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

Good morning, and thank you for joining us to hear about our acquisition of Contract Resources. My name is Mark Schubert. I'm joined by Paul Binfield, our CFO; Frank Lintvelt, our EGM of Strategy and M&A; Scott Nicholls, our EGM of Environmental and Technical Solutions; and Josie Ashton, Head of Investor Relations. I'd like to start by acknowledging the traditional owners on the many lands on which we operate on all around the country and pay our respects to elders, past and present. I'm going to take the disclaimer as read. And so therefore, I'd ask you please to turn to Slide 4. Starting with what we see as the key elements of the transaction. Today, we are taking a strategic and value-creating step in the execution of our blueprint 2030 strategy. We are acquiring Contract Resources for $377 million, implying an acquisition multiple of 5.9x FY '25 forward EBITDA post net cost synergies. Contract Resources is a strategically aligned and complementary business that is the go-to provider for catalyst handling, decontamination, chemical cleaning and related services to the oil and gas industry. Contract Resources' stable, recurring and growing earnings stream is underpinned by its long-term Tier 1 customer relationships, which have been built through the delivery of their production-critical services. The combination of Contract Resources with Cleanaway IWS repositions our business and creates a leading specialist provider of integrated and technical services. This fast tracks IWS' transition away from metro ad hoc work, aligning with the deliberate strategy I've talked to you before about. Also, as we've talked about previously, the decommissioning, decontamination and remediation or DD&R opportunity represents an attractive growth vector for Cleanaway. This is given the sizable and complex waste streams that these projects will create. Acquiring Contract Resources accelerates our DD&R strategy by enhancing our value proposition, expanding the addressable market and leveraging our respective customer relationships. The acquisition is expected to deliver approximately $12 million in annual net cost synergies once Contract Resources is combined with IWS. Together, again, that will create a leading integrated provider of specialist technical services to the oil and gas resources and industrial customers and provide a platform for growth. The financials of this transaction reinforce our disciplined approach to M&A. It's expected to generate high single-digit EPSA accretion post pro forma synergies in the first 12 months and deliver a double-digit IRR, both pre and post synergies. Now moving on to Slide 5 where we provide an overview of the transaction details about Contract Resources and our strategic rationale. While I've already touched on several of these points, I'd like to highlight a few additional ones. Firstly, the transaction will be fully debt funded with the completion expected by late calendar 2025, subject to regulatory approvals and other customary conditions. Next, a key strength of Contract Resources is its reputation and brand, which we are keeping. Under Cleanaway's ownership, Contract Resources customers can expect things to be business as usual in terms of performance, in terms of capacity, in terms of brand and in terms of leadership with the existing management team staying with the business. Finally, the combined business will provide a platform for growth, enabling cross-selling of Cleanaway's Waste Management Solutions to Contract Resources customers. And importantly, while we are buying Contract Resources for the opportunity it presents today, we can clearly see the value it will create tomorrow through accelerating our DD&R growth strategy, which I'll talk about more shortly. If we move past Slide 6 and on to Slide 7 and starting with a few financial and operational highlights. Contract Resources is a leader in critical path services to Tier 1 oil and gas customers. It's their safe and reliable execution of these complex and critical path services in hazardous environments that commands attractive margins. It benefits from a strong pipeline of opportunities driven by customer growth and the broader energy transition tailwinds. Contract Resource is well positioned to support the commissioning and ongoing maintenance of new oil and gas sites as they come online as well as the decommissioning of aging infrastructure at the end of life. Contract Resources has a strong record of growth. They are on track to deliver a full year revenue CAGR of around 13% and an EBIT CAGR of 21% as of the end of this financial year. For the same period, the average EBIT margin is expected to be around 10%. Contract Resources has a well-established recurring revenue base with 90% of its revenue generated from existing customers. Additionally, its top 10 customers contribute 60% of total revenue and have an average tenure of 16 years, highlighting the strength and longevity of these relationships. You may recall that I described them as a go-to provider. This is a reputation underscored by the fact that they are embedded on all major Australian refinery and LNG sites. Now turn to Slide 8. Contract Resources core catalyst handling and related services are essential to the safe and efficient daily operation of industrial plants. These are nondeferrable services and generate approximately half of Contract Resources annual earnings. Their strong performance on both offshore and onshore sites has enabled them to vertically integrate into providing additional industrial services, further enhancing values for customers. Turning to Slide 9. A key differentiator for Contract Resources is its commitment to innovation. Its proprietary CatSpider and Rugby Ball are just 2 examples where they have developed innovative solutions to deliver increased efficiency whilst minimizing personnel risk in hazardous environments. This commitment to innovation and reliability has fostered long-term customer relationships, exemplified by their 10-year sole-source agreement with Chevron for catalyst handling and industrial services across their major Australian assets, including Gorgon, Wheatstone and WA Oil. If we move to Slide 10, Contract Resources has built a strong customer value proposition through its commitment to safety, innovation and its track record of service delivery. This has enabled the company to steadily expand its role within customer operations, broadening its service offering and capturing a greater share of customer spend. This value proposition was central to Contract Resources successful move into the Middle East in 2011. Catalyst Handling and its related services, while highly specialized, can be delivered consistently regardless of location. Engineering principles, control, safety standards and customer expectations remain unchanged, whether you're in Australia or in Qatar. This ability to deliver best-in-class services irrespective of location has allowed Contract Resources to establish a strong foothold in the region, where it now provides services to 8 of the 10 largest LNG facilities. If we move to Slide 11. We've discussed how Contract Resources creates value today through the price we paid, the synergies that it unlocks and the opportunities it brings to our business. Looking ahead, we see an exciting long-term value creation opportunity as the addition of Contract Resources into Cleanaway accelerates our DD&R strategy while expanding our addressable market. The acquisition enhances our industrial services offering, particularly within the oil and gas sector. Decommissioning projects generate complex hazardous waste and recycling challenges to which Cleanaway specializes, bringing industry-leading hazardous waste management expertise, supported by 135 EPA licensed sites across Australia. Our leadership in circularity and carbon solutions ensures we provide our customers with safe, compliant, reliable and sustainable outcomes. Contract Resources presence on offshore platforms provides early involvement through incumbency and greater visibility into DD&R planning, strengthening our competitive position. By leveraging our combined strengths, we can capture more project work further down the DD&R value chain. Move to Slide 13 now. In short, Contract Resources has a highly attractive financial profile with a strong track record of EBIT growth, attractive margins and low capital intensity. On a stand-alone basis and before purchase accounting adjustments, EBIT is expected to be around $35 million for FY '25. The expected customer contract amortization is around $10 million per annum. This reflects the high-quality, long-term customer relationships, noting, of course, this amortization is noncash. Again, the deal is highly attractive and is expected to both deliver double-digit IRR pre and post synergies and be ROIC accretive once it's fully integrated in FY '27. At completion, our balance sheet remains strong with leverage expected to be approximately 2.5x, including the impact from the Citywide acquisition. We expect leverage to reduce over time as we progressively deleverage from the business' cash generation and continued earnings growth. We remain committed to maintaining an investment-grade credit profile and a disciplined approach to deploying capital. Now I'll turn to the final slide, which is Slide 14, and I'm going to end where we began. Firstly, by saying, Contract Resources is an attractive stand-alone business with a clear line of sight to synergies of approximately $12 million annually, yielding an attractive acquisition multiple of 5.9x post synergies, high single-digit EPSA accretion post synergies and EPS accretion pre-synergies. This is all before we think about cross-sell and internalization opportunities. Then you add the attractive growth enabled by integrating IWS into Contract Resources, enhancing our value proposition and exposure to Tier 1 oil and gas markets and accelerating our industrial services strategy. And finally, you get the acceleration of our DD&R growth strategy through the creation of an exciting and leading beachhead position in terms of capabilities, in terms of customers and reputation, enabling an exposure to a larger share of the addressable market. We are very excited here in Cleanaway to have executed another milestone on the blueprint 2030 journey. Thank you for your time this morning at short notice, and we're now going to move to questions. Yes, operator?

