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Edited Transcript of BIN.AX earnings conference call or presentation 19-Feb-20 11:00pm GMT

Half Year 2020 Bingo Industries Ltd Earnings Call

AUBURN Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Bingo Industries Ltd earnings conference call or presentation Wednesday, February 19, 2020 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chris Jeffrey

Bingo Industries Limited - CFO

* Daniel Tartak

Bingo Industries Limited - MD, CEO & Executive Director

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Conference Call Participants

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* Cameron McDonald

Evans & Partners Pty. Ltd., Research Division - MD & Head of Research

* Danny Younis

Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Developers & Contractors and Retailers

* Jakob Cakarnis

Citigroup Inc, Research Division - Assistant VP & Analyst

* Michael Peet

Goldman Sachs Group Inc., Research Division - Executive Director

* Nathan Lead

Morgans Financial Limited, Research Division - Senior Analyst

* Paul Butler

Crédit Suisse AG, Research Division - Director

* Peter Steyn

Macquarie Research - Analyst

* Raju Ahmed

CCZ Equities Pty Limited, Research Division - Equities Analyst

* Rod Sleath

Rimor Equity Research Pty Ltd - Equity Analyst

* Tim Plumbe

UBS Investment Bank, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the Bingo Industries First Half FY '20 Results. (Operator Instructions) Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your first speaker today, Daniel Tartak, Chief Executive Officer and Managing Director. Thank you. Please go ahead.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [2]

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Good morning all, and welcome to Bingo's Half Year Results Presentation for Financial Year '20. I'm joined today by Chief Financial Officer Chris Jeffrey; our former CFO, Anthony Story, who handed over the reins to Chris at our AGM in November; and our General Manager of Strategy and Investor Relations, Tara Osborne.

Today, I'm going to take you through our first half results for financial year 2020, summarizing our earnings and operational highlights and our safety and sustainability performance, and then going to hand over to our Chief Financial Officer, Chris Jeffrey, to go through the financials in more detail. I will then give you an update on our strategy and current market dynamics and update you on our development program before finishing up on the outlook for the remainder of this year and into FY '21. We will then open up to Q&A.

So moving to Slide 4. I'm pleased to report a solid result for the first half of FY '20. We continue to focus on improving our approach to safety including rolling out a new safety communication campaign across the business. In what can still be characterized as a challenging market, we achieved strong growth in revenue and underlying EBITDA over the prior corresponding period. Revenue was up over 50% to $271 million, and underlying EBITDA was up 68% to $78.8 million. Including property sales, underlying EBITDA was $82 million, up 75%.

We've made great progress on our development program with Mortdale now complete and due to open in early March and Patons Lane advanced recycling equipment fully operational as of February 2020. Construction of MPC 2 at Eastern Creek is progressing well, and our successful integration of DADI will draw to a close by December 2020. We're now starting to realize the benefits of the cost synergies previously flagged. And pleasingly, last Friday, we also received approval to operate 24 hours at our West Melbourne recycling facility. We expect this will commence as early as May 2020.

While we believe this is a good half year results, we are by no means completely satisfied. We've identified a number of areas of the business that are within our control that we can improve on going forward. We also see potential upside as we move towards FY '21 and also see a recovery in the residential construction market.

To ensure we capitalize on this potential, we plan to focus on optimizing the value we extract from our existing asset base. In short, we want to make more from what we already have. We still believe the existing business has significant upside potential. The outlook for the business is positive. We remain on track to deliver underlying EBITDA of between $159 million to $164 million for FY '20, and we'll continue our momentum into FY '21 and beyond.

Turning to Slide 5. We were pleased to see the results of our focus on optimizing the core reflected in our underlying EBITDA margin, which was 33%, an increase of 690 basis points on the prior period. This was a result of a 6-month contribution from DADI, including cost and operational synergies relating to our New South Wales network reconfiguration, internalization of material and overhead savings. We also benefit from 6 months of operation at West Melbourne and limited operations at Patons Lane, the implementation of our annual price rise in 1 July and a net gain on the sale of various property assets. We expect this margin to moderate slightly in the second half versus the first half as we target greater volumes to support Mortdale, Patons Lane and in anticipation of license modifications at Eastern Creek.

Operating free cash flow remains very strong at $70 million and continues to underpin our business growth. We achieved cash conversion of 90%. This is at the lower end of our target of greater than 90%. This is a result of higher sales in December and a different profile in the DADI debtor book than the underlying Bingo book. We also recorded strong EPS growth in excess of 130%, up from $0.025 a share to $0.058 per share. And as previously flagged to the market, our ROCE was impacted by our investment program with a strong focus on greenfield and brownfield development that will only benefit the business going forward. However this program comes online, there is a natural lag in cash flow from recent capital investment.

And off the back of a solid first half, the Board has decided to increase interim dividend to $0.022 per share, a 27.9% increase from last year's interim dividend of $0.0172.

Turning to Slide 6. You can see our revenue and earnings split by segment, which has pivoted towards our Post-Collections waste assets, in line with our strategy and as a result of the acquisition of DADI and redevelopment program. At the IPO, Collections represented approximately 50% of revenue and 45% of EBITDA. Today, Collections is approximately 40% of revenue and 30% of EBITDA. And currently, 68% of our EBITDA comes from our Post-Collections business. In terms of external and internal splits, Post-Collections has remained relatively consistent with 71% of revenue from external customers and 67% of Toro revenue. Chris will provide some more detail on the segment performance in his financial review.

Turning to Slide 7. We've made great progress so far in FY '20 in executing our strategy with a focus on optimizing the core. We've completed the majority of the integration of DADI and our forecast cost synergies of $15 million are on track to be realized equally over FY '20 and FY '21. We've delivered efficiencies through the reconfiguration of our New South Wales network following the successful divestment of our Banksmeadow facility for $50 million. The sale of other noncore assets has also provided initial capital return to the business of approximately $16 million against an announced program of $30 million.

During the period, we also implemented a New South Wales price rise from the introduction of the Queensland levy. And as noted earlier, we recently received approval to increase our operating hours at West Melbourne recycling facility to 24 hours. We expect to be operating these extended hours in Victoria from May 2020.

A growing proportion of our B&D work-in-hand is now under supply agreements. We've built a very healthy pipeline of opportunities in both B&D and C&I, providing strong revenue visibility out to FY '21. We've also made a number of important personnel appointments over the last few months. In addition to Chris Jeffrey's appointment as CFO, which we announced at our AGM in November, Declan Hogan has joined us as Chief Information Officer this month from AirAsia. And Nik Comito joined us as Head of Sustainability in January, reflecting the increased focus of the business on technology and sustainability.

