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

Thank you for standing by, and welcome to the Cleanaway FY '24 Full Year Results. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Schubert, Managing Director and CEO. Please go ahead.

Good morning, everyone, and thank you for joining us for Cleanaway's financial results briefing for the FY '24 financial year. My name is Mark Schubert, and I'm joined by Paul Binfield, our CFO; and Josie Ashton, Head of Investor Relations. Moving to Slide 3. Firstly, I would like to begin by acknowledging the traditional owners of the many lands on which we meet today and pay my respects to elders past, present and emerging. The plan this morning is I'll take you through our highlights for the period and the good progress that we've 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 FY '25. I'm going to take the disclaimer as read. And so please turn to Slide 5. On behalf of the entire Cleanaway team, I'm pleased to report that FY '24 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 FY '24 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. During 2024, we delivered on our restoration plans with Queensland 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 FY '25 earnings. And we can see labor 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, the scaled ways of working, codified in our branch-led operating model. Our strategic infrastructure growth projects that are expected to deliver $50 million of EBIT in FY '26 are on track and we are progressing a number of opportunities that will deliver beyond FY '26. 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 FY '25, we expect EBIT to be in the range of $395 million to $425 million. And in doing so, we'll deliver shareholders another year of double-digit earnings growth and improving returns. From there, we see a clear runway to our midterm ambition of more than $450 million EBIT in FY '26. Importantly, the growth we are delivering now and into the future is the result of our efforts to build a safer, more empowered, data-enabled and branch-led organization that will underpin a sustainable future for the group. Turning now to the financials. We have delivered a strong financial performance and improved returns to shareholders. Underlying EBIT grew at a record rate of 18.9% to $359.2 million, which was ahead of guidance. This was driven by the completed recovery of Queensland solids, the transformation of Health Services and a solid underlying performance across the group, particularly in New South Wales/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%. Net operating cash flow was 12.5% versus FY -- was up 12.5% versus FY '23, 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 basis points to 5.5%. Earnings per share grew at 15.2% to $0.076 per share, and directors have declared a $0.0255 per share final dividend, which will be fully franked. 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 collection vehicles, were sadly a member of the public passed away. Any loss of life is heartbreaking. And on behalf of the entire Cleanaway team, I offer my deepest sympathy for this person's family and friends. We'd also like to thank those involved in the day responding to the accident. We are taking all steps to learn from this tragic event. At the beginning of FY '24, we set out a 5-year road map to drive improvements in our HS&E performance and culture. Our road map is multifaceted with a focus on risk prevention, capability building and cultural transformation. During FY '24, we made significant progress on the plan and in particular, in relation to how we manage our critical risks and critical controls. In FY '24, 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 TRIFR, 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 as we call it 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 the result is the progress that 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 FY '23. 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 FY '25. 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 FY '24, we rolled out our mandatory Respect@Cleanaway training for all employees. We followed this in the second half with the rollout of our 5 Guiding Principles. These principles which build on each other, serve as a road map for creating a workplace where everyone feel safe, respected and empowered to contribute their best every day and deliver outstanding results. As announced at the first half results, we introduced our Mission 500 incentive plan, targeting our 567 frontline leaders who don't receive LTI to align them to our stretch target of $500 million of EBIT in FY '26. 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. 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, with our customers as well. Pleasingly, we had no significant environmental incidents in FY '24, and we reduced the risk and severity of major fires through our efforts and investment in fire detection and suppression. We also reduced our methane emissions and remain on track to meet our 1.5 degrees 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 2 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 polypropylene ice cream cups each year. And we're also meeting the growing demand for FOGO through the accelerated transition of Eastern Creek Organics, the renamed GRO. During FY '24, 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. I'll now pass over to Paul for the financials.

Thank you, Mark. So starting with the group P&L, where unless specified all the comparisons I'll make against the prior corresponding period or PCP. So 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. FY '24 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 Queensland solids, the transformation of Health Services and strong growth in the New South Wales solids and liquids businesses. 100 basis point expansion in EBIT margin to 11.2% was the primary driver of the increased profitability. And throughout this presentation, you'll hear more on the benefits of our operational excellence initiatives, which are increasingly evident in our results. 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 by 14.8% and 15.2%, respectively. 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 Customer Connect project. The group remains comfortable with its banking covenants and has a leverage ratio of 1.89x at year-end in line with the prior year. It was also good to see the return on invested capital increased by 60 basis points to 5.5%. So turning now to operating cash flow which was $542.1 million, up $60.3 million -- up by $60.3 million from the prior period from a cash flow conversion ratio of 97.6% remaining strong. Adjusting for the cash flows associated with the 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 FY '25, the net cash outflow associated underlying adjustments will be lower by approximately $10 million. This net improvement in 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 were partly offset by further insurance recoveries. Management of working capital continues to be a real priority in the group. And with the exception of the construction sector, where we have a minimal exposure, the quality of our receivables book is excellent. As Mark said, directors declared a fully franked final dividend of $0.0255 per share, taking the full year dividend to $0.05 a share. The Commonwealth Government's Instant Asset Write-off program finished, and hence, Cleanaway will resume paying income tax. Tax payments during FY '25 are estimated at $120 million. That's approximately $95 million related to FY '24 and about $25 million related to installments of '25. So as a consequence, of foreseeable future, we expect dividends will be fully franked. CapEx for the year of $446 million finished within the top end of our $430 million to $450 million guidance range, with approximately 1/3 of the total or $161 million in growth CapEx. During the year, we've had investments in several key strategic infrastructure projects and these include the construction of the Western Sydney MRF, which remains on budget and on time, with commissioning expected in October and first waste in November. It's expected to start positively contributing to earnings in FY '26 as volumes steadily ramp up. The completion of the rollout of Victoria CDS network was again on time and on budget, the scheme becoming operational from the first of November '23. This contribution in FY '24 was minimal but is expected to ramp up over FY '25. We recognize the importance of capital allocation driving accretive returns and we're always looking to strengthen our processes. So EBIT, not an EBITDA is used in our key performance metrics, right the way through to branch managers as it better aligns remuneration with returns on capital. We listed our hurdle rates during the year, thereby making the capital approval process that much more demanding. We've started looking at the allocation of capital over multiple time horizons. And now we have sourced in data & analytics that help to optimize our spend, particularly in relation to fleet. We're committed to a disciplined, returns-focused approach to capital allocation in our current context of having more opportunities in organizational capacity. This sharpens our focus on selecting the growth opportunities with the highest returns. We expect CapEx for FY '25 to be approximately $400 million, and this comprises approximately $250 million of maintenance CapEx and $150 million of growth CapEx. And we expect our D&A for '24 -- sorry, for '25 to be in the range of $380 million to $400 million. And with that, I'll hand you back to Mark who will take you through the segments.

