to provide comparability to prior period results and guidance range.Note: Adjusted EBITDA results provided to reconcile the denominator of the Net Debt / Adjusted EBITDA ratios on slide 137.
135
Non-GAAP Reconciliation: Adjusted EBITDA & Free Cash Flow – Continuing Operations(in millions) 2011 2012 2013 2014 2015E (1)
Adjusted EBITDA $512 $507 $494 $474 $420 - $460
Cash interest payments (101) (112) (123) (121)
Cash taxes (13) (8) (11) (11)
Working capital / other (22) (30) (36) (2)
Cash flow (used in) provided by operating activities from continuing operations $376 $357 $324 $340 $210 - $260
Plus: Cash flow provided by operating activities from insurance subsidiaries 2 5 8 1
Less: Maintenance capital expenditures (80) (85) (87) (101) (80) - (90)
Free Cash Flow $298 $277 $245 $240 $130 - $170
Shares Outstanding End of Period 136 132 130 133
1) As of 7/22/2015.
136
Capitalization Summary
($ in millions) 2012 2013 2014 6/30/2015
Cash and Cash Equivalents $ 234 $ 190 $ 84 $ 66
Restricted Funds (Debt Principal Related) 72 45 86 78
Corporate Debt:
Secured $ 358 $ 404 $ 405 $ 626
Unsecured 1,595 1,617 1,569 1,569
Total Corporate Debt $ 1,953 $ 2,021 $ 1,974 $ 2,195
Project Debt 291 212 225 222
Total Debt (1) $ 2,244 $ 2,233 $ 2,199 $ 2,417
Stockholders’ Equity $ 1,055 $ 906 $ 784 $ 630
Net Debt (2) $ 1,938 $ 1,998 $ 2,029 $ 2,273
Availability under Revolving Credit Facility $ 584 $ 519 $ 693 $ 423
Net Debt / Adjusted EBITDA (3) 3.8x 4.0x 4.3x 5.3x
137
1) Debt balances are presented at principal value, not book value. 2) Net debt is calculated as total principal amount of debt outstanding less cash and cash equivalents and debt service principal-related restricted funds. 3) Ratio is computed for Covanta Holding Corporation. Differs from calculation required under Covanta Energy’s credit facility. See slide 135 for a reconciliation of 2012, 2013,
2014, and LTM Adjusted EBITDA.