Cleanaway Waste Management Limited

I'd now like to hand the comments over to Mr Mark Schubert, Managing Director and CEO. Please go ahead.

Good morning and welcome everyone listening in today. Thank you for joining Cleanaway's financial results briefing for the 2026 financial year. I'm Mark Schubert and I'm joined by Nigel Simmons, Cleanaway's CFO who joined the business in July and Richie Farrell, General Manager of Investor Relations and Sustainability. Following the presentation, we will open the call for questions as usual. Moving to slide three, before we begin, please note the usual disclaimer. Unless specifically called out, I will be talking about underlying performance of the business and the associated financial metrics throughout this presentation. The agenda for today is set out on slide four. The plan today is that I will take you through the highlights and overview, I will then step you through the segment performance and what drove the result. Nigel will then cover the financial performance and cash flow. And finally, I'll address our strategic progress and outlook for FY27 and beyond. Moving to slide five, which will be familiar to a lot of you on the call today. For those new to the Clean Away story, it sets out our investment thesis. Clean Away remains Australia's leading total waste solutions provider. with scale, network reach, and a highly diversified customer base. The strength of the business is that it is not just one business. Instead, it is a portfolio of assets, services, and customer relationships that together create the leading national waste management platform. Our strategy is about working that platform harder. This means executing better at branch level, improving asset utilization and operational efficiency while maintaining disciplined capital allocation. It also means continuing to invest in the systems, the people, and the data that allow us to run the network smarter and efficiently and to lift returns over time. With the strong foundations built, we are investing to build a more modern, data-led, and more cash-generative business. Moving to the executive summary on slide seven. On behalf of the approximately 9,700 CleanAway team, I'm pleased to report that FY26 was another year of earnings growth for CleanAway, but it was not without challenge. The year's earnings were predominantly driven by strong performances by solid waste services and contract resources and the benefit of the indirect cost reduction. Certain parts of the portfolio underperformed our expectations, leading to modest organic growth on a net basis across the group. The conflict in the Middle East resulted in some market softness and higher fuel prices. Solid waste services delivered a strong result with good pricing, better productivity, higher landfill volumes and CDS growth. Contract resources also performed ahead of the acquisition business case. Health services, industrial services and OTS project volumes weighed on the result. Ultimately, high fuel costs did not have a material impact on the group result. but mitigating those costs and managing the related issues took significant time and enterprise-wide attention. This included substantial proactive engagement with our suppliers, including owner drivers and subcontractors, to ensure they were being treated fairly and paid appropriately. Moving to slide eight. We delivered underlying EBIT of $470.2 million, up 14.2%, and net revenue increased 13.1% to 3.7 billion. Group Roadsheet increased 60 basis points to 9.7%. This reflects our disciplined approach to capital allocation and the improvements we're making to operational efficiency. The board declared a final dividend of 3.5 cents per share, taking the full year dividend to 6.85 cents per share, an increase of 14%. This reflects the board's confidence in our trading outlook, sustainable cash generation ability and its commitment to providing attractive returns to shareholders whilst maintaining balance sheet strength. Statutory MPAT was lower at 98.5 million, reflecting the net costs associated with significant items. These largely related to legacy matters, the recent business reorganisation, IT modernisation and non-cash impairments. Going forward, we expect fewer events that give rise to these costs due to the significant foundational work we've already completed. Furthermore, we expect to materially reduce the number of items classified as significant in future reporting periods, which Nigel will speak to later. Pleasingly, free cash flow improved materially, up 64% to $213.8 million. This was driven mainly by good work in capital management, timing of fleet delivery, and improved payment terms for our new trucks. We've also updated our definition of free cash flow. The measure now includes all cash capital expenditure while excluding proceeds from land and property sales. In summary, FY26 delivered earnings growth and cash flow growth, but the underlying organic growth was weaker than we would like for reasons we understand. Importantly, we have plans in place to improve and restore performance across those business lines. Our focus remains on delivering a more stable, more cash generative outcome in FY27 and beyond. This will be achieved under the three pillars of Blueprint 2.0, whereby we will generate high value revenue, use our scale as an advantage and