Newalta and Tervita to Combine Creating Canada s Largest Energy-Focused Waste and Environmental Services Company

Transcription

1 Newalta and Tervita to Combine Creating Canada s Largest Energy-Focused Waste and Environmental Services Company March 1, 2018

2 Advisories DISCLAIMER Forward-Looking Information Certain statements contained in this presentation constitute FOFI (as defined herein) and "forward-looking information" as defined under applicable securities laws. When used in this presentation, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", "potential", "strategy", "target" and similar expressions, as they relate to Newalta Corporation ("Newalta"), Tervita Corporation ("Tervita"), the company to be formed pursuant to the transaction (the "Arrangement") involving Newalta and Tervita described herein ("New Tervita") or their respective management, are intended to identify forward-looking information and FOFI. In particular, forward-looking information included in this presentation includes information with respect to: the effect of the Arrangement on Newalta and Tervita, as applicable; the expected consideration under the Arrangement; the expected pro forma holdings in New Tervita of current Newalta and Tervita shareholders; timing of matters related to the approval of the Arrangement and implementation thereof, including the anticipated timing of closing of the Arrangement; estimated December 31, 2017 financial information for each of Newalta and Tervita and pro forma attributes of New Tervita as outlined in slide 11 entitled "Attractive Pro Forma Financial Attributes"; the expected ability of New Tervita to fund new projects; the expected board and management team of New Tervita; the anticipated funding sources for Tervita entered into in connection with the Arrangement; anticipated investment highlights and operational and financial outlook of New Tervita including anticipated synergies, growth opportunities, operating results, financing flexibility, leadership team and number of customers; anticipated regulatory approvals required under the Arrangement, including approval under the Competition Act (Canada) and Toronto Stock Exchange approval; and the anticipated benefits of the Arrangement for shareholders of Newalta, including potential value creation, an improved balance sheet of New Tervita and the reduction of financing concerns. Such forward-looking information reflects the current views of Newalta and Tervita with respect to future events and are based on certain key expectations and assumptions made by Newalta and Tervita. Completion of the Arrangement is subject to a number of conditions which are typical for transactions of this nature. Assumptions have been made with respect to the satisfaction of all conditions precedent under the Arrangement Agreement. Although Newalta and Tervita believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information as neither Newalta nor Tervita can give any assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks in respect of the Arrangement. These include, but are not limited to: the failure to satisfy any of the conditions to completion of the Arrangement; the failure to obtain all required court, regulatory and third party approvals, including, without limitation, the required approval under the Competition Act (Canada) and Toronto Stock Exchange approval; the failure of Tervita to obtain the required financing required pursuant to the Arrangement Agreement; the emergence of a superior proposal in respect of either party or the failure to obtain approval of the Newalta securityholders or Tervita shareholders may result in the termination of the Arrangement; the failure to realize anticipated benefits and other synergies; risks regarding the integration of Newalta and Tervita; and the incorrect assessment of the value of Tervita and/or Newalta. In addition, general factors and risks include, but are not limited to: the strength of the oil and gas industry, including drilling activity; general market conditions; fluctuations in commodity prices for oil and the prices Newalta and Tervita receive, and New Tervita will receive, for their recovered oil; fluctuations in interest rates and exchange rates; financial covenants in debt agreements that may be restrictive; the effectiveness of Newalta's, Tervita's and New Tervita's cash flow management activities and cost rationalization initiatives; Newalta's, Tervita's and New Tervita's ability to secure future capital to support and develop their respective businesses or combined business following completion of the Arrangement; Newalta's, Tervita's and New Tervita's ability to secure alternative financing, if needed, at all or on terms acceptable to Newalta, Tervita or New Tervita, as applicable, and consistent with their respective capital structure objectives; the highly regulated nature of the environmental services and waste management business in which Newalta and Tervita operate and New Tervita expects to operate; the competitive environment of Newalta's, Tervita's and New Tervita's industry in Canada and the United States; dependence on Newalta's, Tervita's and New Tervita's applicable senior management teams and other operations management personnel with waste industry experience; potential operational and safety risks and hazards, obtaining insurance for such risks and hazards on reasonable financial terms and potential failure of meeting customer safety standards; the seasonal nature of Newalta's, Tervita's and New Tervita's operations; timing and term of contracts for Newalta's, Tervita's and New Tervita's services; risk of pending and future legal proceedings; risk to Newalta's, Tervita's and New Tervita's reputation as a result of the Arrangement or otherwise; Newalta's, Tervita's and New Tervita's ability to attract, retain and integrate skilled employees; open access for new industry entrants and the general unprotected nature of technology used in the waste industry; costs associated with operating Newalta's, Tervita's and New Tervita's landfills; and such other risks or factors described from time to time in reports Newalta files and New Tervita will file with securities regulatory authorities. 2

