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Edited Transcript of CWY.AX earnings conference call or presentation 18-Feb-21 10:30pm GMT

·71 min read

Half Year 2021 Cleanaway Waste Management Ltd Earnings Call Queensland Feb 19, 2021 (Thomson StreetEvents) -- Edited Transcript of Cleanaway Waste Management Ltd earnings conference call or presentation Thursday, February 18, 2021 at 10:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Brendan J. Gill Cleanaway Waste Management Limited - Executive Officer * Vikas Bansal Cleanaway Waste Management Limited - Executive Director ================================================================================ Conference Call Participants ================================================================================ * Alexander George Philip Karpos Goldman Sachs Group, Inc., Research Division - Equity Analyst * Amit Kanwatia Jefferies LLC, Research Division - Equity Analyst * Cameron McDonald Evans & Partners Pty. Ltd., Research Division - MD & Head of Research * Jakob Cakarnis Jarden Australia Pty Limited, Research Division - VP of Equity Research * James Brennan-Chong UBS Investment Bank, Research Division - Associate Director and Mining Associate Analyst * Peter Steyn Macquarie Research - Analyst * Raju Ahmed CCZ Equities Pty Limited, Research Division - Equities Analyst * Russell J. Gill JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand * Scott Ryall Rimor Equity Research Pty Ltd - Principal * Xindi Shao Morgan Stanley, Research Division - Equity Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Cleanaway FY '21 Half Year Results Presentation. (Operator Instructions) I would now like to hand the conference over to Vik Bansal, CEO and Managing Director. Please go ahead. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [2] -------------------------------------------------------------------------------- Thank you, operator, and good morning, ladies and gentlemen. With me today is our outgoing CFO and current Chief Operating Officer, Brendan Gill; our new CFO, Paul Binfield; and Head of Investor Relations -- Investor Relations, Richie Farrell, also joined us on the call. I appreciate you joining us this morning in what will be my final results presentation for Cleanaway. Before I run through the presentation, I will direct you to our ASX release for further commentary on the results. I will also refer you to the disclaimer on Slide 2 of this pack. Can I ask you now to please move to Slide 3? In terms of the agenda for today, I'll run through the people and culture update, and our group and segment performance. Brendan will cover this trajectory to underlying NPAT reconciliation, balance sheet, cash flow and debt. I will circle back to update you on recent Footprint 2025 initiative, including updates on energy from waste, plastics recycling and data and automation. I will then hand back to Brendan to finish the presentation with the priorities for the remainder of the year and the FY '21 outlook before opening for questions. So now moving to people and culture on Slide 4. Slide 4 highlights our safety and engagement performance over time. I'm pleased to report that once again, we have further improved our TRIFR, total recordable injury frequency rate. As of 31st of December 2020, TRIFR was 4.1, representing more than 60% improvement from benefits that reported to you almost 5.5 years ago. This has been achieved while our workforce has increased by a further 2,000 employees. We are always striving to improve our safety performance, and 0 harm remains our goal as all our people entitled to safe work environment. We conducted an employee engagement survey in October last year, as we do every year and reported a record level of engagement at 64%, with 86% of all employees responding to the survey. In our previous investor series presentation, we benchmark this against ANZ enterprises, and we are close to the top quartile. We recorded an engagement survey results of 42% in 2014 so we have come a long way, and I'm confident of us achieving our top quartile score in near future. We have another survey scheduled for this half as we look to implement learnings that we have taken from the feedback received. As you can see from the chart in the bottom right, we are heavily weighted towards blue-collar frontline workers. If you add in frontline office bond staff, such as customer service, admin and share dealers, et cetera, over 90% of our workforce is front-facing and sits across 250 depots across the country. Also, as I mentioned when we first released the engagement results, it was very pleasing to note that within this survey, 80% of our employees confirmed that we managed the business very well through COVID-19. Moving on to Slide 5. Diversity continues to improve as the business continues to grow. As expected, with key integration activities now completed, voluntary turnover has reduced significantly, while employment continues to grow. The tenure of employees across various levels of the organization remains steady. We have improved safety, engagement, diversity, tenure and operating cadence through Our Cleanaway Way while delivering sustained financial performance over the last 5 years. For those who are new, during this time, we have transformed the company through cost down, brand change and multiple strategic acquisitions, followed by then successful integrations. We have fixed the legacy remediation issue and ensure capital discipline while growing price infrastructure and our fleet size. I trust these 2 slides provide everybody with a factual indication of the cultural health of the company, a company which employs 6,000 people across 250 locations spread across the country. Now moving on to Slide 6. Slide 6 covers the highlights of our first half FY '21 results, our progress on the few key strategic initiatives and our outlook statement. We will discuss each of the items mentioned here in more detail in the following slides. On to Slide 7. I'm pleased to report another half year of strong growth or an improvement across all key financial metrics. Notwithstanding the continuing effects of COVID-19 on the economy, our net revenue was marginally higher than the prior corresponding period at $1.07 billion and 3.9% higher than the second half of FY '20. Underlying EBITDA was 2.9% higher at $263.8 million. Cost initiatives and operating leverage drove an improvement in EBITDA margin of 60 basis points to a record of 24.6%. Underlying EBIT was 3.9% higher. And EBIT margin improved by 50 basis points, again to a record of 12.4%. Underlying NPAT was 6.5% higher, and EPS was 2.7% higher than first half '20. Compared to first half '20, operating cash flow increased 28.8% to $202.4 million. The Board has declared an interim dividend of $0.0225, which is 12.5% up on the prior corresponding period and is fully franked at 30%. This dividend represents a payout ratio of 59.1% of the underlying net profit after tax, which is also another high watermark for the company. Turning to Slide 8. We've included the next 2 slides to illustrate the journey of the improvement that we delivered in terms of the financial performance of the business. The equivalent chart for each full financial year have been included in the appendix for reference. As you would see, we have consistently grown earnings with a significant margin expansion during this time. This has been achieved through a clear strategy and a disciplined capital allocation. Moving to Slide 9. The operational improvements we have made, along with our disciplined approach to cash management, have continued to drive and increased shareholders returns. I'm particularly