become a leaner, lower cost and more scalable enterprise. Moving to slide nine, This slide bridges the FY26 result to the midpoint of the guidance range we provided in February. If you recall at that time, we expected underlying EBIT of $480 to $500 million. Following the escalation of the Middle East complex and the associated fuel price volatility, in April, we revised that range to $460 to $480 million. The result of $470.2 million was within that range. We thought it would be helpful to use the bridge to explain what changed relative to the expectations we had back in February. Solid waste services and contract resources, excluding the Middle East, performed strongly in line with our expectations. We outperformed our expectation with respect to managing the fuel price volatility by responding rapidly. We applied the contractual mechanisms available to us and we also benefited from external support mechanisms introduced during the event. At the same time, our team responded to and supported our affected suppliers and subcontractors as appropriate. To give you a sense of the activity levels, we had to review over 400 suppliers and around 18,000 invoices. Looking at the graph, the left-hand side of the bridge addresses the elements related to the Middle East conflict. At a group level, we recovered a large proportion of the direct fuel costs in year. Recovery was not uniform across our segments, however. There is a lag in recovery for a small proportion of direct fuel costs, and contract resource operations in the Middle East were directly impacted. Conversely, re-refined base oil, or RRBO, in OCS more than offset its direct cost impacts. Mitigating the impacts involved an extraordinary effort from the team, and I'd like to acknowledge those efforts. Moving to the right-hand side of the bridge, where importantly, the variances were concentrated in a small number of businesses. In health services, the anticipated second half recovery was slower than expected. This was in part due to the reorganisation and sales centralisation, which delayed our efforts in addressing revenue leakage opportunities. Our new liquid injection and product destruction facilities were safely started up, but later than expected. In the industrial services business, we experienced lower project activity, fewer shutdowns, and weaker utilization across parts of the portfolio. And finally, in our OTS business, project waste volumes were below our expectation, with some large and anticipated second half projects not proceeding, including due to customer credit constraints. In FY27, we'll build on the FY26 outcome. We'll recover those specific areas of the business and focus on growing core volumes and revenue, improving productivity, and making sure we leverage the opportunities and benefits identified through Blueprint 2.0. I'll now take you through the segment performance. Solid Waste Services delivered a strong performance in FY26, and that was despite lower commodity prices, and the temporarily lower contribution from ECO ahead of the completion of the compost refinery. We grew net revenue by 6.4% to 2.5 billion and EBIT was 9.1% higher at 405 million. We also demonstrated the operating leverage in the business by expanding EBIT margins by 40 basis points to 16.2%. This evidences that CleanAway continues to benefit from scale, pricing discipline and better utilisation. Within collections, we saw good performance across CNI and municipal, supported by price and productivity. The city-wide contribution is now flowing through. Integration remains on track and the business continues to show good labour, fleet and overhead discipline. We also renewed the Port Phillip and Merribeck Council contracts. Pleasingly, 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. This is a strategically important win that demonstrates our ability to compete successfully in the municipal tender market when the economics are right. Our landfills and transfer stations also performed well, supported by high volumes project activity and ancillary revenue. CDS was another positive contributor with a full year Tasmanian contribution supporting organic growth. As planned, we closed Newcham Landfill on the 30th of November, which incurred a loss of approximately $3 million for the period. As part of the strategy refresh, we made the decision to close the construction demolition SBU. The decision was based on focusing our efforts on the parts of the market where we can achieve an adequate return and illustrates our commitment to discipline the capital allocation. The key takeaway on this slide is that solid waste services remains a strong and resilient core and earnings engine for the group. Moving now to our oils and technical services and health services business. In aggregate, net revenue fell 1.2% to $676 million and EBIT fell 10.7% to $75.1 million. EBIT margin contracted 120 basis points to 11.1% with the underperformance driven by health services. OTS delivered a solid reported result with year-on-year growth across the portfolio. rrbo pricing and clean away equipment services were the strongest drivers of earnings growth this was offset by expected project work not proceeding in the second half we realized the integration benefits from the former lts and hydro business units and identified opportunities to simplify the network our