[Operator Instructions] Your first question comes from Lee Power with UBS.

Mark, is it possible just to give us a bit of an idea around the contracting structure? I get the long-term contracts, but what are they cost plus fixed price? And then maybe as part of that as well, you can also just confirm that's all -- is it all kind of maintenance and services style, only because I've seen some press stuff that they've done construction contracts in the past. And then maybe the final leg of my long question, just how you're thinking about the '26 target in line, given this acquisition?

All right. Good stuff. Well, let me start with the last one. So I'll try and remember them all. [indiscernible] to ask all the questions at once. Okay. So in terms of the long -- the midterm targets, so just remember, if you think about the midterm ambition, greater than $450 million in FY '26. If you look at the scorecard down the bottom, what it says is this excludes major M&A and major M&A got defined as M&A greater than $50 million, which, of course, this is. And so therefore, you should think about this being additive to the targets. And that was because we didn't want to take this and buy our way to those targets because we could see clear margin expansion, strategic infrastructure growth, all that good stuff, okay? So that's the first one. The one before that was construction. We don't see Contract Resources doing construction work. So that's not something we're seeing, and it's not something we'd be doing. And it's absolutely clear to me when I spent 5 days in the Middle East, there's no construction work going on of any sort in the Middle East. That's not the work. It's core -- core work straight down the runway of highly technical industrial services work centered on catalyst loading, decontamination and chemical cleaning. And then there's a few associated services, specialized mechanical services that they do when customers say, hey, could you do this for us as well. That's kind of the business model. If we go back to the nature of the contracts, the nature of the contracts are they are long-term contracts. There is a combination of contracts where they are embedded on the sites doing daily work, and there are call-off contracts as well where they are called in at short notice to do work that may be required or scheduled type project work. 75% of the work is on a scheduled rates.