All right. Moving on to Solid Waste Services on Slide 14. Net revenue increased 6.3% to $2.2 billion, and underlying EBIT increased 18.3% to $329 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 CDS and organics operations. Disciplined price increases and contractual price mechanisms more than recovered higher labor and fuel costs. However, the benefit of price increases was tempered by higher fleet repair and maintenance cost and the general inflationary environment. The improvement in voluntary turnover and reduced vacancies resulted in a reduction in subcontracted hours and supported an improvement in labor productivity metrics. Underlying EBIT growth was driven by the restoration of the Queensland business, strong performance in New South Wales ACT and the realization 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 and demolition sector given 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 1/3 of solid 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 this time last year. Furthermore, it also meant that we targeted large uprates for those customers that were least profitable and hence, cut the tail and reduced volume. We move to Slide 15. Landfill EBIT declined by 2.4% year-on-year as our teams focused on maximizing returns at each location by focusing on price, on mix, on compaction and operational efficiency. This largely offset volumes being down 8.7% for the period. Now each of our landfills have unique and regionally driven market dynamics. In Melbourne, MRL continued to operate in a particularly competitive market, resulting in lower volumes for the period. The MRL team focused on extending waste [ codes ] to capture higher-margin waste streams and operational improvements to maximize returns. Tempering these operational improvements has been the increase in cost of soils recover, which impacted margins. We have installed a performance improvement focus on MRL, similar to what we used to reset the health business and the Queensland solid business over the last year. Lucas Heights and Kemps Creek, our 2 landfills within the Sydney Basin, we're able to balance price and volume, resulting in profitability per cubic meter improving year-on-year. By remaining focused on maximizing returns, we ultimately benefit from a cash flow perspective since we consume the airspace more slowly and hence have lower CapEx in future years since we push out the time line for developing new sales. The CDS business continues to grow. Strong volume growth was driven by the expansion of the Queensland program to include wine and spirit bottles. And CDS EBIT was up year-on-year, even though it included the ramp-up costs of the Victorian CDS. Organics EBIT was up year-on-year driven by New South Wales through better leveraging of the organic network. New South Wales FOGO market is expected to continue growing as a result of the state's policy to drive land diversion. And as mentioned earlier, we are accelerating the transition of our Eco site to FOGO processing to meet this demand. Moving to Slide 16. The Liquid Waste & Health Services segment revenue increased 13.3% to $691.7 million and underlying EBIT increased 38.7% to $67.7 million, and underlying EBIT margin expanded 180 basis points to 9.8%. The LTS business delivered revenue growth of 16% and EBIT growth of 35.4% when compared with prior year. During FY '24, the team delivered a number of large scale complex projects safely and on time, including the remediation of a large mining site as well as a number of hazardous oil projects. LTS' technical expertise and innovative solutions are increasingly being sought after over cheaper and potentially less environmentally friendly options. And during the year, we saw reputation as a contributing factor in securing an extension on a national product stewardship project and being appointed onto 2 statewide household community contracts. LTS continues to build capability to provide treatment pathways for hard-to-treat waste including commissioning of PFAS wash water plant in Victoria. Similarly, the LTS team has integrated the Scanline used cooking oil business, positioning it alongside our waste scrap business and readying it for growth. Health Services revenue grew by 14.1% in FY '24. EBIT was significantly ahead of last year as the transformation program turned this business from being loss-making in FY '23 to being on track to complete its profitability restoration program. In FY '25, Health is expected to deliver approximately $15 million in EBIT. Our health business is unrecognizable from a few years ago and has been transformed in terms of lower cost base and increased capacity. The comprehensive business transformation program, which is routine value drivers and data-driven tools on our branch optimization program has driven EBIT margin expansion across all aspects of the value chain. Moving to Hydrocarbons, where revenue grew 2.9%, but with EBIT up 8.6%. This reflected increased deployment of parts washers to its growing customer base. EBIT margin also benefited from improved pricing discipline and a focus on selling a higher grade of rerefined base oil as well as improving customer service and margins, our hydrocarbons business is incredibly well positioned to capture the exciting opportunities presented by the evolving low-carbon high circularity loops and fuel oil market. Moving to Industrial & Waste Services, IWS, where revenue increased 7.7% to $404.6 million, EBIT was $26.5 million, in line with FY '23. And EBIT margin declined 60 basis points to 6.5%. Revenue growth in the first half was strong, was supported by price increases, volume growth and the start of the multiyear national Santos service contract. In the second half, softer market conditions led to customers deferring or canceling projects. This impacted IWS' financial performance due to operating leverage where profitability is optimized when there is a high utilization of assets and staff. The second half was also impacted by the announcement of the upcoming closure of the Alcoa Kwinana site and the progressive scaling down of activity at that location. Given the current market softness, we've taken the opportunity to further align and streamline the business to future opportunities. We have restructured and simplified our East Coast IWS operations to directly support large-scale customers and contracts, whilst pooling our assets and resources centrally to efficiently and programmatically be able to support these customers' turnaround and project work. The opposite is happening on the West Coast, where growth in recent years and an attractive outlook have led us to realign our Western Australian operations so that we can focus on key customer segments and continue to grow in that way. Over the last 2 years, IWS has successfully rebalanced its customer book to focus on larger Tier 1 oil and gas and mining customers who value our systems and our capabilities. With the evidence point of this rebalancing being that we have doubled our oil and gas revenue over the period, this is important because building our reputation with these customers is an important first step in securing a foothold in the decommissioning and remediation services market, which we see as an attractive long-term growth vector. Moving to Blueprint 2030 growth strategy. By now, you will be familiar with our value creation staircase which captures our Blueprint 2030 strategic pillars combined to deliver shareholder value. The way you read this slide is we start on the left with the footprints of our prized infrastructure assets and our people which given our scale grows as the economy grows. We then apply operational excellence initiatives to continuously improve our 330 branches, including programs such as branch optimization and fleet transformation. Then in addition to improving how we operate, we use the stronger cash flow that this generates to add value-accretive infrastructure. Recent examples here would include developing FOGO processing solutions to the Sydney market through transitioning Eco to FOGO or our new Western Sydney MRF or our new IWS contracts. We then integrate our infrastructure together to provide our customers with high circularity, low-carbon solutions in the form of scale, end-to-end customer solutions across multiple waste streams with great customer service and a value for money price. We think that when that's done well, it will be hard to replicate and will support market share growth in an increasingly sustainability-focused economy. And while today, we talked about our staircase as a series of steps we are taking to achieve our midterm ambition, we see this as an iterative and ongoing process that repeats itself and becomes an ongoing value creation staircase, delivering sustained growth over time, well beyond the midterm ambition of greater than $450 million in FY '26. Let's move to Slide 21, which provides an overview of the initiatives that are driving our ability to achieve double-digit EBIT growth this year, next year and again in FY '26. Starting at the top of the slide with restoration. We have delivered approximately 2/3 of the expected $50 million forecast to be realized from these activities with the final 1/3 to be delivered in FY '25. The operational efficiency bucket are those initiatives focused on helping the business work smarter. By successfully executing these initiatives, we see the potential to exceed our $50 million estimate and take our FY '26 EBIT beyond $450 million. Along the bottom of the slide, in bright blue are our strategic infrastructure growth projects for which the capital has been