Cleanaway Waste Management : FY24 Results Presentation – Prepared Remarks

Speaker Notes

21 August 2024

Good morning and thank you for joining us for Cleanaway's financial results briefing for the FY24 financial year.

My name is Mark Schubert, CEO and Managing Director of Cleanaway. I am joined by Paul Binfield, Cleanaway's CFO, and Josie Ashton, Head of Investor Relations.

Slide 3: Acknowledgement of country

Firstly, I would like to begin by acknowledging the traditional custodians of the many lands on which we meet today and pay my respects to elders past, present and emerging.

Slide 4: Agenda

The plan this morning is that I will take you through our highlights for the period and the good progress that we have been making.

Then Paul will provide you with further details on the group financials after which I will walk you through the performance of each of our operating segments and the outlook for FY25.

Taking the disclaimer as read, please turn to slide 5.

Slide 5: Highlights andoverview

On behalf of the entire Cleanaway team, I am pleased to report that FY24 was a year of execution and progress. We delivered another year of double- digit EBIT growth, we improved returns to shareholders and we beat our FY24 guidance.

These results highlight the underlying strength and scale of our business and the increased operational resilience delivered through the execution of our Blueprint 2030 strategy.

Cleanaway Waste Management Limited	Registered Office:	P [phone]	cleanaway.com.au
ABN 74 101 155 220	Level 4, 441 St Kilda Road,	F [phone]
	Melbourne VIC 3004
	Australia

Speaker Notes

21 August 2024

During 2024 we delivered on our restoration plans, with QLD Solids recovery completed and the business growing again. And our Health Services business has been transformed with both reduced costs and increased capacity and the business on track to deliver its targeted FY25 earnings.

And we can see labour productivity benefits flowing through to our financials from reduced vacancies and lower turnover.

Our focus on operational excellence initiatives are gaining momentum as they shift from being plans and pilot programs, to scaled ways of working codified in our branch-led operating model.

Our strategic infrastructure growth projects that are expected to deliver $50m EBIT in FY26 are on track and we are progressing a number of opportunities that will deliver beyond FY26.

Our progress over the past 12 months, coupled with the momentum we've gained in executing our Blueprint 2030 strategy, gives us confidence in our ability to continue delivering results.

In FY25, we expect EBIT to be in the range of $395 to $425m, and in doing so, will deliver shareholders another year of double-digit earnings growth and improving returns.

From there, we see a clear runway to our mid-term ambition of more than $450 million in EBIT in FY26. Importantly, the growth we are delivering now and into the future is the result of our efforts to build a safer, empowered, data-enabled and branch-led organisation that will underpin a sustainable future for the Group.

Slide 6: Financial highlights

Turning now to the financials.

We have delivered a strong financial performance and improved returns to shareholders.

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Speaker Notes

21 August 2024

Underlying EBIT grew at a record rate of 18.9% to $359.2m which was ahead of our guidance. This was driven by the completed recovery of QLD Solids, the transformation of Health Services and a solid underlying performance across the Group, particularly in our NSW /ACT Solids business. CDS and LTS also delivered strong financial results for the year.

Through the execution of our Blueprint 2030 operational excellence initiatives and disciplined price management, we increased our EBIT margin by 100 basis points to 11.2%, up from 10.2% the previous year.

Net operating cash flow was up 12.5% vs FY23, reflecting growth in EBITDA and lower cash outflows as costs associated with the New Chum rectification were lower this year.

Net profit after tax was up 14.8% and our return on invested capital was up 60 bps to 5.5%.

Earnings per share grew at 15.2% to 7.6 cps, and directors have declared a 2.55 cps final dividend, which will be fully franked.

Slide 7: Working together to create asafe and respectful culture

Moving now to Safety and People on Slide 7

Before I talk about what is on these slides, I do want to pause and acknowledge a tragic accident that occurred earlier this month involving one of our muni collections vehicles where sadly a member of public passed away.

Any loss of life is heartbreaking, and on behalf of the entire Cleanaway team I offer my deepest sympathy to this person's family and friends. I would also like thank those involved on the day responding to the accident. We are taking all steps to learn from this tragic event.

[pause]

At the beginning of FY24, we set out a 5-year roadmap to drive improvements in our HSE performance and culture. Our roadmap is

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Speaker Notes

21 August 2024

multifaceted with a focus on risk prevention, capability building, and cultural transformation.

During FY24, we made significant progress on the plan and in particular in relation to how we manage our critical risks and critical controls. In FY24 we further strengthened both our controls and our assurance.

We also benchmarked ourselves against comparable and available international and domestic peers in the waste and logistics industries. We found that our TRIF which has ranged between 3.6 to 4.6 over the last 5 years was amongst best in class when compared with our peer group.