Your next question comes from Russell Gill with JPMorgan.

A couple of things. So you answered a lot of the questions there through the presentation. Just on -- because the IWS business has historically been quite lumpy around project work. Just to further breakdown of that $325 million of revenue, what would be, I guess, project-related work and whether that there's just projects every single year that it relates to? You said 75% essentially were scheduled rates. And I guess within that revenue, a possible breakdown of contracts that are on -- essentially, the focus of this is going to DDR mode, but what sort of percentage of revenue is on projects that, I guess, are expiring and then for going over that decommissioning phase and therefore, I guess, rolling off? Second is synergy, just a breakdown of those $12 million of synergies, what they are and how you get to achieve them? And then finally, on DDR, in the future, what role do you see Cleanaway actually playing? Because Cleanaway is IWS business, you talked about contamination and contaminant rates and the like. Are you looking to become, I guess, more of an engineering prime in the whole DDR space in the future, and therefore, there probably are further tuck-ins required to round out your entire capabilities here? Or how should we think about your role, I guess, in the DDR position sort of 5 years down the track?

Yes, cool. Okay. I'll try and remember them all. So if we go -- they are on the board, that's good. If we start with the breakdown of contracts expiring in the DD&R. So we've had a really close look at that Russell. And we don't see there being this thing where contracts roll-off and therefore, you see sort of revenue and earnings decline. Actually, the way it works is you will see some roll-off of some contracts where you're doing the DD&R work, but then we see a significant growth pipeline available as part of the energy transition. There's new facilities starting up, there's new gas plants, there's all sorts of stuff that is available for growth, and we've had a close look at that growth runway. For example, there's work going on in Barrow -- on Barrow Island for Chevron, which is the WA oil decontamination work, where if you see us doing that decontamination work, that chemical cleaning, getting the plant ready for the next step. At the same time, there's growth work associated on that island for Gorgon. So the kind of -- those things will be offsetting. If we think about the synergies, what are they? So the way you should think about is around 1/2 is sort of admin and support type roles. Around 1/4 is probably aligning sort of leadership structural alignment type synergies. And the final quarter would be sort of procurement and supplier efficiencies. And just let me remind you that -- it doesn't include revenue synergies or internalization synergies. And we don't get any of that internalization today. It's not the contract resources business model to sort of get access to the streams they generate. And so that's a whole opportunity for us to actually provide that service as well as step into that role. Next one, DD&R role for Cleanaway. So I think what you should be thinking is, with Contract Resources and Cleanaway combined, you really do have the customer list, the customer incumbency, which is absolutely key, which means you have a seat at the table as the thinking begins by companies with facilities that need DD&R work. And we can see that absolutely is what is going on, on Barrow Island. We can see that's what exactly happened in Esso where they are part of that decontamination of those dozen or so platforms. And it's the incumbency that then drives what happens next. I think you should think that CR has significant in-house engineering capability and innovation capability. So The Rugby Ball is a great example of that. That was contract resources IP developed specifically in -- for Esso in the Gippsland with innovation -- low-cost innovation built in the Middle East and then transported back. So you can really see that they can bring that capability. I think then when you connect it to the rest of Cleanaway, then you can see the opportunities for the solids and liquids teams to play as well. So I think this actually is the beachhead position that we wanted. I don't think that there is a lot of tuck-in style stuff to go. So I wouldn't be sort of -- I wouldn't be thinking that sort of next on the agenda.

Just on that, Mark, just to understand the role that the business play in DDR. You're not talking about plugging holes or plugging wells and sort of stuff. It's really just more...

So the way that would work is just like what happened in Gippsland. So you bring in a rig, does the P&A of those wells, the plug and abandon and the subsurface work. You're then left with the -- basically the top sides on the platform. That's where we'd already have CRS as incumbent out there. They would be doing chemical cleaning, cleaning of piping, all that -- all that sort of stuff. decontamination, chemical cleaning, that sort of thing to be cut and transported by someone else to the shore and then there'll be more activity onshore. So we won't be doing -- we're definitely not doing heavy lift boats and offshore lifting, and we're definitely not doing plug and abandon work. We're doing the work that CR already does today plus the onshore component of decontamination.

