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.

Thanks, Nigel. We now move back into the Outlook. We're guiding to an underlying EBIT range of $500 to $530 million. That range is built first on organic growth in the core solids business, supported by pricing, volume and productivity, then on recovery across health, OTS and industrial services, together with the incremental benefit of indirect cost actions already underway. At the same time, the guidance recognises a higher central investment requirement for IT systems modernisation and systems and capability that will enable Blueprint 2030 For the latter, the cost will be incurred before the benefits are realized. As we discussed back in April, free cash flow is the currency of Blueprint 2.0. Given the inherent variability of cash over balance dates, as illustrated by the $40 million benefit recognized in FY26, we felt it would be more prudent to guide the building blocks of free cash flow. We also recognize investors may have different cash flow definitions, We expect depreciation and amortization of $435 million to $455 million. And taken together with our EBIT guidance of $500 to $530 million, you can derive an underlying EBITDA range of $935 to $985 million. We expect cash capex of approximately $360 million. As Nigel said earlier, we don't expect any material working capital movements during the year. Cash interest paid is expected to be approximately 140 million, subject to no further cash rate movements. We continue to expect total landfill remediation costs of around $180 million over FY27 to FY29. And finally, we expect the net cash impact of underlying adjustments to be $40 to $50 million. With our foundational investment now complete, and legacy issues mostly behind us, we are focused on delivering improved quality of earnings, maximizing cash flow, and generating sustainable value. I'll now move to slide 22, where I want to briefly recap on our strategy. Blueprint 2030 2.0 is the next phase of Cleanaway's value creation journey. Blueprint 1.0 was about building the platform. We strengthened the business we improved operating disciplines, we embedded the branch-led operating model, we reset data analytics, we progressed customer connect, and we built Australia's leading integrated waste infrastructure network. That work is now substantially complete. Blueprint 2.0 is all about making that platform work harder. We want to create superior shareholder value by extending CleanAway's position as Australia's leading waste management and technical services company, and by maximising the cash flow and growth potential of the business. The key shift here is from building foundations to extracting value. This matters because Blueprint 1.0 delivered strong earnings growth, but free cash flow did not yet fully reflect that improvement. That was due to foundational investment, one-off and legacy costs, and catch-up tax payments. Those pressures are now easing. Cash flow is now the clearest measure of how strategy converts into shareholder value. Moving to slide 23. Together these three pillars support the value creation framework. This framework is useful because it shows how the pieces fit together and it's deliberately straightforward. Revenue growth comes from market growth, pricing discipline and targeted investments. Margin expansion comes from operating leverage, better pricing, lower cost to serve, and improved asset utilization. Capital efficiency comes from keeping overall capex disciplined, focusing growth capital on mid-teen return opportunities, and limiting M&A where the network is already strong. Those drivers support EPS growth, stronger free cash flow, improving returns, and sustainable dividends. So the simple investor message is, Blueprint 1.0 built the platform. Blueprint 2.0 converts that platform into value. We're making scale our advantage. We're using data and technology to improve customer outcomes and lower costs. And we're optimizing the network we've already built. And we're applying disciplined capital allocation to ensure growth translates into free cash flow, returns, and shareholder value. Moving to slide 24, the track record slide is there as a reminder that this is a business that has built earnings, scale and cash generation over time. The FY26 result is part of that broader trend. The key message here is that the platform is much larger, stronger and more profitable than it was a few years ago. The next step is to make the quality of that growth more consistent and more repeatable. Moving to slide 25 and I'll briefly touch on last week's announcement before wrapping up. CleanAway received a non-binding proposal from EQT Infrastructure to acquire 100% of CleanAway shares for $3.13 per share. The proposal is all cash and was improved from EQT's initial proposal. The proposal allows the company to pay a franked special dividend and the board expects to do so if the transaction is implemented. The cash amount of any dividends would come off the offer price, but this could be efficient for domestic holders from a tax perspective. The quantum of this dividend is yet to be determined. The board has carefully assessed the bid and has come to the conclusion that it will recommend the bid assuming EQT completes its confirmatory due diligence and delivers a binding bid at this level and subject to agreeing a scheme implementation deed. The proposal represents a premium to pre-announcement trading of 34% to the one month, three month and six month BWAPs. It represents an EV EBIT multiple of 20 times based on our FY26 result. At the same time, we remain confident in the strength of our existing business and the long-term value Blueprint 2030 can create for Clean Away shareholders. EQT's proposal attributes value to our strategy today. While the board works through the next steps in the process with EQT, the priorities for the business do not change. We remain focused on safe and reliable operations, serving our customers, supporting our people, and executing Blueprint 2030 with discipline. Moving to slide 26, To close the formal presentation, the core message is this. FY26 delivered solid earnings and cash flow growth. The organic growth was weaker than we would like due to some pockets of underperformance. The underperformance in health, industrial services and OTS is understood and we are addressing it. Solid waste services and contract resources, stability and resilience supported an improving cash generation profile. The focus for FY27 is to convert the scale of our platform into consistent organic growth, better execution, stronger cash flow and high quality earnings. Before we hand over to questions, I want to take this opportunity to thank our employees for all their hard work. These results would not be possible without them. And with that, we'll now take questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone and wave your name to be announced. If you would like to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Jacob Kakanas from Jardin Australia. Please go ahead.

