Cleanaway Waste Management Limited (CWY) Earnings Call Transcript & Summary

Okay. Good morning all, and welcome again to another Cleanaway investor series presentation. Today's presentation will be on our Victorian Commingled Resource Recovery business and data analytics and process automation. The format will be the same as prior presentations. We will run through prepared presentation, and then open the line for Q&A. [Operator Instructions] Today's presenters will be Vik Bansal, CEO and Managing Director of Cleanaway; Mark Crawford, our Executive General Manager of the Solid Waste Services business; and Alex Smith, our Head of Commercial. Brendan Gill, our CFO, will also be on the line. Without further ado, I'll pass over to Vik to begin the presentation.

Thank you. Thank you, Richie, and good morning, everybody. I appreciate you joining us in our investor series presentation. You'll hear directly from few of our very effective dates. Let me then -- I assume the disclaimer is being read. I'll go straight into Slide 4, which is just introducing Cleanaway. So I'm not expecting to spend too much time on presenting my slide. They are just more of an introduction, which most of you, who've been following Cleanaway story for a while, would know. Australia's leading total waste management company, has -- is market leader in all solid waste services, liquids and as well as in industrial waste services. 6,000-plus employees. You can see the stats on this page. It's a vertically integrated business. You know we have talked a lot about being vertical integrator, which basically means we have a complete set of assets and ability on collection side, resource recovery side and on the post-collection side. And more importantly, diversified across all sectors of the economy from muni, commercial, residential -- sorry, commercial, industrial, residential, mining, manufacturing, health, and that's what makes us what the company is. If you take it to the next slide, which is Slide 5, please. Again, as you know, we've always talked about us being a GDP-rich stock. 85% of our customer base is contracted and that cuts across all sectors. In solid waste services, you have an average contract -- muni contract of 7 to 10 years, C&I 3-plus years. And muni, we have 3 different types of contracts: there's collection, good resource recovery and post collections. And Mark is going to talk about the resource recovery element as -- at large to VCRR versus to the SKM. In Industrial & Waste Services, typical customers are infrastructure and resources, could be anything contract for 1.5 years to 2 years, and resources could be 5 -- 3 to 5 to 7 years depending on the kind of work we are doing. And Liquid Waste & Health. Similar characteristics to C&I, especially in liquids and hydrocarbons, 1 to 3 years. But more importantly, in health services, it is 3 to 5 years. So we would be servicing practically majority of the hospitals all over the country, both for clinical and anatomical waste combining that with the post collection assets we have. So I said to you before, 85% of customer base of Cleanaway is contracted, and that gives us the defensive and the resilience of the company, which you have seen us as a management team delivering over last couple of 4, 5 years. If you go to Slide 6, this is the value creation story. I don't expect to go through in details with you. I know it's very busy. I apologize for that. But that has been taken away from our ESG sustainability book, which we released this year. And what I'm really proud is that our ESG story, which is external to us, is 100% linked to what we do internally. Behind me, you see Cleanaway Way. Behind Mark and Brendan, you see a round circle, which is what we call Cleanaway Way. And it has 4 strategic -- 4.5 or about 5 strategic pillars, which is people, earth, market, assets and finance. We call them PEMAF. That is how we run the organization. And everything we do has a scorecard, a measurement, a strategic vision for each one of those. And we also know what our business model, our operating model, uses that as input those strategic and then create a sustainable value for each one of those pillars back again for people, earth, market, assets and finance and that is what our Cleanaway value creation story is. And we have been consistently showing you results on all that front and I'll show people results again today. And that is what we're trying to do. Now the value creation story, it is linked to -- also is linked to the UN Sustainable Goals. I've always believed that the -- this is a process of perfection, and I don't believe any company to ever get there. But we believe, we have a very, very good asset, very good story to tell, and we'll continue to perfect it and make it better every single year. If you go to the next slide, which is people and culture metrics, which some of you would have seen it before. And it's an important slide. I mean people being the first pillar of our PEMAF. This has been internal metrics in the company for the last 4, 5 years. We've started to bring it out openly. Safety has always been part of our presentation. You can see over 5 years, we have a 16.1 CAGR average reduction, while the employees have almost practically doubled in 5 years. At the same time, you can see the turnover in the second slide. And right now, it's even lower than where it sits at FY '20, the run rate, while the employees are 6,000. Remember, 70% of our workforce is blue collar, and so in that context, we believe that's the right number, and we can obviously keep perfecting that forward. We -- every year, we do employee engagement score, and we are proud to say again in FY '20, we had an 86% -- it's an voluntary employee engagement score done by a third-party in association -- in conjunction with our HR teams. 86% participated. And I wanted to remind again that our company is diversified through 250 depots all over the country with 70% blue workers -- blue collar workforce, and it's a voluntary engagement score, and we get 86% participation. This year, our engagement score was 64%, and we presented that a couple of months ago, where we showed that, that is above-average industrial -- above-average Aussie percentile. We are only about a couple of basis points away from a top quartile employer in the country, and that's where we are aiming to be over the next couple of years. So really proud about that. And female participation, we clearly have lot of work to do as you can see among operations, at management and overall. We believe we can do better, and that's the aim that over the next couple of years, that progress will carry on. Employee tenure. As you can see, average tenure for the overall company is 5.5 years. Now I just want to remind for a 6,000 employees, an average tenure of 5.5 years is quite a good tenure. The general managers, which run our business units it is about 11.8 and my direct reports about 4.6 years. So it's a good mix of young and experience in the organization with a good engagement score. Clearly, got a little more work to do on the diversity and the female participation, healthy turnover and an improving safety record, while we are doubling the workforce and we're giving good financial returns. So just wanted to build the base on that. Next slide, again, you would have seen it before. This is about delivering footprint 2025. This is about value chain from collection, resource recovery, energy from waste, treatment and disposal. We have been very transparent from day 1 of what we are doing where, and you can see some of the additions here around in our waste to energy, potential Brisbane and Melbourne energy from waste glass beneficiation, plastic pelletising where the market is going to talk about being one we blacked on most recently. So that will be Western Sydney, Mark will talk about it. So it is our framework on what we have developed our strategy on and across every single element as we progress, either organically or acquisition, we've put out here, some have basically -- some significant portion has already been done, and obviously, work carries on. In light of that, if you go to next slide, in November 2019, if you remember, post National China Sword and SKM, the largest resource recovery company, Melbourne went under, we participated in that process. And with that, we acquired a fairly, fairly good assets, I believe, at a very good price. And we've got a market leadership position in one go in Victoria and Tassie and with some assets in Adelaide. And I want you to know that everything we promised at that time, everything we promised about volume, about profitability of how we're going to do it and what we're going to do it, we have done that, and that's what Mark is now going to talk about in Victoria. So over to you, Mark.

