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Transpacific Industries Group Ltd makes big half-year profit, pays down debt by $266 million

Transpacific Industries Group Ltd (ASX: TPI), the recycling, industrial cleaning and waste management company, offered shareholders great results from the FY2014 first half, with $158.6 million in NPAT attributable to ordinary equity holders and statutory earnings per share of 10 cents. Underlying earnings per share were 2.6 cps.

Included within the result is about $116.9 million of significant items, of which the sale of its commercial vehicles group in August 2013 made a large proportion.

Bringing the company size down to a leaner structure, it has either closed, sold or contracted for sale 31 of 42 branches in Australia and New Zealand it has identified as either non-core or underperforming.

It also reined in costs by achieving $11 million of reductions in the half year. Its goal is to cut out $20 million in FY2014, and continue with another $15 million in FY2015.

Another sign of improved financial strength is the $266 million debt reduction. This took net debt to $754 million at 31 December 2013. Interest payments weighed heavily on the income statement, yet with the reduction and refinancing of debt, there was a 31% reduction in underlying net interest expense, saving $19.5 million. The company stated debt reduction is a key priority.

Company CEO Robert Boucher said: “We have started to implement a number of the efficiency initiatives identified as part of our transformation program to streamline and improve the business, and I will continue to drive those changes.”

Underlying NPAT attributable to ordinary equity holders was $41.7 million, an increase of 16.5% from the pcp. The Cleanaway Australia segment has revenue of $467.7 million and benefited from cost savings in 2013.

Its Industrials Australia segment saw some recovery in the demand for industrials’ services in the first half, yet industrial and manufacturing activity was weak. This resulted in a 2.3% fall in the segment’s revenue to $246.9 million from the previous half.

Foolish takeaway

Seeing the company righting itself and on the road of recovery is heartening. It had a severe period going through the GFC, but now the rewards of downsizing the company to a leaner, more efficient level are paying off. Debt reduction will save a lot of money, which in the end will filter down to the bottom line, improving earnings.

Investors who have an interest in the waste management industry can also research Tox Free Solutions Limited (ASX: TOX). It has been growing through several recent acquisitions and has nationwide operations.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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