deployed and they are on track to contribute the forecast $50 million in FY '26. As you have heard me say before, our EBIT results are a sum of the combined efforts of our 330-plus branches, and our more than 7,900 strong team spread right across Australia. The branch optimization program is a key part of our improvement journey, bringing together 3 elements. Firstly, the performance improvement of underperforming branches through high-intensity improvement plans, SWOT teams and lean. Secondly, creating high-intensity alignment, routine and ownership through our branch-led operating model; and finally, by unlocking the power of working smarter through programs such as fleet transformation. Together, these 3 elements will create not only a significant performance improvement but importantly build a strong platform for future continuous improvement and a growth that lives long after we've delivered on our midterm ambitions. In FY '24, our solids business delivered a 150 basis point increase in EBIT margin. A sizable portion of this expansion came from New South Wales ACT and Queensland Solids, adopting various elements of the branch optimization program. A good example of the opportunity through our branch optimization program is the doubling of EBIT margin between FY '23 and FY '24 at a large regional New South Wales branch through the use of SWOT teams. Now importantly, this isn't a SWOT team takeover. It's the SWOT team having the time to help unpack what's going on at the branch and then equip the local leaders and team with the tools, the processes and the operating cadence to turn their own performance around. Another example is the 200% improvement in Queensland Solid's EBIT, which is a testament to the commitment and effort of the team. Embracing the data-enabled tools such as labor dashboards and route optimization, the team improved their service levels, which then enabled price increases. They were also amongst the first of our branch-led operating model. Today, across the Queensland solids network, visual management boards and a daily meeting are business as usual and they're in the process of adding all hands monthly meetings into their operating cadence. One of the key strengths of our Blueprint 2030 led strategy is our recognition that for it to succeed, branches must be enabled to make decisions while being supported with the necessary standardization of tools, resources, routines and capabilities to do so effectively. This is where our centrally led programs come in. When I spoke about branch optimization earlier, I mentioned the layering in of centrally developed branch-led programs. As some of you might have seen, we detailed the fleet transformation initiative back in May. But to recap, our goal is to optimize running and capital costs and maximize returns by implementing a data-enabled multiyear strategy that will transform every aspect of fleet management. This includes evaluating the use of third-party providers versus owning vehicles, exploring new in-cab technologies, centralizing fleet life cycle management and incentivizing asset pooling when vehicles are not fully utilized. We expect this strategy to deliver significant benefits through and beyond FY '26. We're also at the halfway point of our 4-year $100 million business transformation program CustomerConnect. Through this project, we're upgrading our infrastructure and digitizing our call to cash process, thereby creating a foundation for our advanced analytics and AI initiatives as well as creating a better experience for our customers and our customer-facing teams. During the second half of FY '24, we completed the first of 2 releases of CustomerConnect, on time and on budget. CustomerConnect is due to be completed by the end of FY '26 and expected to deliver more than $5 million in EBIT in FY '26 and more than double that in FY '27. Turning to the strategic infrastructure pillar. Even though projects on the slide have already been mentioned this morning, we've brought them together here as they are the foundation for this pillar to deliver around $50 million by FY '26. I do want to highlight a few points. With the opening of VIC CDS last November, our CDS vertical in partnership with Tomra has cemented our position as the leading CDS operator in Australia. The transition of our Eco site in Western Sydney from inerting red bin waste to also be able to process FOGO will be completed in FY '25. Investing in our ECO site not only increases our exposure to the growing New South Wales FOGO waste strength, it will also increase the site's capacity by approximately 35%, underpinning growth on this site for a number of years to come. I'm looking forward to our Western Sydney MRF starting commissioning in October this year. We have used the learnings from all our other MRFs to design this one. And given the lack of MRF capacity in Greater Sydney, we expect it to start filling in FY '26. And as you know, we've completed the first year of our National Santos contract and continue to see opportunities in the sector. Finally, before I move on to our scorecard and outlook, I'd like to provide an update on the strategic infrastructure projects that while not contributing to our FY '26 midterm goals, are poised to deliver significant value creation for shareholders in the years beyond. In June '24, we announced our agreement to acquire Melbourne Citywide Service Solutions, waste and recycling business, for $110 million. Pending necessary approvals, including from the ACCC, Cleanaway will acquire Citywide's Muni and C&I Collections business and enter a 35-year lease for the Dynon Road Transfer Station, which currently spends approximately 90% of its volume to MRL. As part of the purchase agreement, we will undertake a $35 million redevelopment of the transfer station with the city of Melbourne contributing an additional $10 million. Once complete, the new site will have nearly double its current capacity, enabling future earnings growth and supporting volume expansion in our post collection infrastructure. Moving our focus to Sydney, where we are progressing our Lucas Heights landfill extension plan. As the only putrescible landfill in Greater Sydney and at current annual volumes, Lucas Heights airspace will be largely depleted in the early 2030s. To address this projected shortfall in airspace within the Sydney basin, we are proposing an extension to the current landfill footprint, which would increase its operational life by an additional 8 to 10 years. Our Scoping Report was recently submitted to the New South Wales Department of Planning, Housing and Infrastructure. Capital expenditure isn't projected for several years as the planning and approval process will be synchronized with the projected consumption of existing capacity at the site. And lastly, on energy from waste, we are progressing our role as an originator of energy-from-waste plants as we leverage our ability to derisk these projects. In FY '24, we continued with our capital-light approach, continuing with the long lead time work required to complete the elements that must come together before reaching our plant FID decision which for any of the projects we are assessing is at least, we think, 2 years away. Our capital investment to date has been relatively modest, and we remain committed to only deploy capital with a clear path to an appropriate rate of return. Moving to the scorecard, which we launched in August last year, alongside our midterm ambition. We have talked about most of the items on the scorecard already, and so I'm not going to go over them again now. The key takeaway from this slide is that our must achieve, which are listed on the top half of the slide are on track with 1 yellow being labor productivity, which we debated the color of, but decided to show as yellow. We expect it to turn green during FY '25 as lower turnover, particularly first year turnover and lower vacancies further translates into improved processing. We are going after the financials in the right way with our foundations largely on track. We marked safety as yellow because we want to see the lagging indicators of TRIFR and our new metric, SIFR follow the strong progress we're making on our 5-year plan. And finally, looking at the right-hand side of the scorecard, we are on track to deliver our midterm ambition of greater than $450 million of EBIT in FY '26, while steadily improving ROIC. And that brings me to our final slide this morning, which is the outlook. We are pleased to have delivered what we said we would in FY '24. And with the momentum of the business into FY '25, we remain on track for our midterm ambition. In terms of guidance for FY '25, we expect EBIT to be between $395 million and $425 million. D&A is expected to be between $380 million and $400 million, and net interest expense approximately $130 million, assuming current cash rate. As noted by Paul, total CapEx for the year is expected to be approximately $400 million. I would like to thank -- we'd like to take this opportunity to thank our more than 7,900 strong Cleanaway team who together every day serve our customers and communities around Australia. FY '24 was about execution. It was about progress and was about delivering another year of double-digit growth and improving returns to shareholders. Equally important, it was about doing what we said we would do. Our FY '24 results demonstrate the underlying strength and scale of our business. The increasing resilience and value creation being delivered through the year on the execution of our Blueprint 2030 strategy. I'm now going to open it up for questions.