On to Slide 8. Sustainability is a key point of difference for Bingo as our sustainability credentials are becoming increasingly important to our customers and to the broader community. This includes the safety of our people and those under our care. For the half year, we recorded a lost time injury frequency rate of 1.7, which is up from the prior half. However, we are pleased with our ongoing positive trend over the past 5 years. As CEO, there is nothing I value more than the safety of our people.

Based on our ultimate objective of Zero Harm, we have subsequently spent considerable time and effort in FY '20 embedding ownership of safety across every level of the business. We've implemented a new approach to safety training and communication. This has included the launch of new communication channels and engagement protocols, the relaunch of our Think Safe, Be Safe, Home Safe messaging, the launch of our BINGO Zero Harm Rules and increasing the scope, function, size and reach of our employee safety committee, which we've renamed Zero Harm Committee.

The diversity of our team of go-getters is a strength to our business and something I'm very proud of. As part of this process, we launched and commenced implementation of our first indigenous Reconciliation Action Plan this year. Our RAP outlines how our business will make a meaningful contribution to the reconciliation within our area of influence. We are extremely proud of the diversity we have in our workforce with over 40% of our Bingo family identifying as first-generation immigrant Australians, and we will continue to nurture and support this group as a key part of our Western Sydney growth story.

The importance of diversity also extends to our Board. With Elizabeth Crouch's appointment last November, female directors now make up approximately 30% of our Board, in line with our stated target. We've made great progress over the last 6 months in our approach to responsible sourcing in line with our obligations under the new Commonwealth Modern Slavery Act. We look forward to delivering our first Modern Slavery Statement in the first half of FY '21. I'll now hand over to Chris to provide further detail on our financial performance for the half.

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Chris Jeffrey, Bingo Industries Limited - CFO [3]

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Thanks, Dan. Turning to Slide 10. You can see our strong growth trajectory over the last few years continued across all key metrics. Our net revenue has grown 51% year-on-year to $271 million for the period. This growth was largely driven by a full 6-month contribution from DADI and our West Melbourne facilities with Patons Lane expected to contribute more in the second half now that it's fully operational.

Underlying EBITDA for the half was up 68% to $78.8 million. Including property sales, underlying EBITDA was $82 million, which represents a 75% year-on-year increase on a 3-year CAGR of 37%. Pleasingly, underlying EBITDA margin increased strongly from 26% in the prior corresponding period to 33%. This was largely driven by cost synergies realized from DADI as well as a focus on cost control through the network efficiencies and the reconfiguration program in New South Wales. Underlying NPATA was $31 million at the half, 36% up on this time last year, and our operating cash flow continued to increase year-on-year, up 49% to $70 million.

On Slide 11, you'll see a summary of the performance of each segment. Collections and Post-Collections have continued to perform strongly, and I'll dive into these in more detail over the next few slides.

Turning to Slide 12. Collections revenue was up 21.5% to $122 million. Collections revenue continues to diversify across geography and business units with our C&I fleet increasing by 11 trucks from the prior half, and a growing Victorian fleet with a further 14 vehicles redeployed to Victoria over the last 6 months. Underlying EBITDA from Collections was $24.7 million, implying an EBITDA margin of 20.3%, an expansion of 110 basis points from the prior year. We continue to target expansion in C&I collections, particularly in dry waste, and we achieved around 15% revenue growth in the first half compared to last year.

C&I collections now makes up approximately 30% of total Collections revenue. That said, we want more from this business at a growth and EBITDA level. Due to the China Sword ban and increase in costs associated with pute (sic) [putrescible] waste, our C&I margins were below expectations and must improve. Dan will touch on this again later.

On Slide 13, you can see that Post-Collections remains the largest contributor to group revenue and EBITDA with revenue up 56% to $163 million and underlying EBITDA are up over 120% to $56 million at the half. Post-Collections achieved an EBITDA margin of 34%, well above the prior corresponding period of 24%. This expansion was underpinned by operational and cost synergies from DADI and the New South Wales network reconfiguration program. The New South Wales price increases were partially offset by volume impact and customer losses. Our volumes in Victoria continue to increase year-on-year.

Recycled products as a percentage of group revenue has increased to 4%. We expect this to continue to increase off the back of greater demand for recycled content in new developments, including the potential for mandated use of recycled material. We are structuring our business model to help drive the closed-loop economy.

Moving to Slide 14. Revenue from Other, which includes Toro, was up 130% largely due to recognizing the profit on the sale of Banksmeadow. EBITDA margin for Other was down 390 basis points compared to around 14% last year. This was impacted by decrease in Toro's margin due to an internal focus on refurbishment and restoration of bins as part of the DADI integration, limited earnings from equipment rental and higher insurance and in corporate costs. Toro is targeting opportunities in the Victorian and South Australian markets and will support our eventual expansion into Queensland.

Turning to Slide 15. You'll see that our balance sheet has strengthened further since 30 June, with total assets increasing to $1.3 billion and net assets increasing to $843 million. This represents net assets per share of $1.29, up from $1.21 in the prior corresponding period. Our existing principal debt facility was amended during the reporting period to increase the total commitment by the amount of the accordion facility of $100 million, increasing the total facility to $500 million.

Net bank debt at 31 December was $321 million, with a leverage ratio of 2x, which is in line with our prior guidance and down significantly on the full year. We expect to end the financial year with a leverage ratio at the upper end of our target range of 1.5 to 2x. The strong balance sheet provides us with flexibility and the opportunity to continue to pursue our 5-year growth strategy and fund future growth opportunities.

Now on to Slide 16. You'll see we continue to generate strong free cash flow with operating cash flow up 49% against the prior corresponding period to $70 million. This was positively impacted by the full 6-month contribution from DADI. Our cash conversion rate was down from last year to 90% and at the lower end of our target range. As Dan noted, this was predominantly due to stronger sales in December and a lag in cash collections from DADI debtors. We remain focused on increasing our cash conversion in the second half towards 100%, and this is a key focus area of mine moving into the role.

Total CapEx in the period was $96.2 million, comprising growth and maintenance CapEx; redevelopment projects, including Mortdale, Patons Lane and Eastern Creek; the execution of the Minto call option; and acquisition-related CapEx, which includes the final payment for Patons Lane and stamp duty associated with the DADI acquisition. By the end of the financial year, we expect CapEx to reach $140 million to $150 million, which is in line with our prior guidance to the market. On a steady-state basis, we would expect that underlying CapEx requirements for the business would be between 8% to 10% of revenue.

Moving on to Slide 17. We generated a return on capital employed of 9.2%, in line with where it was at, at the end of FY '19. This is below our long-term target of 15%. We have a clear pathway to return to this level in the medium term as we start to benefit from our returns coming from the development program and prior acquisitions. As Dan mentioned, our focus going forward is on optimizing our returns from our existing assets. By doing so, we will look to maintain our fiscal discipline with any incremental redevelopment opportunities and capital allocation decisions having a ROCE hurdle of 20%.