Your next question comes from Jakob Cakarnis with Jarden Australia.

Just 3 from me, please. Starting with Slide 13. Can you let me know how you've spoken to the ROIC accretive nature of the investment. Is that on a post-synergies basis, please? And what does it look like on a pre-synergies basis? I'm just interested that you're investing more capital in what is sensibly your lowest margin segment of the operations? The second part of the question on Slide 18, can you just step through the EBIT margin improvement for me, please? It looks as though that's accelerated in '24 and '25 forecast. Obviously, you're buying this off PE. So I'm just interested in what DD showed up as being the sources of that EBIT margin improvement? And then just finally, can you talk to the capital intensity of this business? It looks like it does about $17 million of D&A. I think you've told us that customer contracts is $10 million. What's the balance, please?

Do you want to answer, Paul?

Yes, sure. I'll crack this, Jakob. So in terms of the approach we've taken to this, [indiscernible] is a business that we've known for a long period of time, we've been following them fairly closely for probably a good 10 years. So in terms of our diligence process, we -- it's been very -- it's been a long process. It's not sort of had to rush this. We've taken a very thoughtful approach. We're seeing across the business, both pre and post synergies, double-digit IRR. So we're seeing this as being a really accretive transaction from a return perspective. In terms of the EPS, the focus we've spoken to has been absolutely EPSA because we're seeing obviously the amortization of those customer contracts. The A is obviously noncash in nature, and we're seeing really strong EPSA accretion and also positive EPS accretion as well, both pre and post synergies.

Sorry to interrupt the question -- sorry, the orientation of the question is on ROIC, please. I've seen the presentation materials about the EPSA and EPS. But I just want to dive into why you're putting $380 million of EV into the lowest margin division? I'm interested then on Slide 13, the comments about it being ROIC accretive. I understand the IRR and the EPSA and EPS. But I just want to understand the ROIC balance. I think you've done a good job to date improving the ROIC. I'm just wondering whether or not this is going to puncture some of that.

It won't. So essentially, this transaction from the get-go will be ROIC accretive and will be increasingly ROIC accretive as we bring those cost synergies in as well.

And then after that, as we bring in the rest of the growth vector associated with DD&R. So when we talk about IRR mid-teens, we value that very conservatively around the growth vector, not paying for that. That's a free option to us as to what we do next and all upside.

And then just Slide 18, the EBIT margin improvement, please, as it looked as though the vendors got towards sale. Can you let us know what that was through the DD process, please?

Jakob, I can't tell you what's driving sort of the EBIT margin growth from 10.8% to 10.9%. Obviously, you've seen a step up '23 to '24 and primary driver is largely to do with scale. I think an important message here is that we're seeing a business that has improved in quality over a significant period of time. So we've seen them grow their Middle East business from being relatively immature when we first looked at this 10 years ago to a business now which is well established and has a strong presence in that Middle East region. And that's simply allowing them to go out there and essentially charge a more appropriate rate for those services and hence, improve utilization, both in the asset and labor. And that's enabling them to simply to drive that margin higher.

Okay. And then just 1/4 of the revenue from the Middle East. Just interested in your view on the complexity now of offshore revenue and management.

I might have a go in the Middle East because I think it's worthy of just saying it on this call. So just so everybody is clear, I spent 5 days in the Middle East, visiting Contract Resources sites, customer sites, locations where CRS was working, met with their suppliers and visited their camps. There's really 4 observations here that I really like investors and analysts to have in their minds. So first is standard of Middle East and ops in CRS is the same as Contract Resources Australian ops and they have very strong labor practices. That's point one. Point number two is that this is a well-established business. Like Paul said, CRS has been there for 15 years. They made a well-planned entry. They entered on the request of their Australian and New Zealand customers. And today, they're working for the world leaders. These are names like Dolphin Energy and ADNOC, both of who I met. The Middle East is a competitive advantage for CRS. That might sound surprising, but let me explain why. The first is they get low-cost innovation there, where they do equipment design and development in supplier workshops or engineering houses, which are then deployed to customers to reduce costs. Secondly, they get a counter seasonal workforce. For example, this Australian winter, they will deploy more than 100 highly trained and experienced personnel to complete production critical work in Australia. They do that counter cyclical demand from the winter in Middle East to the winter in Australia timing-wise. And the third is there's a strong funnel of growth. They have been there for 15 years, and their capability and their reputation is now flowing into further growth and there's significant further growth available. The fourth is in terms of your point around distraction, it's the same Middle Eastern leadership team, which will be retained, and it's the same Contract Resources leadership that will be retained. That team will report to Scott. And so effectively, it's not going to be a distraction for the executive team.