Morning, Mark and Nigel. It's Darcy White here on behalf of Jake. Thanks for taking my question. Just the first one, on the 500 to 530 EBIT guidance, Can you help us bridge from FY26? Specifically, can you talk us through what organic growth is assumed for FY27, whether there's still plans to generate savings from corporate cost reductions, and how much is carried from contractual resources and any deal-related synergies, please?

Yeah, sure. Thanks for the question. Yeah, so if we try and bridge from 470 to, say, somewhere around the midpoint of the range, you probably want to think about it in four buckets. So the first would be sort of a bucket which includes those businesses that we've closed plus, say, the Yatala roof being repaired, which obviously, you know, that work is all done. So it's like C&D business has been shut down, New Chum has been shut down, Yatala roof has been repaired. So you don't have those headwinds in 26 in 27. you then the second bucket would be the indirect costs benefits so if you if you remember what we've just said so we've talked about an incremental 25 million dollars additional to the 13 that we saw in fy26 coming from the indirect cost program third bucket would be organic growth including sort of the recovering SBUs would be the third bucket and then the fourth bucket is a negative and that would be those sort of IT and Blueprint 2030 capability upgrades that we'll be spending on 27. And they kind of fall into perhaps sort of three buckets themselves. There's some incremental cyber costs in there. There's the spend, there's the real spend on IVMS and pedestrian detection and the control room where we'll have the costs without the benefits this year as we ramp that program in. And then there's the sort of Blueprint 2030 sort of future tech to allow the advanced ways of working that spend to make sure we get at that margin expansion that we've promised. So that's the four buckets, three positives and I guess a negative in terms of cost.

Thanks, Mark. Just as a follow-up on the organic growth that you're mentioning, can you talk about the type of considerations considerations we should think about for the operating environment in FY27?