Slide 18 outlines some of the major contract wins we've won in the year today. We've been developing some real momentum in the Victorian B&D market as we consolidate our position and develop our relationships with Tier 1 contractors on major infrastructure projects. We've also won a number of new C&I contracts and renewed a number of existing ones. In general, our new project wins in C&I have been slightly below expectations due to increased price competition. Going forward, we intend to focus on further improving our conversion rate on contract tenders across the business and have strengthened our bid teams in the first half.

Turning to Slide 19. We have good visibility at the revenue stream for our Collections business in both B&D and C&I over the next 24 months. There is a direct pipeline of close to $1 billion of waste revenue from announced projects, up approximately $190 million from August 2019. Interestingly, residential construction has increased as a portion of our B&D pipeline from around 35% in August 2019 to around 45% now of new projects into the pipeline. Civil and social infrastructure projects currently make up about 30% of the pipeline, but we anticipate this will increase as commencement dates are confirmed. Both the infrastructure and commercial construction markets are expected to remain strong as residential recovers in calendar year '21.

Our C&I business is a core element of the growth strategy. Contracts in our C&I business typically have a duration of around 3 years, and the average remaining tenor of existing contracts is currently circa 2 years. Over the last 12 months, we've had a renewal rate on contracts that have gone back to tender of around 90% and our overall tender success rate of 50%, up from 35% at the full year. We have a pipeline of contract opportunities over the next 24 months with a total contract value of $320 million. This was broadly in line with our pipeline in August 2019.

I'll now hand back to Dan to give you an update on the group's strategy.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [4]

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Thanks, Chris. Slide 21 outlines our performance against our 3 core strategic enablers: protect and optimize the core, enhanced vertical integration and geographic expansion. As previously stated, in FY '20, we've been concentrating on the first of these strategic enablers, protecting and optimizing the core. Our focus is on increasing efficiencies to enable us to preserve our EBITDA margins, growing our market share in C&I and increasing our recovery rates through further investment in advanced recycling equipment. At this stage, we expect to enter Queensland in FY '21, subject to any proposed expansion meeting our return hurdles.

Moving to Slide 22. Over the past few years, we've invested heavily in advanced recycling infrastructure. As a result, we are well positioned to benefit from an increasingly supportive policy and regulatory environment and an anticipated rebound in the construction sector. Federal and state government policy continues to pivot towards Bingo's recycling-led business model. Waste levies are increasing in most states, and we're starting to see more consistency between the states. We're making a genuine contribution to the development of a circular economy through the production of recycled products that are in turn used in the building and infrastructure projects. We're working the 2 largest waste segments in the 2 largest waste producing states, with B&D and C&I accounting for 80% of waste volumes in New South Wales and Victoria.

Overall construction activity will remain at elevated levels for at least the next 3 to 4 years. We expect to benefit from an anticipated rebound in the residential market from late calendar year 2020, with BIS Oxford Economics suggesting a potential 50% increase from trough to peak in the next residential cycle. Social infrastructure, particularly health and education, will continue to provide opportunities underpinned by a $20 billion investment from New South Wales and Victorian governments. And civil infrastructure continues to be strong with more than $125 billion committed to infrastructure projects across New South Wales and Victoria over the next 4 years. By the end of this calendar year, we expect all 3 sectors to improve and to see simultaneous positive year-on-year growth for all sectors in calendar year '21.

Over to Slide 23. It's not by luck that we're seeing government policy continue to move towards our recycling-led business model. We have anticipated this move for some time and have invested heavily in advanced recycling assets in order to benefit. The introduction of China Sword and the subsequent COAG ban on waste exports being introduced this year has resulted in states and federal governments refreshing their waste strategies to incentivize recycling and reduce volumes of waste exported or sent to landfill. This has included increases in state waste disposal levies, which support Bingo's operations. For example, the anticipated increase to the Victorian levy will provide upside to our operations in Victoria.

The federal government is also preparing to introduce new targets for the use of recycled products on state and federal government projects. As producers of over 500,000 tonnes of recycled product per year, we stand to benefit. In a great illustration of us closing the loop, we've been taking waste from the new Western Sydney Airport and are now returning recycled product back to sites.

The increased importance and exposure of the industry also leads to increased scrutiny and compliance obligations. As we work to raise standards across the industry, we welcome this. In the last 6 months, we successfully resolved 2 outstanding issues from 2017 relating to license breaches.

Moving on to Slide 25. One of the real strengths of Bingo is our property and infrastructure portfolio. Our portfolio comprises 20 properties across approximately 145 hectares in New South Wales and Victoria and has a book value of approximately $446 million. We also hold options over an additional 30 hectares worth approximately $170 million in Alexandria, Eastern Creek and Clayton South. The management of our property is an important element of our business. We actively manage our portfolio to ensure that we are optimizing the value we obtain from it.

Net profit from recent property sales was underpinned by the sale of our Banksmeadow facility last September. Banksmeadow is a great example of our ability to add value to property through development and operational enhancements and to ultimately realize this value. We have a number of other potential land sales coming online over the next few years, including Minto, St Marys and some of our urban properties.

On Slide 27, you'll see some more detail on the status of our current developments. We opened our Patons Lane facility in July '19, and we are utilizing it as an integrated asset with Eastern Creek. As of February, we completed the installation of advanced recycling equipment, and the site now is fully operational. The 2 sites will continue to work in an integrated fashion. We also completed our Mortdale redevelopment this month. The facility adds 220,000 tonnes of capacity to our New South Wales network and will help serve the market in Southern Sydney.

MPC 2 at Eastern Creek is progressing well and is on track to be completed by the end of this calendar year. We're also hoping to receive formal approval soon for Mod 6, which expands our capacity and extends our operating hours with no further capital outlay. And the master plan for our Recycling Ecology Park is also well and truly underway.

Turning now to Slide 28. While we've had a solid first half, as CEO, I'm not satisfied. We're going to achieve much more value from our existing portfolio. We stand to benefit from significant upside as the residential market recovers. We're focusing on improvement in 3 key areas for the remainder of FY '20 and as we move into FY '21: performance, utilization and the market. Our continued focus on safety will continue with the constant reinforcement of our Think Safe, Be Safe, Home Safe message and the enforcement of our Zero Harm Rules. Our cash conversion, while in line with our stated policy, can improve. This will see the team focused more heavily on cash collections as we aim to achieve 100% cash conversion again for the full year.

We are focused on improving our systems with the rollout of our ERP system and upgrades to our internally developed customer portals underway. Utilization is the key to optimizing our returns from our existing assets, or in simple terms, making the most out of what we have. This includes Patons Lane. Now that it's fully operational, we'll be aiming to increase our volume and optimize our returns on this important asset and, indeed, our entire network.