Terrific. Thank you, Vik, and good morning, everybody. Can you hear me okay there, Vik? Yes?

Yes, we can. Thank you.

Okay. Good morning, everyone. Mark Crawford is my name. I'm the EGM for Solid as Richie introduced. I've been with the company 6 years now, and I've got the privilege of looking after the Solid Waste Services side of the business. Today, I'm going to walk you through our Victorian Commingled Resource Recovery facility and previously known as SKM, which we acquired just on 12 months ago. So it's pretty timely to give you somewhat of an update today. So this particular slide provides a bit of an overview of the time line in terms of what we've done since we've acquired the assets of SKM, and what we're looking to do going forward. I'll explore the key items or milestones as we progress through the presentation, and I'm sure, by the end, you'll have a much better understanding of, a, what we've done; and, b, what we're planning to do. In summary, we acquired a really good set of assets that have great potential. We've worked really hard to bring them up to standard, so they can deliver the operation and financial outcomes that we're seeking and that we've communicated previously. We have been operating about 200,000 tonne per annum capacity since the start of this financial year, and we continue to bed down our operating procedures to ensure we're getting high-quality output at the current throughput rates. We'll look to increase throughput rates once the fine-tuning of operations is complete, and I'll give you some more detail on that in a minute. And after that, we expect to increase the throughput to about 250,000 tonne per annum. In terms of financial performance, we continue to expect a $6 million to $8 million EBITDA contribution in FY '21 from these assets. So if I can just move to the next one, please, Richie? So to give you a bit of context about where these assets are located. You can see there that we've got really good coverage around the state in terms of out North in -- up North in Laverton; Geelong, which is a really important strategic location for us; Coolaroo, and I'll go into some detail about these in a minute; and Hallam. So really important strategic assets, good coverage across the metropolitan area and really do complement our existing assets as well. If I can take you the next one, please, Richie? So perhaps just to give you some insight about where this facility has come from. You can see on the picture on the left-hand side there, what the facility looked like when we acquired it 12 months ago. It will be fair to say we've undertaken some fairly major site remediation in equipment overhaul. In fact, underneath one of those piles on the left-hand side there, we actually found a piece of [ Ilargi ], which I don't know if anyone knew it was there, but when we cleared the floor, we found a piece of [ Ilargi ] here underneath that stockpile. So we've worked really hard at getting that facility in terms of that state on the left-hand side to what you're seeing on the right-hand side. And I'll just walk through some of what the integration has looked like. So in terms from a people perspective, and I'll talk a little bit about the PEMAF that Vik referenced earlier. From a people perspective, we signed employment contracts with all the employees. We onboarded them, including preemployment screening, as we would normally do for any of our employees. We determined and implemented relevant organization structure that would set the facility up for success. We importantly embedded our HSC, our health and safety culture, and trained employees around our expectations and our safety procedures. And we rolled out our Cleanaway policies and processes. So from -- and very early on, we also, of course, rolled out all of the branding and the PPE as well. From a market perspective, we removed the stockpiles, which were around the state, and that was a pretty significant activity in its own right. We staged our volume intake to determine contamination level, which is obviously very key to a facility like this. We established gate rate fees and secured volume intake from a number of councils. We developed a municipal reporting, which was very important for our council partners in sharing with them the volumes and the contamination levels so that they could educate and influence their citizens around what goes into that yellow bin. We established purity levels for salable commodities. And of course, these facilities only work if you can extract good quality product and that's marketable and salable. So we absolutely were focused on the purity levels. And we're in the process of securing outlets for glass material and -- at the moment, which I'll go into a little bit more detail in a minute. From an asset perspective, we undertook repairs and maintenance and urgent CapEx requirements. So we have invested in this facility in terms of bringing up the technology for optical sorters and processing capability. And if you look at those pictures up on the top left, you can imagine there was some -- there was a bit of R&M required, and we've undertaken that work now. We've made the sites operational and optimize the layouts, and we've updated the signage and branding, as you can see on that picture as well. We have explored a glass beneficiation infrastructure, and we've progressed sales of the South Australian properties as well, which were on the previous slide. And finally, from a financials perspective, we have migrated the SKM operation across to the Cleanaway systems. We have transferred the IT infrastructure. We've implemented Cleanaway reporting. So I meet on a weekly basis personally with the leadership team in Victoria to monitor the progress of the integration and indeed the optimization of that facility. We've put clear delegated levels of authority in place, and we've got detailed budgeting and systems mapping established as well so that we can ensure that we are achieving what we think the facility is capable of achieving. So I want to just perhaps take you through a little bit about what the process looks like. And again, I know you've got a copy of this, you can read it in your own time. But just to give you some sense, we've really worked hard at improving the processing technology in order to deliver the outputs and high purity, as I mentioned earlier. This facility relies on getting good quality output, and -- so we've invested in state-of-the-art technology there to enable us to do that. And that ensures that we meet relevant thresholds for sales into the commodity markets and achieve those purity levels. For those who might not be familiar with the MRF's sorting process, this slide here just gives you a bit of a high-level illustration of the process, which can vary from MRF to MRF based on the technology input, but these facilities are now set up and operating really well. Okay. In terms of managing contamination, including contamination fees, just to give you some sense here about what we're doing. Contamination is the evil of any of these types of facilities. So it's clearly a major issue for us that we want to manage. We're managing it very diligently and ensuring that financial penalties are appropriately applied for unacceptable contamination levels. And so any of our arrangements where contamination is greater than 10%, we have a penalty regime in place. And because it's important to understand that not only does contamination create financial burden, it also has significant health and safety issues that we need to carefully manage as well. I think you'll all be staggered by what goes into these bins. We are constantly. And education becomes an ongoing challenge in this space, and we work really closely with the councils, particularly if there is high levels of contamination to help educate their citizens and influence what goes into those yellow bins. But it'd be fair to say, we continuously get surprised by some of the contaminations occurs. In saying that, our technologies are able to pull that out pretty simply and easily and get us to a good pure product at the end of the day. Okay. If I take us to the next one, please, Richie. So in terms of further commingled waste opportunities. So from a total market perspective, we're looking to ramp up our throughput once our operations are finally tuned. I mean we're now sort of 9 months into the journey around the SKM integration, so we're well down that path. So our goal is once we've absolutely put all the fine-tuning in place around this facility, is to work at how we can grow. There is a large addressable market for curbside commingle waste that we will target. At present, we're predominantly processing municipal waste. We have commenced to bring in some commercial tonnes, but we'll look to expand that significantly over the next period of time. As a consequence of processing most of municipal waste, we end up pricing about 50% on of Victoria's curbside plastic waste, and that's an important introduction to my next slide. So these plastic wastes need to be sorted into individual polymers to be ready for recycling. Our plastics sorting facility at Laverton plays an important role in this part of the value chain. And what happens, sorted individual polymers are more valuable and salable than mixed plastics. There was a bit of a problem in the market there a few months back around shifting mix plastics. So we're actually right in the prime spot in being able to segregate these plastics into the different polymers. And effectively provide a clean source of raw materials to value chain extension opportunities that we're looking to pursue, and I'll perhaps expand on that just in a minute. Just the next one, if I can, Richie. So we have highlighted the PET, plastic pelletizing facility, that we are developing with PACT and Asahi. Beverages many times so that -- listen, I won't go into that in great detail today, but there's a clear illustration here of how Cleanaway is developing infrastructure to meet the growing circular economy, which is something that is core for us, but certainly something that our key customers are looking for as well. There are further opportunities that we're exploring for HDPE, PP and LDPE pelletizing. Our Laverton site is perfectly suited to the addition of this new purpose-built capability, and certainly places us in strategically in a very strong position to leverage the volumes that are coming into that facility. So I'm very much looking forward to further developing that capability. We're also looking at plastic pellets -- sorry, glass beneficiation as a solution for our recovery glass. And it would be fair to say, glass has been a challenge in the market for some time, and we've recognized that there's an opportunity for us to move down the value chain here. We're going to have plenty of feedstock from our Victorian MRFs and can be supplemented with feedstock from New South Wales container deposit scheme as well as hopefully, Victorian container deposit scheme once it's established. This will provide us with a very strong circular economy solution for glass in the region that we can leverage. Again, just emphasizing the theme there between the plastic pelletization capability and the glass beneficiation capability, it's all about how we're moving downstream to create manufacture-ready product and effectively close that loop in recycling, which is very important. So in conclusion, I guess, the acquisition and remediation of these material recovery sites and related infrastructure has created a complete solid waste services footprint for Cleanaway in Victoria. It is by far our most complete footprint of assets. And it's certainly -- we're going to use that as our blueprint for other states as we move forward. By creating this end-to-end customer solution, it's also created the opportunity for Cleanaway to pursue value chain extension opportunities that can further add value to our business, i.e., the pelletization and the beneficiation of glass. Having an end-to-end solution also means that as new waste policies are developed and implemented and value shifts to cross-sell within the value chain, we are well positioned to respond and capture the value opportunities based on where the government might go with their various policies and like. So all in all, it's 12 months on, and the facility is running well, and we've certainly got now a much deeper understanding of the capability and how we're going to optimize that going forward. I'm really excited about it. It's probably, for me, one of the best assets that we've got around the country. And I'm genuinely excited about the next next stage in terms of plastic palletization and glass beneficiation. So with that in mind, Vik, I'll hand back to you, and perhaps we can -- I don't know whether you want to take questions now or at the end, but I'll hand back to you for now.

