FY24 Half-Year Results - Media Release

FY24 HALF YEAR RESULTS

Continued strong EBIT growth and strategic momentum

Cleanaway Waste Management Limited (“Cleanaway”) (ASX:CWY) today announces a Statutory Net Profit after tax of $74.3 million for the six months ended 31 December 2023 (“H1 FY24”), up 51.6% on the prior corresponding period (“pcp” or “H1 FY23”). Underlying Net Profit after tax of $82.7 million was $8.4 million higher than Statutory Net Profit predominantly due to adjustments for costs associated with IT transformation together with integration costs associated with Global Renewables Holdings.

Highlights

Financial

• Revenue growth driven by new business and price increases
• Expanded EBIT margin; up 160-basis points vs pcp
• Strong EBIT growth of 25.7%
• Reaffirmed FY24 EBIT of approximately $350 million

Operational

• Progressed HS&E strategic initiatives focused on leadership, critical risks and process safety
• Saw the benefit of our branch-led operational excellence approach across all our businesses
• Delivered restoration of QLD Solids earnings and Health Services back to profitability
• Realised initial productivity benefits arising from stabilised workforce

Strategic

• Delivering Blueprint 2030 aligned priorities

   – Data and analytics tools for frontline leaders driving improved performance
   – Landfill gas monetisation and reduction of greenhouse gas emissions

• Advanced the build out of growth platforms, with over $83m of growth capital expenditure deployed in the half

   – Launched VIC CDS operations
   – Bringing forward Eastern Creek Organics (GRL) FOGO transition
   – Building Western Sydney MRF
   – Rolling out CustomerConnect – Release 1 ‘Go-Live’

• On track to deliver mid-term financial ambition of more than $450 million in FY26, while steadily improving ROIC

Financial Performance Snapshot

Net Revenue of $1,587.1 million was 7.9% higher than the pcp driven by new business, increased prices and continued organic growth across all segments.

Underlying EBIT of $173.9 million was 25.7% higher than the pcp reflecting the restoration of earnings in the QLD Solids business, a strong performance from NSW/ACT Solids, a recovery in the contribution from commodities, continued growth in the IWS and Liquids businesses, the emerging earnings recovery in the Health Services business as well as initial, modest gains, from the stabilisation of labour.

EBIT margin was 11.0%, up 160-basis points on the pcp. This was driven by the realisation of branchled productivity and efficiency initiatives in the NSW and QLD Solids businesses, a recovery in the contribution from commodities, and operating leverage in the Container Deposit Scheme (CDS), Liquid & Technical Services (LTS) and Industrial & Waste Services (IWS) businesses.

Total capital expenditure for the period was $231.6 million, up 16.0% on pcp. FY24 capital expenditure continues to be in line with previously announced guidance range of $430 – $450 million and depreciation and amortisation expected to be between $370 and $390 million.

Underlying net finance costs increased by $11.5 million or 25.3% to $56.9 million largely attributable to higher interest rates, and in line with prior guidance.

Underlying earnings per share attributable to ordinary equity holders of 3.7 cents per share (“cps”) was 23.3% higher than the pcp, reflecting a 23.6% higher NPAT. Net cash from operating activities increased by $26.2 million to $229.6 million compared to H1 FY23, due to higher underlying EBIT and lower cash outflows attributable to lower underlying adjustments offset by higher interest payments. This resulted in a cash conversion ratio of 88.2%.

The Board declared an interim unfranked dividend of 2.45 cps, in line with the pcp.

Management Commentary

Chief Executive Officer and Managing Director of Cleanaway, Mark Schubert, said: “On behalf of the Cleanaway team, I am pleased to report that together we delivered a strong financial result and made significant progress towards delivering Blueprint 2030; building a safe, resilient platform that delivers sustainable customer solutions and profitable growth.

“We delivered strong EBIT growth of 25.7% for the period, driven by growth in NSW/ACT Solids, CDS, Liquids, and IWS businesses and the recovery in Old Corrugated Cardboard (OCC) prices. In addition, the turnaround in QLD Solids is exceeding expectations, and our Health Services business has returned to profitability. The strength of the first half is carrying into the second, and we continue to expect FY24 EBIT will be approximately $350 million.