We hope our license modifications at Eastern Creek will be approved soon. And now that we have approval for West Melbourne, we expect to be operating 24 hours by May this year. This will provide a material boost to the business in both states, increasing our capacity, extending our operating hours and enhancing our utilization rates.

We'll keep working hard to grow our market share in the C&I sector, while at the same time expanding our margin. C&I presents a major opportunity for the business in the future. And as previously stated, as we bring more capacity online, the team will be increasing throughput across the network to support our recent redevelopments. The next 4.5 months until the end of June is going to be a busy but exciting time for us to make the most of what we already have.

Slide 29. So we're on track to achieve a solid year-on-year growth in FY '20. Our full year result, which we expect to be slightly skewed to the second half, will be underpinned by full year contribution from DADI, West Melbourne and Patons Lane. We expect to see some slight moderation in group EBITDA margin in the second half as we move towards increasing our volumes, but we'll also benefit from our commencement of operations at Mortdale from early March, the extension of West Melbourne to 24/7 operations in May, and the operation of our recently installed advance recycling equipment at Patons Lane.

Despite continuing headwinds in the residential market, the opportunities in our sectors remain strong. Our prior investment in advanced recycling facilities has set us up for further strong growth, and we are well and truly on track to deliver underlying EBITDA in the range of $159 million to $164 million in FY '20.

Turning to the final slide on Slide 30. We expect to enter FY '21 in our strongest position yet. Our investment in waste and recycling infrastructure over the past few years has positioned us well for further strong growth well beyond this year. We are not completely reaping the rewards of this investment -- we are not yet completely reaping the rewards of this investment. Next year, we will benefit from a full year contribution for our redeveloped Mortdale facility and from Patons Lane advanced recycling equipment. MPC 2 will be completed in the first half of FY '21 and is expected to deliver an additional $15 million per annum. We also expect to benefit from our West Melbourne facility operating 24 hours a day, and the net benefit from a likely increase in the Victorian waste levy. Together with Mod 6 at Eastern Creek, continued growth in the C&I sector and our eventual entry into the Queensland market, the future looks very positive.

We have the right strategy, the right assets and the right team in place to capitalize on a compelling growth outlook for this company, and we will enter FY '21 and beyond with great confidence. On that note, I will hand back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first one we have is from the line of Michael Peet from Goldman Sachs.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [2]

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Dan and Chris, just first question, just on the revenue side. I think the EBITDA and everything, they look pretty much in line with what I thought. But I missed the revenue by quite a bit. Firstly, does that include the landfill levy pass-through?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [3]

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Mike, yes, it does.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [4]

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Okay. So if I just simply just look at the change in revenue, it's about $67 million for the half. But I thought DADI should have been about a $90 million to $100 million per half sort of contribution. I know you switched assets, but I just want to get that bridge for the revenues in my head right. I know you've got Patons Lane coming on, but maybe Banksmeadow and obviously a number of other areas turned off. But I just thought if you could provide us any info on the sort of revenue bridge, that would be useful.

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Chris Jeffrey, Bingo Industries Limited - CFO [5]

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Yes, that's okay. Obviously, we've prioritized our margin over revenue in the first half. So we've got a combination of some volume loss because of the price rise, and then volumes in the market more broadly. But as a group, you would have heard us talk at the full year around the strategy being at the EBITDA level rather than the revenue level. So -- but the key driver is from that and the volume changes in the broader market. But we're happy to walk you through that when we talk after the call, Michael.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [6]

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Okay. And just on the guidance, I know that it's including the impact of AASB 16 now. But was it always including that?

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Chris Jeffrey, Bingo Industries Limited - CFO [7]

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Yes, good question. Yes, it was. At the AGM -- in this pack, there's a Slide #33, which is calibration of key line items. At the AGM we provided that. You'll see that on that page, there's an interest expense of $15 million to $16 million. That was previously $13 million to $14 million. And then the depreciation line of $40 million included about $3 million, I think, of depreciation at that point.

So to be clear, Anthony mentioned this in Q&A at the full year and then it was in the supporting materials at the AGM and has been baked in. So the underlying guidance has always included that number. We were also -- to be completely clear, we had expected it was about $4 million, but it's actually $4.8 million. We had some changes in the interest calcs that's set behind our workings, which has pushed it up about $1 million.

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Michael Peet, Goldman Sachs Group Inc., Research Division - Executive Director [8]

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Okay, great. And just finally, just on the second half, I mean, you've highlighted maybe margins a bit lower, but I would have thought they could have been going up, given you're still ramping up a number of new assets and things like that. But is it really the cycle, obviously, that's the headwind there? I just wondered what sort of movement you see in the cycle overall in terms of decline from here.

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Chris Jeffrey, Bingo Industries Limited - CFO [9]

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Yes, we're really happy with where the cycle is at. Basically what we're saying, and you would have again heard us talk to this at length, as we bring on Patons Lane, MPC 2, Mortdale and other elements, we'll have volume that we require to bring into the facility. So what we're saying is we think there will be a slight margin impact in the second half, but also remain well above the group long-term averages of 30%.

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Operator [10]

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The next question we have is from the line of Peter Steyn from Macquarie.

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Peter Steyn, Macquarie Research - Analyst [11]

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Just was curious to get your perspective on your intended entrance into Queensland. Then could you give us a bit of a sense of what it is that you would lead with in that market?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [12]

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Pete, as we've stated before, we're looking at a mixed entry into -- can you hear me right, Pete?

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Peter Steyn, Macquarie Research - Analyst [13]

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Yes.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [14]

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There's some background noise. As we said before, we're looking at mixed entry to Queensland, of organic growth in the Collections business from existing clients that we are servicing Victoria and New South Wales. But we're also looking at strategic -- some strategic acquisitions, so it will be a combination of both of those at the right time.

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Peter Steyn, Macquarie Research - Analyst [15]

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Okay. And perhaps just on that and in relation to your return targets, I mean one of the challenges, I suppose, with acquiring businesses is invariably you've got a goodwill element that makes it a little harder to get that return up. How do you think about that? Or are you guys comfortable that you can overcome that in targeting your 15%?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [16]

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Yes. No, we are definitely comfortable that we can meet those return hurdles. Of the acquisition opportunities we're looking at in Queensland, for example, are relatively small in nature. So with those smaller type acquisitions, we believe it's a lot easier to meet those return hurdles, and we'll be very disciplined on our approach as we enter those new markets.

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Peter Steyn, Macquarie Research - Analyst [17]

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Perfect. And then last quick question for me, if you wouldn't mind that giving us a bit of a detailed perspective on the ACCC investigation, where it's at and how you guys see that playing out, both from a timing and process perspective.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [18]

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Pete, as I guess we announced at the time, there is an investigation into the B&D sector in New South Wales with many companies involved in that investigation. It is ACCC's requested information from us. We have handed that over. And yes, as we said in the announcement at the time, that's all there really is at the moment.