pleased with the consistent growth of EPS, free cash flow and dividends during this time. We still have a significant number of observable growth opportunities. And the company, with this very good management team, are very well placed both operationally and financially to develop further opportunities. The sector thematic supports our strategy, particularly as a significant market participant with strong operational credentials. I will now cover the operational results on the following slides, so turning to Slide 10. We have included this slide again to highlight the diversity and defensive characteristics of our revenue streams. Across the 3 segments, we touched all parts of the economy, and therefore, benefit from the general economic growth, which also adds to the defensive nature of the company. Even in weaker economy, our revenues are robust as waste streams typically move from one segment to the other. As you would also see, again, commodity revenue represents a very, very small part of our overall revenue story. Moving on to Slide 11. Our Solid Waste Services segment covers the collection, recovery and disposal of solid waste. Waste streams in this segment includes putrescible, inert, household and recovered waste. All customer segments include municipals, commercial and industrial. These waste streams are processed through price infrastructure assets, such as the resource recovery and recycling facilities, waste transfer stations and landfills. Net revenue and EBITDA grew 2.1% and 2.8%, respectively, on the prior corresponding period, with EBITDA margin increasing by 20 basis points. Compared with second half '20 net revenue and EBITDA -- compared with second half '20, net revenue and EBITDA increased 5.8% and 1.6%, respectively. The segment benefited in behalf from an initial contribution from Victorian Commingled Resource Recovery business, which is the SKM business; the commencement of new contracts of City of Casey in Melbourne and South Australia Council Solutions contracts. They were obviously partially offset by the lower SME activity due to pandemic; contributions from the recently acquired strategic Grasshopper C&D collection business; and the statewide recycling and landfill business also benefited this segment. The rebuild of first Perth MRF is well advanced, with operation is expected to recommence in the fourth quarter. This facility will deliver a high-quality recycling service in the Perth market. During the period, Cleanaway won several national and large mid-market accounts. We also secured a landfill height extension at Erskine Park in Sydney that will extend the life of that asset. We also successfully tendered for a Blacktown City Council recycling processing services, a significant and strategic contract that will support the development of 115,000-tonne material resource recycling facility for Cleanaway investment in Sydney. Moving on to Industrial and Waste Services segment on Slide 12. The IWS segment provides a wide variety of services mainly to the resources and infrastructure markets. Services include drain cleaning, high-pressure cleaning, nondestructive digging and vacuum loading. As you can see, this segment had margin expansion on a shrinking revenue. Net revenue of $151.7 million was 8.4% lower than the prior period but 2.7% higher than the prior 6 months. Underlying EBITDA of $23.8 million was 3% higher, and underlying EBITDA margin increased significantly by 180 basis points. This reflected the successful execution of the strategy of exiting low-value work streams. The segment met its medium-term margin target as set out during FY '20 results roadshow. The segment has performed well by securing new business and offsetting the headwinds of a lower discretionary spending for many customers, in particular, infrastructure-related activities in Brisbane markets, service related to the aviation market, the oil and gas segment more broadly. We are looking to target more opportunities in public sector, marine and ports and iron ore mining. Recent contract wins include Southern Ports and the Australian Submarine Corporation. Now moving on to the Liquid Waste & Health Services segment on Slide 13. The Liquid Waste & Health Services segment covers 3 national strategic business units: liquids and technical services, hydrocarbons and health. Net revenues were down 2.3%, but EBITDA was up 4.4%, with EBITDA margins growing significantly 140 basis points to 21.8%. The segment met its medium-term margin target as set out by us only 7 months ago during FY '20 results roadshow. In hydrocarbons, lower collection and waste volumes in COVID-19 impacted regions, which were offset by improved pricing, service improvements and efficiency initiatives. In health, we improved the earnings. A significant increase in base from hospital and aged care facilities arising from the second wave of pandemic in Victoria offset the downturn in electric surgeries and quarantine work coming from cruise ships and airlines. In liquid technical services, we saw lower volumes in the tourist heavy states, particularly Queensland. Hospitality, cruise ships and automotive sectors were also negatively impacted. Offsetting this was extra synergy benefits resulting from the completion of Toxfree integration, which has improved the quality of our revenue and earnings. I will now pass over to Brendan. -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [3] -------------------------------------------------------------------------------- Thanks, Vik. Moving now to Slide 14. The statutory profit after tax attributable to ordinary equity holders was $78.3 million. The underlying adjustments to EBIT totaled $6.9 million and comprised $5.1 million of additional costs to process recyclables following the Perth MRF fire and $3.3 million acquisition integration costs, largely related to the Grasshopper and Stawell landfill acquisitions, partially offset by the benefit of a higher landfill remediation and rectification discount rate. During the period, we renegotiated a fixed interest rate facility, resulting in a $7.9 million reduction in interest expense over the life of the facility, which is recognized in the half. This was partially offset by a small movement in the fair value of cross-currency interest rate swaps. Our resulting underlying NPAT attributable to ordinary equity holders was $77.9 million, with underlying NPAT being lower than statutory NPAT. Turning now to the balance sheet on Slide 15. Our balance sheet remains strong, and we continue to maintain our culture of financial discipline. The PP&E and intangibles increase reflects acquisitions including the Grasshopper and Stawell businesses. We further invested in new fleet and equipment to meet the growth from new municipal and other contracts that Vic referred to previously. The decrease in other assets reflects the fair value movement in cross-currency interest rate swaps associated with the USPP notes and is offset by an equivalent change in interest-bearing liabilities. The landfill remediation provision reduction from June 2020 reflects remediation payments made and the increase in the discount rate, offset by the unwind of discounting and acquired remediation liabilities. The deferred settlement liability mainly represents annual fixed payments relating to the Melbourne Regional Landfill discounted to present value. Turning now to the cash flow on Slide 16. We continue to maintain a high level of fiscal discipline at Cleanaway, and our cash flow outcomes are consistent with this commitment. Our net cash from operating activities increased by $45.3 million compared to the prior corresponding period, reflecting $14.4 million