Waste firm seeks investor

Stopping the Rot

alba_laif
Alba, trying to clean up the mess.
  • Why it matters

    Why it matters

    Alba is a family firm, but without the help of an investor it may struggle to turn around its dwindling fortunes.

  • Facts

    Facts

    • The Alba Group provides environmental waste clearance, recycling and delivery services.
    • It had a turnover of €2.6 billion ($2.9 billion) in 2013.
    • Recent losses have seen its credit rating and valuation plummet.
  • Audio

    Audio

  • Pdf

The Alba Group is Germany’s second-largest waste management company, with 8,000 employees in Europe, the United States and Asia. It specializes in providing across-the-board services, from clearing waste to recycling and logistics. In 2013, it had a turnover of €2.6 billion ($2.9 billion).

However, the Berlin-based company, has recently been struggling with losses. It is co-owned by brothers Axel and Eric Schweitzer, and last week Axel made a surprise visit to Handelsblatt’s Düsseldorf office where he dropped a bombshell: he wants to sell a minority holding.

 

Mr. Schweitzer, the Alba Group seems to be in bad shape. In the just-published 2013 annual report there is a gaping double-digit shortfall. Are you still able to sleep comfortably at night?

Axel Schweitzer: It’s now 2015, and I’m still sleeping very well. We’ve undertaken many things and are seeing the first results from them, I view the future with confidence. The year 2013 was the worst year in the company’s history. As scrap metal recyclers, the crisis in the steel and metal markets hit us hard. Things have improved in the meantime.

You must have a special brand of optimism. Not only are operations not running smoothly, the rating agency Standard & Poor’s is concerned about your liquidity.

The rating from S&P has to do with the special situation of the external shareholders of our listed subsidiary, Alba SE [Alba’s intermediate holding company]. They have a sellback right, which some of them surprisingly took advantage of last fall. All told, around 7 percent of the shares were sold back to us so that we now own close to 93 percent of the Cologne-based company.

Naturally, that unexpectedly tied up a lot of money. But even if we were forced to take back the remaining 7 percent of the shares, it wouldn’t put us in a fix. We have sufficient liquidity.

Experts estimate the loss of liquidity at a good €30 million. S&P is expected to lower your bond credit rating to an alarming CCC. Your stocks will then only be traded at high discounts.

We expect the bond credit rating to worsen again. In their reviews, every rating agency must take the economic situation and special developments – like the repurchase of a large block of shares – into consideration. But there is no reason for concern. We have already made financial provisions and additionally expanded our line of credit with our banks to be prepared for any eventuality. Also, our financing runs until the end of 2017.

alba_PR2
Brothers Eric and Axel Schweitzer own the Alba Group. Source: PR

 

A new boom in the steel business is not foreseeable and the business of recycling packaging remains problematic. How do you plan to manage a turnaround?

I see huge opportunities for growth in Asia, above all in China. It is the world’s largest market for environmental technologies – and it is the second largest producer of waste. The volume of waste in China will increase in the next ten to 15 years by 50 percent. Untreated landfill waste makes up around 80 percent of China’s total waste. They have a massive amount of catching up to do.

What capacities do you want to develop in China?

That decision will be made next month. We don’t want to be active there just in the treatment of household waste alone but also in organic waste, electronic scrap or in automobile recycling.

Do you have enough money for that?

We have decided to take on a minority partner. With them aboard, we want to sustainably strengthen our capital base because there are good opportunities for growth being offered in China and in our core markets such as Germany and Poland.

This is surprising as Alba is a family-owned enterprise. What do you expect in a shareholding partner?

The search for a suitable partner has just begun. We are a family-run company and want to remain one. The future partner should therefore not only share the thrust of our strategy but also share our values. In addition, it should be someone who accompanies us in the expansion toward Asia.

So a solely financial investor would not fit the bill?

Right. Given our criteria, that would be rather unlikely.

Considering your expansion plans, would a Chinese partner make sense?

We are only at the beginning of the process and so I can’t answer that. China, however, is on the lookout for know-how. The fact that there is interest in us as one of the leading recycling companies is no surprise.


Video: How Alba sorts the wheat from the chaff in its recycling plants.

 

How large is your current business in China? 

At the moment we are generating hundreds of millions of euros in sales in the export of raw materials. We employ 25 highly qualified employees in Beijing and Hong Kong.

How quickly do you want to find a partner?

We assume we will need one by the start of 2016. We have a stringent plan, but are in no hurry.

What size of share is up for sale?

It is common knowledge that a minority share goes from just above zero to 49 percent. We are open-minded in this.

S&P estimates your company to be worth €500 million. What value are you setting in selling shares?

That is only a technical, not a relevant, value. The actual value of the company is far greater.

Calculating it becomes difficult when the company’s profits have been in the red for three consecutive years.

It’s been heading up again since 2013. The losses were halved in 2014; we still expect a small deficit in 2015. In 2016 our pretax earnings will again be back in the black.

Is there a plan B to sell off individual parts of the company instead of taking on an outside partner?

There is nothing to the rumors that we want to split off an entire division. That makes no sense as we are in the midst of establishing a new industry standard through the merger of our waste disposal and steel and metal recycling business operations.

125 Alba-01

 

Sven Afhüppe is Handelsblatt’s co-editor in chief, Christoph Schlautmann is an editor covering the consumer goods industry. To contact the authors: afhueppe@handelsblatt.com, schlautmann@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!