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Chris Jeffrey, Bingo Industries Limited - CFO [19]

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We expect that process to take a number of months to play out, Pete.

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Peter Steyn, Macquarie Research - Analyst [20]

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No worries. It's understood. Dan, Chris, I'll leave it there.

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Operator [21]

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The next question we have is from the line of Danny Younis from Shaw and Partners.

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Danny Younis, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Developers & Contractors and Retailers [22]

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Daniel, Chris, 3 questions if I can. The first one is around -- it's pressing you further on the guidance statement. So you came in at $82 million EBITDA. You've reaffirmed your guidance. Historically, you've got a stronger second half, and you've guided to a slightly stronger second half for this fiscal year. Now I understand the 2 mitigants, so your margins coming down in the second half and the resi construction still remaining challenging. But I would have thought there'd be a good case to be made for upgrading guidance, given your first half performance. What else is there that's perhaps holding you back from changing your guidance for FY '20, please?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [23]

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Thanks, Danny. We're comfortable with our numbers. And yes, the second half, we're confident will be stronger than the first, like we've proved in years gone past. We like to be conservative. We are positive about where the market is going. It still is a challenging market, but any which way you look at it, whether you include the profit of the properties or not, we're still very comfortable with the guidance we've given.

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Danny Younis, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Developers & Contractors and Retailers [24]

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Okay. And then in regards to your EBITDA margins, I mean, if I was to think of a conceptual waterfall bridge, the margins are very strong at 32%, 33%. There's clearly plenty of moving parts in there. I suspect prices is the big driver in that increase. But can you maybe talk through what the 6-month contribution from DADI was, what the percentage contribution was from price from the West Melbourne, the upgrades versus the losses from, say, customer and volume? Maybe a little bit more clarity in terms of those moving parts that drove your increase in EBITDA margins.

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Chris Jeffrey, Bingo Industries Limited - CFO [25]

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That's about 15 questions there, Danny. And one, as you know, we won't go into the detail of the individual movements. But as both Dan and I said on the call, it's driven by internalization of volumes, route optimization, DADI and the New South Wales and Victorian price rise. It's a combination of those elements that have got us up around that 33% margin.

I'm not going to go into the individual elements about how the big site is performing on New South Wales. As you know, we report as Collections and Post-Collections rather than individual level. That said, I commented in the presentation that volumes in New South Wales are down on the prior corresponding period. That's the lag effect of the residential impact. But that said, even in a challenging market, we've delivered a strong result, so we're well positioned as that part of the cycle recovers.

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Danny Younis, Shaw and Partners Limited, Research Division - Senior Analyst of Technology, Developers & Contractors and Retailers [26]

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Okay. And just on Collections, you've guided to latent capacity in New South Wales and second half volumes being stronger but a lower margin. Can you maybe talk about where the pute fleet utilization is of your B&D fleet of nearly 300 trucks and your 66 C&I, so where that fleet utilization is and how you expect it to move into second half, given you're expecting higher volumes?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [27]

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So Danny, yes, we are targeting high volumes, as we've mentioned, as we've got Patons Lane now running and Mortdale and Mod 6 and MPC 2 coming online shortly. So the strategy in this half is increased volumes. Obviously, we have the intent of doing that without dropping margin, but I guess we're being conservative in saying that if we increase volumes at the rate, we're expecting to -- slight margin drop might be there.

In terms of utilization, we have moved quite a few trucks to Victoria as volumes in Victoria have increased over the half. Utilization across the whole fleet is well into the 80s at the moment. And as we've said before, as we move into Queensland organically, we plan to use some of those trucks up in Queensland. So we expect utilization over the next 6 months to increase, of that 80-ish.

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Operator [28]

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The next question we have is from the line of Cameron McDonald from Evans & Partners.

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Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [29]

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Just 2 questions from me -- or it's actually 3, sorry. In particular, just following on from the last question. And you've previously spoken about the price rises, particularly in Collections, where have those price rises stabilized?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [30]

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Yes. So pricing has stabilized in mid-teens. Like we've mentioned at the AGM, we're comfortable where pricing is in the market. It still is a challenging and competitive environment, but they've stabilized around those numbers.

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Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [31]

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Okay, great. And has the advanced equipment that you'd mentioned being installed at Patons Lane now been installed, given that previous commentary, was expected to be in the second quarter?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [32]

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Yes, no, we have -- we've mentioned that a few times on the call. Slide 41 at the back of the pack shows you some really nice photos of what that plant looks like. So she's definitely installed, and she's definitely running.

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Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [33]

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Okay, excellent. And my last question relates to the Eastern Creek license upgrade. When we look at some of the planning applications -- and you've spoken in the past about 700,000 tonnes going to 1 million, but it looks like the license application was actually unlimited up to the physical cap. Does that provide you any further optionality?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [34]

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Sorry, our license application was from limited, is that what you're asking me?

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Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [35]

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Yes.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [36]

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No. So that's -- no, incorrect. We have a 2 million tonne license at Eastern Creek, split 700,000 into the landfill and 1.3 million into the recycling facility. We've applied to split that 2 million, 1 million into the landfill and 1 million to recycling, so still keeping the headline 2 million number where it is. So that's what we've asked for. And we also asked for 24-hour licensing to operate the recycling facility.

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Operator [37]

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The next question we have is from the line of Jakob Cakarnis from Citi.

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Jakob Cakarnis, Citigroup Inc, Research Division - Assistant VP & Analyst [38]

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Can I just check on the Post-Collections? Some of the commentary previously had been that the volume impacts relative to the price increases had been smaller. Can you just confirm that that's still the case, that the price increases have been larger than the volume response that you've seen flowing those through?

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Chris Jeffrey, Bingo Industries Limited - CFO [39]

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Yes, that's fine. We've said in the presentation that the net benefit is positive to us, and that is indeed the case.

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Jakob Cakarnis, Citigroup Inc, Research Division - Assistant VP & Analyst [40]

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Okay. And then just a second one. Can you shed any light on whether or not the company will benefit from any of the bushfire clean-ups, particularly in New South Wales and maybe the northern part of Victoria in the second half, and whether or not that's included in your guidance or you're participating in the tendering process for that?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [41]

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So it is still early days, but yes, we do stand a chance to benefit and get some waste coming out of the clean-up. A lot of that waste, we believe, will have to go to landfills. But a lot of the waste is actually sitting in regional New South Wales and not in Sydney Metropolitan area. So it really -- but the fact of the matter is how much waste will actually come back into Sydney into our landfills. We're well positioned for that, but it's too early to say.

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Jakob Cakarnis, Citigroup Inc, Research Division - Assistant VP & Analyst [42]

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Okay. Even it's too early, have you included that in the volume expectations to be slightly off in New South Wales in the second half then?