focus remains on high margin project work where our portfolio of total waste solutions network and safety standards provide a competitive advantage. Health Services experienced a difficult transitional year. Following a competitive tender by a major customer, we retained most of the volume at lower rates. This reduced revenue and earnings materially. The disruption to our Yatala Health Facility in Queensland in the first half, following damage from X-Cyclone Alfred, resulted in approximately $2.4 million of higher logistics costs, and overall volumes were lower than expected. As we look at FY27, product destruction and liquid injection facilities came online in the final quarter of FY26. The Yadola facility in Queensland was restored, and the team is working through a more focused operating model. The team has a recovery plan in place, including dedicated specialists supporting central sales to drive revenue growth, and restore EBIT and margin. Turning now to slide 13. The performance of the industrial services segment is largely reflective of the initial contribution and outperformance from the contract resources acquisition. At the overall segment level, we delivered 77% net revenue growth to $670 million and 135% EBIT growth to $55.9 million. EBIT margins increased 200 basis points to 8.3%. Contract Resources outperformed the acquisition business case, delivering $320 million of revenue and $36.1 million of EBIT, excluding $6.4 million of synergies. This highlights the capability of the team and illustrates the quality and resilience of this production critical and turnaround services business. And this was delivered with the backdrop of the headwind of the Middle East conflicts. EBIT A for the year was 41.4 million and converts to an EBIT A margin of 12.9%. This is comparable to the overall group EBIT margin of 12.6%. The integration of CRs and our industrial services segment is on track and delivering synergies ahead of plan. The new structure has been in place since 1 January under the leadership of the Contract Resources CEO. We are beginning to realize further synergies, particularly in shared customers, workforce planning, and greater asset utilization, and we expect these to build during FY27 through cross-selling and operational leverage. We now have the leading industrial services platform, and that positions us to execute on the growing pipeline of significant decommissioning decontamination and remediation opportunities. Clean away industrial services was weaker. Lower contracted and project activity and fewer shutdowns led to lower utilization and profitability. The operating model realignment with contract resources is well underway. Improving consistency, scalability and long term performance and this work will continue. We will focus our IS work on activities like we're 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 build on the real momentum provided by contract resources. And with that, I'll hand it over to Nigel.

Thanks, Mark. It's my pleasure to be able to report my first results as Clean Away CFO on behalf of the entire Clean Away team. So with the segment drivers in mind, we now turn to the financial performance and the bridge from the operating story into the reported numbers. The financial summary shows the benefit to shareholders of earnings growth and improved cash flow through progressively growing dividends. Revenue, underlying EBIT and underlying NPAT have all improved. CleanAway has a sustained long track record of revenue, earnings and underlying EPS growth. This reflects the quality and resilience of our business model and shows the strength of our established integrated network of infrastructure. Looking at the key underlying metrics on the slide, net revenue for the year came in at more than $3.7 billion. up 13.1%. Group underlying EBIT was 470.2 million, up 14.2%, with EBIT margin improving 10 basis points to 12.6%. This reflects improving asset utilization, cost efficiency, including the indirect cost reduction program, and demonstrates our operating leverage. While not shown on this slide, underlying EBIT A was 14.9% higher at $491.4 million. This metric excludes non-cash acquired amortization charges and offers a clearer view of the business's underlying cash generating capability. Free cash flow was $213.8 million, up $83.2 million or 63.7% higher than the prior period. Underlying NPAT was 13.6% higher at $223.1 million with underlying EPS also up 13.6% to $0.10. Return on Capital Employed or ROSE is a metric that we are transitioning to as it is more commonly used by our peers and adjusts for the non-cash amortization of acquired customer contracts. growth improved 60 basis points to 9.7%, demonstrating that we're deploying capital more efficiently and generating better returns from our asset base. Similarly, ROIC has improved 60 basis points to 6.6%. The earnings trend across the last few years is moving in the right direction. FY26 continues the pattern of growth from earlier years, which is a credit to the scale of the platform and the operating discipline in the business. Now moving to slide 16, underlying EBIT adjustments. Most of these are items that were spoken about in the first half and the annualized impact of these are presented here. New items relate to the MRL levy provision, transactions related to closed landfills