Cleanaway Waste Management Limited

Thank you for standing by and welcome to the CleanAway 1H FY26 results briefing. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mark Shupert, Managing Director and CEO. Please go ahead.

Good morning and welcome to everyone listening in today. Thank you for joining CleanAway's financial results briefing for the first half of the 2026 financial year. I'm Mark Schubert and I'm joined by Paul Binfield, CleanAway's CFO, and Richie Farrell, General Manager of Investor Relations and Sustainability. Following the presentation as usual, we will open the call for questions. So moving to slide seven. I want to begin today by addressing health and safety. This is foundational to who we are and what we do at CleanAway. Regretfully, we reported two fatal incidents at sites that we owned in the first half of FY26. Each occurred in different operational contexts, and in the case of MRL, it happened when a commercial customer was struck by one of their colleague's vehicles in a park-up area. We remain committed to learning from these tragic incidents and ensuring we have strong controls in place at our sites so that everyone goes home unharmed each day. I am pleased to report that we are seeing significant improvements in our safety performance. When compared to the first half of FY25, Our serious injury frequency rate was 64% lower at 0.36, and our total recordable injury frequency rate was 35% lower at 3.5. And we know that our TRIPA is significantly below domestic comparable companies and international industry peers. A board-commissioned independent safety review has been completed over the last three months. There were four key findings from the review. Firstly and importantly, no systemic safety issues or failures were identified. The HSE strategy is fit for purpose, reflects contemporary safety thinking, and is aligned to the organisation's most significant risks. That our implementation is well advanced at an enterprise level, but there is an opportunity to strengthen consistency and feedback loops closer to the frontline, given the variable but improving translation at branch level. And finally, our overall approach is aligned with contemporary good practice in comparable high-risk, asset-intensive industries. The report also found that fatality reporting across peers is inconsistent and in some case lacks transparency, and therefore direct comparisons with clean-away are unreliable and should not be used to draw conclusions about relative safety performance. The external review confirmed our approach remains sound and that we should stay the course. The areas to work on are consistent with our stage of progress in the five-year strategy journey. We also commenced two key programs of work during the half that represent tangible evidence of systematic risk reduction across the enterprise. By the middle of this calendar year, we will have completed the rollout of a yellow gear pedestrian detection system that uses latest generation AI cameras to alert operators to human presence, And by December 2026, we will have rolled out in-vehicle monitoring systems, or IVMS, across our roughly 3,500 collections heavy vehicles. The costs for all these initiatives are included in our FY26 CAPEX guidance, with approximately $21 million of capital spent on risk reduction in the first half. On the environment, we're proud to report zero major or significant incidents. Moving now to the first half FY26 financial results highlights. On behalf of the approximately 10,000 CleanAway team, I'm pleased to report robust financial results for the half. Through our Blueprint 2030 strategy, we are creating a stronger, more stable CleanAway. We have transformed the business by installing the foundations, the right people, the right standards, the right systems, the right network, and the right operating model. And you can see those benefits coming through in the underlying performance. We have continued our track record of delivering on the fundamentals that matter, with 13% net revenue growth driven by a combination of disciplined pricing and strategic acquisitions. The acquisitions completed in July last year brought further scale and industry-leading capability to our operations. Again, our continued focus on operational efficiency has translated into margin expansion. We did this through better rostering, better workforce planning, and more efficient fleet R&M. Contract Resources' performance this half, with revenues up 19% and exceeding their four-year CAGR of 13.5%, validates what we discussed after the acquisition. Group Grochi improved by 80 basis points to 9.4%. This reflects our disciplined approach to capital allocation and the improvements we are making to operational efficiency. Importantly, this says we are growing profitably and efficiently. EPSA was 18.2% higher and reflects our ability to convert operational performance into improved shareholder value. The Board declared an interim dividend of 3.35 cents per share an increase of 19.6%. This reflects the board's confidence in our trading outlook, sustainable cash generation ability, and its commitment to providing attractive returns to shareholders while maintaining balance sheet strength. The free cash flow movement was driven by catch-up tax and acquisition integration costs and our strategic indirect cost program that permanently lowers our cost base. we expect a significantly stronger second half cash flow. Looking further forward to FY27, we won't have any of those items repeating, and so we will see further acceleration of free cash flow growth. Looking ahead to the second half EBIT, we have a clear pathway to support the earnings step up. Our corporate costs