Thank you, Mark. I think we'll move forward to data analytics. So Alex, do you want to introduce yourself? And then we start, please?

Yes, sure. Good morning, everyone. My name is Alex Smith. I'm the Head of Commercial here at Cleanaway. I've been with the company for 3.5 years now.

Thank you, Alex. There are just a couple of slides I want to talk about the process automation part. So we have, as you have heard me say a couple of times before, we have broken down what we call our digitization process into kind of 4 things, which is basically the process automation, which is call-to-cash process being automated as much as practically possible, which obviously would need a new way of working, which is a process changes. So it's not as simple as the IT thing, which will lead to a significant improvement to customer and employee experience, which I'll talk in a minute. And then the data analytics space, how do you actually harvest the rich data we have had as a company dealing with millions of customers every year, which Alex is going to talk about. So our -- fundamentally, the data and the data analytics or let's call it digitization and automation project is now on. But I want to also make sure this is not a IT project, we are not running this is an IT project, but it is absolutely a business project. So I just want to make sure we get that. Let me talk about the first phase, which is the process automation. So if we go to next page, Richie, please, in our world, the way we see the world today is exactly from the time a customer calls to the time the customer gets the invoice, you could practically do that everything now digitally, in a sense that you could have a -- we see a world where it's practically instantaneous apart from the fact that truck takes some time to go and pick up the lift and everything, to invoice, it can all be done. So let's think about that for a minute. We see a world where there's a self-service bookings. We see a world where there's an issue with service and a lot of them issues are generally around invoicing, et cetera, which can be self-remedied. We see a world where invoicing is all electronically done. We see a world where lift is happened at 2:00 and invoice is getting in a inbox of a customer at 2:30 with no paper work in hand. We see a world where a customer is calling a call center to pick up in the middle of the day and their routes get dynamically routed to -- for the truck to go there without affecting their route density. That's the world we see ourselves in, in the future, which has a significant value creation. So I said 2 pieces on a process automation side, a significant customer benefit, which I'll go next page, Richie, and then there's an employee benefit. So just -- this is just a simple experience of a customer journey, right? You can start from in an absence of a lack of digital footprint or digital interaction, every point has a human interaction. I'm looking for a provider. I want to port. I set up a service. I want to schedule something. I want to pay my bill. I want to encounter a problem. I want to provide a feedback. Each one of them is, what I call, moments of truth, as we call it from call-to-cash process. And in each one of them, we're interacting with human beings. Now nothing wrong with that, but fundamentally, we believe that, that all of that interaction can be very smoothly done electronically, while still having an access to a human Cleanaway employee at any given time. So we absolutely see that. It's efficient and it's safe, and it's very effective, cost-effective, plus significantly improved customer service. And if you convert that into employee experience, if we go to next one, I mean right now, everything we do a run sheet. Our employees are 400 admin people are working in the afternoon and bring a driver per plan driver is lifting the base now obviously, that needs to get done. Driver is notifying the status. Then there's a maintenance issue. At municipality, there's an issue which we have to report back, I mean, all of that we see in a world where it can be handled. So -- and the good thing is technology exists. And the other good thing is, we are not talking about a SAP change or an IT change or an ERP change. In a modern world, and as they call interfaces, you can work that through together. It is about having a seamless information flow between various systems. So please don't -- I want to reiterate it again, none of that is an IT project. There's an IT element to it, but we're not talking about a SAP or a IT or a ERP chain. We have an ERP, it's just about making sure the data flows. And if we go to next one, Richie. This is just a typical example of what we've been able to do in muni over the last couple of years, right? And I absolutely believe, and we believe as a company, that the significant amount of success we've had in a municipal sector over the last 3 years, I guess, is because of this digital interaction we have given to the customers. So for example, the muni trucks nowadays have multiple cameras all around them. There's a customer self-service portal. I mean you can go yourself or muni customer service can go in themselves and check out how the one went. If the bin was there, if the bin was not there. You can schedule a hardwares pick up through that. In old days, somebody -- a resident for ring a council and council will ring a Cleanaway employees, that will go through a customer service officer, that will then go through a truck driver or go through a operations supervisor. Now in this world, a muni person does not even have to interact to Cleanaway. It is electronically. They can do the tracking. If you call a muni saying, I'm waiting here for hardware because I know now truck is around 15 minutes away like an Uber. Dispute tracking and there's a live chat. If you get into a truck of a muni truck driver, frankly, it looks like a pilot of a jumbo-jet with so many screens, and we are taking picture of every bin we pick up. And look at the coverage at the bottom of it, we have 1.45 million addresses serviced across Australia, and 42% of councils deployed with 7 more in the next 6 months. So significant advantage, competitive advantage we've created in the municipal segment, which has given us a lot of confidence. We know that if we can bring this to C&I fully, liquid, hazardous health, et cetera, there are significant benefits attached to that. So this is a live example of that. I'm going to pass on to the second piece of digitization. So I just talk about process automation, and Alex is going to talk about the data analytics piece. Alex?