Yeah sure I think you know I think what you should think about is you know firstly you know 26 was weaker than we'd anticipated so we're starting about 20 million dollars behind where we thought we would be the first thing I'd say I think secondly I'd probably say that when we did the bottom-up budget build that sort of underpins the range today what we saw was in 26, a higher proportion of landfill volumes were project related. That's obviously less predictable than our muni and CNI volumes going into the landfill. And so because of that, we think landfill volumes aren't necessarily going to grow at the same rate as you saw in 26. I think also in resource recovery, what we're seeing there is we're seeing glass being separated from commingled. In Victoria, remember the mandate where the councils have to roll out the glass bin? and that's obviously coming out of the commingle bin which would come to us. And then similarly we're seeing the ramp up of the CDS in Victoria and TAS and so we're seeing less volumes come through just generally into the MRS. The third would be, you know, we dedicate a significant amount of sort of horsepower of the organisation to managing the fuel related issues supporting suppliers. That meant we didn't get at the non-labour indirect costs that we're targeting and so we're a bit behind where we thought we would be at this point coming into 27. I think fourth, you know, obviously we talked about the IC strategy and spend that we need to do there. And then lastly, I think, you know, just probably have in your mind, it is important that when you think about the 500 to 530, think about what Nigel was talking about just before in that we are reviewing the underlying adjustment policy and we have budgeted on that basis you know that means the only adjustment we expect to make to the statutory result is IT transformation costs and so things like reviewing EAs stuff like that will be is included in the underlying results so there should be no surprises when it comes to results going forward I hope that helps thanks Mark that's clear

Thank you. Your next question comes from Dylan Adrian from JP Morgan. Please go ahead. Hey, Dylan.

Yeah, good morning, Mark, Nigel and Richie. Just filling in for Lee Power. I just want to clarify the comment on lower IS contracted and project activity. Should we be reading that as projects not proceeding or that they're delayed? And what are you doing to fill that gap?

Yeah, so that's an IS question, isn't it? I mean, just on there, so what you should be thinking there is, you know, that was deferrals of maintenance, project work and turnarounds that IS was looking to complete in the second half. You know, when that gets deferred, it's very hard for the team to, they can flex their costs, but it's very hard to flex their DNA down. So, you know, that work will come. It's just, you know, obviously getting delayed. I do think there's a bit of a Middle East impact there because what's happening is you're seeing Australian type activity not get delayed so production can be boosted so that then, you know, the interruption from the Middle East is mitigated in some way. I think what are we doing about it, to your question? So, you know, obviously we're restructuring. We've restructured IS in the last sort of six to nine months. The thing to be thinking about there is we're very much adopting an IS operating model that looks like CRs. So that is all around embedded branches. In other words, a branch on location at the client side dedicated to that and scaling up and down to do turnarounds, et cetera. And of course, that just leads to more predictable work, better reallocation of people and equipment. and that sort of thing. So that's what we're doing to fill that gap.

Okay, that's clear. And just to follow up to Darcy's earlier question, of the 6 million-odd synergies still to come from contract resources, what's the expected phasing into FY27 and 28, please?

Yeah, cool. So just, okay, so what you think about that is the $6 million of synergies are sitting in the IS number, so that's the first thing. We promised 12. We're on track to the 12. We'll have delivered the 12 in the FY28 number. And just remember, those are only the sort of the cost synergies. They're not the revenue synergies. And we're already seeing revenue synergies elsewhere. And I think we've talked about before, we're definitely seeing the cleaning, the outcomes of cleaning, in other words, the liquids coming to the liquids team, etc.,

Thank you.

No worries.

Thank you. Your next question comes from Samantha Eadie from Morgan Stanley. Please go ahead. Hey, Samantha.

Good morning, team, and congratulations to Nigel on starting the new role, and also congratulations on the proposed takeover. So I just have two questions today. So the first is around the free cash flow. so I see that you've changed your free cash flow calculation so you're now taking away cash capex rather than maintenance capex. Can we just get some colour around the reasoning behind that change and then just secondly if we look at those line item guidance that you've given so if you work backwards you get to about $316 million and then if you take off the cash tax of let's say $100 million that gets you to around the same levels as where you're at for FY26. Is that the right way to be thinking about it?

I'm happy to take it. Okay, go for it Nigel, here we go.

Thank you for your comment earlier. I think, Samantha, yes, looking at it in the right way. I think hopefully we've provided enough reference points to kind of guide the free cash flow and obviously we've got the 45 million of IT transformation costs which we've commented on earlier as well as the impact of underlying adjustments cash impact coming through into FY27 but yes we broadly see it the way that you've described.