3 Advisories (Cont d) DISCLAIMER Additional information on these and other factors that could affect Newalta's operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website ( By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Many other factors could also cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking information and readers are cautioned that the foregoing list of factors is not exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Furthermore, the forward-looking information contained in this presentation is made as of the date of this document and, in each case, is expressly qualified by this cautionary statement. Unless otherwise required by law, neither Newalta nor Tervita intend, or assume any obligation, to update any such forward-looking information. Non-GAAP Financial Measures This news release provides certain financial measures that do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and therefore are considered non-gaap measures. These non-gaap financial measures may not be comparable to similar measures presented by other issuers. "Adjusted EBITDA", "net debt", net revenue, and leverage are not recognized measures under IFRS. Management of Newalta and Tervita believe "net debt" is a useful supplemental measure of the total amount of current and long-term debt of each of Newalta, Tervita and, pro forma, New Tervita. Management of Newalta and Tervita believe that adjusted EBITDA provides improved continuity with respect to the comparison of Newalta's and Tervita's operating results over a period of time, and New Tervita's expected operating results over a period of time, and, as such, is an important indicator of their respective ability to generate future operating profitability. Investors are cautioned, however, that these measures should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indication of the performance of either of Newalta or Tervita, nor the expected pro forma performance of New Tervita. Newalta's and Tervita's method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. Net debt is calculated as the sum of the amount drawn on credit facilities, senior indebtedness and capital lease obligations less cash on hand. Adjusted EBITDA is defined as net earnings (loss) before depreciation and amortization, finance charges, income tax, stock-based compensation, impairment, restructuring and other expense, and gains or losses on embedded derivatives. Net revenue is calculated exclusive of energy marketing revenue. Leverage is calculated by dividing net debt by adjusted EBITDA. Future Oriented Financial Information This presentation contains future-oriented financial information and financial outlook information (collectively, "FOFI") about New Tervita's prospective revenue, net revenue adjusted EBITDA both before and after synergies, capital expenditures, debt, PP&E and components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained herein is made as of the date of this presentation and is provided for the purpose of describing the anticipated effects of the Arrangement and New Tervita's resulting revised budget on the combined business operations. Each of Newalta and Tervita disclaim any intention or obligation to update or revise any FOFI contained in this presentation, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this presentation should not be used for purposes other than for which it is disclosed herein. 3

4 Today s Speakers DISCLAIMER John Barkhouse President and CEO of Newalta John Cooper President and CEO of Tervita Rob Dawson CFO of Tervita President and CEO since 2014 Previously was President of Bredero Shaw and held senior leadership positions at Caterpillar Inc. MBA from Bradley University and Bachelor of Mechanical Engineering from Dalhousie University President and CEO since 2017 Previously was CEO of ClearStream Energy Services Has also served as the COO of Savanna Energy Services, President & CEO of Enermax Services and President of Superior Propane Bachelor of Arts degree in Mathematics and Economics from the University of Western Ontario CFO since 2017 Previously was CFO of Canadian Oil Sands and held senior positions at Suncor Energy and Global Crossing Bachelor of Commerce degree from the University of Calgary CFA Charterholder and CPA 4

5 Key Investment Highlights of the Combined Company Market Leader Creates the largest energy-focused waste and environmental services company in Canada Unparalleled asset base built over more than three decades with ~1,000 customers and ~2,000 employees Financial Scale and Flexibility ~$243 million of combined 2017 estimated Adjusted EBITDA (including expected synergies) Ability to fund future growth and reduce debt with internally generated cash Material Synergies ~$40 to $45 million in annual synergies are expected to be achieved within two years Creates value and efficiency for customers and other stakeholders Growth Portfolio Multi-year combined pipeline of attractive, organic and identified strategic growth opportunities Expansive geographic footprint with exposure to all key Canadian crude oil and natural gas plays Experienced Leadership Seasoned executive leadership and management team with public market experience Experienced board of directors with a complementary mix of skills and expertise We believe the combined company is in a strong position to generate significant value for the shareholders of Newalta and Tervita 5