lower remediation cash flow, as previously guided; lower tax paid; and lower underlying adjustment related cash flows. Higher cash CapEx reflects the weighting towards first half CapEx spend in FY '21, including expenditure on the replacement Perth MRF. Our free cash flow, therefore, increased $12.9 million to $117.9 million due to higher net cash from operating activities, partially offset by higher cash Capex. I'm particularly pleased that our cash conversion rate continues to be strong at 17 -- at 97.9%. This result was achieved after absorbing additional receivables from our acquisitions and the repayment of working capital support provided by governments in the June '20 half in response to the onset of COVID. Turning now to our debt on Slide 17. Our debt is well under control with a net debt to underlying EBITDA ratio of 1.57x for debt covenant testing purposes. This is well below our debt covenant limit of 3x. This is a level that provides us the flexibility we need in the future to fund the selected earnings accretive projects and acquisitions with $433 million of headroom under our facilities as at the end of December. Our gearing ratio, defined as net debt over net debt plus equity, is currently at 27.8% and is inclusive of the AASB 16 leases now shown as debt. Our average debt maturity at December 31 was 5.5 years. I will now hand you back to Vik. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [4] -------------------------------------------------------------------------------- Thank you, Brendan. On Slide 18, our disciplined approach to the allocation of capital has not diminished. The standard capital expenditure spend levels in global waste management companies is usually around 10% of net revenue. While this remains a target, we will and we should retain the flexibility to deviate slightly from this target from time to time to accelerate growth in a strong performing segment. Now moving on to Slide 19. As part of our journey, we have always focused on improving, not only the earnings, but the quality of earnings. Throughout the 5.5-year journey, we have targeted margin expansion across each segment and hence, across the enterprise. After the initial targets were met, we revised our targets to reflect not only the AASB 16 and further improvements in each segment during the FY '20 full year results. All these segments have continued to improve. In the Solid Waste Services segment, margin again improved with an increase in actual earnings by 20 basis points to 27.8%, and the target for solid remains between 29% and 29.5%. I'm very pleased to confirm that in the 2 out of 3 segments, which is Liquids & Health and IWS, we have already reached the range committed 6, 7 months ago. This is on back of the further synergies being monetized and focused on cost as COVID-19 impact persisted. So for Industrial and Waste Services, our EBITDA margin was 15.7%, and the range we said was 15.5% and 16%. For Liquid Waste & Health Services, we have reached 21.8% margin, consistently improving earnings, while the range was 21.5% and 22%. Now obviously, this is only 1/2, and the idea is obvious to make sure this becomes steady part of the business going forward. You will notice -- you will also notice in the graph a significant jump in the earnings of each segment, along with improvement in margins. This is clearly -- this clearly illustrates how operating leverage works. But of course, operating leverage can only be monetized by an operating discipline and Our Cleanaway Way, which has been a game changer in this regard, bringing in required cadence, focus and alignment in a waste management business. Now moving on to strategic initiatives and starting with Footprint 2025 on Slide 20. Most of you would have seen this slide before. Our journey of creating value by moving waste through an integrated value chain has been core to our Footprint 2025. Building price infrastructure, organically and inorganically, has been a key to creating a long-term strategic moat for the company. Execution, cadence and delivering on commitment to shareholders while remaining true to the strategic intent has resulted in a good outcomes for the company. Moving on to Slide 21. Now this is a new slide, which we wanted to give you a little bit more clarity of when we -- what else is going on in Footprint 2025. So along with our greenfield developments and acquisitions, we also continue to invest in brownfield developments. We typically refer to this as a BAU infrastructure development, mainly managed by in-house engineering and infrastructure teams. And as you can see from this slide, there is a significant activity in this space. These developments are not or may or not be individually material investments per se, but keep our infrastructure contemporary and always high investment grade. Together with our greenfield developments and acquisition on Page 20 and our BAU infrastructure development on Page 22, they combine to create the strategic moat for our business. Moving on to Slide 22. This slide covers 2 recent transactions. That, while relatively small, was strategically important to us. Grasshopper was a strategic entry into New South Wales construction and demolition market. Cleanaway is now the second largest C&D player nationally while still maintaining C&D exposure at less than 10% of the revenue. Now with Grasshopper, we have a C&D exposure across each state and each region around the country. The business has an infrastructure and commercial segment focus, multiyear contracts and a well-established and recognized brand. The Stawell landfill, which came as part of the Statewide acquisition, is a priced asset creating a competitive vertically integrated solid business in regional Western Victoria. We definitely see the competitiveness of regional landfills improving based on new regulations that will see the levy gap between regional and metro levies widen even further. Turning to Slide 23. The last 2 slides cover the physical infrastructure that we are developing to deliver the Footprint 2025 strategy. Equally important to this strategy is the technology, data and analytics that can support improved profitability through optimization of these assets, clever insights and on-time decision-making. All of this enhances our strategic moat. For those new to Cleanaway, I will direct you to an investor presentation that we made in December 2020 that addresses this in more detail. This slide is a brief summary of the key drivers and enablers and the works teams we are undertaking as part of that project. Price optimization will drive smarter pricing decisions through targeted pricing opportunities. Sales effectiveness and churn management provides revenue and margin expansion opportunities through understanding the customer life cycle. Route optimization will improve density across our network. Footprint network optimizes location of a key price infrastructure. And plant optimization drives efficiency across all our post-collection facilities. These enablers develop and embed the tools and assets to drive further margin expansion in both our collection and post-collection businesses and across all our segments. Slide 24. As you know from previous presentations, we have been doing a lot in plastics value chain extension space. A significant opportunity exists to generate value from recyclable polymers. Annually, there are almost 2 million tonnes of polymers consumed that are suitable for mechanical recycling. As domestic export bans are implemented, Australia will require 140,000 tonnes of domestic processing capacity to address the volumes that are currently being exported for reprocessing. As