“Particularly pleasing was the expansion of our EBIT margin by 160-basis points, and the 90-basis point increase in our Return on Invested Capital. The improvement in these measures reflects our efforts to systematically empower, enable and equip our frontline teams to make thousands of great decisions every single day, and in doing so, drive and deliver improvement. They also underscore the momentum within the business, and our confidence in achieving our mid-term EBIT ambition of more than $450 million in FY26.

“Our commitment to strengthening the foundations of our business and our operational quality is increasingly evident across the Group. TRIFR for the period was 4.0, showing improvement compared to the same time last year. However, our goal remains ensuring all Cleanaway team members keep each other safe, and we remain committed to the implementation of our 5-year HS&E strategy. During the period we made significant progress implementing the plan, which included the introduction of a new HS&E framework across all sites to support the work we are doing to drive cultural change, including developing the capability of our leaders through our new Stronger Together program, addressing critical risks through verification of controls and the simplification of standards and tools, as well as improving process safety through our new fixed asset maintenance system.

“The effectiveness of our response to the labour market tightness of the previous financial year, is evidenced by the stabilisation of our workforce during the half, and the realisation of initial financial benefits during the period. Having rapidly filled labour vacancies we are now focusing on reducing our first-year voluntary staff turnover rate. In addition to having ‘stay conversations’ and improving our onboarding processes, we are increasing our support for those relatively new to their role to help them grow in proficiency and confidence.

“We are creating a branch-led culture, equipping our frontline leaders to lead with transparency using their site level value drivers, and in so doing engage and align our frontline teams to both deliver today and improve for tomorrow. We are doing this through tools like our Visual Management Boards that link value drivers to activities and roles, and new data and analytics tools that equip frontline leaders to assess and improve route optimisation, labour management and customer profitability in real time. Just as important as the margin expansion these initiatives are delivering, is the shift in mindset for our people, from backward looking to present and future delivery – which is what we are seeing across the Group.

“Female participation continues to improve, and we have reached our target of having at least 40% female leaders reporting to me (CEO+1), and we are close to target for female leaders reporting to the executives that report to me (CEO+2). While encouraging, we still have work to do and during the half, we rolled out our Respect@Cleanaway program, which is a foundational initiative for the ‘safe, inclusive, high-performing culture’ we are building. This half, we will launch our new values that focus on self-reinforcing mechanics that will bring them to life every day.

For example, as part of our new values we want our teams to pursue opportunities, to improve and to deliver outstanding results with real ownership. To reinforce this ownership much deeper in the organisation, we are introducing a leadership incentive plan for approximately 650 leaders who don’t currently receive LTI’s and will align them with the delivery of the Executive stretch LTI achievement of $500m EBIT in FY26.

“EBIT from our landfills was up on pcp, as benefits from pricing, mix and improved efficiency measures offset the impact of lower volumes. MRL continues to operate in a highly competitive market, and we continue to meet this with our focus on pricing, cost discipline, waste code diversification and improving compaction. Our active management of price and volume to maximise returns is evident in our landfills performance for the half.

“We continue to make good progress on our Blueprint 2030 landfill gas capture and monetisation program. Since its commencement in July 2022, we have drilled and reconnected approximately 500 wells, and our monthly capture rates have increased by 66%. This flows through to reduced emissions, increased ACCU generation and electricity sales.

“Our Liquids businesses continues to grow, re-signing two state-wide household recycling community contracts and stewardship of the national paint recycling program during the period. Our Industrial and Waste Services business is also growing, having exceeded its target of doubling its proportion of earnings from tier 1 Oil & Gas and Resources companies.

“Our strategy of extending our infrastructure assets to create high circularity, low carbon solutions for customers is evidenced by our CDS business. The core CDS business is expanding and delivering operating leverage as volumes grow. In addition to the strong growth in NSW and QLD, on 1 November
2023, we launched our VIC CDS operations, which are already tracking to plan.