and C&D closure costs. The MRL levy provision was flagged in an ASX release in July when we decided to appeal the decision of the Supreme Court. The amount presented here is lower than the amount in the announcement, but this merely relates to the classification of the interest element sitting further down the P&L. There was a net benefit from transactions related to New Chum and Willowong, with the latter sold during the year. The C&D business was ultimately closed in the second half, having failed to attract an adequate bid. The strategy refresh has a refined way we want to play with our focus on attractive return segments and capital discipline. This can be seen through the rationalisation of our C&D service offering and reducing certain inefficient IS Metro activities. The board is reviewing the underlying adjustment policy to improve clarity and raise the threshold for significant items. will help sharpen the distinction between recurring underlying performance and exceptional or transitional items. This is intended to make the reporting framework easier to interpret. Should the change be adopted, the outcome would not materially affect the current FY27 underlying EBIT guidance range. The only item that would be treated as a significant item for FY27 on that basis would be the IT Transformation Program. Now moving to free cash flow on slide 17. As Mark mentioned before, we have updated our definition of free cash flow. The measure now includes all cash capital expenditure while excluding proceeds from land and property sales. Focusing on the material items in the bridge, we generated 101.3 million or 12.8% more underlying EBITDA. The cash outflow relating to the underlying adjustments detailed in the earlier slide was 90.7 million, being 40.6 million higher than the prior corresponding period. Working capital movements were 49.1 million favourable. This represented a marginal positive inflow of working capital in FY26 compared with an outflow in the prior period. We aren't anticipating any significant net working capital movements through FY27. Net interest paid was 23.7 million higher than PCP. This reflected higher average debt balances from debt funding approximately $470 million of acquisitions. Tax paid was 14.5 million higher, and this reflects our higher taxable earnings and a 58.7 million catch-up tax payment in the first half. This is the final catch-up tax payment. Cash capex was $8.3 million lower. There was a timing benefit of around $40 million related to fleet, reflecting delayed deliveries and improved payment terms. The structural drivers of improved cash generation are in place and should continue to support the business over the medium term, although FY27 will still absorb a number of timing and transition-related cash costs. And now moving to slide 18, cash capex came in lower at 326.8 million versus 335.1 million in the prior year. As referenced earlier, FY26 capex was lower than expected due mainly to the timing of fleet deliveries and improved payment terms. We expect this benefit will not repeat in FY27. Having largely built out our infrastructure network of scarce processing assets, Our capital intensity as measured by capex over net revenue is on a declining trajectory. This year our capex as a percentage of net revenue was the lowest for five years. The nature of our capex is also changing. There will be fewer larger projects that have characterised our spend over the last five to ten years and an increasing proportion of our spend on fleet. Fleet capex by its nature is lower risk but still delivers good returns through reduced running costs improve utilization and more reliable customer service. The growth investment pipeline is now focused on a number of smaller items, but these remain important. It includes core waste management assets to support our growing business, including fleet, compactors and bins. We have also invested in technology that will support our advanced ways of working, including data and analytics infrastructure and tools such as smarter selling and the pricing engine. and while capital discipline remains very much our focus, the business is still investing in the platform needed for future growth. In FY27, we expect total capex to be between 400 million to 410 million, plus around 40 million related to cash payments for trucks delivered in FY26. Cash capex for FY27 is expected to be around 360 million. Finally, I'll turn to net finance costs and dividends on slide 19. Underlying net finance costs increased $34.7 million to $156.2 million, driven by the debt financing for the citywide and contract resources acquisitions, which was possible due to the strength of our balance sheet. There were also a number of cash rate increases during the year. Our FY27 outlook for net finance costs is around $170 million, with the cash component being around 140 million. This reflects the annualization impact of rate rises. We have undertaken some additional hedging, which has lowered our sensitivity to around 2.6 million cash net finance costs per 25 basis points movement. And moving to dividends, the board has declared a fully franked final dividend of 3.5 cents per share, taking the full year dividend to 6.85 cents per share, up 14.2% on last year. 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. And with that, I'll hand back to Mark.