6 Key Terms of the Proposed Transaction Transaction Structure All-share reverse takeover structured as a plan of arrangement Pro forma ownership of 11% for Newalta shareholders and 89% for Tervita shareholders Newalta shareholders to receive warrants with the potential to increase pro forma ownership by an additional 2% (two-year maturity; exercisable at $2.75 per equivalent Newalta share) Financing Tervita has committed financing for the transaction, including facilities available to fully refinance Newalta s debt Shareholder Support Key shareholders of each of Newalta and Tervita have agreed to support and vote in favour of the Arrangement Timing and Closing Conditions 66 2/3 % (of votes cast) approval required by both Newalta securityholders and Tervita shareholders Competition Bureau and TSX approval required Expected closing in the second quarter of 2018; outside date of August 31,

7 Key Benefits for Newalta Shareholders Provides Size and Scale Creates the largest energy-focused waste and environmental services company in Canada serving energy and industrial customers, and increased efficiencies and capital markets presence Significant Potential Value Creation Significant synergies, reduced leverage and the acceleration of growth opportunities are expected to create shareholder value Improved Balance Sheet and Access to Capital Materially reduces Newalta s leverage levels and strengthens ability to fund and accelerate highreturning growth projects Combined entity is estimated to have pro forma leverage of ~3.6x Adjusted EBITDA relative to Newalta on a stand-alone basis of ~7.9x Adjusted EBITDA (1) Eliminates Stand-alone Refinancing Requirement Committed financing in place provides liquidity to refinance Newalta s existing credit facility and senior unsecured debentures maturing in November 2019 and April Estimated on a pro forma basis for the twelve months ended December 31, Estimated based on midpoint of Newalta guidance range and Tervita internal estimates and excluding expected annual synergies. 7

8 Significant Achievable Synergies Achievable annual synergies of ~$40 to $45 million within two years Newalta and Tervita worked diligently together to forecast synergies Integration costs of ~$15 to $20 million to achieve targeted synergies Annual Synergies of $40 to $45 Million ~50% ~50% from Corporate Corporate Overhead Overhead ~50% ~50% from Operating Operating Efficiencies Efficiencies Includes cost savings associated with corporate headcount & office (executive, finance, IT, legal & board, building services, communications, human resources, EH&S, etc.) Includes operating improvements, potential volume consolidation at nearby facilities, treating and disposal savings and field office closures Involves migrating Newalta to Tervita's new enterprise resource planning software The merger of Newalta and Tervita is expected to lower operating costs and benefit all stakeholders, including customers 8

9 Overview of Tervita Business Overview Tervita is an environmentally focused energy infrastructure and waste management service provider in Canada Tervita primarily services the oil and gas industry, as well as the industrial and natural resource sectors throughout western Canada Tervita provides treatment of waste materials, disposal services, oil treatment and terminalling, energy marketing services, recycling services, demolition and decommissioning services, reclamation services, waste management and clean-up services Operates a network of more than 70 modern waste processing, disposal and industrial facilities, including 25 treating, recovery and disposal (TRD) facilities, seven stand-alone salt water disposal wells, two cavern disposal facilities, 20 owned landfills (1), seven transfer stations, 10 bioremediation facilities and four metals recycling facilities Tervita was founded in 1984 and is headquartered in Calgary, AB Operating Segments & Services Energy Services Segment Description Core Assets Waste Processing (TRD Facilities) & Energy Marketing Waste Processing (Landfills) Services include the treatment, recovery and disposal of oilfield fluids derived from production, drilling and completions Network of strategically located facilities in close proximity to all major plays across WCSB Process, recovery and disposal of solid waste from resource production and contaminated soils Largest owner of industrial landfills in western Canada 1. Does not include Tervita s three operated and three marketed landfills. 25 TRD facilities (15 pipeline connected) 2 cavern disposal units 7 stand-alone salt water disposal wells 20 engineered landfills (1) 9 Industrial Services Segment Description Core Assets Metals Recycling Waste Management Environmental Services Provides demolition, yard clean ups, and regular bin service Operates four metals recycling facilities processing ferrous and non-ferrous metals, including copper, steel and aluminum Full-service suite of waste management solutions including onsite bin service, transportation and waste handling Additional services include waste characterization, tracking, packaging, recycling and the disposal of hazardous/non-hazardous waste Construction of bioremediation cells, impermeable structures, pad construction liners, ponds and lagoons Includes mill services, water management and sulphur services 4 metal recycling facilities ~10,000 bins for waste collection Fleet of over 50 trucks 6 transfer stations 10 bioremediation facilities 7 field offices