“Another example is Eastern Creek Organics (ECO), which is the new name for our GRL acquired business. As a result of our local council customers strong desire to be able to access our FOGO capabilities sooner rather than later, we have accelerated the project to transition the ECO site.”

Mr Schubert concluded: “I am proud of the work our 7,500 plus strong Cleanaway team do every day together to serve our customers and communities around Australia. As well as delivering today we have clear improvement plans to sustainably improve and strategically grow our business tomorrow.
Our Blueprint 2030 strategy has been translated into execution through our mid-term financial ambitions where we remain on track to deliver an FY26 EBIT of more than $450m while improving ROIC.”

Dividend

An interim dividend of 2.45 cents per share (pcp: 2.45 cents per share) has been declared. The dividend will be unfranked and paid on 8 April 2024 to shareholders on the register on 4 March 2024.

The interim dividend is unfranked following the reduction in tax payable in FY24 due to the Commonwealth Government’s Instant Asset Write Off Scheme. Cleanaway expects to resume dividend franking for the FY24 final dividend.

The Dividend Reinvestment Plan (DRP) will be in operation for this dividend. Shareholders residing in Australia or New Zealand may elect to participate in the DRP. The DRP election date is 5 March 2024. Under the DRP, Cleanaway shares will be issued at the average of the daily Volume Weighted Average Price of all shares sold on ASX over the period from 6 March 2024 to 12 March 2024. No discount will be applied to shares issued under the DRP.

FY24 Guidance and Outlook

Cleanaway continues to expect EBIT for the financial year ending 30 June 2024 to be approximately $350 million. Depreciation and amortisation expenses are expected to be $370 to $390 million. Our operational priorities for the next six months include;

• Health, Safety & Environment: Continue to deliver five-year transformation plan
• Labour: Focus on retention and productivity improvement
• Operational Excellence: Embed branch-led value drivers and Business Teams
• CustomerConnect: Execution of Release 1 in Q3 FY24
• Capital expenditure: Strengthen processes and project delivery.

FY24 Segment Performance

Solid Waste Services

Total revenue for the Solid Waste Services segment increased by 2.4% to $1,376.9 million, and net revenue increased by 5.2% to $1,092.4 million. Underlying EBITDA increased by 11.8% to $299.6 million, and underlying EBIT increased by 27.7% to $159.0 million. The underlying EBIT margin increased 260-basis points to 14.6% from 12.0% on the pcp.

Net Revenue growth was driven by new business, contracted price increases and pricing discipline, strong growth in NSW/ACT Solids and QLD Solids and higher CDS volumes. Revenue growth was tempered by lower Construction and Demolition (C&D) volumes nationally, mirroring weakness in the construction sector. Landfill volumes were softer due to increased competition particularly in VIC, the flow-on effect of lower C&D volumes and increased rates of Food and Garden Organics (FOGO) diversion.

Underlying EBIT growth of 27.7% was driven by the benefit of branch-led operational excellence initiatives, especially evident in the NSW/ACT Solids business and the recovery of the QLD Solids business. In addition, there was a recovery in the contribution from commodities, in particular OCC as the market stabilised after significant volatility in the pcp.

Growth in the NSW/ACT Solids business unit was driven by growth from Transfer Stations, Collections and Organics. Transfer Station growth was driven by higher volumes and prices. Collections benefited from uprates, reduced labour costs and the commencement of a large national account. Organics volumes were higher, reflecting a full, six-month contribution from Eastern Creek Organics (GRL), and whilst volumes in the Sydney Resource Network landfills were reduced, they benefited from good pricing discipline and from the roll-out of operational efficiency measures such as insourcing of landfill operations at Kemps Creek and the internalisation of leachate treatment.

The restoration of the QLD Solids business is tracking ahead of expectations and the business re-set itself up to operate without the New Chum landfill. Profitability has been restored through cost control and branch-led data driven operational efficiency initiatives which have enabled increased productivity, particularly in relation to labour, operating costs and customer service as evidenced by their Service-In-Full-On-Time measure increasing to 99.3% up from 97.6% in the previous half.