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Chris Jeffrey, Bingo Industries Limited - CFO [43]

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No, we haven't included any upside from that particular project if it kicks off. Obviously, within our volume, thinking of swings and roundabouts, but as Dan said, we've been positioning with the New South Wales government and (inaudible) -- and are hopeful of being able to help in the bush fire recovery.

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Operator [44]

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The next question we have is from Tim Plumbe from UBS.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [45]

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A couple of questions from me. Apologies but -- the DADI and Patons Lane, can you talk a little bit about EBITDA contribution that we saw from those businesses in the half? And also, how much of that $15 million that was worth of synergies is included in that half result, please?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [46]

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Tim, I didn't hear the back end of it, but I think I know what you're asking. The businesses are very much integrated, so it's very difficult to determine the contribution of DADI in isolation to the underlying Bingo business. So I can't give you those numbers. All I can say is that the businesses are well integrated, both of them. The business is, one, is performing in line with expectations. And as we said, Patons Lane, we're going to get a better second half contribution than the first half due to the fact that we stopped the temporary plants in the last 2 months of the first half to install the new plant, which is now up and running.

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Chris Jeffrey, Bingo Industries Limited - CFO [47]

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Tim, as you'll recall, we spoke about it at the full year and the AGM. We've closed a number of the sites that were within the existing Bingo network pre-DADI and reconfigured it. So to Dan's point, with all of those changes, we don't look at them on a pre-DADI, post-DADI. We have literally got an integrated operating platform, and that was one of the quick wins that came out of the integration. From a synergy perspective, we've noted that we expect that to be 50-50 over FY '20 and FY '21.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [48]

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Got it. So half -- maybe just Patons Lane. Talk a little bit in terms of sort of EBITDA because that's -- DADI is separate.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [49]

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Yes. So DADI is separate. But as I said, Tim, that's definitely going to be more skewed towards the second half in terms of earnings. But -- and we've also mentioned we run Eastern Creek and Patons Lane as lock-in integrated assets. So we surge volumes between the 2 landfills and even the recycling infrastructure. So still happy with where volumes are and still happy the Patons Lane will give us the contribution that we forecasted for the year.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [50]

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Okay. Maybe talking a little bit about industry residential volumes in the South Wales market then, what's your sense in terms of where the volumes have fallen compared to where we are at the moment? And can you maybe talk about what sort of decline you saw over the last 6 months, over the first -- '20?

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Chris Jeffrey, Bingo Industries Limited - CFO [51]

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Tim, it's sort of hard to look at in isolation. Obviously, we've had price rises that have run through as well. So if you have one variable without the other, it would be a bit easier. But year-on-year, I'd say volume impacts across the broader business in New South Wales are in that 20% range. Some of that is because of price rises and some of it is because you've still got the trough in residential activity.

But I'd be lying to you if I could pick an exact number as to how much of that was from price rise versus the market. We have said that we expect to see resi recover, but we're not -- even though we're seeing the pipeline improve, we're still being somewhat conservative on that, and we expect to see that pick up going into calendar year '21.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [52]

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So just to confirm, when you're talking a 20% decline, you're talking industry or you're talking Bingo specifically?

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Chris Jeffrey, Bingo Industries Limited - CFO [53]

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Prior half volumes in total, primarily driven from resi construction.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [54]

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Okay, okay. Then -- sorry, just last question from me, just a little more detail in terms of pricing. I think Cameron had asked about the Collections business and you guys have said maintain. How should we think about those pricing increases from both landfill perspective and also from the resource recovery?

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Chris Jeffrey, Bingo Industries Limited - CFO [55]

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Sorry, we've got -- the line seems to be dropping out a little bit, Tim. Could you please repeat the question?

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [56]

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Sorry. Just a question around the pricing increases that were implemented in July. I think Dan had spoken about the collections holding in the mid-teens. How should we think about the -- how the pricing increases held in the landfill and also the resource recovery centers, please?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [57]

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No, Tim, I said mid-teens across our whole -- all our revenue across New South Wales. So it is consistent across landfill recycling and Collections. We've managed to hold and increase, volumes are still steady across all 3, but it's around the mid-teens.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [58]

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Got it. Got it. And sorry, just lastly, a clarification. In the $159 million to $164 million guidance range, that will include the $3.2 million gain on sale?

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Chris Jeffrey, Bingo Industries Limited - CFO [59]

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No, the guidance range didn't originally have the $3.2 million in it. So if you back out the $3.2 million, we're comfortable we're within our guidance range. But what we have done, the transparency is split out and show you the $3.2 million separately. We will, as Dan mentioned, going forward, be selling properties in the ordinary course. 1 or 2 in any 12-month period is likely. But the original guidance number, Tim, did not include that in it. We are comfortable with our guidance range without it.

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Tim Plumbe, UBS Investment Bank, Research Division - Research Analyst [60]

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Okay. So we got $159 million to $164 million plus $3.2 million gain on sale?

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Chris Jeffrey, Bingo Industries Limited - CFO [61]

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Yes, yes.

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Operator [62]

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The next question is from Rod Sleath from Rimor Equity Research.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [63]

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I was wondering if I can drill down into the Victorian operations a little more. And perhaps to start with, now that you have the 24-hour license on the West Melbourne facility, how does that effectively increase your capacity at that facility?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [64]

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Yes. So that means -- so right now, we're running a 10 or 11 hour shift during the day. We can basically run the plant another shift. So we can -- we won't completely -- we won't double the amount of material the plant accepts, although the facility is accepting because we still need to maintain the plant. So the plant will be offline for, say, 4 hours a day, but for the rest of 20 hours a day, that plant will be running. And we also now have a 7-day approval where previously we had a 6-day approval. So by running the plant more hours, more waste goes through it, high diversion rates, less waste to landfill, higher profits.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [65]

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Is it -- can I simplistically look at that and say that, effectively, you're doubling your capacity there with the license change?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [66]

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Not quite, because -- not quite, but it's considerably more than what we're doing now, but not quite double.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [67]

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Okay, no problem. And I'm pretty sure you referred that facility is about 350,000 tonnes of capacity. Is that on the assumption that it was being run under the new license conditions? Or is that now substantially higher?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [68]

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No. So the 350,000 assumes that 24-hour approval would be granted.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [69]

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Okay. Great. Also, you referred a few times to expectation of increases in the Victorian levy and that Victorian levy is obviously now quite a long way below New South Wales and a long way below South Australia and hasn't gone up for quite some time. Are you able to give me a little more information on what your expectations are for that levy, given current discussions that are taking place? Are you expecting that it's going to come closer to South Australia and New South Wales levels?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [70]