I think the comment there Sam would be that like I mean clearly if it wasn't for the 40 million dollars it's kind of swung from 26 into 27 associated with sort of the timing of the fleet delivery in June and the change in the payment terms, you've got sort of $40 million crossing years. And so in many ways, free cash flow in 26 would have been $40 million lower if it wasn't for that. And 27 would have been $40 million higher. And so you would have seen a more distinctive step up between 26 and 27 of like $80 million if those things had flipped the other way.

As to the reason why we changed from maintenance to total capex it was really around a lot of the investment going forward will be in the fleet and then there's that sort of discussion that we had at the investor day around some of it grows some of it stay in business so rather than have that confusion there it was easier just to lump it all together and factor it in that way yeah

yeah okay awesome that's really helpful color thank you um and then just secondly around that it transformation costs um so that looks like a bit of a step up at 40 to 50 million um can we just get some more color around what's involved in those costs and was that a bit higher than you were anticipating yeah so that's i think you're talking about the underlying adjustments being sort of 40 to 50. yep happy to check you through that so

is probably years higher than what people have been expecting. So probably what the piece that people were expecting was sort of $25 million for Customer Connect. There's no change to that number. This is the final year. What's exciting for us, and hopefully for you as well, is that we did release two this week. We did it on Tuesday morning, about 9 a.m. So that means we've now got the golden cycle golden record for our customer, golden customer record. That is super important because you think about revenue growth going forward. Revenue growth is all about, it's about price, it's about volume, it's about churn, and it's about share of wallet. And what this enables us to do is it allows us to turn on smarter selling and the pricing engine, which really helps us drive the share of wallet through total waste management and obviously volume based on really location-specific pricing at a sort of company-wide scale. So it is like a transformational week for Clean Away in terms of our capability enabled by that release too. Obviously the next release is the one that impacts, so digitizes the trucks. That starts in South Australia and that will start to roll out this half. So we're getting towards the finish line finally on a multi-year program. Coming back to your 45, so that's the first 25. The other 20 is really around some muni software that we need to replace. The simple story there is that the vendor, or sorry, I guess the vendor of the software has been purchased by another company. That company has now decided they're going to switch that software off, not just that it goes out of support, it's actually going to be switched off early next year. and so we have to replace all that muni software on a schedule-driven way across the company. And that's sort of $20 million-ish. Those are the big building blocks. Sam, hope that explains it.

Yeah, that's super helpful. Thank you. No worries.

Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Amit Kanwataya from Jefferies. Please go ahead.

Morning, Tim. Congratulations. Hi, morning. Congratulations on the result. I mean, if I can ask the question on the bid, EQT bid. I mean, you've demonstrated solid free cash flow today, kind of free cash flow is the currency for blueprint 2030 2.0. And the question is, why do you sell the business now? ahead of those strong pre-cash flow delivery earnings still seem to be growing by 10% plus?

I think, I mean, what I go back to is, you know, the board's gone through, you know, an extensive process from receiving the, you know, the unsolicited approach. What I'd also say is just remember, and we've talked about this before, we kicked off the strategy work, the very fresh strategy work in July last year. We did seven months of strategy work. At the same time, we rebuilt the corporate model from scratch. That enabled us to do the valuation work, and we'd done that valuation work in advance of the EQT approach. I think you should think that the board engaged with EQT to get to a point in price which they could then discuss with shareholders to be your point the board looks at the value of the bid through multiple lenses one of those is you know the cash flow analysis and ultimately the board believes it's at a value where it's now time for shareholders and the independent expert to take a look you know that's that's probably really all I can say I mean I need to also stick to you know sort of what we've said already I mean if I just look at the deal multiples and I'm looking at the EBITDA multiple

which is around 9.7 times on a 12-month forward basis. I mean, free cash flow yield around 4.5%, which is solid as well at this level. I mean, $3.13. I mean, if I look at the past kind of sector transactions, it seems to be a bit light to us.