10 Unparalleled PRO Combined FORMA Footprint ENTITY in (CONT D) Western Canada Highlights of Combined Assets 2,000 Employees 55 TRD Facilities 1,000 Customers 22 Landfills (1) 116 Sites (2) Newalta also brings exposure to key U.S. markets through oilfield facilities in North Dakota and drill site services in the Marcellus, Bakken, Eagle Ford, Niobrara and Permian The combined asset base of Newalta and Tervita is operationally and geographically diverse spanning across western Canada 1. Does not include additional five operated landfills and three marketed landfills. 2. Includes industrial services sites. 10

11 New Tervita Leadership Team Management Team Board of s Name Title Biography President, John Cooper CEO & Rob Dawson Brad Dlouhy CFO COO Joined Tervita and was appointed CEO in July 2017 Prior to joining Tervita, John was the CEO of ClearStream Energy Services Previously served as the COO of Savanna Energy Services, President & CEO of Enermax Services and President of Superior Propane Joined Tervita and was appointed CFO in March 2017 Prior to joining Tervita, Rob was CFO of Canadian Oil Sands Previously held senior positions at Suncor Energy and Global Crossing Appointed COO of Tervita in April 2017 Has worked at Tervita since 2000 holding various positions, including President of Midstream Services, District Manager, & Vice President Previously worked for Stantec Consulting, prior to joining Tervita Tervita Newalta Name Title Biography Grant Billing Michael Colodner John Cooper Allen Hagerman Cameron Kramer Doug Ramsay Jay Thornton Kevin Walbridge Gordon Pridham Susan Riddell Rose Board Chair President, CEO & Joined the Tervita board in 2016 Previously Chairman and CEO of Superior Plus Currently Managing at Solus Alternative Asset Management LP Will join the board; currently an observer See biography on left Joined the Tervita board in 2016 Previously Executive VP of Canadian Oil Sands and prior thereto CFO of Canadian Oil Sands Joined the Tervita board in 2016 Previously the COO and Senior VP of ARC Resources Joined the Tervita board in 2017 Co-founder, Vice-Chairman and previously served as CEO of Calfrac Well Services Currently serves as Co-Chairman of STARS Air Ambulance Joined the Tervita board in 2016 Currently serves as Chairman of Obsidian Energy and on the board of North American Energy Partners Previously an executive at Shell and Suncor Joined the Tervita board in 2017 Previously Executive VP and COO of Progressive Waste Solutions Joined Newalta board in 2004 Current Chairman of Newalta Currently Principal of Edgewater Capital Joined Newalta board in 2009 Currently President and CEO of Perpetual Energy 11

12 Attractive Pro Forma Financial Attributes Pro Forma Adjusted EBITDA ($millions) Estimated Annual Pro Forma Synergies Combined Adjusted EBITDA $163 (1) $243 $43 Pro Forma Capitalization Shares Outstanding (millions) 2017E Year End Net Debt ($millions) Newalta Tervita Pro Forma 13 (1) $350 $353 $726 (2) 2017E Year End Net Debt / Adjusted EBITDA (3) 7.9x 2.3x 3.6x 1. Based on 88 million Newalta shares outstanding and the exchange ratio of x. 2. Includes estimated transaction costs of $23 million and does not include any fees associated with further debt issuances and/or redemptions. 3. Excluding expected annual synergies. $43 Pro Forma Ownership (1) $201 11% $121 Existing Newalta Shareholders 49% Solus 2016A 2017E 2018E 1. Represents the mid-point of estimated annual pro forma synergies expected to be achieved within two years beginning upon closing. Pro Forma Capital Expenditures ($millions) 40% Other Existing Tervita Shareholders 2016A 2017E $62 $90 (1) 1. Approximately 50% directed to growth capital expenditures. Note: Tervita s next largest shareholder would hold ~17% of the combined company. 1. Excludes the impact of warrants to be received by Newalta shareholders. The combined company s business plan is to position itself to generate double-digit annual EBITDA growth (excluding the benefit of synergies) while also reducing leverage 12

13 A Transaction to Benefit All Stakeholders Customers Customer needs are better served by a larger and more efficient company Long-standing and valued relationships with the customers of both companies are expected to be maintained Employees Opportunity to work for the largest waste and environmental services company in western Canada Greater career prospects in a wider and more diverse group Local Communities Combination of two companies with a history of strong commitment to local communities Shared best practices for engagement with local stakeholders Shareholders All-stock transaction allows shareholders of both companies to participate in upside from the combination and a recovery in commodity prices and drilling activity Potential increase in shareholder value through realization of significant synergies and growth opportunities 13