Thanks, Vik. With the process automation that Vik has spoken about is more focused on the customer experience, data analytics represent some margin expansion opportunity, if we want. Our data analytics framework is broken up into value drivers and enablers. The enablers of the building blocks for our dynamics program. They are the tools and assets that will unlock the margin expansion opportunities within our collections and post collections businesses. The key to delivering our enablers are to simplify our data infrastructure, build our internal data and analytics capability, enrich our existing data and develop and deploy advanced analytics in this business. Cleanaway has a rich complex data infrastructure and if mined properly over time can be significantly accretive to the company. The value drivers are our discrete programs of work that deliver margin expansion opportunity within the business. And over the coming slides, I'll expand on these value drivers and enablers and provide an update as to where we are currently up to with this one. One of the key enablers for our data analytics program is the investment in our in-house capability and talent. We've begun that investment by hiring a data analytics team comprising of our Head of Data Analytics, data engineers, data scientists, data analysts and projet journal. As Vik mentioned before, our data analytics team is separate from our IT team, and this is a really important distinction. Data analytics is not an IT program, it's in our commercial structure. Our Head of Data Analytics has over 15 years experience in the data world having worked both domestically and internationally across the range of different industries. Next slide. The first value driver what is price optimization. So price optimization is the identification of revenue leakage, combined with smarter pricing decisions and opportunities through some of our advanced analytics. Price optimization covers opportunity in such as customer-specific or targeted pricing based on key customer data points, such as geography, industry size, industry type size of business, targeted upgrades to help ensure that our price adjustments are strategic and our churn as a result of price adjustments is reduced. And willingness to pay analysis which is identifying specific opportunities based on the price elasticity of customers in a particular industry or segment. One of the first pilot programs has commenced and is looking at understanding pricing and profitability at a bin level. This is something we've achieved recently. Our bin will take into account the GPS coordinates of our trucks, our disposal locations and the time spent at each bin to give an accurate picture of how profitable our particular bin is. So on the graph on the right that you can see, it's an example of how we'll be segmenting our customers based on their gross profit sending them direct to variable costs. Each dot on that scalper will represent a bin to a particular customer in a particular region. The coordinates of the customer sits and the determines the intervention strategy are needed to improve or maintain profitability and margin. For example, bins in quadrant A have a higher gross profit and a high -- and a low direct to variable cost to serve, so they're identified as our most profitable customers. Customers in quadrant C have high gross profit, but also a high direct variable cost to serve, indicating there's a potential opportunity -- operational opportunity to address. Next slide. The second value driver is churn management and our effectiveness. So in this slide, we've outlined the customer life cycle and the data analytics opportunities that exist at each stage in their life cycle. At the acquisition and up-sell or cross-sell stages of the life cycle, data mining provides opportunities to acquire and build a tailored lead generation and frequency to supply model. The lead generation engine drives margin expansion through the infill of low-density routes and the identification of high desirable customers. Pass these 2 stages, data and analytics provides opportunities to retain and grow our existing customer base through our propensity to churn modeling and suggest. Third value driver we'll look at is route optimization. So by improving the density of our routes, the cost to serve for each bin we pick up decreases. This expands our margin for the customer and also for that particular route. It also allows us to offer our customers on existing route to very competitive pricing. We conducted a trial, we know there's an opportunity, and we are in the process of finalizing our largest scale route optimization program across the business. Through the example on the right you can see 3 routes before and after that they've been optimized. As we discussed on the prior slide, the acquisition of new customers increases our density, which requires constant or dynamic route optimization. And optimizing route not only reduces the drive time and costs that are associated with that a route, as you can see in the example, but also reduces drive fatigue, improves safety and provides an opportunity for us to pick up more customers on that particular route or within a region. The data and analytics digitization program will be staged over the next 3 years. The first stage will be selected use cases with specific branches for pricing opportunities and dynamic route optimization, along with the digitization of some of our call-to-cash processes. Stages 2 and 3 will see us develop more advanced analytics such as dynamic pricing, predictive churn to unlock additional value in the business. In these stages, we'll also continue to scale our quarter cash processes, which will drive further efficiency. Again, we are confident the combination of the digitization and data analytics will deliver margin expansion that will assist us in meeting the commitments we made on our medium-term margin goals. Thank you.