[Operator Instructions] Your first question comes from Jakob Cakarnis with Jarden Australia.

If I can just start on the Solid Waste business, please. It looks as though EBITDA margins in the second half of a net revenue basis were down 30 basis points and the rate of growth across both the EBITDA line and the EBIT line slowed materially relative to the first half. Can you just talk us through some of the competitive dynamics that you're seeing, whether or not some of those irrational pricing that you've been talking to, particularly in the Victorian market is playing through? And, I guess, give us an update where Veolia are with the internalization of the SRN volumes, please?

I'll do the last part, and I'll throw to Paul. So SRN volumes. So Veolia is internalizing the SRN volumes. We always said that was going to happen. And so the way it worked, Jakob, was that we went and won a large customer in Sydney that previously was supplying Veolia. They then -- and we took that into SRN obviously, and they then -- that gave them the capability on the train line to take the waste that was going to our facility down to Woodland. We kind of took control of our destiny in some ways. Do you want to cover?

Yes, sure. So in terms of the competitive landscape, perhaps if we sort of focus on key segments of the market. So C&I metro and regional C&I represents about 40% of solids on a revenue basis. As you can see, we've seen revenue growth over the period being just over the 7% mark, roughly 6% price, 1% volume. So the focus we've taken here, Jake, is all about EBIT and not about chasing volumes. So we've been very focused in terms of our price increases. And again, this is one of the real benefits we're seeing coming through in terms of data analytics in the sense that we are now able to really focus our price increases on reflecting the profitability of the customer. So where we've got a potentially profitable customer, we may give them a very modest price increase. Those that are less profitable, we often give a significantly higher increase and thereby that naturally results in a degree of cutting of the tail. So again, we probably lost some volume in that regard as well. Importantly overall, though in terms of that business, fair to say that the churn -- so customer churn was actually down year-on-year. So again, testament to the fact we're being far more targeted in terms of our upgrades. In terms of landfills, I think we've -- I think Mark's comments, pretty extensive, similar story to what you saw in the first half in terms of New South Wales performing really well. So essentially using price is an important lever. Yes, we've seen volumes come off there. But frankly, it's volume we didn't want. It was not profitable volume. I think this probably intensity in terms of MRL has increased. So the team have been focused very much around mix. So again, trying to bring in a greater proportion of that, the tougher-to-treat waste codes and therefore, improve profitability. We really have suffered in terms of -- so project volumes are down a bit, too. We're seeing some of our [ soils ] volumes coming off as [ soil ] washing facilities elsewhere in the city are taking some of those volumes. And obviously, VIC is probably a bit further progressed than other areas around FOGO. So we're seeing greater FOGO diversion coming in there as well. We have seen increased costs around landfill materials. That's absolutely impacted the profitability of MRL. In fact, to the point we're seeing MRL profitability, it has come off. We're really not -- we're not happy with how our assets are performing right now and put a very thoughtful focus in terms of the performance improvement plan in place, not dissimilar to what you see us do with Queensland and health over the prior year.

It was a very detailed description. Just two more for me before I hand it over. If I just go back to Slide 17, Mark, you said that you're expecting an EBIT contribution of $15 million in that Health Services business. I think some may have misread prior statements where you've said by the fourth quarter of '24, you'd be at that $15 million run rate. Can I just confirm that, that $15 million is an annual number and am I right in stripping out that the rest of that Liquid Waste & Health EBIT that you've reported in '24 is related to the Liquid Waste business standalone?

Yes. The way should think about it is we hit the run rate in FY '24 in the fourth quarter. So we were running at an annualized growth in the quarter of $15 million. That doesn't mean we delivered $15 million in the quarter. It's the annualized rate, right. In FY '24, Health delivered sort of $5 million, $6 million, $7 million, something like that, have that in your mind. And in FY '25, that number will become $15 million. So you think $10 million clear between the Health performance in FY '24 and what should be expected in FY '25. You're correct to then basically say will help deliver say, $7 million, whatever it is in FY '24. The rest comes from hydro and liquid & technical services business.

One final one, just for Paul. The net interest guidance of $130 million. Does that include anything for citywide? Obviously, you guys are still subject to ACCC approval there. But just noting, is there some upside risk if that ACCC approval is granted to that net interest guidance, please?

Yes. So essentially, that assumes nothing from Citywide. And again, I think we've been fairly clear, it also assumes just no rating -- no rate change either. So if there are reductions towards the tail end of the year, that obviously will give us that uplift as well.

Am I right in thinking though the delta from Citywide still that $8 million mark, please?

Well, in terms of the interest, appropriate a bit less than that, Jake. So you're talking average sort of cost of debt around the 6% mark consideration. We paid a deposit of 5.5%. So we've got about another [ 104.5 ] to go should we be successful.

Your next question comes from Amit Kanwatia with Jefferies.

Congrats on the solid results. Just thinking about fiscal '25 and maybe if you can talk to key elements around revenue growth and -- then also, just you've got a wide guidance range for EBIT, maybe if you can talk to swing factors within that guidance range.

Sure. So I mean the building blocks -- I think you're talking about the building blocks that you get to FY '25 number. So again, I'll sort of talk about them in the 3 buckets, I think it's the easiest. So in terms of the restoration bucket, obviously, that will deliver the remaining. And if you remember what I said, we said 2/3 of the rest of bucket got delivered in FY '24. So it's 1/3 to go. So I think $15 to $20 million of rest of which like to the previous question, I said about $10 million of that is Health. So the remainder is labor. In the ops efficiency bucket, I'll come back to that one. In the strategic infrastructure bucket, you'll start to get -- what you'll see there is you'll see the full year of the Santos contract, you'll see VIC CDS ramping in, whereas it was really only starting up and had start-up costs in FY '24, same with Scanline. Scanline kind of had costs offsetting revenue because it was a start-up year and that will contribute in FY '25 and then you will see contract growth coming through in strategic infrastructure line. And then ops efficiency is the balancing one that will really be the one that sort of delivers a lot of the range. And really, that's the momentum from branch optimization and the fleet strategy will be the big drivers in there. So that's how you get to that range. We don't really think that range is really that big, I guess, is what I'd say. I think sort of a $30 million range on sort of 300 -- sorry, $400-odd million is not, we don't think, overly outstanding.