Well, again, what I'd say is, you know, it's a trade-off. now between upfront certainty today versus the time you know capital investment execution risk market risk to realize the 2030 standalone value so i'm not going to comment on multiples and that sort of thing i'm not going to comment on multiples versus other deals that have been done because they were done in different environments with different businesses sure just just unpicking some of the comments you made earlier and good to see that significant

significant cost being classified above the line. So I think that's good. But then just on the fiscal 27 guidance range, and you said the negative is around the IT investments, some capability into 2030. Can you give us a bit more flavor in terms of the cost range around some of that, the payback period, and how should we be thinking beyond fiscal 27?

Yeah, sure. No worries. So I think just orientate people because there's a lot of different IT being talked about. So we're talking now about the FY27 guidance, the 500 and 530. We're talking about, you know, when I built up sort of the four buckets, we're talking about the fourth bucket, which was the negative bucket associated with IT and Blueprint 2030. So again, there's three buckets that sit within that fourth bucket. The first one is cyber. So it's a small amount of incremental spend on cyber. In terms of the second part is the safety sort of, I guess, IT spend. So remember, we've installed and the live sort of stats are in the deck in terms of, you know, IVMS, pedestrian detection. We're almost done on pedestrian detection across the Yellow Gear fleet. We're about 66% on the IVMS. We've stood up the control room. It's live. It runs 24-7. That all comes at a cost. As we ramp that program into the assets, what we see is what you get, you have the cost, but the benefits take some time to come because you create the knowledge of what's going on, you then address that, and then those events drop over time. And we're seeing that drop occur, but that will probably take a year for those benefits to appear against that sort of safety related spend. And we've got analog companies that have seen peer companies overseas that have done this sort of work have seen those costs get offset by the benefits. And then the third part is the spend associated with the sort of advanced ways of working. This is all about making sure we can get at the benefits of Customer Connect by having enough data analytics, AI capability to sit on top of that and get at that 260 basis points of of margin expansion. That is things like how we really operationalize and scale the pricing engine, smarter selling, the brand persistent, all these sorts of things that'll really make sure we get, we just can get the value from our scale and make that our advantage.

I mean, just around the cost range and cost bucket around some of these three buckets and then looks like safety should be finished by 27. I mean, what about that?

I think, you know, cyber is an incremental spend. The safety will get to steady state during 27. And then, you know, I think, you know, we'll have a stable amount of spend on on Blueprint 2030 and the sort of advanced ways of working. So again, you know, it's not huge. These are not huge numbers, but when you add the three together, it's enough that it's worth mentioning as, you know, sort of an offset against, you know, why, and I guess analysts mind, did we not get above that 515 number? This is one of the key reasons that dragged us back down.

Sure. And just the final one. I mean, health business challenges, I think you've highlighted on the call. But I'm looking at the EBIT margin, 9.7% in second half, kind of significantly down versus what delivered in fiscal 25, first half, 26. I mean, how should we be thinking about that business situation? returning to the normalised levels in the future? Is it more 27, 28, or most of it should be towards the second half of 27?

Yeah, see, I mean, I think you should think that, yeah, so predominantly that change is caused by health, you're right. I think you should sort of probably think about a couple of things. So remember, in FY26, we had the ex-tropical cyclone, Alfred took the roof off the Yadala facility, and that's the call out that we made, you know, sort of around that $2.5 million of costs. That roof is a really good roof now, so it's been replaced. And that came online late sort of 26. I think, unfortunately, the repair of that roof wasn't in our control. It was the landlord's job and it took this much longer than expected. So, you know, that was delayed. We brought product destruction online in Dandenong in the health business. Again, we brought it online, but it was significantly later than what we'd hoped, but again, it's online now. Liquid injection and silver water, we brought online during 26. It was, again, took longer than we had expected, but again, it's online now. I think, you know, on the technical sales side of health, probably one thing we didn't get right in the restructure was we probably didn't respect the technical sales in health capability that we needed to have going forward and so address that we've got eight extra sales people technical sales people in health a crop that we brought in over the back end of the of the first half so again that's sort of addressed for 27 and ramping up and just we didn't get at some of that revenue leakage work in in the health business I know that's all I know that sounds very negative but those were sort of those are like the four or five things that combined that made health under deliver um and of course you know in 26 you know the fundamental other issue was we had we had the major customer in victoria re-contract we got 90 of the volume but we got it at a much lower margin and so that's that when we you know when we said before it was like a reset year it was a reset to that to that contract that's fine we've got the volume now we'll just we'll just grow from here