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Yes, we do. So will it happen in year one of the announcement? Probably not, we don't expect. But we expect over a 2-, 3-year period for them to get very close, if not equal, to the New South Wales and South Australian levies. I think that definitely is their intent. And hopefully, there's announcement soon from what we are hearing from government.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [71]

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Well. Okay, great. And following on from that, if we look, obviously at, say, New South Wales, where we've got a much higher levy, how do your rates per tonne through your transfer and recycling plants compare in Victoria to New South Wales, i.e., is New South Wales considerably higher per tonne processed fee given the higher waste levy?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [72]

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No, of course not. The New South Wales gate fees are definitely higher than the Victoria gate fee, so the levy is the main driver behind gate fees in all markets. So as levy increases in a particular state or market, then pricing really has to increase off the back of that.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [73]

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Okay, great. And have you -- I have seen a little bit in the past you have given some indication of where margins are sitting in the Victorian business versus the New South Wales business. Are you able to give some indication of that today?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [74]

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So with 24-hour approval being granted and once that's operational, we expect margins to be well into the 20% moving forward.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [75]

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Okay. All right. And then presumably, obviously, considerably higher than that if you get to levies that are comparable to New South Wales.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [76]

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Well, it's not just the levy going up, it's scale. Remember, our New South Wales business is vertically integrated across landfill, recycling and collections. In New South Wales, we're not as vertically integrated and we, by no means, have anywhere near the scale. So scale -- so volumes and scale and yes, gate rates will all contribute to an increased margin.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [77]

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Sure. Okay. All right. Can I also ask just a question also on volumes in New South Wales? Obviously, the price increase went through. And you have commented that volumes were down and that you're going to be moving to drive volumes higher, particularly given MPC 2 coming on and the Patons Lane advanced recycling equipment being in place. Where are you expecting those volumes to come from? Is what you're suggesting that with the price increases that went through, you have lost some market share and you will be regaining that market share?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [78]

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It's hard to say. With the way the resi market is unfolding and there's been just less volume in the market, it's hard to say what market share we had then or have now. But we believe that pipeline is showing increased volumes across infrastructure, social and transport infrastructure, but also commercial construction. And then yes, residential construction pipeline is starting to look better for us. So with that and then just, yes, increasing volumes across all those pipelines and in taking -- and also increasing volumes from the competition, we believe we can get the volumes we need from the market.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [79]

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Okay. And your expectation and hope at this stage is that you'll be doing that without any dramatic reduction in pricing.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [80]

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Correct.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [81]

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Okay, great. And then finally, just on the combination of MPC 1 and Patons Lane, my understanding is that you are now fully processing the waste that was being delivered across the border into Queensland. And that that extra volume, I'm presuming, is coming through MPC 1 and Patons Lane. And therefore, with that level of processing already taking place, when you talk about -- I think you said an additional 15 million from when MPC 2 comes on, and MPC 2 is increasing your capacity, is that an assumption that the volumes come through -- the volumes increase to bring your capacity utilization of MPC 2 up to somewhere near what the combination of MPC 1 and Patons Lane is today? Or is that purely a function of improved efficiencies of processing through MPC 2?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [82]

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Okay. So it's a combination. So yes, we need more volume to, obviously, put into MPC 2. At the moment, we're at capacity now in our recycling capabilities across MPC. So there is still more we could recycle and get out of the landfill when MPC 2 is running on current volumes. But also, we need more volumes to go through MPC 2, so a combination of both.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [83]

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Okay. All right. And can I ask one last question. On Patons Lane, you mentioned the advanced recycling equipment is in place. Is that advanced recycling sorting equipment including optical sorter, et cetera, like MPC 2 will have? So is that enabling you to go to a higher level of sorting than what we're currently doing in MPC 1 and in Patons Lane?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [84]

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Yes, it does have hyper opticals, but it is a different -- completely different design to MPC 2. So Patons Lane has been designed for more of a heavier fraction building the demolition waste, where MPC 2 is being designed for a lighter fraction building in demolition waste and all C&I waste. So -- and the delay in Patons Lane was when the merger of the DADI and Bingo came together. We redesigned Patons Lane so it would be different to what we were designing at Easton Creek.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [85]

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Okay. And I know it's difficult to say because of your direct materials to the most appropriate plant, but effectively, today, with the new equipment, is Patons Lane delivering a higher level of recovery than MPC 1? Or if you put the same material through both, will it be delivering a higher level of recovery?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [86]

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Yes. So right now, completely different materials are going through MPC 1 and Patons Lane, but if we put the same material through a heavy fraction in both plants, Patons Lane would be delivering a higher recycling rate.

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Rod Sleath, Rimor Equity Research Pty Ltd - Equity Analyst [87]

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Okay, great. Are you able to put any sort of rough quantification on that difference?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [88]

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Not at this stage. The plant has only been running for a 4-week period. So it's still early days, but it's showing very, very good signs.

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Operator [89]

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The next question is from the line of Raju Ahmed from CCZ.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [90]

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Daniel and Chris, a couple of questions. You mentioned you've had better-than-expected sales in December 2019. Can you just give us some color as to what drove that? And also, have you seen that level of, I suppose, better-than-expected run rate trend into the last 6 weeks of this calendar year?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [91]

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So yes, why December was a stronger month is just sort of the stars aligned on a couple of major projects. That's why December was where it was. Have we seen a run rate? Yes, we have seen the run rate continue other than the extreme wet weather we had, obviously volumes dropped when we have that amount of rain over a long period of time, but the run rate is still definitely where it was in December.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [92]

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Okay. So if that is the case, if it is above expectation, do you anticipate that current run rate, give or take, let's normalize it for the wet weather, if it carries through the balance of this financial year, how do you sort of look at the guidance with that as a backdrop?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [93]

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So yes, we are expecting greater volumes to continue in the second half. There are swings and roundabouts, as we know, in any 6-month period. And saying that, still comfortable where the guidance is.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [94]

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Okay. All right, very well. The second question is around DADI synergies. Has that been -- has the synergy realization been earlier or better than anticipated in terms of a run rate basis?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [95]

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No, it's been as expected in terms of the realization of the synergies coming through the P&L. And as we flagged today, the integration will be over by the end of this calendar year.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [96]

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Right. Okay. So do you see further upsides on that front? I mean you've quoted $15 million. Is there a risk that you might actually see some more?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [97]

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Potentially, there is a potential of upside coming into '21.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [98]

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Okay. Do you have a feel for what that number might be?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [99]

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I do, but I can't tell you.

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Chris Jeffrey, Bingo Industries Limited - CFO [100]

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It's too early, Raju. We've got to get the work done, and we prefer to give you a more accurate position going into FY '21.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [101]

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No, it's just -- I'm just trying to get a sense of whether is it a big number, is it another $15 million? Or is it another -- just a couple of million? That's all.