Thank you, Alex.

Thank you, Vik, Alex and Mark. We'll now open the line for questions. [Operator Instructions] We have a couple of questions. So the first one is what is the potential EBITDA uplift going from 200,000 tonnes to 250,000 tonnes at AB, CRR facilities?

Well, I think as you probably know the answer that we probably would not give individual EBITDAs by channel by site, I guess. But I mean the -- the total capacity of these plants when we took over, we believe, close to 300,000 tonnes. We do believe they can go up to 250,000 tonnes. But we also believe, Mark and I local operational management believe that we need to absolutely nail down them fully efficient at 200,000 tonnes and then take them up to 250,000. So we absolutely intend to take to 250,000, but we absolutely also want to make sure that we are not creating an operational risk. The problem is these are municipal resource recovery sites. Unlike the C&I or a C&D resource recovery site, you can shut it down for a 2 days while you're piling up waste. In a municipal waste, it is a genuine every single day, 24 hours trucks coming in. And we never want to be in a position where that if got out of control because they're running so high that it broke down every time. So we probably would not share the EBITDA, but I guess the idea is we would get to 250,000 at some point.

Okay. We'll go to the line. The first question is from Xindi Shao at Morgan Stanley.

Can hear me okay?

Yes.

Yes. This is great. Just a couple from me. So for the Slide 19, there's a clear diagram showing the process of glass recycling, and just wondering -- so what do you think of the future Victoria CDS scheme and also the 4-bin system in Victoria will impact on the MRF volume in the future? Will there be more competition of the inbound materials?

Sure. Mark, join in. Once I've answered it, if there is anything, I'll miss please, join in. But 2 things, Xindi. One, we've always publicly said what ideal look like for Cleanaway or for actually frankly circle economy is that every household in the country and every muni should have been 4 bins. And frankly, I'll add to that a common consistent color system. Well, that's a separate issue because the contamination, which Mark was talking about. We actually see the world that there's a 4-bin home, and there's a container deposit scheme next to it. Whatever kind of container deposit scheme it has, it will not be able to take all of the glass, like New South Wales CDS does not take wine glass. Wine comes to So we see a world with glass come through both sources. And container deposit scheme glass or material is generally lot more purer. So those can still come in a station next to our existing MRF. Remember, we have those properties and we have spaces, so that glass can come there. You're sorting glass from existing MRFs, and then then going into glass beneficiation. So that's the world we absolutely see. I mean it doesn't really matter where it comes from. Ultimately, it still needs to come to a pile somewhere, which needs to get across beneficiation. Now ideally, of course, we would love to win the container deposit scheme in Victoria. So the world for us ideally looks like is, we are running good container deposit scheme, every household has a 4 bin, which releases the contamination coming into the MRF and you are now collecting glass on both hands, taking it through a glass beneficiation and then going into a glass to rebuild. So that's what we hope, and that's what we are working towards. Mark, I don't know if you want to add something here man?

No, no. I think that's a really good description, Vik. And I mean, we're seeing that in New South Wales today anyway. So I think the reality is having a glass beneficiation and getting the source from both CDS and MRFs is absolutely the game plan. No question.

Yes. That's great. Just in terms of the data analytics, do you think the program or the project view result in the customer having longer tenant contracts in the future with these programs rolling out?

Yes. And as Alex mentioned, Xindi, one of these projects that he talked about is about churn management. I mean -- and you know I've talked about churn for a long, long time, invest in it and frankly in any utility sector. That is a critical piece because longer we keep the customer, better margin at it because you apply CPI over the period of time, they are part of a routing system, which is well set. There's a genuine reduction in the -- in direction errors compared to a customer. So part of that, if you look at again one of these slides, Alex, is Slide 30, actually talks about data analytics -- usage of data analytics for churn management. Now so far, we have done churn management through customer service and having a safe that is carrying on, by the way. But what it does is what we understand that data analytics can give you what we call a churn I mean it's a mouthful, but fundamentally, statistically, can give you some singular of which kind of customer based on the interaction we've had is most likely the churn. And if you can know -- imagine a future where if we get no 9 months in advance, that there's a high risk of customer A churning, you can put all the other efforts rather than having a safe desk which we have right now, which reacts when the customer has already gone there. So it goes from a almost a preventative maintenance of safe desk, which we have built successfully, to a predictive maintenance of churn management. I think that's what we try to do. Alex?

Absolutely, Vik. I think that's so right.

It is great. And do you think the data analytics will give some large, like, national accounts or municipal customers better, like, clear data clarity in terms of was their waste recycling rate or was your waste composition to help them to meet their sustainability goals?

Yes. Absolutely, Xindi. We already provide our national accounts with varying levels of reporting in terms of the diversion and in terms of the type of wastes there But as we mentioned, the data analytics only enhance that further and give customers much more interaction in terms of the reports that we're providing at the moment.

Yes. Great. Maybe the last one for me. So do you think -- how do you think the -- how do you align the time of implementing the data analytics project with your EBITDA margin targets in the medium term?

Well, I mean, you know the medium-term EBITDA targets, it is out in public domain, Xindi. So -- and I mean, we'll carry on working on those. We want to achieve those. And obviously, data -- the reason of presenting is that I wanted to also know that underpinning that target is a whole work plan. I mean there's a work plan of footprint build, there's a first of internalization. Obviously, if the GDP growths, it helps our operating leverage. And as we come out of the COVID, that's an upside and positive. And of course, this is on top of that. Now whether I am -- it's too early for me to say, Xindi, that this will take it further. But the idea is to give you all a comfort. There's a whole bunch of underpinning projects and plans working to get us to those targets. And if we overreach that, then we overreach that.

Next question is from Jakob Cakarnis.

Hopefully, you can hear me okay?

Yes. No worries here. Continue.

Very good. First one is just for Mark, please. You mentioned that you cleared through some of that inventory that was sitting in SKM when you picked up the asset. Can you let us know who paid for the cost of the disposal of that inventory? And when was it occurred?

You have to unmute, Mark.

I'm across some of that.

Go ahead, Brendan.

Yes. So that was all sorted out, mainly through the receivership side of things and also posted. So all last year and part of our cost of integrating those assets.

