Ecology & Environment is betting that China could turn into a big market for the Lancaster-based environmental services firm.
The company, despite a difficult past year that saw its profits plunge by 89 percent as customers delayed work on significant U.S. energy projects, spent about $6 million laying the groundwork to be an adviser for a major new Chinese environmental fund.
That effort paid its first dividends Thursday, when E&E said it has won about $39 million in contracts to consult on the development of eco-cities in China and on the construction of a large health care complex.
Kevin Neumaier, E&E’s president and chief executive officer, told shareholders during the company’s annual meeting in Cheektowaga that China, along with Africa, could become new growth markets for a firm that has been steadily expanding its international presence over the past decade. “We’re able to leverage the skills that we’ve developed in one part of the work in another,” Neumaier said.
That growth is important because E&E’s environmental services business stumbled last year, as falling natural gas prices caused some of E&E’s clients in the energy industry to delay work on pipelines and other projects, while the fate of a key tax credit for wind energy projects was up in the air throughout last year until it was extended for one year in the New Year’s Eve deal that averted falling off the “fiscal cliff.” That uncertainty led to delays in wind energy projects – a significant source of work for E&E, Neumaier said.
Since fall, as natural gas prices have rebounded somewhat and the production tax credit has been extended, Neumaier said some of those project delays are starting to be lifted, with revenues from that re-started work beginning to filter into E&E’s revenues during the quarter that begins in February and beyond.
“We see improvements in the U.S. markets, particularly on those things that have paused, and in the energy sector,” Neumaier said. “It’s really good to see some of those multimillion-dollar projects for us coming back.”
Those delays cut into E&E’s revenues by 8 percent last year, but they had a much bigger impact on the company’s earnings because E&E executives decided to maintain nearly all of its staff, including a little more than 300 workers in Lancaster, during the slump, which extended into the first quarter of the current fiscal year, when profits plunged by 79 percent on a 13 percent drop in revenues.
“When a customer pauses work on a project for eight weeks, you can’t eliminate that staff and then have them come back to work in eight weeks,” Neumaier said.
“We could have had short-term profits. We could have gotten rid of people,” said Gerhard J. Neumaier, E&E’s chairman and Kevin Neumaier’s father. “But if you get rid of people, you can’t do the work” when it starts up again.
Gerhard Neumaier said he believes the Chinese environmental fund, which could be launched by the Chinese government by early spring, could become an “unprecedented opportunity” for E&E.
“We did take some risks, and I think we’re going to benefit substantially from what we’ve done,” he said. “I think we have taken a minimal risk for, potentially, a great gain.”