Very useful. Just a couple more from me. Just on the contract pipeline, and I appreciate you've got longer-dated muni and C&I contracts. But maybe if you can talk to your contract activity during the period and also give us a sense on the key upcoming contract renewals but also some of the key tender opportunities you see in the market?

Yes. So -- in terms of the tender year, pretty fair to say it was fairly muted, Amit. I think in terms of muni in particular, you've seen us talk about the focus that we've got around returns on capital allocation. I think we're looking at our current muni portfolio feeling that we've probably got a good balance of muni. There's no need to sort of go out there and chase new contracts. So we're being very selective in terms of what we're looking at in that space. In terms of national accounts, again, a fairly muted year in terms of no sort of significant major accounts albeit we've won probably more than we've lost, again, a fairly -- a pretty good year in that regard as well.

Right. And just a final one. Just on the corporate cost. I see in second half, that is up around $9 million. Maybe if you can talk what's happening there? And how should we be thinking about that for fiscal '25?

Maybe in terms of corporate costs what I'd say is, the benefit is the midterm ambition and the year-on-year EBIT growth. And that requires a capability to be invested in to deliver it. So you're right to say corporate costs have increased, and they've increased as we look at investing in that capability. Easy examples there would be things like the investments we're making in data analytics, the investments we're making in carbon, the investments we're making in decommissioning service to see those businesses and bring in real capability that can manage and grow those businesses in a pragmatic and practical way. Is there anything else we'd add on that?

No, I think it's pretty...

Yes. I guess, probably that's it, Amit.

Your next question comes from Lee Power with UBS.

Just following up on Jakob's question, like how far away do you think we are from the end of this kind of dynamic in muni volume erosion as you kind of hold the line on price? And the reason I ask is Veolia at their results obviously talked to strong contract wins, but they also seem to be pushing more around strong pricing and kind of some of the same kind of discussion around pricing that you are as well?

Yes. I mean, I think, if I look at what Veolia was saying, I mean Veolia was saying, Veolia seemed to be on a revenue [ band ] with this excess and compound revenue growth target over the next 3 years. That's not our band. That's old days. We're focused on EBIT and EBIT growth. And like Paul said, we're very targeted on the returns. We just don't -- we don't want revenue for the sake of revenue or volume for the sake of volume. I think similarly what Paul said around, like, for example, muni, I think we feel like we've got a good balance of muni contracts. We're very thoughtful about any new muni contract. Just imagine a new muni contract that has simply set up a branch, run some trucks for 10 years and to a community is probably relatively speaking on what we could invest in low return, probably relatively low risk as well, and we've got a portfolio of projects that we could otherwise invest into and particularly if that muni contract doesn't have sort of a C&I branch that we could attach to it because we might already be servicing that area. So we're very thoughtful about muni and getting that capital allocation [indiscernible] given our current portfolio of muni contracts.

And then just on the OCC contribution into the result. Is there some idea you could give us around what that actually contributed this year?

Yes. We've not quoted it out, Lee. I think fair to say, if you look at what happened in '23, you had that significant volatility in OCC price, and we had -- and that resulted in, at some point, the rebates we were paying to customers at a higher level than the pricing we're getting in the market. '24 for us was actually exactly the reverse. It was a really good year in the sense it was the year still increasing prices over the term, which is typically works best for us. The focus that we have is we try and avoid price risk or avoid the market risk and our focus is on volumes. So we saw a period where we had relatively flat OCC volumes over the year, but steadily increasing price. So it made a good and stable contribution and more akin to what we would expect to see in future years relative to '23, which was a bit of a roller coaster.

Yes. So the net -- I think you called out net [ 14% ] Negative impact in '23. So we should just be thinking that's the opposite into '24.

Yes. I think we gave you figures of '23 to both first half and second half. I think that will give you a pretty good indication as to a bad year for us. And obviously, we've delivered a better outcome in terms of '24.

Okay. Perfect. And then finally, just on IWS, like the second half was obviously impacted by some stuff in WA with deferred projects and Alcoa. Do you -- like how do we think about that into FY '25 given that kind of East, West dynamic that you talked about, Mark?

Yes. I mean we're not guiding IWS itself, we're kind of guiding Cleanaway. But what I'd say is the guidance assumes sort of, I wouldn't say it's a strong improvement in the IWS business. We're pretty conservative there. That said, we're doing a lot of work on the IWS business. We've already completed a lot of work and there's more to go around restructuring that business appropriately for the future. I think this thing that we saw where sort of major projects and turnarounds were deferred by major customers. I think my view would be that can only occur for a period of time after which that work will need to be done. So I think it will come back. It's just a matter of exactly when and in what form. So I think what we're doing -- what we're focused on is rightsizing IWS. And I think really getting thoughtful about how we approach that -- the ability to do that major turnaround piece. And I think simplistically, in the past, each branch would hold a surge capacity in order to complete projects and turnaround work. Now what we do is we centralize that surge capacity in one place and program it in a really efficient way and the branches just hold what they need for the baseload if that makes sense. And of course, that leads to a lower cost approach and one that we can really manage the operating leverage of.

Your next question comes from Nick Daish with RBC.

Just a quick question just on margins. Obviously, it was at 11.2% for the growth for the full year. That implies quite a strong second half. I think my math gets me to 11.7%. I think historically, you've spoken to 12.0% business as usual margin. Can you -- I know you're not guiding to our margin for FY '25, but could you give us some feel for the things that we should be considering heading into FY '25 as it relates to margins, please?

Yes, sure. I mean it's not going to be a dissimilar answer to what I answered before on the building blocks. But I think what will help margin in FY '25 will be, obviously, the Health business having a full year of the Q4 run rate. It will be the labor improvement that we continue to see, sort of talked about piece in the rest of bucket, but that will then obviously continue to flow and improve beyond the rest of bucket size. I think all the entire ops efficiency bucket is margin -- is very high margin work because there's virtually no capital or base associated with that work. It's all about working smarter as opposed to new equipment. So I think that will continue to flow through. And then you'll see over time the -- some of the margins will improve through things like you imagine like the big CDS starts up, but it's only starting up and it's got its costs -- it's start-up costs embedded, so it's not as high margin as it will be during FY '25. Scanline, similarly, that comes in. We've got integration costs, which are all sitting in the result. Again, it will be free of that in a full year, those sorts of things. So those will also contribute. I think what will drag margin down, for example, FY '25 will be 2 things. And I think it's worth understanding this because that will reverse out in FY '26, and that will be the Western Sydney MRF will come on, and it will have start-up costs and a ramp-up. So it won't have as high margins in '25 as well in '26. And similarly, ECO, otherwise known as GRL is, again, will have the transition cost associated with it in '25, but then you'll start to see it really ratchet in '26 as well. So hopefully, that gives you some color as to how the margins will continue to improve.