Okay. Great. Maybe this one is then more relevant to Mark. So if we think about the quality of the race stream that's potentially coming out of either the CDS or better curbside collection, can you just talk to how important the development of end markets is? It seems as though upstream starting to sort itself. Some of the government initiatives, obviously, will start to work, but what's the role that industry and maybe procurement and throughput plays from here, Mark?

Yes. So I mean, offtake markets is obviously a very important issue for us. And that's kind of why we're moving down the value chain in terms of palletization and beneficiation because with the COAG bans and the like coming in, it's going to be hard to move that sort of unprocessed waste, if you like, offshore. But moving down the value chain creates and opens up, in fact, the opportunities there, Jak, for us. And clearly, we'd love to have more manufacturing in Australia. But if we can't have that, then having the product manufacture-ready is more important for us to be able to ship that product. So -- and that's kind of why we need to move down the value chain is to create a manufacture-ready state. I hope that answers your question, Jak.

Yes. I assume that then gets around some of these waste to export bans because there is a value-added process to that. I just have one for Alex and Vik. Alex and Vik then, you've spoken about digitization. I think the best example that you've had on route optimization was what happened in the fourth quarter was removed through the COVID lockdowns. Given that that's just -- understanding that there's a lot going on there, can you talk to some of the early savings that you had on route optimization and maybe even better rostering, so less over time?

Yes. So I'll answer from a COVID perspective, and then you can talk about that's moving from So I think the -- I'll be honest with you, the work we did a route optimization and parking of trucks as Alex says to me all the time, that was a blunt instrument rather than a statistical instrument, which Alex would like to systemize across the company, which I totally understand and I believe in what he's trying to say. So COVID was such a experience, Jak, we had to do what we had to do to manage cost. The idea, what good looks like in the slide, which Alex mentioned jump in when you if I got it wrong, mate, and the dynamic routing part is, we want to be able to do that as a matter of course. We want to live in a world where old or no COVID depending on the set of circumstances -- I mean, the example of what has happened in Sydney today. Northern beaches have closed down. Now in today, Mark and his team will know exactly what to do, they will go on and manage what can be picked up. We want to live in a world where that can all be done through data analytics will that be, Alex?

Yes, absolutely. I think it's -- Vik, it's a change from a reactive approach to a proactive approach. And we should be in a position where we are proactively optimizing our routes and looking for opportunities in those routes to either infill or to do them in a more efficient way.

Correct. And just to add to Alex is what he's talking about infilling is now think about that for a minute, when COVID goes down, let's say, good example. And those now trucks comes back online, Jak, what we want to be thinking about is that if a truck goes up and road, and we have 20 accounts there, our sales effectiveness should be knowing very well how competitors have got rid of the salespeople and everything, we should be immediately jumping on those accounts based on that route to infilling those accounts. And we combine that with pricing, gross profit, variable costs You can actually pinpoint at what price it is marginal and work price is affective our customer to be picked up on that right, that is been magic, and you don't have to spend 50 days doing that. You can do that in real world at a real quick time and a sales guy can give a price right there and then. So the real magic of all of this is about the speed. Isn't it Alex? I mean that's what you...

Absolutely.

It's what you can get as a...

Yes, absolutely. Absolutely.

Okay. Can we just address quickly the overtime component as well of what you could get from digitization and what that could mean from a cost perspective?

Yes. I mean it's exactly what we said. Think about the world, mate, and I'll give you a real example. A truck is picking up 40 customers. Their route is already set up because somebody has given a paper work to the driver about next day. At 2 O'clock, a customer rings. "Listen, I was thinking of you coming back tomorrow, why don't you come today. I'm going to close my shop." But now imagine the activities would happen. The call goes in to the driver -- or customer service then the operations supervisor then the driver. And driver now has to do all of that and everything he's doing now he's spending time, which is adding to the overtime. What the world looks like is call comes in, automatically driver's route is automatic optimized in this iPad. And it is falling into over time, because in a world where last 2 accounts can go to some other truck driver who's close by effectively managing the overtime of both or you could have a signal to the last send we're going to pick that tomorrow morning. So in that case, you have not increased the fatigue for the customer -- for the driver. Stress has gone down. You've able to service the customer exactly when they want it, plus for over time for that exactly at that time because all happening electronically, and driver is not getting fatigued because he got far [indiscernible] now write on 7 papers. So that -- I mean I don't remember any other example, Alex, you can think of?

No, no, absolutely. I mean I think that the route optimization example we spoke about the improvement from a cost perspective, which is obviously across our labor and our fleet. And then also the benefits we get from infilling a particular route, which is obviously, a further reduction in costs and then increase in the number of customers we can be on route.

Okay. Hope that answers, Jake?

We lost Jake. Our next question is from Russell Gill.

Can you hear me?

Yes, we can Russell. No worries, mate.

Okay. Great. Just a couple of questions on the SKM assets and the market structure. So originally, SKM was doing 300,000 tonnes, 280,000, 300,000 tonnes. Was a lot of that just being stockpiled on site? Or where is the delta of those 100,000 tonnes have gone? Is it going to competing facilities or landfill? Just a thought around that 100,000 tonne delta today.

Yes. So we don't know, to be honest with you, Russell. Nobody knows how much they were doing, frankly, because the numbers and the stats were not right. We know their contracts which they have signed was more than 240 to 250. How much was coming in and how much was getting piled up and how much actually go to landfill, there's actually no data to prove that. Having said that, when these head to be market, we will only take 200,000 tonnes, around 200,000 tonnes, and we have done the maths between muni and C&I and everything. We believe some of the have then gone to other competitors in the local market, and I know that they are struggling with that. Hence, so we feel confident that we can raise our bar to 250, but we want to do it at the right price at the right time. So -- but I can't tell you the numbers, the contracts our understanding this saw was definitely more than 250, but I can't tell you, mate, whether we're getting. It was all piled frankly Mark showing the pictures.

Okay. And then just a question on, I guess, market structure of the recycling part of the marketplace post the CDS scheme world. One, do you have a view on where you think the CDS scheme will go? And clearly, the prized assets SKM have the license and location of where the facilities are rather than, I guess, the kit on site. But in a CDS scheme, where you see volume shift from, I guess, curbside through a different mechanism. Is there a risk that those price assets due through the CDS scheme become less priced because there's more capacity coming in marketplace by the potential winner of the CDS scheme. So just possibly -- I know it's a long-winded question, but your thoughts on the model that Victoria will possibly go down? And 2, whether the nature of the licenses you have with SKM, I guess, increasing value because you could win the contract or decreasing value for somebody else might and get licenses to process volume?