And are you able to kind of clarify how much is HELP I mean in terms of the range contribution to that segment for I mean the EBIT contribution HELP is to that?

We gave you a clue that we gave you a clue to that on the bridge slide so if you look at the if you look at the bridging slide which is Richie's favorite slide so it's um it's written slide nine so the clue there I mean is to look at the seven for health. That's what we're trying to catch up. Yeah.

Okay. Thank you. Leave it there. Thanks.

No worries. Go on in.

Thank you. Your next question comes from Nathan Raleigh from UBS. Please go ahead. Hi, Nathan.

Morning, gents. I'm just looking at the free cash flow guidance and thanks very much for the building blocks that you've given me for F27. I'm just trying to get a sense of how that might look sort of beyond that timeframe. So in terms of those underlying adjustments, IT, your use of provisions, do they kind of drop out into F28 or is there some sort of base there that remains?

Thank you for the question. We appreciate being able to give you an answer on that. The underlying adjustments, the 40 to 50, obviously that drops away because Customer Connect doesn't reoccur and the Muni software doesn't need to be replaced a second time. The prior year underlying adjustments that Nigel called out, which is another circa 40 million, that's a combination of the MRL levy issue, the enterprise agreements and legacy waste. And again, they don't repeat either. And so immediately you see that sort of 80 step up in FY28 before you even start with, then obviously you start to see Blueprint 2.0 acceleration and EBIT growth and obviously that sort of thing. landfill remediation in the sort of longer term. So remember we said to you it's 180 over FY27, 8 and 9, which is code for sort of 60 a year. You know, we expect that to drop to more like 30 a year from FY30 onwards. I know that's not the exact timing of your question, but I'll give you the clue for sort of, you know, the other items in the cash flow building blocks that will that will move over time. Does that help?

Yeah, no, you anticipated my second question, so well done there. Just on the CapEx, in terms of the cash CapEx guidance of 360, I mean, that's consistent with that sort of envelope that you've referenced previously in terms of the level of CapEx that you think you'd be needing on an interim view?

It is, but just remember the exceptions that we've we've said that it's 410 on sort of a go-forward basis. And then what we've also said to you is that excludes major capital spend on things like Dynan Road, where that is sort of 45 million. The timing of that spend is kind of 28 onwards. It also obviously excludes if there's energy from waste spend. and it also excludes Lucas Heights Extension CapEx. So we're not sure whether we can fit that within the capital envelope at the moment. And the first spend there would be sort of 2028 onwards.

Brilliant. Thanks for that. And final question for me, just in relation to the bid. Can you give me just a sense of the level of engagement that you've had from other parties or interested parties in terms of conversations, informal conversations or otherwise over the more recent timeframe or whatnot?

Really, Nathan, there's a no shop, no talk requirement in the in the process, so there hasn't been any discussion with any other parties. I think that's, unfortunately, the short answer to your question.

That'll do. Thanks very much.

No worries. Thanks, Matt. Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your next question comes from Cameron McDonald from E&P. Please go ahead. Hi, Cam.

Oh yeah, G'day Mark, sorry I've been caught on other calls so apologies if you've answered this but just in terms of the guidance of take the midpoint of 515 how does that relate back to a greater than 15% EPS growth rate for FY27?