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Chris Jeffrey, Bingo Industries Limited - CFO [102]

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Sorry, I can't give you that number at this point. As I said, we'll give it to you going into FY '21. We are very comfortable with where that integration's at. And as Dan said, by the end of the calendar year, we'll see the full run rate of the $15 million. What that looks like above will be determined in the next few months as we see a few of the operational changes embedded. So -- and I know you're after a number and I know I haven't given you one, but that is the state of play, Raju.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [103]

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Okay, understood. Now while you guys were talking, I was watching the share price reaction. And I think the minute Daniel mentioned there would be strategic acquisitions involved in the Queensland entry, the share price came up. Can you just give us some color around what a strategic acquisition is and how you would consider funding it?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [104]

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So firstly, all acquisitions are strategic, and I don't think we've made a bad one to date. So that's interesting, how you draw that correlation. And as I said before, the acquisitions we are looking at are relatively small, and we'll only be going ahead in any market if they meet our return hurdles.

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Chris Jeffrey, Bingo Industries Limited - CFO [105]

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So just to add to that, Raju, relatively small, managed on balance sheet as part of a broader entry. So the entry to Queensland will be, from an organic perspective, for Collections. And then as we've said previously, we're really looking for the right property and the right location to put equipment on. We don't have the significant capital outlays that will come with that equipment. We have equipment that we will move from the reconfiguration in New South Wales.

So really, what we're talking about is buying property. We're not talking about step-out amounts of hundreds of millions. We're talking about amounts that might be $30 million, $40 million, $50 million over a 12 to 18-month period should we go down that path. When we're saying acquisition, it could be of an existing facility or it might just be of a bit of property for us to do greenfield development on which has been the trajectory that we've had in mind and spoken about for the last 12 months.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [106]

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Okay. And the last question is around pricing in New South Wales. Look, last couple of years, pretty much every year other than the year before, you've had generic price rises in the market. I know there's an ACCC investigation backdrop going in this year, but do you anticipate any prospects for further price rises, give and take volume impacts from the 1st of July 2020?

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [107]

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Too early -- it's too hard to say, Raju. But yes, every year, costs go up, right? Wages go up, cost of everything pretty much goes up in most markets. I think the price rises are expected. And price rise in July will be a normal CPI-type increase, very small percentage increases.

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Operator [108]

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Next question is from Nathan Lead from Morgans Financial.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [109]

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Dan and Chris, just 2 or 3 for me. So first up, what do you think is causing the delay in the Victorian landfill levy increase? And I suppose I'm thinking with the backdrop of the West Gate Tunnel Project and the issues that are happening there. And if they were to overlay a big landfill levy increase, there's so much more of those as costs would blow out on that project. So can you maybe just talk through the backdrop there?

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Chris Jeffrey, Bingo Industries Limited - CFO [110]

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Yes. I think it's a good question, but possibly a little bit too Machiavellian. If they have those delays given the nature of the project, and it's a government project, they can always seek landfill exemptions for that material if it was required.

I'm hoping it's just getting their dots in a row about how much they go up and how quickly they go up. There was a view that they might go up quite significantly in one hit and now that's moderated to be significant over 3x horizon. So we would expect they come out with something in the next little while, but it's not, at least as far as we know, tied in with the Transurban tunneling-related issues. So it should be fine and it will be substantial.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [111]

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Okay, great. Second one for me. Can you just carve out the landfill levy revenue that came through in the period? Obviously, it's a pass-through revenue, so I can't see why it couldn't be carved out just like we see with Cleanaway yesterday.

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Chris Jeffrey, Bingo Industries Limited - CFO [112]

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Thanks, Nathan. We will take that on board.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [113]

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Okay. I mean I suppose it would be nice to also know what the CapEx guidance there is, the 8% to 10%, what it would look like net of those landfill revenues, too. Could you provide that number for us?

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Chris Jeffrey, Bingo Industries Limited - CFO [114]

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Yes, we're really talking about underlying revenue when we say that. So happy again to provide that number, but roughly 8% to 10% of revenue is where we think it would fit. That's been the position, I think, we've been saying even before we acquired DADI. But yes, happy to adjust it to take into account that position.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [115]

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Okay. And just a final one for me. You've often referred to interest in waste-to-energy facility development. Could you talk through how you see the differences and attractiveness, I suppose you could say, for Victoria and New South Wales markets?

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Chris Jeffrey, Bingo Industries Limited - CFO [116]

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Yes, they're both going to be attractive. Obviously, the gate rate and the levy come into play. So from a -- if you're looking at it purely from an economic perspective, an environment with a higher gate rate would mean that the project returns would be better, but both locations are moving towards over time. By the time waste-to-energy is up and running, we'd be surprised if the levies in both environments aren't similar.

So we are looking at projects in both New South Wales and Victoria and looking at the metrics that we're seeing both stack up. So then it comes down to a preference of where do you need that vertical integration and how easy or difficult will it be with government, local communities and councils to get those approvals and in what region. So it will be a combo of all of those things that come into play when we announce which state we're going to go first in.

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Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [117]

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How close to announcing (inaudible), Chris, is it sort of embryonic or is it quite advanced?

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Chris Jeffrey, Bingo Industries Limited - CFO [118]

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No, look, our thinking has been advancing on this topic over probably an 18- to 24-month period. So we're definitely not at the start of the journey, and we have a number of projects that we're looking at either feeding into or taking the driver fleet on. So it's not miles and miles down the road.

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Operator [119]

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The last question we have on the line is from Paul Butler from Crédit Suisse.

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Paul Butler, Crédit Suisse AG, Research Division - Director [120]

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Just a couple of quick ones for me. Firstly, can you give us an idea of what the AASB 16 impact will be for full year EBITDA?

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Chris Jeffrey, Bingo Industries Limited - CFO [121]

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Yes. $4.8 million. If you go to Slide 33, there's a footnote on that that sets it out, but $4.8 million at the EBITDA level and then negative $1.5 million at a net profit before tax level.

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Paul Butler, Crédit Suisse AG, Research Division - Director [122]

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Okay. And then just the other one, what did you see happen with Post-Collections volumes between the first quarter and the second quarter? I'm just wondering if -- because when the Queensland levy came in, I mean, as you've said before, you stopped sending any material up to the New Chum facility in Queensland. And I'm just wondering whether, since then, some of that material has found another way to get up to Queensland.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [123]

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Sales volumes have been strong in the second quarter compared to the first quarter. All our volumes have stayed with us since 1 July. We've internalized them through our existing network, specifically, Eastern Creek.

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Operator [124]

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And I will now hand the conference back to today's presenters for closing remarks. Thank you.

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Daniel Tartak, Bingo Industries Limited - MD, CEO & Executive Director [125]

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Thank you very much for listening.

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Operator [126]

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Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.