EBIT from our landfills was up on pcp, as benefits from pricing, mix and improved efficiency measures offset the impact of lower volumes. Management remained focused on meeting the ongoing competition, particularly in VIC through initiatives to improve costs, expand waste codes and improve our customer value proposition, such as through reduced turn-around times.

Growth in Cleanaway’s CDS operations continued to accelerate. In November 2023, CDS VIC operations were successfully launched with over 140 outlets. CDS QLD benefited from an expansion of the program to include wine and spirit bottles, and in December 2023, NSW had one of its highest volume months in its operating history.

Liquid Waste & Health Services

Liquid Waste & Health Services revenue increased 13.8% to $348.2 million, underlying EBITDA increased 7.7% to $52.0 million and underlying EBIT increased 8.6% to $28.9 million. Underlying EBIT margin was 8.3%, down 40-basis points from 8.7% in the pcp, and up from 7.3% from H2 FY23.

In the Liquid and Technical Services (LTS) business revenue grew 18.1% on pcp. The business benefitted from the ongoing delivery of its large-scale nickel site rehabilitation project for BHP and continued work with government agencies across Australia, including recycling of expired hand sanitizer, and the rectification of an illegal hazardous waste dump. The temporary closure of a QENOS facility tempered revenue growth for the period.

On 21 August 2023, LTS completed the acquisition of Australian Eco Oils (trades under the Scanline brand) which is performing in line with its business case.

LTS continues to build on its market-leading capabilities and growing reputation of being able to treat, reuse and dispose of complex, hard to treat waste streams. During the half, LTS re-signed two key state-wide, household recycling community contracts and was awarded stewardship of the national paint recycling program, Paintback for the next four years.

The restoration of the Health Services earnings continued with a return to profitability in Q2. This was primarily the result of our VIC operations being able to resume waste treatment and disposal activities following the commissioning of the two new autoclaves at the end of FY23. Operating costs for the period were higher than in the prior period as the business finalised the commissioning activity associated with the new VIC autoclaves. Health Services is on track to deliver its targeted annualised run-rate of $15 million EBIT in Q4 of this financial year.

Hydrocarbons revenue was up 5.1% on pcp while EBIT was marginally down. Growth in Cleanaway Equipment Services revenue was driven by new customers and price increases. In Oil Collections, a deliberate focus on selling higher margin, higher quality base oil to domestic customers largely offset the impact of the lower average oil price. During the half, we continued to investigate options to leverage the circular nature of this business.

Industrial & Waste Services

Industrial & Waste Services (IWS) total revenue increased by 15.3% to $210.5 million, underlying EBITDA increased by 12.6% to $28.6 million and underlying EBIT increased by 25.8% to $15.6 million. Strong revenue growth was largely driven by increased activity with existing and recently acquired customers, that includes the mobilisation of the national Santos contract.

During the half, IWSs delivery of unique operating solutions and deployment of technology continued to drive its successful re-sign rate and ability to win new business. Higher input prices were recovered through contract escalation clauses and rate card price increases and to support the optimisation of project delivery performance and financial outcomes, a Project Management Office (PMO) was established to optimise systems, processes, fleet and labour.

Over the last two years, IWS has pursued and delivered its strategy to increase the proportion of its earnings from Oil & Gas and Resources companies. It has also directed its focus on larger more complex, higher value tenders and renewals to drive further improvement in returns.

This announcement has been authorised for release by the Board of Cleanaway.

END

 

Investor Briefing

The Company will be holding an investor and analyst briefing on the results at 9.30am (AEDT) today.
Presenters: Mr Mark Schubert – Chief Executive Officer and Managing Director
Mr Paul Binfield – Chief Financial Officer
Tele-conference: https://s1.c-conf.com/diamondpass/10035040-g7dhnw.html
Webcast: https://ccmediaframe.com/?id=5BegUkmv

Investor Relations

Josie Ashton
Head of Investor Relations
Tel: +61 416 205 234

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