This led us to add Serious Injury Frequency Rate or SIFR to our short-term incentive measures. Adding this metric aligns with evolving industrial best practice and helps us measure our progress in addressing critical risks and controls whilst maintaining the focus on recordable injuries.

A key highlight of this result is the progress we have made in relation to our team.

Our recruitment processes have improved and we have seen a significant improvement in voluntary turnover, which averaged 17.6%, down from 21.5% in FY23.

Our vacancy levels have also continued to reduce and are currently below our historical averages.

We continue to closely track first-year voluntary turnover which is reducing, with the aim to get it down below 30% by the end of FY25.

Female representation and female voluntary turnover also improved during the year, driven by direct initiatives to attract and retain female employees, as well as build a culture of respect, ownership, and connection.

In the first half of FY24, we rolled out mandatory Respect@Cleanaway training for all employees. We followed this in the second half with the rollout of our five Guiding Principles. These principles which build on each other serve as a roadmap for creating a workplace where everyone feels

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Speaker Notes

21 August 2024

safe, respected, and empowered to contribute their best every day and deliver outstanding results.

As announced at the first half result, we introduced our Mission 500 incentive plan, targeting our 567 front line leaders who don't receive LTI, to align them to our stretch target of $500m EBIT in FY26.

Every month we connect this group of leaders, we walk through how we are going, we share success, we ask for help and we align around what happens next.

Slide 8: Foundations - Environment

Moving now to the environment.

Every day, as our purpose states, we are making a sustainable future possible together. In a world increasingly focused on sustainable solutions, we are well placed not only to make our own future sustainable, but our customers as well.

Pleasingly we had no significant environmental incidents in FY24, and we reduced the risk and severity of major fires though our efforts and investment in fire detection and suppression.

We also reduced our methane emissions and remain on track to meet our 1.5oC Paris-aligned targets. We continue to seek out opportunities to accelerate the reduction of our own and our customers emissions. We are particularly excited about the successful on road demonstration of HVO100, a renewable diesel which in our case is made from used cooking oil and has 91% lower greenhouse gas emissions than mineral diesel.

As Australia's largest waste network, we play a critical role in driving large- scale circular solutions. Over the past 12 months, we've expanded our resource recovery capacity with the launch of VIC CDS operations. We also commissioned two joint venture plants in Melbourne, which combined will have the ability to process over 2 billion PET bottles, 300 million HDPE milk bottles and 200 million PP ice cream tubs each year. And we are also

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Speaker Notes

21 August 2024

meeting the growing demand for FOGO through the accelerated transition of Eastern Creek Organics (the renamed GRL).

During FY24 we also partnered with Viva Energy to explore an at scale solution for advanced recycling of soft plastics.

Our scale enables us to make a significant impact on addressing Australia's waste and sustainability challenges, creating a portfolio of circular infrastructure that we can integrate together for customers and help them solve their waste and sustainability challenges.

[Divider Slide - Financial performance]

I'll pass over to Paul now for the financials.

Slide 10: Financial performance summary

Thanks Mark

Starting with the Group P&L where unless specified, all comparisons are against the prior corresponding period or pcp.

Net Revenue of $3.2 billion was 7.7% higher, with higher revenue across all segments primarily driven by contractual price increases and underlying organic growth.

Underlying EBIT of $359.2 million was 18.9% or $57 million higher. FY24 is the second consecutive year in a row of EBIT growth in the high teens. This year EBIT growth was driven by the restoration of QLD Solids, transformation of Health Services and strong growth in the NSW Solids and the Liquids businesses.

The 100 basis point expansion in EBIT margin to 11.2% was the primary driver of the increased profitability. Throughout this presentation, you will hear more on the benefits of our operational excellence initiatives, which are increasingly evident in our results.

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Speaker Notes

21 August 2024

Net finance costs increased by $19.6 million to $115.7 million from higher interest rates and marginally higher average net debt.

The strong EBIT growth largely dropped through to NPAT and EPS, which grew 14.8% and 15.2% respectively. Current year underlying NPAT is $170.6 million, $12.4 million higher than the statutory NPAT of $158.2 million, primarily due to the SaaS accounting software costs incurred as part of the CustomerConnect project.

The Group remains comfortably within its banking covenants and has a leverage ratio of 1.89x at year end in line with prior year.

It was also encouraging to see Return on Invested Capital increase by 60 basis points to 5.5%

Turning now to Net Operating cash flow

Slide 11: Net operating cash flow

Net operating cash flow was $542.1 million, up $60.3 million from prior period and the cash conversion ratio of 97.6% remains strong. Adjusting for the cash flows associated with underlying adjustments net operating cash flow would have been $592.8 million an increase of $22.5 million.

