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Allied Waste Industries, Inc. at Citigroup Industrial Manufacturing Conference - Final.

Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE

JOHN ZILLMER, CHAIRMAN, CEO, ALLIED WASTE: Thank you very much. Thanks, (Leon), for the introduction. Thanks, everybody, for being here. This is -- if you were here for the last presentation, the room was absolutely filled. I guess the loss of that contract for Boeing is a little more exciting than a little bit of lost revenue on the part of the waste industry. We'll start off talking a little bit about Allied, just giving you some background on the Company and the industry and then talk about how the Company has changed over the last couple of years and how our performance has improved.

The presentation agenda, we'll talk a little bit about our profile and competitive strengths, talk about how we rebuilt the Company and then we'll talk about opportunities ahead for the organization.

Allied's the second largest non-hazardous solid waste Company in the U.S. We have operations that span 124 markets across 37 states and the island of Puerto Rico. We are a vertically integrated Company. We provide collection, transfer, recycling, and disposal services through a network of a number of collection companies -- 291, 161 transfer station, 161 active landfills which we see as a significant source of competitive advantage and 53 recycling facilities.

We think the integrated operating model that we use supports a significant internalization of our waster. Historically we would've had a slide in here that we would talk about. We currently internalize about 75% of the waste that we collect in our own landfills. We have a strong position in the major U.S. markets. The states that we're not in, states like Utah and states like Nevada are ones that historically don't have significant volumes for us. And so therefore we're not competitive there and don't operate.

There are some markets like Florida where we continue to operate although we've made a strategic decision in the past to vacate the Florida market. That decision, over time, we may change and chose to go back there.

We have very diversified operations that provide a stable of revenues and cash flow for the Company. You can see by the chart, we've got the revenue by region, roughly between 16% to 20% in each region of the country and then the revenue by line of business. We think that this gives us significant diversification in the face changes in the economic conditions. And we have 2007 revenue of $6.1 billion.

We have a demonstrated skill in developing landfill capacity. As I said earlier, we think that this is a significant competitive advantage that Allied shares with the other two major competitors in the marketplace. We currently operate 161 landfills across the U.S. representing almost three billion tons of disposal capacity. Those operating lives range from one year to 150 years and approximately 57% of the waste that's generated in the U.S. today is currently disposed of in landfills.

The Greenfield development of a new landfill site can require ten or more years before a site is operational. So significant barriers to entry in this part of the business both from a capital requirement perspective as well as a capability perspective.

Let me talk for a few minutes about the rebuild strength of Allied. As I'm sure most of you are aware, the Company was really built by acquisition during the 1990s. Following the 1999 acquisition of BFI, Allied was really focused on optimizing the cash flow for debt repayment and in maintaining its decentralized operating model. Over the past several years, the Company has changed pretty dramatically. Our focus has expanded significantly to make consistent appropriate investments in the business, to ensure long term profitable growth. We're pricing to achieve adequate returns and return on invested capital and we've worked on improving the efficiency and effectiveness of our operations. We've also worked to increase the free cash flow generation and to continue to strengthen our capital structure. Over the course of the last couple of years we think our success speaks for itself.

People go into a lot of detail on the financials but let me take you through a few of the operational areas that we think were important for the Company. First of all, we've identified and integrated significant best practices in several key areas throughout the Company. Most notable are people and labor management -- excuse me. People and labor management, safety related costs, procurement and purchasing, repair and maintenance, and pricing practices. As you're probably aware, the Company announced just a few weeks ago a reduction in force throughout the organization.

We did this on a proactive basis because what we consider to be the soft economy. But we really did it because we could. The Company had achieved significant improvements in productivity throughout the organization and we engineered this reduction in force by applying those benchmark performance standards across the enterprise. We had 500 people who were generally -- who were effected by that reduction in force. When you consider that we have 700 dots on the map across the U.S. between landfills, transfer stations, and operating companies, it wasn't significant in any one division. But again, by applying those productivity metrics, we're expecting to significantly reduce our labor costs year over year.

We've made sustained, appropriate investment in the business, particularly as it relates to our fleet. We're averaging $200 million in new truck purchases and our average truck age is now down to 7.5 years. Those of you who have been following us for awhile realize that our average truck at one point was close to nine years. We now have one of the youngest fleets in the industry. We've lowered repair and maintenance costs. We've been able to achieve significantly improved customer service and improved productivity as a result of having that better fleet.

We also make approximately $250 million a year in annual landfill construction investments. We're doing all this while we're building durable capabilities within the organization. You can see on the charts, the capital expenditure range for this year, we're projecting $650 million in 2008, down slightly from the $670 million we spend in 2007. That is not a -- we are not constraining capital in any significant way. We have less need for capital as a result of the lower volumes. Landfill cell construction will...

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