Yes. So I got your question, Russell. So let me explain. First of all, you are spot on. The value of these assets is the licenses they bring and the strategic location of those. So some of you will know Melbourne very well. Coolaroo is up in north side, and Hallam is on the east side, and you've got Laverton on the west side. I mean that's quite magical to have those -- and Geelong, obviously, on the far west side. Now you were actually right in an effective CDS scheme with this -- in the effective CDS scheme, while I keep speaking, we're having some light issues here -- in an effective CDS scheme, yes, you're absolutely right, some volume will come out on the curbside -- our bins at home. But the idea is it comes out, it's in a much better shape. It also actually improved the contamination level in the bins at home. We've seen that in New South Wales, clearly. And that will help from that perspective. And then the position of the assets as such, you are right that kit today, that kit today, you could argue well in the CDS world that kit probably is not used for a CDS material, but it still has a value, the site has a value because that material needs to go somewhere and get and probably crushed and done something. So the glass prolification plan and the plastic pelletizer, the HDP plastic pelletizer plant we are thinking of, we are thinking of the SKM sites. We are thinking of making Coolaroo MRF on the north into a pure transfer station. So just see a world -- let me give you a few picture in Victoria. We see a world with Coolaroo up north will be a pure MRF with a pure transfer station, I think, which Mark mentioned, and possibly a glass beneficiation plant next to it. We see a Laverton plant continue to be a pure transfer station. It already has a plastic recycling facility because still plastic is going to come through boxes and all that stuff through house bins. And we're trying to create a HDP, a plastic pelletizing plant, which will come out MRF. But there's enough space to put a sorting station like we have an Eastern Creek's sorting stations in Melbourne and Sydney, which will consolidate the material and take it further down the value chain. So it's location is important. We are absolutely critical first to demonstrate a Victorian state that we not only have assets, but also downstream investments. The first question he had was what kind of CDS scheme Victoria would have? Their initial paper has come out. There will be which is similar to New South Wales style. And we are -- we have made no that's what we want. So we're very pleased and participating at this point, but things can still change, as you can appreciate. So that's the world we see ourselves in. So I'm not first around -- it's a good thing because contamination improves, and we have a priced asset in a phenomenally good location where you increase the value chain as well as then take it downstream. And you see logistics costs and give a lot of value. So I hope that answers the question, yes?

Yes. It does. I guess the nuance of the question was just, I mean, the target CDS scheme that goes in Victoria could, I guess, change the market structure, particularly around our assets. But I guess, given in summary, what you're saying is you've got these assets, you can sort of rejig the network to get the most use out of those assets, whether it be a pure transfer station, et cetera, et cetera, in -- depending on what that scheme looks like? Is the best way of interpreting it?

Absolutely, spot on. And whatever scheme happens the material has whatever happens, whether it's a you will still need sorting stations, you will still need a consolidating point, you would still need places where it have to go downstream, as I think Jak was referring to before because of National Score. And if you already have a significantly assets with licenses to do all that stuff, all you have to do is get it up next phase and off we go. So that's what I'm saying.

And very final question. Just on the data analytics. If we refer to Slide 26, my interpretation data there's a customer facing, which benefits to the customer and it also large operational internal improvements that we're probably done with an Excel Spreadsheet rather than sort of a systematic process. Just on Slide 26, when you look at the customer facing, I presume a lot of this IT is basically outsourced and trackers put on trucks is outsourced. What's the competitive advantage in this stuff from a council's perspective? Is it at a high cost for? I just want to get a feel because a lot of your competitors are, I guess, more junior localized companies. And if this is a large prohibiting cost to the barriers to entry to winning contracts go up, making them customer-facing? Or just get a feel for it -- obviously, we can see what the benefits of the customers are, but whether that actually is a high, I guess, cost for you guys from a customer-facing standpoint?

Yes, it's a good question. I mean it's like -- it's almost like Internet of Things, Russell. Actually, all the technology exists, the magic footing is putting them together into an integrated system, and that's what our team has done. The GPS system exists, the navigation system exists, the trucking cameras exists and all that exists, it is about connecting all of that into 1 integrated system and then presenting it to a customer in a face that he or she can see value. Now of course, it costs money. Absolutely, it costs money. And wherever possible, rightfully so, we charge that as chips on top of basic burgers. What I have a lifting cost. But on top of that that's the service you're providing, which gives you assurance, which gives you an opportunity to educate the customers and which will give you a live experience. And then we negotiated our way from there. But -- so that's one. Having said that, I want you to not muni as you know very well a lot of you, they are a major play. It's not a small player in might be a regional But they can't provide the service for both. They don't have the scale to replicate the technology, neither they have the, I would call it, the way of doing it. I mean I say that with due respect to them. And so it definitely creates a competitive advantage, and we're seeing them. And you've all seen the muni contracts we have won over the last couple of years. And I absolutely credit Cleanaway for that.

Next question is from [ Robin Lu ].

Just got a few here. So starting off with Mark, I feel that you are looking at opportunities with C&I potentially for those business there. Can you expand on when you are targeting to expand into C&I or probably the mix you are hoping to achieve?

Yes. I mean, we already have a couple of C&I customers coming through. But our -- as Vik mentioned, our priority is to get the facility coming first before we go too expansive on that. So -- but we already have a couple of commercial customers going through there so just to be clear. What we are talking about is sort of taking from that 200 to 250. And I'd imagine that at the moment, we're sort of focused really on Christmas peak periods with -- I think there's a substantial number of Australians remain home this year because of the COVID travel ban. So we're really just trying to get to the other side of Christmas, and then we'll regroup. But I'd imagine that we'll start to see that sort of quarter 4 to quarter 1 next year, we'll start to to head more into some of the commercial space. In terms of the mix, it will still be predominantly municipal, but looking to expand in that commercial space to get up to that 250,000 tonnes.

So just to clarify, you meant fourth quarter 2021 and then first quarter '22?

Correct. Yes. That's where we'll start to get more into the commercial side. But again, I want to get through Christmas with the -- that's our peak period, and I just want to have a really stable Christmas period with the municipal councils and then look to poke our head up and get more into the commercial space, Q4 '21 and Q1 '22.