And then the capital intensity finally, just before I hand it over, please, Paul?

Yes, sure. So CR is less capital-intensive business, I guess, than your core Cleanaway business. Yes, it is a lower margin, EBIT margin than your typical Cleanaway business, but it's definitely less capital intense and therefore more cash generative as well.

Your next question comes from Matt Ryan with Barrenjoey.

Just hoping you could talk about the earn-outs or lock-ins or anything like that with key personnel. And then the other thing I was just going to ask about was there seems to be quite a lot of overlap between the Contract Resources customers that you've sort of highlighted on the slides and your current customer base, but some also don't seem to be your current customers. So just any opportunities you might see over time with those introductions through Contract Resources?

Yes, sure. So I mean what I'd say just on sort of retention of key personnel. So that's all -- what I'd say is that's all in hand. We've secured the leadership team of Contract Resources to come across. We're confident of that, and they're excited by the opportunity of working with us in the next phase of making CRS terrific. The second point around sort of like customers is, I would say, the key point here is that Contract Resources has the customer list for oil and gas in Australia. That is an absolute factor in all the LNG facilities and they're in all the refineries. If you think about how is that different to what we've got today. So for example, we do not have [indiscernible]. We don't have BP. We don't have INPEX, we don't have Shell. So there are -- there are new customers. There is different scope that they do for some of our existing customers. There is a real opportunity to provide the entire integrated customer list with the full integrated service package that Cleanaway can provide.

Your next question comes from Brad Frishberg with Macquarie.

Just 2 questions from me, please. Just firstly, is there any commodity price exposure in the business? And just second, on your customers, could you outline to what extent your Middle East and ANZ customer lists overlap? I think you touched on that a little bit earlier. Just interested to know how much of that Middle East revenue does not have a common customer group?

So there's no commodity price exposure. And of course, there is some effectively U.S. dollar exposure associated with the fact that the bulk of the Middle Eastern countries that Contract Resources are in, are paid in the local currency and the local currency is pegged to the U.S. dollar. So that would be comment number one. I know you asked about commodity, I thought I'll just be clear on the other part. In terms of customer, which is the Australia, New Zealand, Middle Eastern overlap. So in the Middle East, there's a whole group of companies that aren't in Australia. For example, you take ADNOC as an example, the Abu Dhabi National Oil Company, major customer of Contract Resources. They are not in Australia. But certainly, in the past, their joint venture partners were in Australia. ADNOC had joint venture partners in the Middle East such as BP. And so that's how some of these original relationships, of course, started. And so you should think about it like that. Of course, then you've got -- you'll have some obvious overlaps where you've got Shell in Australia, but then you've got Shell in the Middle East and Shell as part of joint ventures. So generally, what you'll find is there'll be some joint venture overlaps, and that's what's leading to CRS being requested to go overseas through the experience in Australia, often in a joint venture, leading to the request overseas into a joint venture project.

Your next question comes from Owen Birrell with RBC.

I guess my first question, you mentioned that there was no -- I think, no internalization at the moment. Am I just to confirm that Cleanaway doesn't have any downstream waste management contracts with Contract Resources, just to confirm that?

Yes, that's right. So there's no overlap. That's not surprising in kind of like 2 ways. One, because CRS doesn't have that capability, therefore, their aim would be not to generate that stream and instead like hand it back to the sponsor. The other way of thinking about it is where they do generate that stream, they might not have given -- wanted to give it to us but they would have seen us as a competitor.

So I guess my next question then is of the -- if we look at the FY '25 estimates, there's, call it, $290 million of cost in that year or that forecast. How much of that is actually waste disposal expense that could be redirected as a revenue stream for Cleanaway going forward?

Again, I would say it would be tiny because their business model has been not to generate that. Instead, you sort of say, we'll do this cleaning work for this chemical cleaning, but you'll take back that material, whereas what we would say is come alongside and we would say, and we'll provide that service as well. So someone else will be getting that volume, a competitor of ours will be getting that volume, and that will be the opportunity to get that from the source by providing the integrated offer.

And I guess looking forward, as we look at your ambition targets for '26 and beyond, I can assume that you're going to adjust for the existing earnings from contract resources, but any of these other new add-ons or contracts that come through, I'm guessing will be part of those ambition targets. Is that fair to assume that? So any organic growth or new contracts will be assumed under the sort of Cleanaway sort of brand?

Are you saying -- what I'm saying is that the pro forma financials that we provided for today will be additive to the targets. And then what I've been saying is, therefore, our job will be to beat that. That's what we'll be.