The strong net operating cash flow performance was driven by higher EBITDA and lower cash flow associated with underlying adjustments, partially offset by higher interest payments.

In FY25, the net cash outflow associated with underlying adjustments will be lower by approximately $10 million. This net improvement is the aggregate position of costs associated with the continuation of the Customer Connect transformation program and the last of the New Chum rectification costs, which will be partially offset by a further insurance recovery.

Management of working capital continues to be a priority and with the exception of the construction sector, where we have minimal exposure, the quality of our receivables book is excellent.

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Speaker Notes

21 August 2024

As Mark said, Directors declared a fully franked final dividend of 2.55 cents per share taking the full year dividend to 5.0 cents per share. The Commonwealth Government Instant Asset Write off program has finished, and Cleanaway will resume paying income tax. Tax payments during FY25 are estimated at $120 million, approximately $95m related to FY24 and about $25m related to instalments for FY25. As a consequence, we expect future dividends will be fully franked.

Slide 12: Capital expenditure

Capital expenditure for the year of $446 million finished within the top end of our $430 to $450 million guidance range, with approximately one third of the total or $161 million being growth capex.

During the year we have made investments in several key Strategic Infrastructure projects. These included:

• The construction of Western Sydney MRF, which remains on budget and on time. Commissioning is expected in October with first waste being received in November. It is expected to start positively contributing to earnings in FY26, as volumes steadily ramp up
• The completion of the roll-out of the Victorian CDS network, again on time and on budget, with the scheme becoming operational from 1 November 2023. Its contribution in FY24 was minimal and is expected to ramp up over FY25.

We recognise the importance of the capital allocation in driving accretive returns and are always looking to strengthen our processes.

• EBIT rather than EBITDA is used in our performance measures right the way through to branch managers, as it better aligns remuneration with returns on capital
• we lifted our hurdle rates, thereby making the capital approval process more demanding
• we have started looking at the allocation of capital over multiple time horizons

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Speaker Notes

21 August 2024

• and we now have tools from data & analytics to help to optimise our spend, particularly in relation to fleet

We are committed to a disciplined, returns focused approach to capital allocation, and in our current context of having more opportunities than organisational capacity, this sharpens our focus on selecting the growth opportunities with the highest returns.

We expect capital expenditure for FY25 to be approximately $400m. This comprises approximately $250 million of maintenance capital and $150 million of growth capex.

We expect our D&A for FY25 to be ~$380-400 million

And with that, I will hand you back to Mark to take you through the segments.

[Dividerslide - Segment updates]

Slide 14: Solid WasteServices

Net revenue increased 6.3% to $2.2 billion. And underlying EBIT increased 18.3% to $329.0 million, but most pleasing was the EBIT margin increase of 150 basis points to 14.8%.

Net revenue growth was predominantly driven by price increases in the collections business with support from volume growth in the Container Deposit Scheme (CDS) and Organics operations.

Disciplined price increases and contractual price mechanisms more than recovered higher labour and fuel costs, however the benefit of price increases was tempered by higher fleet repair and maintenance costs and the general inflationary environment.

The improvement in voluntary turnover and reduced vacancies resulted in a reduction in subcontractor hours and supported an improvement in labour productivity metrics.

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Speaker Notes

21 August 2024

Underlying EBIT growth was driven by the restoration of the Queensland business, strong performance in NSW/ACT, and the realisation of operational efficiency benefits throughout the network. However, this growth was moderated firstly by lower landfill volumes resulting in a moderately lower EBIT contribution from this business line and secondly a weaker contribution from the Construction & Demolition sector given the ongoing market challenges. The contribution from commodities and carbon was up year on year, predominantly because of the OCC price trending steadily higher over the period.

EBIT margin expansion of 150 basis points is indicative of the benefits of operational excellence flowing through to the bottom line.

The C&I business represents approximately a third of Solids segment revenue. C&I revenue increased by 7.1%, with 6% of the variation attributable to price, more than outpacing inflationary pressures, and volume contributing to the remaining 1%.

We have been highly strategic with our price increases this year and have leveraged our data & analytics capability to implement differential pricing across our customer base. As a result, our customer churn has been lower than it was last year. Furthermore, it also meant that we targeted larger uprates for those customers that were least profitable and hence cut the "tail" and reduced volume.

Turning to slide 15

Slide 15: Solid WasteServices Cont'd

Landfill EBIT declined by 2.4% year-on-year, as our teams focussed on maximising returns at each location by focusing on price, mix, compaction and operational efficiency. This largely offset volumes being down 8.7% for the period.

Each of our landfills have unique and regionally driven market dynamics.

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