were higher than usual in the first half. This was largely attributable to a planned project to upgrade our human resources systems with costs to revert to their traditional run rate in the second half. The second half outlook for our solids business is positive, and our environmental and technical solutions division is also well positioned to deliver improved performance. We're expecting strong organic growth across most lines of the OTS business. We expect to deliver $3 million in synergies from the contract resources acquisition, and expect an initial $15 million in-year capture of structural efficiencies from our strategic indirect cost review. As part of our strategy refresh, we completed a comprehensive strategic review of our cost base and restructured our indirect labour to enable the strategy. We have restructured our solid SBU down key business lines, centralised key functions such as sales, pricing, customer service and fleet, removed duplication and created a leaner, more efficient and more aligned organisation. This has resulted in a reduction of approximately 250 FTEs, with most of these changes already implemented. This supports continuing margin expansion, reinforces our market leadership and sets us up to deliver our improved customer value proposition. We've also identified further opportunities for non-labour cost rationalisation, spanning corporate overhead reduction shared services optimisation and increased procurement efficiency. Once fully implemented from FY27, we expect at least $35 million in annualised recurring benefit embedded in our operating model. Based on a robust first half performance and our confidence in the outlook, we're pleased to be able to upgrade our full year EBIT guidance range to $480 to $500 million. With that overview, I'll now move on to the segment results. Solid waste services delivered a strong performance in the first half. We grew net revenue by 7.5% to $1.25 billion and EBIT is 11% higher at $196.7 million. We also demonstrated the operating leverage in the business by expanding EBIT margins by 50 basis points to 15.7%. In collections, we grew our CNI net revenue through price increases, strong regional volume growth and the city-wide acquisition. We also expanded margins by improving labour and fleet efficiency. We delivered similar improvements in our municipal collections business where, in addition to improving labour and fleet efficiency, we have remained focused on rigorous contract management to support improving profitability. We secured the Cairns Municipal Collections Contract. This is a seven and a half year agreement starting in December 2026 and will contribute over $100 million of revenue over the life of the contract. It is a strategically important win that demonstrates our ability to compete successfully in the municipal tender market when the economics are right. Our post collections business delivered net revenue and EBIT growth across our core landfill portfolio. driven primarily by higher project volumes and prices. As planned, we closed New Chum Landfill on the 30th of November, which incurred a loss of approximately $3 million for the period. Our transfer station network delivered improved profitability. We optimised our network, improved payloads and reduced R&M costs. Finally, we delivered strong earnings from our resource recovery business, through continued growth in CDS volumes and improved cost efficiencies. We also grew our organics volumes primarily through successful tendering for commercial and municipal processing off the back of the FOGO mandate in New South Wales. This represents a long-term structural growth opportunity as more New South Wales councils implement FOGO. Old corrugated cardboard, or OCCC, prices softened through the half. This created a slight headwind in the first half where customers received rebates using a lagged price, noting we expect this to be a relative tailwind in the second half. As part of the strategy refresh, we have made the decision to retire the construction and demolition SBU and rationalise our service offering to align with our C&I customers' needs. We will continue receiving C&D residuals through our post-collections network. The decision is based on focusing on our efforts in parts of the market where we can achieve an adequate return and illustrates our commitment to disciplined capital allocation. Overall, Solid Waste Services is achieving strong results. The scale, diversity and integration of our network provide a competitive advantage and a growing earnings and margin trajectory. We expect this momentum to continue through the second half. Moving now to our oil and technical services and health services. In aggregate, net revenue fell 5.1% to $342 million and EBIT fell 12.6% to $36 million. EBIT margin contracted 90 basis points to 10.5% with the underperformance driven by health services. In OTS, we delivered EBIT growth and margin expansion despite some revenue headwinds due to capacity constraints at Christie Street. We continue to perform strongly in packaged waste with a high focus on high margin work where our portfolio of total waste solutions, network and safety standards provide a competitive advantage. We realised the initial integration benefits from the former LTS and hydro business units and simplified the network as well as saw increases in volumes through our equipment services business. As expected in health services, our revenue declined following the competitive tender for the HealthShare Victoria work, where we retained 85% of the work. The disruption to our Yatala health facility in Queensland continued in the first half following ex-cyclone Alfred. This resulted in approximately $2.4 million of higher logistics costs. Repairs have now been completed and normal operations have resumed. Importantly, we are seeing the turnaround in health services leading to a significantly stronger second half outlook. We are expecting higher revenue from increasing secure product destruction services, and we're using data analytics to reduce revenue leakage. Turning now to slide 12. The performance of the industrial services segment is reflective of the outperformance from contract resources. At the overall segment level, we delivered 74% net revenue growth to $339 million and 164% EBIT growth to $28.8 million. EBIT margins increased 290 basis points to 8.5%. Contract resources increased revenue by 19.5% to $157.8 million during the first five months of ownership. This compares favourably to its four-year revenue CAGR of 13.5%. Contract resources increased EBIT to $17.5 million and EBIT margin to 11.1%. This illustrates the quality and resilience of this production critical and turnaround services business. EBIT A is a better reflection of CR's operating profit. Given it adds back the non-cash amortization of quality customer contracts recognized at acquisition. EBIT A for the half was $20.1 million and converts to an EBIT A margin of 12.7%. This is comparable to the overall group EBIT margin of 12.2%. The integration of CRs and our industrial services segment is on track and delivering synergies ahead of plan with our new structure in place since the 1st of January under the leadership of the Contract Resources CEO. We're beginning to realise synergies, particularly in shared customers, workforce planning and greater asset utilisation. And we expect these to build during FY26 through cross-selling and operational leverage. We now have the leading industrial services platform that positions us to execute on the growing pipeline of significant decommissioning, decontamination and remediation opportunities. In Clean Away Industrial Services, we are undertaking a review of Metro activities to align our operating and delivery models with the contract resources platform, improving consistency, scalability and long-term performance. We also executed disciplined contract management and delivered on several fleet initiatives to offset the revenue headwinds. We will focus our IS work on activities where, like in CRs, we can earn appropriate risk-adjusted returns with less variable outcomes and, as a result, transition towards a structurally higher margin portfolio. And with that, I'll hand it over to Paul. Thank you, Mark.

Cleanaway has sustained track record of earnings improvement, having now delivered six consecutive hours of underlying UPS growth. This reflects the quality and resilience of our business model, shows the strength of our established integrated network of infrastructure. Looking at the underlying metrics on the left-hand side of the slide, net revenue for the first half came in at almost $1.9 billion, up 13%. EBIT was $228 million, up 16.9%, with the EBIT margin improving 40 basis points to 12.2%, reflecting improving asset utilization, cost efficiency, and demonstrating operational leverage. EBITDA was 17.4%, higher at $239 million. This metric excludes the non-cash required amortization charges and offers a clearer view of the business's underlying cash generating capability. The finance cost increased to $73.4 million, reflecting higher debt levels following the contract resources acquisition. At 2.3 times, leverage is reducing and well within our target in financial covenants. NPAD A was 18.5% higher at $117.3 million, with EPSA up 18.2% to 5.2 cents. Pre-cash flow was $74.2 million, $20 million lower than the prior period. Return on capital employed, or ROAD, is a metric that we're transitioning to as it's more commonly used by our peers and adjusts for the non-cash amortization of acquired customer contracts. Roach improved 80 basis points to 9.4%, proving that we're deploying capital more efficiently, generating better returns for our asset base. Similarly, Roach increased 60 basis points to 6.3%. So moving now to underlying adjustments. As Mark said in his overview, we're creating a stronger, more stable clean away. The first phase was transforming the business by installing the foundations. the right people, the right standards, the right network, the right systems, and the right operating model. If we think about the underlying adjustments through that lens, the cash costs fall into four categories, all by the first one, aligned to our blueprint 2030 strategy. So the first category relates to costs associated with issues identified as we laid in the strong foundations. In this case, it's treating legacy waste and remediating a legacy enterprise agreement, both dating back to 2018. On OTS, Post Christie Street, we sought to increase the capacity of the network for our customers and we reviewed the waste inventory at all of our sites. Retesting of legacy waste at one of our sites found that due to the nature of the waste, treatment and disposal costs would be significantly higher than expected. The subsequent independent review of the network has confirmed that all waste inventories are adequately provided for. Similarly, with respect to the enterprise agreement, as we strengthened our capabilities to address the backlog of expired EAs, we identified inconsistencies between the evolved scope of work at certain branches and how the expired EA had been drafted. The expense in this half includes review costs to date and a provision for potential further employee compensation that may arise following review of EAs with similar characteristics. Expect to incur low single-digit million EA review costs in each of