Yes, yes. So basically, any additional earnings growth that's coming from either Contract Resources or the combination of Contract Resources and Cleanaway going forward will be included within your ambition targets?

Yes, that's right.

Okay. Just one last question for me. That additional $10 million of amortization costs that you've called out, should we be taking that off the $35 million FY '25 EBIT? Or has that already been taken out to get to the $35 million?

No, the $35 million is the stand-alone business EBIT. So to get the consolidated picture, you should be deducting that incremental required amortization.

Okay. So incrementally for '25 for Cleanaway is going to be $25 million annually?

Correct. Then you start obviously bringing in synergies.

The next question comes from Rob Koh with MS.

Congratulations on the deal. Yes. Mark, first question is just around what you can share about the vendors' motivation, why are they selling now? I know this isn't your first rodeo. So just be good to get that context. And then my second question is around just the financing structure, where you've talked about a debt at completion around 2.5x. I just maybe just double check that you're kind of using a trailing 12-month calendar '25 EBITDA to get to that number? And because that's a pre-AASB 16 number, are you taking on much lease debt, I guess, is wrapped up in that debt question. And then my third question, because I can't help myself is an ESG question. Can you give us a steer on what your kind of revenue or earnings from fossil fuels will be post completion?

I'll do the selling. I mean, obviously, you can ask the vendor yourself. But I mean I think the key point there is, I imagine they have their earnings targets and therefore, it's time to sell. I think for us, and I'll just reemphasize, for us, this is not something we just looked at yesterday and decided we want it. This is something we've been following certainly since -- for 10 years, but really with an emphasis over the last 3 -- since we flip in 2030 because we spotted this sector as part of the energy transition. We've been slowly shifting IWS towards these sorts of capabilities. And here comes the opportunity to create the real accelerator and that's hard to replicate this. You cannot replicate what CR has got there in terms of their capabilities on catalyst handling and that sort of thing. In fact, if you wound it back 10 years, Cleanaway tried to do this and failed. So this is really hard. This is really hard to replicate. And so it meets our M&A criteria of hard to replicate, accelerate and at the right financials. Paul, do you want to try and hit the complicated one on?

Yes, it is a trailing EBITDA should be calculated in accordance with our covenant count. So as you say, it's pre-AASB 16 figure. And there's not going to be any shift to our leasing strategy.

And then just around the fossil fuels one, Rob, it's a good question. I think the way I think about it is we see this as a part of the energy transition. You see the natural evolution of oil leaving the system, gas coming into the system. Our job as Cleanaway is to assist those companies do that in a really thoughtful way. We think that by assisting really Tier 1 oil and gas and resource companies deal with what happens at the end of life on a facility or a site or a wellhead or whatever, doing that in a really thoughtful way, we think that's positive ESG. We also think that helping those same Tier 1 oil and gas or resource companies working in battery metals or in gas or whatever, helping them improve their efficiency by doing their shutdown work really thoughtfully, doing the catalyst changes so they can get maximum efficiency. We think that, that is positive ESG as well. So that's kind of how we think about positioning this and being that player who has a strong reputation and who can do this really thoughtfully and do it in the right way.

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

A couple of questions from me. So just going back to the depreciation and amortization, it looks as though it's got sort of $18 million at the moment of D&A and then you're saying another $10 million on top of it. So what's the $18 million currently relating to?

Existing $18 million of D&A, there's a couple of that relates to old customer contracts. And the bulk of it is just a straight normal depreciation on the assets on trucks, on other [indiscernible] plant equipment that they've got.

Okay. So the profile for that's, what, call it, $15 million?

Yes. Essentially, yes.

Okay. And then so as part of that, with the $377 million purchase price, how much -- how many -- what's the value of the assets that you've purchased, please, versus the goodwill?

Yes. So essentially, the book value of the fair value of the assets that we've acquired in terms of physical assets is relatively modest and sort of in the range of $30 million to $40 million, so net. And the balance will be intangible assets, obviously split between goodwill and those acquired intangibles that we've talked about.

So sorry, how do you get $15 million worth of depreciation then out of $30 million to $40 million worth of net assets?

So it's net asset. So essentially, obviously, you've got PP&E. And it's a net PP&E figure. So obviously, the cost of that is substantially higher.

Yes. But you'd be acquiring them for fair value, though, right?

Yes, we are. Yes. But the carry value of those fixed assets is in the region of that $30 million to $40 million.

Okay. Just in terms of the capability that you're buying, and Mark, you were mentioning looking to be sort of more of a sort of prime role and the relationships that CR has got, in particular with -- in the Gippsland Basin around Exxon. If I had to look at Exxon, they didn't appoint CR as a lead contractor for this space from what I can tell. So what exactly are they actually doing down in Basra for Exxon under their decommissioning at the moment?