Great. And then just my next 2 are on the digital aspect. So Slide 26. Those contracts that you have named out that you've won, I just want to get a sense on how much do you reckon those contract wins related to your digital offering versus your overall waste infrastructure in those areas and possible pricing?

Yes. it's very difficult to -- I mean, so I think when muni looks at a Munich contract, whether it's a week contract extension or we sign up a new contract or they're going to market on over contract. There are 4 or 5 categories, they look for. One, company's balance sheet, company's logistics experience and company's experience in dealing with municipalities. Then they look at the logistics solution, cleverness in that, nothing with just the logistics solution, how they do that in a new Remember, last time, muni might have gone to the market over 10 years ago. So the fundamental council have changed. And based on that of how clever this solution has been put forward, there's obviously price of course, and the technology. So those are the 4, 5 things I look at. And if you -- and not every muni put out on the public domain, but most of the muni puts out in a public domain because they are council-backed decisions. And you would say, over the last 2 years, we would be won, won, won more category. I always get nervous when we have won on price. But can always either 2 or 3 on price. But we have absolutely gone on experience, customer service experience. They obviously check our references. They check our logistic solutions. They check our technology, which we always get pretty high marks on. Now I can't tell you how much -- what portion they give 20% to this, 30% of this. I just feel that in last 2, 2.5 years since we've produced our success rate of munis have gone through the roof. So I do believe there's an element to that. I can't tell you the exact ratio, of course. Having said that we've genuinely improved our customer service, our branding, our logistics, all of that has improved. But I do think has a big role to play.

And my last one just relates to -- so I think that we've been seeing that more successful digital platforms have been able to integrate with customer systems. Just wondering if this is what you're envisioning in your 3 years -- I guess 3 journey or digital plan as well? Or have I just missed something today?

No. No, you don't. Alex, jump in, mate. I think we definitely see a world. The big national accounts, these are big accounts the Woolies, et cetera, they have put out a sustainability targets. And as Alex was saying before, they look for a lot of line of sight and transparency around the diversions, which basically means when you pick up the and the divert and all that stuff, the data has to come back in. We absolutely see a world, Alex, some of them are already asking us, they rather than giving us a manual report, why don't you link them into our systems, so they can check it themselves exactly how munis does it. Alex, you want to give clarity on that?

Yes. We absolutely do that to some of our large national customers. So we already in some of their systems. Obviously, as we expand our data and digitization journey, we want to be in a position where we can provide more to our customers and more interactive opportunities for them to have a look at the type of waste that they're consuming and also the diversion of where their waste is actually going as well. So I guess to answer your question, yes, we currently just do it already, we will look to do more of it as the digitization program rolls out.

Okay. We're almost -- well, we're a bit over time, but we'll take final question from Scott Ryall.

Hopefully, I'd be very quick. The first one, in terms of looking at the downstream markets, which waste/resource stream do you think most is in need of Cleanaway help in terms of moving towards circularity phase?

Plastic.

Yes. That's a big category. Any particular -- I mean, you mentioned all the different plastic strains in your presentation. Is there one you'd highlight that's particularly problematic?

Yes. I think PET, we've already invested, as you know, we're doing [indiscernible] plant, we'll take about 1 billion plastic. I think HDP and PP remains struggle because they come in a mixed range and with a lot of colors and everything. So I think that remains an issue. And plus, as I think was mentioning before, rightfully, they come to the MRF system. They will never come through your CDS system. So you complicate colors, size, different caps, contamination and sizes that becomes a complexity, frankly. And I'm going into too much engineering detail, but it's true. So because we've talked about that so much in the organization, we are aware of it. I think fills, which is the is the complexity. So we are absolutely doing a lot of work with the government to standardize on what does that mean and actually inform the public about which material goes where. So I think that's an issue. Plastic also has a sentimental and emotional content attached to it. I think glass can be sold. We know glass can be sold. I think we know OCC cardboard can be sold. I think mixed paper remains a question mark. And I think -- I know there is some work going on there, so that. I think plastic has an emotional social component to it. It has a potential of a circle economy because it can be converted into plastic pellet through education. And I think generally believe, considering our MRF, CDS schemes, muni contracts, I think we can generally add, we can create value for our shareholders. And genuinely be truthful to our vision of sustainable future by helping the society. I absolutely believe that. And it can be profitable for us as well. So we definitely want to that.

Okay. Great. That's a good answer. And then the second one, if you look at your data analytics, which has had a lot of questions. If you have to pick away you get the greatest return from the investments you've made, would it be volume, yields or cost? I know it's going to be a combination of all 3, but where do you think you get the most banks a buck?

You -- Alex, you go and I'll see [indiscernible] that's interesting question. So Alex, which one do you reckon?

Well, as -- Scott, as you mentioned, I think it is a combination of all. I mean if you can look at some of the opportunities look out from a route desnity perspective, it's a perfect example of where we'll see efficiencies across all 3 of those categories. At the moment, we'd probably be looking more on triggers around yield to begin with. And the reason that we've done is, we have a pricing team, an established pricing team in the business that's focused on looking at pricing opportunities. So naturally, we've been able to utilize kind of our existing experience to focus on yield. So I have yield at the moment, but that will evolve as our journey matures and as digitization journey matures as well.

So just to add to that, Scott, I think [indiscernible] I think the difference between 3 is yield and cost goes straight to the bottom line, volume gets multiplied by cost to it. So from an EBITDA perspective, yield and cost is a straight benefit to bottom line. Having said that, I think without a volume, we won't have yield and cost. So it's kind of all 3, mate, but as I said 2 of them goes straight to the bottom line, the third goes to the cost structure to get to 22% -- 24% EBITDA. So that's how it works.

Yes. Okay. And then that's all my questions, but I would love it if you continue to disclose all those staff metrics. Thank you for disclosing them today.

The people and culture metrics?

Yes, correct.

No worries. We did that a couple of weeks ago as well, mate, and we intend to -- when we come to the market at half years, the people and culture will now become a standard slide in our pack moving forward. So you be assured from that, okay, please.

Thank you all for joining us this morning, and thanks for all your support throughout the year. From our side at Cleanaway we wish you a Merry Christmas and happy New Year.

Thank you all. Best wishes. Take care.

Thank you.