Yes, very much so. The only other one is just the landfill dynamic. I mean you've covered it to some degree. But I'm interested in -- it sounds like Melbourne is a very competitive pricing market right now, which you're comfortable [indiscernible] low returning volumes go. I'm just interested in the compaction comments in profitability in New South Wales. Is that a case of bringing those sites up to standard in your view? Or is that over and above what your other landfill assets are performing at in New South Wales specifically?

I think the New South Wales assets are performing to standard. And I don't think -- I mean they are well operated. They're even better operated now. If you remember, the compaction comment in the past around the SRN assets was the fact that we had a contractor there who was motivated by [ saving ] fuel as opposed to what we were motivated by, which was burning fuel to get compaction. And those 2 were horizontally opposed. We took -- we got rid of the contractor and now we do it ourselves. So we internalized that work, and therefore, they're not earning a margin or paying a margin on that work. I think the New South Wales story is that we keep pushing the pricing frontier there. So we know exactly where volume goes to different locations. We push price that has reduced volume, like Paul said, unprofitable customers we're not interested in. It improved EBIT, but it's also improved EBIT per cube. So we're pretty pleased with the way New South Wales is playing out. Of course, that has the benefit of the improved cash flow because we don't need to build the [indiscernible].

Your next question comes from Cameron McDonald with E&P.

Just a couple of questions for me. So you called out just on the landfill side of it. Are we right to sort of say that given those comments, all of the headwind is actually MRL and Sydney is not any sort of drag at all?

I think what I'd say is definitely the drag is in Victoria. I think -- it's kind of like if you look at our landfill portfolio, we have 3 really large landfills and then the rest tend to be almost what I would class as a regional landfill where we've got a landfill, say, in WA, but it's -- if we've got which is near Margaret River. We've got 1 in Adelaide, but again, it's an hour's drive out of CBD. So again, they tend to be more regional. So, therefore, we kind of focus on New South Wales and Victoria, that will be the first comment. I think in Victoria, what we're saying, just to be crystal clear, is what the team is doing. Is the team is working on mix, which is making sure we've got the toughest forms of waste coming in there that obviously then have the highest price. We are seeing the impact of project volumes coming off just where the big build and some of those stuff just has been deferred or slowed down. We're seeing less soils because of less C&D activity, and we're seeing the impact of FOGO where accounts will switch to FOGO that comes out of the red bin, and obviously, then doesn't go to the landfill. With a bit less volume, then you're seeing a bit more competition for the lower volume that's available. I think then, at the same time, we're seeing some cost go up around sort of oil supply costs [indiscernible] and that leads to a decline in overall EBIT from MRL. That said, we have a pretty deep experience around landfills, and we've got a lot of ideas as to what we might do and what will work. I think here from Paul and I, we're dissatisfied with MRL performance. And so therefore, we've put a team in place and a program of work that has the same intensity as what we put in place for Queensland and Health Services. So that will yield some deals and we'll talk you through as we go over the coming sort of sessions where we get together.

And just on that, I mean, you've said Queensland is now back to profitability. What's the delta on Queensland from the low?

Well, it's about $15 million would be the contribution of the restoration of the Queensland business is that the way you should think about it. So maybe I'll -- if you want me to help you in this way, Paul said something like 2/3 of the $50 million in resto has been delivered. The way you get to that is you go $10 million from Health, $15 million from Queensland and $5 million to $10 million from labor. That's how you get to that 2/3.

Okay. Yes. Okay. And so that's basically locked in now for FY '25?

Yes. And then we build on that. That's right. So then during '25, we'll get the full year benefit of Health. Yes. We'll get Queensland and Queensland will then just switch to sort of underlying growth because that business is now poised for growth where they've lowered the cost base and got the capacity, they've got good pricing. They understand what they're doing and they've reset the business.

Yes. So sorry, just to be clear, though, that sort of $15 million, $10 million and $10 million to $15 million that you've highlighted, that is incremental in FY '25 on an annual run rate basis?

No, that's the 2/3 that was delivered in FY '24. So that's locked in. Yes. Because we've done, but again in '25, but it won't be new. And then we see...

You should get the uplift.

Exactly. That's right.

So there's another 1/3 to come?

That's right.

Yes. Okay. And then in terms of the building block out to '26, interested as to -- you've got all of these programs, and you can talk very articulately around getting to the greater than the $450 million. What are you waiting for to actually sort of guide to a more specific sort of headline number given that all of the internal targets are actually $500 million?

Well, I think that's good question. So well, I think what we're starting is today, we installed another step on the staircase. So if you remember how this has worked, we had $302 million in FY '23, $359 million in FY '24 and FY '25 was saying $395 million to $425 million. And then in FY '26, we're saying greater than $450 million externally. Internally, the team is focused on Mission 500. I think what we're just saying is what will swing that number from $450 million to $500 million will be how hard we can get the branch optimization and the fleet strategy rolled out and the associated advanced analytics. So really, if you want to build that staircase, you've got things in that ops excellence bucket like fleet, data analytics, CustomerConnect, branch optimization, decommissioning services, landfill gas capture. And those are all those things are on. We got the chevron slide, but it's the 3 rows of chevrons that move across the page, which are trying to give you the clue as to what's in that supersize bucket, which is the middle one that gets you in that $450 million to $500 million range.

And so just to be clear though, Mark, that you've basically got $50 million in each one of those buckets, is that -- that [ $50 million ] until over FY '25?

No, no. It's $50 million. If you look at the slide, it started at $302 million. And it's basically 2 buckets of $50 million plus 1 bucket that's greater than $50 million, that gets you to the greater than $450 million in FY '26. Yes. So it was -- it was all that whole slide hangs off $302 million in FY '23. Last year's result, the FY '23 result, August, where we launched the midterm ambition to translate Blueprint 2030 into a financial set of numbers that shareholders could follow.

Your next question comes from Scott Ryall with Rimor Equity Research.

I was wondering, you talked a lot to the focus on EBIT as opposed to top line, which is great. One of the things that I try to do always with Cleanaway is look at the organic processes acquisition led. And I don't expect you to necessarily quantify it, but is it fair to say that the EBIT growth delivered in fiscal '24 is probably got the greatest mix of organic growth that -- for quite some years. Is that a fair comment? I mean, obviously, prior to both your times. But I'm just wondering if you can -- you've obviously looked at financials longer term. So I was just wondering if that would be a reasonable reflection, please?

You've got to say '24 compared to '23 and we've got 2 additional months of the Eco business, which is, frankly, pretty small. And then Scanline, I think we make -- we said the contribution of Scanline in '24 was pretty much nil because integration costs pretty much wiped out any of the underlying EBIT. So essentially, all of that growth was organic.