So what you would have seen them doing is that they -- they're already the incumbent offshore. So you could imagine you've got embedded resources offshore. They have work to do the decontamination work offshore of those facilities. Take, for example, the picture that's there with the Rugby Ball. So on those rigs, you will have very large diameter vertical pipes, which are used to store oil and all sorts of things offshore. They have been cleaning those with the Rugby Ball, for example. So they're doing the offshore preparation work to get the facilities clear so that then they can be put on a -- put on a regular ship and brought onshore for dismantling. So they do actually have quite a significant role, same role that they're playing on Barrow Island. So remember, Barrow Island being a place with lots of different vintage gear. You've got the [indiscernible] fields there. You've got lots of nodding donkeys out there, hundreds and hundreds of wells. And what they're doing is they're doing the decontamination work there, chemical cleaning, vacuum [indiscernible], these sorts of things, all activity we don't do today.

Yes. Okay. No, that makes sense. And then final question from me is you've mentioned the long-dated relationships that they have. What is the weighted average contract book that you are buying?

I don't have that exact number at hand. I know we've given you the 16 years average tenure of the top 10 customers. So we can certainly split it if you'd like us to. There's no problem, come back to you separately.

Yes. I mean I'm just trying to understand relative to the 7.3x EBITDA that you purchased, is it -- is the weighted average contract booked 6 years? Or is it 18 months?

I think it will be much longer than 18 months. Yes, it's certainly not that. But again, let's get the facts, and we're happy to share them. It's not a secret. I mean I think the way I think about it is when I look at their customer list and their contracts over time, which we've spent 6 months with they're DD, we are really confident about the longevity of those customers. We're also really confident of that longevity through change of control events because you can see that they just stick all the way through. And we're really confident that actually not only does the customer stick, but also the share of wallet increases over time because of their performance on the base contract, they get asked to do, hey, can you do this as well. And that as well. And we saw that in [indiscernible] the Middle East live in front of us as those conversations were taking place, we really like what you're doing here, maybe you could do this for us as well going forward.

Yes. Yes. And sorry, just very quickly, how competitive was the bid, please? So how many other parties were actually involved in looking at this business and bidding for it?

I mean I don't think we know exactly, but I think it was a competitive process. Obviously, like we said before, we have followed this for some time, which means that as a result of having followed it for some time, it was a business that we feel like we knew and we knew how to value. I think what was different for us this time compared to maybe looking at it 10 years ago was we could really see the acceleration of the strategy now, which is something we didn't pay for in the purchase price. So when you think about $377 million, there's no assumption there around revenue synergies, around internalization, around growth from DD&R. That's all free option for us to now go after.

Your next question comes from Amit Kanwatia with Jefferies.

Most of my questions have been answered, but yes, maybe on the DDR and obviously, you've spoken in the past on market opportunity of $500 million per year when you've acquired this business, seems to be a good acquisition. But maybe if you can just tie all of it together and speak to what does success look like in the DDR space over the next 12 to 24 months, please?

That's great, and I appreciate that question. So I'm going to give you a few numbers, and I'm going to try to connect them all together for you. So the first is, if you look at the public reports, and we give you the footnote to one of them in the pack. So one of them says there's AUD 43 billion to be spent between 2025 and 2075, so a 50-year period, decommissioning offshore oil and gas in Australia. So when you think about that number, just remember that the key word is offshore, it's Australia and it's oil and gas. If we look at the next few years, we think that equals about $3 billion per annum in the next few years to bring it sort of close to time period. What we've previously talked to you about, you're right, is the $500 million, and that is the Cleanaway stand-alone sort of addressable revenue, which was made up of 15% of that $3 billion, $450 million, plus about $50 million from onshore oil and gas. That's how we got the $500 million. The exciting part of today's announcement is that when you add CR's capabilities and you add the capabilities such as being offshore, their chemical cleaning capability, their decontamination capability, that 15% grows to 20%. So the $500 million becomes $650 million as you add another $150 million to it. And so when we talk about the greater share, that's what we mean because we're there. And I think the other piece is just this whole concept of incumbency is really important. If you're onboard those facilities, you're embedded with those customers, then you naturally get asked, hey, we haven't done this before. Could you figure this out with us? And what you see from CRS is you see them with small teams embedded in Tier 1 oil and gas companies working this through. And of course, then you can shape it to maximize your involvement.

Yes, that's -- just one more question for Paul. On the maintenance CapEx spend, what's the maintenance CapEx spend for Contract Resources we should be thinking?