the next couple of years as we complete this assessment. In both cases, the costs being incurred in this period don't relate to revenue generated in this or recent reporting periods. and therefore we've excluded them from our underlying result to provide a true reflection of our continuing performance. The second category of adjustments relates to one-off strategy refresh costs associated with executing the strategy, including driving towards a lean organisation. This will be completed in the second half with a similar cost to the first half. The third category relates to the one-off modernisation of our IT systems. where costs cannot be capitalised due to the nature of the software solution. This is foundational to the way that we work going forward and underpins the strategy. We again expect a similar cost in the second half. The last category, the costs associated with building the right network of leading waste infrastructure assets. In the past, that's been acquisitions like Suez, Sydney Assets and GRL, and today it's contract resources and citywide. This has created the leading waste infrastructure network in Australia. We expect approximately $5 million of further integration costs in the second half. The strategy refresh is refined where we want to play, with our focus on attractive returns and capital discipline. And you can see this with the rationalisation of our CND service offering and reducing certain IS metro activities. The outcome of the assessment of the future profitability of the CND business which resulted in a non-cash impairment of the associated assets. We also took a non-cash impairment charge against our investments in the Circular Plastics Australia joint venture. Our policy is lagging the desire to promote recycled HDPE, resulting in a softer market price outlook. Looking forward, we believe that underlying adjustments will reduce as a result of the foundations that we've installed to build a stronger and more stable Thaneway We're now moving to free cash flow. Just focusing on the material items in the bridge, we generated 56 million or 14.6% more underlying EBITDA. The cash impact of underlying adjustments was 40.2 million or 20.8 million higher than the prior corresponding period. This reflects the cash component of the underlying adjustments detailed in the earlier slide. We expect the full year cash impact of underlying adjustments to be about $30 million higher than the prior year. Working capital movements were adverse at $12.2 million, largely attributable to an increase in receivables related to a growth in the business. Interest paid was $9.2 million higher. Again, this reflected the higher average debt balances from fully debt funding, $470 million in acquisitions. Tax paid was $16.5 million higher, and this reflects a higher tax of learnings and a $58.7 million catch-up tax payment. This is the final catch-up tax payment. Maintenance capex was $22.7 million higher and is largely timing in nature with the full year expected to be broadly in line with prior year. So the net movements resulted in $74.2 million free cash flow for the half. We expect significantly stronger free cash flow in the second half and importantly into FY27 as tax payments normalise, underlying adjustments reduce and our relative capital intensity continues to decline. We're now moving to capital expenditure. Our total FY26 outlook stays unchanged at approximately $415 million. This includes $15 million allocated to contract resources. HS and ECAPX was $8 million higher for the half, but the full year is expected to be lower than FY25. Our investment in energy from waste continues to be modest as we pursue our originated model. However, recently we did enter into a joint development agreement for the park's special activation precinct in New South Wales. Our 35% minority interest has not resulted in any material upfront capital outlay or binding capital commitment, and any future investment will need to meet our investment hurdles. We decided to pursue the park's location when it became clear that there were complex planning issues that went our way. So having largely built out their infrastructure network of scarce processing assets, our capital intensity is on a declining trajectory. This year our CapEx guidance as a percentage of net revenue will be the lowest for five years. Furthermore, you will see the nature of our CapEx change. There'll be fewer larger projects that have characterized our spend over the last five to 10 years and an increasing proportion of our spend on fleet. Fleet CapEx is by its nature lower risk, but still delivers good returns to reduce running costs, improve utilization, and more dependable customer service. So finally, I'll turn to net finance costs and dividends on slide 18. Underlying net finance costs increased $14.5 million to $73.4 million. driven by the debt financing of the citywide and contract resources acquisitions, which was only possible due to the strength of our balance sheet. Our FY26 full year outlook for net finance costs is around $155 million. Our previous guidance, approximately $150 million, was based on the forward curve in August when we provided our initial guidance. February rate rise is clearly outside of our control. It is in our control. is delivering two or above operational expectations, which were demonstrating today their upgraded EBIT guidance. Moving to dividends, the Board has declared a fully franked interim dividend of 3.35 cents per share, up 19.6%. This increase reflects the business's strong underlying growth, our confidence in future delivery and strategy execution, including our ability to deliver strong free cash flow growth. With that, I'm back to Mark.