Yes. But looking back, just it looks to me like quite a standout year in terms of organic versus acquisition. I take what you said that all the growth is organic. But if you look back kind of 5 to 10 years, I can't remember a year where organic growth has been anywhere near that. Is that -- I don't want to piece in your pocket, but that feels to me like a bit of a step-out year to me.

Well, I think -- I mean, we think maybe we'll grow in part. So I think we think it is a standout year in terms of delivering what we said we're going to do. I think -- and beating guidance, I think we don't think about the business as let's look at what we acquired and how that's performing versus the organic business because we kind of go through as we've acquired is organic from that point for. And often, if it's infrastructure, like the SRN assets or whatever, is so then integrated into the business. It's actually quite hard to strip it out and see it.

Okay. Then hopefully, 2 relatively easy ones. On Slide 17, you're talking about the hydrocarbons business and the refocus, how big can that business be in terms of the ambition, and I'm talking 3 to 5 years, not the next 12 months.

Well, I think -- good question. I mean it's going to -- it can be bigger than it is today. That is a relatively small part of Cleanaway at a scale level. I think we've got plans that see that business grow by 1/3 in terms of EBIT over the next couple of years. We are really excited about this global vector, which you like got around like circular lubes, low-carbon lubes and you only need to look over to the U.S. to see what major companies are doing, acquiring businesses that look like our hydro business because of the life cycle analysis that's been done on the lubes that then allows major blenders to be able to package that up as low-carbon lubes to mining customers. So we're really excited about the vector, and we're preparing the business line for that future.

Okay. Great. And then the Western Sydney MRF that's coming on this year, can you just remind me of the process that it has taken in terms of approvals and all of this, just how long that's taken to come into operation by the time it opens in the second half?

I think approvals would have been about a year of approvals. And then -- I mean these things are not that complicated from -- it's like building energy from waste. It's probably a year to build it. You build the share and then you put the equipment in and then ratify systems and that sort of thing, but all within a fairly nondescript [indiscernible]. It's a really great location, and we will get investors out there ultimately to see exactly where it is because kind of like as the traffic comes in from the west of Sydney, we're kind of at that Blacktown turnoff which is really need before you have to get into the real traffic to find other people's [ MRFs ]. So we're excited about that. It is the bit that we have put everything we know about MRFs into one place.

And so the attraction of the asset is more location as opposed to the ability to replicate it elsewhere?

If the location is very powerful, it will be the yield from that facility. Its yield naturally be higher because of the equipment that we've installed. We've also connected to the Circular Plastics facilities. So we will channel very high-quality commodity streams straight into the Circular Plastics plant in Albury, but also the HDPE and PP 1 in Laverton. And so it will have this really neat circular solution where you'll be able to say, hey, if we do your coming or waste in Sydney, it'll go or go through that facility. So bring your school kids and will do a school tour around what's recycling look like. But secondly, look at the circular solution where you can guarantee this is what happens to your PET bottles, your PET ice cream containers and your HDPE milk bottles, which will then go food grade. So that will be a fantastic offering to, in particular, councils in Sydney.

Your next question comes from Peter Steyn with Macquarie.

Just 2 quick questions for me. Mark, could you elaborate the last time we spoke, there was a pretty meaningful change indicated by the Victorian government around landfill levies. How are you thinking around the economics of energy from waste has evolved? I appreciate it's long term, but just keen to get a bit of an update on what that's done to economics in the context of where things are that in that market.

Yes. Well, I think, maybe you've got specific Victoria question, Pete, does that help?

Apologies, I don't catch it.

That's a Victor question, I'm assuming.

Yes, exactly. Just Victorian Energy from Waste in the context of levy move.

Yes. Well, I think -- I mean, I think what we said last time holds true that we think the levy move which was on the day of, I think Macquarie Conference, that's a big help. It gets levies very close to making energy from waste work. I think we'll see the Victorian government continue to increase levies up to New South Wales levels. That's certainly what we think. I think probably every time we tend to talk, there's some good news. I think the good news yesterday was that [indiscernible] Group of Councils, which is 9 councils that attended back in [indiscernible] back in 2018 for energy-from-waste services signed up to the Merivale facility for 25 years and also with minimum volume contracts. So you take those 2, that's really set a benchmark for councils in Victoria. So you're seeing that benchmark gets it. You will also see Veolia facility now is pretty much full, we think. And so that puts us in a really good position for sort of a book build of councils for MRF. So I think that's exciting. And that also kind of says that the economics are starting to work.

Yes. That's great extra color. And then just on your voluntary turnover, so we can delineate a general loosening of labor markets from what you're doing. Could you give us a bit of a sense of engagement scores or any other indicators that really point to some of the cultural evolution that you're trying to inculcate, Mark?

Yes. Yes. So I mean, obviously, we've been using voluntary turnover as kind of like a proxy for engagement because we didn't do an engagement survey until last year. So we're seeing voluntary turnover dropping. So overall voluntary turnover is sort of down below sort of that 17% level. We drive -- we want to get it down to sort of 15%, not because that is a particular science around that number. We just think that's a good number. It seems to be where we've seen it historically low in the past, but also where others tend to get to. We're seeing vacancy level, but down below 200 sort of peak. If you remember, it wasn't that long ago where we were at sort of 1000. So that's just indicative. We're seeing productivity improvement. So we're seeing the benefits of that, that the team is reducing the use of expensive subcontractors and we can see what this metric that we call shifts greater than 10 hours declining. That's an important metric because at 10 hours -- when the clock clicks over 10 hours, we pay for a break at double time, and we also start paying double time. And so we really want our shifts to be less than 10 hours. We don't want them to be 7.6 hours. We kind of want the team to be working for 9.5 hours because we understand the impact of that overtime on people's take-home pay at the end of the week. So we designed it around that. So we've seen shifts greater than 10 hours declining. So that's really good news. Well, that's what we're using to underpin that productivity piece improvement. So I mean all of that said, we're managing to maintain the workforce and less people leaving is a good thing. In terms of engagement score, it's difficult to benchmark engagement scores between years at Cleanaway because in the past, the approach was it was compulsory -- sorry, it was not compulsory. It was at workday the engagement score was part of STI. And so therefore -- and this year, it's not part of STI. And so you can imagine the approach that might be taken if engagement is part of STI versus a year where it's entirely on trend we just said if you have time and you're inclined to, would love to get your feedback in the engagement scores. We saw engagement score got down. It's not a secret. I think we put it out the sustainability report of 62%. It was a bit below the average. But that said, that was -- at that point in time, we hadn't rolled out guiding principles, and we were still in the middle of Respect@Cleanaway work. So I think we'll see that trend up, but we're not -- it's not the #1 thing we use to judge whether it's happening and it can be also quite time based. You do it once a year at a point in time as opposed to pulsing it on a regular basis.