Yes. So total CapEx spend for CR sort of in that range of $10 million to $15 million, Amit. So essentially, you should probably view that in a manner similar to our Cleanaway typically deals with that. So probably maintenance CapEx would be in the region of $10 million and growth CapEx could be in the region of around that $5 million sort of level. And obviously, it's going to depend on projects that are coming through the door year-on-year, but that gives you sort of an idea of the scale that we're talking about.

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

I just have 2 questions. One, I think it's going to be Mark and then one, Paul. So just, Mark, you mentioned in your comments on the ACCC, the lack of business overlap and these sort of things. Obviously, I would observe, and I'm sure you agree that the ACCC has become harder to get things through in the last couple of years than it was previously perhaps. So I guess on this one, given you've highlighted some of the potential for business revenue internalization, other opportunities and things like that, there's obviously going to be -- and the sheer fact you've raised it as a subject to ACCC approval means they're going to have a look. I wonder if you could just tell me where do you think they look closest? And I guess from my perspective, when you went in and did your due diligence and visiting customers, do they actually want you to be there? Do they see upside for themselves on having Cleanaway operate this business as opposed to stand-alone contract resources?

I think -- I'll answer the first one and the second one. So I think on ACCC, Scott, in terms of the size of the transaction and the sector means the ACCC will do a review, and that's just the fact of the matter, and that's absolutely fine. I think similar to like any transaction that Cleanaway does, we do a lot of detailed work in advance to make sure this is something that we strongly believe will get approved because otherwise, it's a waste of time and resources, and we don't have infinite resources. And so we're very thoughtful about that. So you wouldn't see us doing a transaction that we don't think will ultimately get approved. We don't think there's any major hurdles there. We're well prepared for that. And we expect -- you should expect, therefore, there will be a time to that process, and that -- we should expect completion something like late calendar '25. So just a keyword there, calendar '25. In terms of the second question, which was -- was again?

In your due diligence with customers, do they...

Do they want to [indiscernible], which one you're saying?

No, they want -- do they see it as a positive that Cleanaway would operate Contract Resources rather than Contract Resources being a stand-alone?

I think what I'd say there is we're very thoughtful during the due diligence process to not overstep the mark as to why we were there because we don't want this thing running ahead of itself in the press by customers becoming fully aware as to why we were there. I think certainly, in the Middle East, there was genuine excitement about Cleanaway being there and the capability and the size of the company that will be sitting behind CRS to facilitate the growth that those customers could see. And based on the reputation of the work that CRS was doing over there. So I think generally, my hope would be that customers will see Cleanaway going in behind CRS and establishing our IS business as a CRS business as an upgrading capability that can then provide them with full integrated solutions. And I think they'll see that as a real positive. Obviously, that will be our job.

Yes. Okay. And then the second one, just on gearing, and it's further to Rob's question before. Paul, can I just confirm the pro forma 2.5x leverage ratio that you gave, so that's including both this and Citywide and a full year of earnings for both, I take it. So correct me if I'm wrong, firstly.

That's correct.

Yes. And then just remind me, you released this before, I'm sure, but I couldn't see it in the half year presentation where you talked about being comfortably inside covenant ratios for leverage. Can you just remind us what your covenant is and what your Board target is for leverage, please?

Yes. So we don't actually sort of publicize our covenant ratios. I guess importantly, the Board has come out and said that they are committed to an investment-grade credit profile. I think we are pretty clear that we're quite comfortable we should be taking up leverage of 2.5x to do these 2 transactions on the provider that there is a clear delevering pathway and we can absolutely see that both in terms of the core Cleanaway business in terms of increased margin expansion through ops excellence. And you also seem to, Scott, I guess, the strengthening around the discipline in terms of CapEx as well. So we can see as earnings increase, cash flow is going to improve, and we can see that deleveraging profile taking us down lower than that 2.5x.

Okay. So just in terms of the question, what's the -- what have you guys said publicly about your -- the Board-approved leverage ratio? I get you're over it and you've got to delever, but what have you got to get back down to?

We haven't actually publicly said what the Board-approved leverage ratio is. I think we've been making pretty clear comments as to this specific transaction. And the Board are very comfortable to take the leverage up in the business to 2.5x because we've demonstrated that there's a clear deleveraging profile.

Okay. I'll just -- that's fine. Most companies are quite comfortable giving the Board target. So the covenant ratio, I get that -- would you -- just for my knowledge, would you suggest that you still remain comfortably within your leverage ratio even on a pro forma basis?

In terms of our policy, we're absolutely within our policy. Absolutely.

All right. We might call it there just given the time. So thanks for your time today at short notice. Really appreciate it. Hopefully, you've heard from us how excited we are about the transaction. We look forward to catching up with both investors and analysts over the course of the next couple of days. And we'll close the line. Thank you.