Yeah so I think you know clearly Let me try and explain that to you. So remember, we're breaking into four buckets. So the first is FY26 was weaker than we'd anticipated. So we're starting, we're around $20 million behind where we would have liked. And you can look at the bridging slide for that. And that's really in IS, in health and in OTS. The second part is that when we did our bottom-up budget build, we saw a higher proportion of landfill volumes for project-related. They're less predictable than what we have in union C&I volumes going through the landfill. Because of that, we think that the landfill volumes aren't going to necessarily grow at the same rate as prior periods. In resource recovery, we're seeing glass being separated from commingled bins. Remember the Victorian mandate is you must offer the fourth bin. if you're a council. We're also seeing a ramp up in CDS and VicTAS, and that's taking volume out of the commingled bin that would come to us. Third, we had to dedicate a significant amount of time to fuel-related costs and supporting suppliers and third parties in that Middle East complex time. The colour there is... We had sort of 18,000 invoices we needed to deal with. We have 439 suppliers. That's just on the CNI side. And then you go across to 109 muni contracts that we needed to manage very actively. That meant we didn't get at the non-labour indirect costs that we were targeting. So we're starting the year behind where we would have liked there. Team did a great job on fuel. It's just that that put us behind on the other part. And then, like we talked about, I don't know whether you heard, Gam, but I was talking about in the IT strategy, we need a bit more spend on cyber. We've got the cost of setting up the IVMS control room, installing all the PDD and IVMS and monitoring costs. And that spend won't have the benefits this year. It'll flow through in sort of the future year. and then there's also the spend associated with putting more capability to support customer connect and data analytics to make sure we can get to that 260 basis points of margin increase against spend today for benefit going forward. So, you know, I think the other thing I'd say to you is that when you think about the 500 to 530, I said this earlier on the call, again, I'll just go over it again because I think it's important. is that we are reviewing the underlying adjustment policies. We've budgeted on that basis. That means that the only adjustments that we expect to make to the statutory result is the IT transformation costs. Those things like we've talked about before, like legacy EAs and stuff, it's all going to get included in the underlying results. So there should be no surprises when we come to results going forward. That's probably the bridge between that and that leads to us not being at that north of 15% comment that you made before and obviously, you know, we're just at slightly sub 10.

Well, yeah, I mean, based on the numbers you've given so far and making, you know, a very quick adjustment to the non-cash interest that goes through, I mean, you're closer to single digit, you know, mid single digit EPS growth, aren't you, from the 233?

Yeah, I don't know. That's not the same number I've got in my mind, but happy to take it offline.

Sorry, the 223. Yeah. Yeah, I mean, I'd be interested to unpick that, particularly given, like, I mean, this is a significant change since the April Investor Day. And so I'm a little bit surprised that things have changed so quickly. But then you stand up and say that you're going to deliver 10% to 15% EPS growth CAGR out to 2030, and yet you've got it, you know, within four months. you're not even within that range anymore.

Well, I think we've been over it. We've been really clear with you as to what has caused that weakness that we've just walked through. I think we've got clear weakness in IS, in health and in OTS all at the same time. which means that that starting point is weaker. And then plus that, we've got some incremental cost that we do need to spend that has a cost now but a benefit later on. You can't get at some of that 260 basis point margin increase if you don't put a layer on top of Customer Connect so you can use the smarts and the digitization that we've installed Similarly, the IVMS PDD control room spend is real spend. People who've run these fleets understand that you make the change and there is a year-long lag whilst the behaviours change that then leads to the savings. So that's unfortunately just the situation we find ourselves in and when we've done the detailed modelling, this is where we're at. Like I said to you before also, this is a clean... is a much cleaner guidance because we're changing that underlying adjustments policy and you should expect there'll be less in that bucket and there's only $45 million of that IT transformational spend and that drops away in 2028.

Okay, thank you.

No worries.

Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.