Yes. Fundamentally, it sounds like you're really comfortable with the direction now. So we don't need to worry that it's just the labor market dynamic that's playing out for you.

No. And I think the other thing is we've seen a lot less sort of IR style action as well. And whereas in the past, we had that large backlog of expired enterprise agreements which also we're having protected action and our teams don't like protected action, just like we don't like it. And that was driving turnover as well.

Your next question comes from Rob Koh with Morgan Stanley.

So I joined your call late because I was on one of your customers' calls. And so if I'm asking a silly question, just let me know and move on. I guess, my first question relates to PFAS, which is, I guess, sadly close to all of us. Can you maybe give us a sense of how much technology evolution you're looking at? And are you looking to get ahead of policy here? Or are you following policy?

I think probably a little bit of both would be the honest answer. So we have PFAS treatment capability today in 2 locations. One would be [indiscernible]. We've got PFAS contaminated soil capability at Inkerman Landfill in South Australia. And we -- and that's really good if you're dealing with, say, Department of Defense or airport contaminated soils stuff where you can take large volumes into their management in a really thoughtful way. In Campbellfield, which is here in Victoria, we've built and recently commissioned a PFAS Ozone fractionation plant, won't do the chemistry lesson with you but can do. And that plant is there to treat the wash waters that are on -- that we would naturally process through that facility, but it has been sized in a way that it can process third-party wash waters as well. And so the game there is kind of do it for yourself for your base business and then grow it for others. And that's a plant that, certainly, the Victorian government is keen on ensuring that other views now it's available. So that's the kind of game there. And then interestingly up in New Chum the other day and we've got a water treatment plant there to deal with surface water and whatnot, that has also got PFAS treatment capability embedded into it. So range of technologies available. That space is moving pretty fast. Our intention is to have a portfolio of equipment that we can use for ourselves, but also offer throughput for others.

Yes, honest and thoughtful seem to be the watchword for these answers as always, appreciate it. If I can just clarify my understanding of your maintenance CapEx guidance, you're kind of looking at around the $250 million mark this year versus $283 million last year, minus the $50 million benefit from fleet. Does that imply that you're seeing a bit of cost escalation in your maintenance expenditure? Or I misunderstood the numbers?

I think, Rob, if you look at the math, it literally it's sort of almost in the rounding in the sense. I think our guidance was the D&A is $380 million to $400 million. So the midpoint there is $390 million, so 75% of that. Then if you subtract $50 million, I think you end up with something like ends up in about a $42.5 million reduction. So we're keeping the numbers simple. In terms of CapEx, a lot of it depends on opportunity at the margin, so we're giving ourselves the flexibility. But as we said back at the Macquarie Conference in May, our focus is keeping maintenance CapEx, $50 million lower each and every year going forward.

Yes. Yes. Okay. And I appreciate you keeping the numbers simple because I'm a simple man. Maybe if I can also just double check my understanding of your growth CapEx guidance because, I guess, if you get approval for Citywide, that's $110 million plus the extra development. That's additional to the $150 million that you're guiding to for growth. Yes, it is.

That's right. Just remember the footnote in the scorecard Rob that says major M&A, greater than $50 million is additive. That's additive to everything, additive to EBIT, additive to [ all parts ] and get Blueprint 2030 done by M&A that you can see that coming.

Yes. Yes. Understood. Yes. No, that's good. So I guess -- and I've done it back of the envelope, but it looks like in your rem report that your ROIC targets are staying the same for your FY '25 scheme. And -- but that does kind of suggest with your current EBIT guidance that you'll be at the top end of that ROIC range, which would be a great outcome and a good problem to have. But is that roughly how you're thinking about it?

I'm not seeing the back of your envelope, Rob. So I have to make that judgment. I guess, the key thing is, if I look at this time last year, when we set the LTI targets for the 3 years to FY '26, I think we were pretty clear then that the ROIC target there for the top end of that range, so around the $500 million mark or the top end of that range reflected hitting that $500 million sort of payout, the stretch target reflected $500 million EBIT roughly.

Yes. Yes. Yes. I guess I've got a $5 billion denominator and $400 million numerator. So that's where I'm coming out. But yes, we can double check that offline, if you like.

Yes. Yes. That's fine.

Your next question comes from Nathan Lead with Morgans Financial.

Mark and Paul, 2 or 3 questions from me, if you don't mind. Just first on cost of capital. I just noticed that you've got your net finance cost guidance of $130 million. So it's up quite a bit from what, $115 million, $116 million for FY '24. So just wondering what's causing that, particularly given there's no material refinancing exposure until like FY '27.

Yes. So -- you've got a small increase in average net debt forecast over the year. And clearly, a key driver of that is that we're resuming paying tax. So again, I think we've been fairly clear saying we're paying all of FY '24 tax in '25, and we're recommencing installment payments as well. So our tax payments the '25 are a little elevated. And that's again, I see a reflection of the cessation of the international write-off scheme. We obviously had an interest rate increase in the prior year around October, November. So we obviously have a full year of that because we've taken a very conservative assumption that basically rates will stay on hold at their current level for the full year. You also get a bit of a natural tick up in terms of interest expense, too, because we have a number of leases. And of course, as those leases roll off, you typically have lower interest rate leases rolling off being replaced by leases at higher rates of interest. So again, that gives you a natural sort of pickup. But we've tried to give you fairly conservative view in terms of our expectations for interest expense for the full year. And obviously, if the RBA reduce rates earlier, then we'll benefit both in terms of the actual cash interest rate, also noncash as well.

Second, I suppose is a nasty question here, but your FY '25 guidance and then obviously, you got your FY '26 targets, you're laying at some pretty strong growth expectations and you've got a bullish story beyond FY '26. But if I look at the EBITDA or the earnings growth forecast you've got for the next 5 years that sit in the impairment testing note. It looks like they've been pulled back reasonably materially. It seems like they're implying now like EBITDA CAGR through FY '29 or something like mid-single digit. So my question for you is what caused the reduction in the growth? And secondly, if we've got strong growth in the short term, but like only mid-single digit for the 5 years, what's sitting out further in the outer years that causes the lower growth levels?

Yes, a couple of things. Well, there are a couple of things that have gone for a while here Nathan but to keep it short. If you're comparing that note disclosure this year to the prior year, you also got a situation where you've had a really substantial step-up in EBIT in the current year. So the base is that much higher. So obviously, future rates are that much lower. The other key point is obviously, we have really substantial headroom when it comes to impairment testing, and therefore, sitting down with an [ order ] talking about relatively modest rates of growth for impairment testing is a [indiscernible] sticking in what management's sort of detailed long-term plans are. So we will naturally take a far more conservative approach around impairment testing than where we're sitting and looking at our business plans.

That's the end of the questions.

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