plastic recovery rates increase, further opportunities will emerge. The right policy in market settings are in place to ensure investment in necessary capacity can be made. We've already committed to a 45 million PET plastic pelletizing facility in Albury, which has commenced construction. Following the formation of a JV to build the PET plastic pelletizing facility, Cleanaway has entered into further JVs to target the opportunity in HDPE, LDPE and PP plastic recycling. During the half year, Victorian and several governments awarded JV of $3 million in grant funding for HPPE, LDPE pelletizing facility in Melbourne and the WA federal government awarded further $9.5 million in grant funding for PET, HDPE, PP, LDPE flaking facility in Perth. Now moving on to Slide 24 (sic) [Slide 25] for a recap and update on energy from waste development. In October 2019, we announced our plans to develop an energy from waste facility in Western Sydney and the acquisition of a site in Eastern Creek. The announcement followed a very detailed multi-tractive assessment to find the optimum site and months of confidential consultation with various stakeholders, including the Department of Planning, Industry and Environment, which is called DPIE and the EPA. The planned facility will be able to process 500,000 tonnes of residual based that cannot be recycled and turn this into power for as much as 65,000 homes. This represents less than 1/3 of 1.6 million tonnes currently sent to landfill from Western Sydney. It will enable us to internalize food residual waste from our C&I business and offer a landfill diversion solution to local council. We will invest in advanced European technology, which is proven to be safe and will be meet European emission standards, which have been most stringent in the world. We have completed the exhibition of Environmental Impact Statement, EIS for short, and expect to receive final approval sometimes during 2021. I will discuss the process from here in more detail in the next slide. In parallel, we continue engagement with the local community councils, government and other stakeholders in relation to this project. We are encouraged by the overwhelmingly positive reactions to date but are conscious of the need to continue to build a very strong social license to operate. Now moving to Slide 26. As I mentioned, the EIS exhibition phase is complete, we are currently in the response to submission stage where we respond to all submissions publicly. The DPIE department, called DPIE, will then assess and either request further information or will make the recommendations on the project. With today being more than 50 submissions objecting to the proposal, the Independent Planning Commission will then be requested by DPIE to review the recommendation and make a determination on the project. Determination by IPC at this point is expected towards the end of calendar 2021. To assist with responding to these submissions, we continue to engage with all key stakeholders on this project, including DPIE, EPA, New South Wales Health, et cetera. I will now hand back to Brendan to take you through our priorities, outlook and guidance for FY '21. -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [5] -------------------------------------------------------------------------------- Thanks, Vik. I'd firstly like to state there is no change to our strategy. Delivering improved sustainability, together with profitable organic growth remain our key priorities across all 3 segments of the business. We remain focused on improving our quality of earnings through near-term operational initiatives and longer-term initiatives driven by the data analytics and automation project. Consistent with our mission of making a sustainable future possible, we will continue to progress our plastic pelletizing and energy from waste project developments. In addition, we'll continue to evaluate accretive bolt-on acquisitions and position Cleanaway for emerging opportunities as the industry continues to consolidate. We note the continued uncertainty in the trading environment, more so in some regions and industries than others. Despite this, and as stated at the AGM, Cleanaway remains confident that the full year FY '21 underlying EBITDA will be moderately higher than FY '20. Before opening up for questions, I'd like to take this opportunity to thank Vic for the huge contribution he's made in turning around Cleanaway and making it the company we have today. This has been achieved through his leadership, drive and tremendous work ethic. We now have a company with a rock-solid foundation from which we can continue to grow to benefit of all stakeholders, while delivering on our mission to make a sustainable future possible. I thank you, Vik, for your significant contribution to our company to ensure it is well positioned to grow and prosper in the future. Now I'd like to open the lines for any questions. Travis, could you please open the lines? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first phone question comes from Alex Karpos from Goldman Sachs. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [3] -------------------------------------------------------------------------------- Yes. Good morning, Alex. We can hear you. No worries. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [4] -------------------------------------------------------------------------------- Perfect. Well, first of all, Vik, just want to say thank you again for everything, I echo Brendan's comments, and best of luck from here on out. Turning to the questions. First of all, on the SME side, you called that out as a bit of a driver, a bit of a drag on the solids business in the half. How is the trajectory over the half? And what was the run rate exiting the period looking like? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [5] -------------------------------------------------------------------------------- Yes. So as you expected, Alex, SMEs are the most impacted by COVID. As I said before, during the full year results roadshow, we are finding South Australia and WA generally back to normal, apart from when they go into temporary lockdowns as WA recently went. We are definitely finding SMEs slower in the East Coast, and obviously, Victoria being the most affected in the first half during the lockdown. What we are definitely finding interesting is that when the lockdown gets lifted, we do find they tend to come back quicker. If you remember, when we did the full year results, when the first lockdown happen in the last quarter of last year, we were not 100% sure how quickly they're coming back. What we are now finding is when the lockdown lifts, they do not normally come back to full form quickly, but there's definitely a spike of coming back to normal. So we do find phone calls coming back to us quickly to open the business up. So we are finding that definitely for sure. But if you remember, if you compare half-on-half, second half of last year versus first half of this year, in the second half last year, COVID was in the 1 full quarter. In the first half of this year, COVID was practically across the full half. I mean Victoria was practically shut down for 4 out of 6 months. So definitely, the trend -- when they come back, they come back fast. But on a half-on-half basis, I still see SME is still a challenge for us. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [6] -------------------------------------------------------------------------------- That's very clear. And on liquids, your margin performance in the half was very strong at the top end of that guidance range. Is there anything one-off to call out there? Or is there anything to keep us from thinking that it can't stay at the higher end of that range for longer? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [7] -------------------------------------------------------------------------------- Well, I think one of the things, Alex, we'll have to remember, this is 1/2. So one of the challenges Brendan and the team would have is to make sure they stay that way, of course, and we normally try to call it after a couple of house once we have done. So that's number one. Number two, this is the business which most benefited from Toxfree synergies. And if you have done the integration well, then generally, some synergies flow through in half beyond when the integration get completed. So there was an element of that. This business, the leaders know very well that when the market is down -- in fact, all leaders in Cleanaway now, when market is down, they know pretty well quickly to pull the cost lever, and that's what they did. And this is a portfolio of liquids and technical was impacted by COVID quarter. Health was plus and minus, plus in a sense, aged care and all that stuff was helping us, but electric surgeries went down. And hydrocarbons was the old thing. So they've done a very good job, frankly. In fact, all 3 segment leaders have done a very good job on making sure they manage cost as the revenue falls, the revenue ups and down. So that's what you're going to see. And frankly, that is what waste management should be. I mean that's what operating leverage is. We've talked many times before, you manage that cost right with moving revenue, you should get margin expansion. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- The next question comes from Russell Gill from JPMorgan. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [9] -------------------------------------------------------------------------------- Just a follow-on, I think you tried to dodge some of the question at the very first one, Vik, so I'm going to try and hold you to it. Just in terms of the run rate as you've exited the first half on volumes. We can see through the landfill levy that, obviously, there's less going into Victorian landfill. But presumably, that was very much first half -- first quarter related. Can you give us a feel of just what you're seeing, firstly, on volumes as you exit sort of December, January on the PCP across the entire solids business? And secondly, presumably, what does that mean for competition? Is there a risk that when volumes are down that you see some price into the market as people claim the volume? What have you seen from the pricing and competition in the market over that time period as well? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [10] -------------------------------------------------------------------------------- Right, right. I mean there is no doubt. I mean it's extremely difficult to compare volume just half and half overall simply because every state is at a different point of pandemic journey, as you know, right? So what is definitely down, what is definitely down, is, let's say, TBD, commercial and industrial. I mean you all work in TBD, you know that volume is down. Airlines, tourism, that's down. On the flip side, as you know, muni volumes are up, both in pickup as well as the post collections. So that's happening. And the C&I volume in the suburb is okay. I generally cannot give you volume is down a lot. I mean it's state-by-state trend. Victoria was down, of course, as you can imagine, simply because of the COVID. South Australia and WA was up. New South Wales was down, and Queensland was flat. I think that's the best way I can put through this solid one. And what was the second question you asked, was around the? -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [11] -------------------------------------------------------------------------------- I mean you highlighted that volume is obviously down in, I guess, the shorter-dated contracts. So muni volumes are up, which are pretty protected because they're generally longer dated. What are you seeing, I guess, from competition around because of those short-dated contracts? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [12] -------------------------------------------------------------------------------- Yes. So I must say -- I mean we have reached -- the other thing I want to mention is share borrower, which the -- so one of the things we mentioned in our company is the amount of footprint we pick up are with forms , so which is the number of sites we pick up. The number of sites we are picking up today is about 4% up on last year. So while the volume may be down or so, the number of sites we are picking up is more. So that tells me, that's an indication that we are winning market share. Now the true impact of that will be shown when the actual volume returns is fully back to normal. So there are 2 elements here: volume and the sites we're picking up. So that's a pretty good sign for us at this point. Our sales team is winning a fair amount of good contracts, national and mid-market. So -- and I'm not seeing what I call irrational pricing behavior at this point, either at a post collection element or a collection element. So that's not a big issue for us right now at this point, but our number of sites pickup is definitely up. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [13] -------------------------------------------------------------------------------- Great. And then just if we look at the medium-term margins in the SWS segment, do you think that the business can be achieved those -- that target medium-term target, just purely through volume recovery and operating leverage? Or is there a requirement to really build out your Footprint 2025, so energy from waste, Queensland landfill. What do you need to get to that margin? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [14] -------------------------------------------------------------------------------- Well, I think there's a couple of things. One, I do think we would have a better handle as a company once the market goes back to normal. If the site are picking up and the volume comes back to normal, that should flow in some level of operating leverage, right? So we are seeing about 140, 120 basis points to be medium-term target. I think if I can be bold enough, and Brendan jump in after I finish, I think half of this would possibly can come through post COVID time. The volumes are back because of the extra sites we picked up. The other half will obviously be continuation of Footprint 2025. I mean as you build HDPE plant, glass beneficiation plants, which are already in the bank, they all help us to retain the margin in the business. So that will carry on as normal. So it's absolutely achievable. Obviously, part to volume, part to infrastructure. Brendan, anything you want to add? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [15] -------------------------------------------------------------------------------- Nothing really, Vic. You're on the money there, too. I agree, Russell, that once we come back to normal, we get the CBDs, the cruise ships, the airlines, the tourism. If we start getting that, that will deliver an element of leverage there. That won't get us all the way, so we can't just rely on that. But it's that continuous improvement that we've talked about across all elements of that solids business, including the materials reprocessing and the like. So they're all there as part of the mix to get us to those margins in future. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [16] -------------------------------------------------------------------------------- Great. And final 2 questions. Just on remediation, the cash outflow in the first half was lower than expectations. Is that just a timing of the cash flow profile? Or there's no remediation slide this year, is the longer-term total cash paid being adjusted? Or is it just a timing and cash profile? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [17] -------------------------------------------------------------------------------- No, very good question. That was just a timing and cash profile, particularly, as you know, the major remediation efforts are in Melbourne. So COVID just hampered a little bit of that, but there's no change to our spend profile at all, Russell. -------------------------------------------------------------------------------- Russell J. Gill, JPMorgan Chase & Co, Research Division - Head of Emerging Companies for Australia and New Zealand [18] -------------------------------------------------------------------------------- Great. And then final question. I see in the accounts, the acquisitions what they contributed to your earnings this half. Just on the Grasshopper business, I mean based on the run rate impact from that business, it looked like you paid a pretty hefty multiple and almost half purchase price almost in goodwill. Can you possibly just talk through the synergies of that acquisition in New South Wales? Is there benefits that will come through ResourceCo or something? Just talk through, I mean, the reasoning behind that acquisition did. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [19] -------------------------------------------------------------------------------- Yes, sure. So you mentioned -- so a couple of things here. So one, we needed to make sure that we have a C&D exposure across each state. New South Wales is the only one which we didn't have. And trying to find a right company to acquire in that space of that size is always a challenge. So once we found it, it makes a lot of sense. That's number one. Grasshopper also is one of the large customers of ResourceCo, Russell, as you mentioned. So there's an internalizing benefit coming from there. And the third thing, we do believe that there's a synergies and the management team managed by the same thing. We also have an extension of Erskine Park landfill, as I mentioned in that. So there's an internalizing benefit there as well. Plus we also believe that there's an opportunity for Cleanaway to take C&I, C&D selectively to certain set of customer segments, which in New South Wales, we were not able to because we didn't have that footprint. So there was a reason for all of that stuff. It's a good business, safe business, focus mainly on infrastructure space rather than the residential space, and that's what we like and then kind of work. Brendan? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [20] -------------------------------------------------------------------------------- Yes. Let me just add to that, Russell. I mean you're looking at 3 months, there's a period of ownership there also during a COVID period as well. So I think you need to understand that the longer term, we're very, very happy with that business, and we look forward to our continued successes. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- The next question comes from Peter Steyn from Macquarie. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [22] -------------------------------------------------------------------------------- I'll echo Brendan's comments, Vik, all the very best, and thank you for your assessments over the years. I just wanted to ask you a question on the outlook commentary in particular. Obviously, the second half of last year was a period that started getting some of the COVID impacts. Have you thought about COVID impact in the second half as the, let's call it, contingency in your thinking from a budgeting point of view in terms of what guardrails are around your outlook commentary? Could you just give us a bit of a sense of that and how we should think about it? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [23] -------------------------------------------------------------------------------- Yes. So let me just go through a bit of boarding process for you, and then I'll come to that. So what very effectively our finance team underpinned very effectively, like most companies, we have budgeting process, and then we do have forecast, half 1 forecast and half 2 forecast. So going into second half, and that's always done bottom up. So we get a sense of that, and we probably have a pretty good handle on what that looks like, of course, not going to . The challenge in this market is all about -- it's an unpredictability and ambiguity of COVID. We feel confident enough as I said to -- in Russell's question, Peter, is because of the site growth we are having and the contracts we have, we feel pretty confident that barring an element which is outside our control, we are in good shape. But we still live in a world we absolutely have no control. I mean COVID was about a month ago, but we were still talking about lockdown in Victoria. So those things remain absolutely (inaudible) But from a volume, from a growth perspective, we are on a very, very good trajectory. I'm very confident of that. And in that, in the hallway of being in ambiguous world we live in, it didn't just make any sense to give a firm guidance, but we feel confident where the business stands, right? So that's where we are. Brendan, I don't know whether you want to add something to that. -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [24] -------------------------------------------------------------------------------- That's exactly that. There's still a lot of uncertainty out there. Cruise ship business is not back, CBD is not back. There's still a lot of businesses not quite back there yet and tourism as well. So I don't think we could be any clear at this stage. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [25] -------------------------------------------------------------------------------- Sure. No, clearly appreciate that. I guess what I was wondering is whether you'd built in some sort of margin for days of trading that are affected by a lockdown as we've just seen the last 5 days in Victoria. Have you factored in some of that in your thinking? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [26] -------------------------------------------------------------------------------- I think if we factored that in the statement we have made, obviously, in the forecast, we have factored that as well. But I mean, I think -- but that's what our business do is we got to be nimble enough because I don't know what you can factor, frankly. So all you can do is number of working days. Municipal contracts, they carry on. So you take a C&I risk in that, the C&I, plus/minus, you have sensitivity around that. And then you also have a sense (inaudible) on cost or any other initiatives you will take. So we've done all that stuff, and as we have landed on here, we have landed earning. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [27] -------------------------------------------------------------------------------- Sure. No worries. Vik, just on Western Sydney and Energy from Waste just quickly, you've expressed a reasonably significant degree of confidence that you'll get approval. Could you give us a little bit more detail in terms of some of the early engagements to the submissions you've had with, particularly the councils that have raised queries and questions around it? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [28] -------------------------------------------------------------------------------- Yes, sure, sure. So most of you have been working on this for almost 18 months. Before even it came out on the surface that we were working on it in a public domain, there's a massive effort has gone in what we call social license to operate, Pete. We have worked with councils we have shown. We met with the local councilors. We've done 40,000 letted rocks.] We have done shopping malls, stands to explain to people what it is. Because what we have found globally as well as every bit of (inaudible) on this issue, once people have done polling groups, et cetera, once people know what it is, it's actually fear of an unknown. Once people understand what they see and what's the emissions quality nowadays, what's the technology, people generally cross Rubicon, I understand why this project (inaudible) and how good that is. So more education, we do better with this. Having said that, when you put a statement out and you put an engineering design out, it's a very complex project. So every council would then have a -- even a simple (inaudible) like I don't understand why you would add the strategy from north versus south of the land. Now that technically is an objection, and we have to (inaudible). So I'm not necessarily worried about the numbers of objections. I mean that was expected, frankly. And frankly, most of the objections take us into the Head of Independent Planning Commission, which is good for us. But they are objectives of technical nature. The emotive nature is not coming from councils, and we are dealing that with social license to operate. But they are very technical, they are good engineering objections, and most of them are -- help me explain more what does this mean, help me explain more, can you confirm that your emissions are going to be this, can you confirm you're not going to go burn this. That kind of stuff, which is part and parcel of any engineering project, Pete. So I feel okay with that. -------------------------------------------------------------------------------- Peter Steyn, Macquarie Research - Analyst [29] -------------------------------------------------------------------------------- Perfect. That makes sense. And then last very quick question on CapEx. You've, for some times, spoken about 10% of revenue as a guide. That's cash CapEx leases on top of that. And you've guided to an increase in leases in the second half probably almost the doubling. How do you think about lease on top of your, let's call it, cash CapEx on a go-forward basis? Sort of one gets a sense that you're probably going to have more cash CapEx and perhaps less leasing provided you don't win a whole bunch of new work that is government-backed. Is that how one needs to think about it? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [30] -------------------------------------------------------------------------------- Yes. That's -- I mean Brendan will jump in immediately after. I just want to make sure we had -- we are sticking to a 10% target. That is not changing. That's what good companies do, but we do see (inaudible) project. There are a lot of good contracts coming through. There are a lot of good contracts coming through, and we want to make sure we win them. And I think it is important that we leave that flexibility. And we've always said to you guys with that a target, and we have consistently maintained those. But from half to half, that might go up simply because we've won a contract, we want to get trucks on. And look at Blacktown MRF for argument's sake, 115,000-tonne MRF facility. We won a Blacktown contract. Strategically, very important because it feeds into waste to energy. Things like that, there are good assets give us good returns, and I think having that flexibility just gives everybody a benefit for growth. So Brendan, do you agree with that? Maybe you want to add to that? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [31] -------------------------------------------------------------------------------- So look, absolutely, Vic. You're right, Pete, yes, we've got some lease expenditure coming up. We match the cash outflows on the lease with cash inflows, 8- to 10-year contracts with the life of trucks, 8 to 10 years for the muni. So it all works very well. We've been quite successful in winning a lot of municipal contracts of competitors. And that's the strength of our Cleanaview product, our Cleanaway standards, our safety performance and our experience in running muni. So we've got a very good offering to the muni, and you can see it through the numbers of additional leases. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- The next question comes from Cameron McDonald from E&P. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [33] -------------------------------------------------------------------------------- Can I just go into, Vic, your comments around Grasshopper a little bit more with the synergies that you've identified there with ResourceCo and Erskine Park in particular. ResourceCo is a JV, so those synergies are going to be shared with that JV. So you don't capture all of them. And the Erskine Park license upgrade is 450,000 to 500,000 tonnes, which will be absorbed over 2- to 4-year period. So that doesn't really give you a lot of additional capacity. And from what I understood, the Erskine Park landfill upgrade was really targeting soils and asbestos. So what sort of activities do you think Grasshopper is actually going to do? And just exactly how much synergy you expect out of that in the New South Wales? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [34] -------------------------------------------------------------------------------- Yes. Thank you, Cam. So first of all, you're right on ResourceCo, and you're right on Erskine Park, so all of that data is correct. I think there are a couple of things, right? But we -- there's a resource recovery opportunity there before it fits into Erskine Park. So that volume expands -- if done properly, there's a volume expansion opportunities. I also mentioned, if you remember, I'd say that Grasshopper focus is a lot more on infrastructure than C&D. So you would expect there will be solid-related opportunities out of that, which fits into Erskine Park. So those opportunities are there. And depending on what kind of soil comes out, there's a further synergies with soils could be treated at a liquids facility in Marys and then to Erskine Park. So there's a multiple part of value creation from Grasshopper. So it wasn't just about synergies, mate, but it's also about making sure that we have a C&D footprint and presence across the nation, but synergies across ResourceCo, liquids, technical services. If they pick up a (inaudible) job because of contaminated soil, well, that can't go into Erskine Park, you're probably going to liquids and technical until it get fixed up before we go into Erskine Park. So there's multiple parts. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [35] -------------------------------------------------------------------------------- So does that mean that you'll have to also invest in further resource recovery equipment investment to deal with that waste before it goes into ResourceCo? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [36] -------------------------------------------------------------------------------- No, not at all. It's going to ResourceCo right now. So it is actually going to ResourceCo. But as they grow more, it's going to ResourceCo. But now there's no more resource recovery squad. What I was saying, if they started going with C&D, or B&D, if that's put it that way, there's an opportunity to do resource recovery before it goes into Erskine Park landfill. We are not saying we need to do that right now because their focus is infrastructure. I see a better part of Grasshopper to bring in soils from infrastructure projects into liquid sites, remove the contamination and then going into Erskine Park. I think that's a more optimum part. Brendan, you want to add? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [37] -------------------------------------------------------------------------------- Yes. I think one other thing, too, Cameron, is that we have C&D capability in every state, except New South Wales prior to Grasshopper. We have a huge customer base that wants some level of C&D support from us. So we bring those customers to that business, which is certainly another synergy we'll have. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [38] -------------------------------------------------------------------------------- Okay. Great. And then just looking at the solids business. The revenue was sort of up 1%, but the landfill levies collected were down nearly 16%. Can you just delve into that a little bit as to what's happened there and how you've offset those? Because clearly, volumes are down somewhere. So how have you offset that revenue decline through volume? Or is that -- and is that a big chunk of that, the diversion from New Chum? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [39] -------------------------------------------------------------------------------- Good question there. And you pointed out earlier in your questions around Erskine Park. So period-on-period comparisons with Erskine Park, the bulk of the landfill levy payments that declined are from Erskine Park. The land to levy in Sydney is the highest in Australia. So you've got the highest landfill times the largest drop in volumes. So predominantly, most of it, it was mostly from Erskine Park. And then we had MRL in Melbourne, once again, less volumes through COVID in that. So -- and then I think in Queensland, not so much, a little bit there from further resource recovery, but we've got a strong resource recovery capability now in Queensland. Melbourne is coming back from COVID. And you'll see, as you said, we've got the height -- growth project there for Erskine Park going forward. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [40] -------------------------------------------------------------------------------- So just having said that, though, I mean, so that -- the landfill levies give you a pretty good indication of what volumes have done. But your revenue is up. So -- because you're clearly not doing that volume at a 0 margin over the landfill levy. So where have you made up the difference? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [41] -------------------------------------------------------------------------------- Well, we're definitely doing a lot more resource recovery on smaller fields now before it goes into landfill. So there's a investment had gone into resource recovery in booking facility in Melbourne. There's a significant resource recovery facility gone in at the New Chum in Billabong. So you will be seeing impact of that (inaudible) as well into those, which helps improve the quality of the earnings and the margin improvement. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [42] -------------------------------------------------------------------------------- Okay. So do you have a sense of what your percentage of resource recovery actually is? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [43] -------------------------------------------------------------------------------- No, we don't put that out there, mate. Sorry. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [44] -------------------------------------------------------------------------------- Okay. And final question, just your comment about we're not seeing irrational pricing in municipal waste contracts. What are you actually seeing in terms of those pricing or the pricing behavior? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [45] -------------------------------------------------------------------------------- Sorry, mate, what I was saying, we are not seeing irrational. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [46] -------------------------------------------------------------------------------- Yes. No, no, that's -- sorry, that's what I meant. Yes. You're not seeing irrational pricing at this stage. But so what are you seeing in terms of those pricing trends? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [47] -------------------------------------------------------------------------------- So in municipalities, always, there are not many players in municipalities. In waste segment, in different segments, there are different players. But in case, especially in municipalities, you are quoting a project which could -- and it's anything from 10 to 15 years. You are committing to buying, depending on the size of the contract, anything from 10 to 40 trucks. You are now committing a certain level of service, and you need to demonstrate your balance sheet, and you need to demonstrate a significant expertise and experience in municipalities. What that does is there are only 2 or 3 players who commit to that kind of a commitment. And they are big companies, and they are all good faith at Cleanaway's municipal history. So there, we all know, as Cleanaway would know, that bringing in or picking up a municipal contract through an irrational price behavior, it does nothing but bring (inaudible) for 10.5 years or 15 years. So that's why I've always seen in municipalities, municipal contracts because players who are big, rational, understand the cost structure, understand the risk, we generally find it to be a rational behavior. Now also, municipalities, when they give you a 4-year contract, price is only 1 of the 4 or 5 components. The others are your balance sheet, your discipline, your experience dealing with different municipalities. All of that comes -- and your logistics and transport solutions, they are becoming big now. Our Cleanaway Way, which is our technical fleet management system, that's a big driver portals. All that comes into the picture. So you don't necessarily have to be the features in the market in a muni contract. Having said that, many players generally are right because of the commitments they made. C&I. SME C&I space is a different space. It's fragmented and always going to be like that. So that's how it works. -------------------------------------------------------------------------------- Cameron McDonald, Evans & Partners Pty. Ltd., Research Division - MD & Head of Research [48] -------------------------------------------------------------------------------- So just -- sorry, just following on from that. We perhaps might want to take this offline when we chat later. But if I look at the announcements made in Victoria, particularly around Wyndham, which is a very big -- pretty big contract, which you won, the tender price range was 30% difference. And Wyndham has actually come out and said that they're going to get a 3.6% decline in price per household. So like they're pretty big numbers. So how is that 30% variance on the contract offer is a pretty big variance? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [49] -------------------------------------------------------------------------------- Well, it depends on -- I mean I won't go into initial contract, and we're better off taking it offline as a team. But just to give you an example. Wyndham was the contract, which was run by municipalities, right? That's number one. Number two, with time, which passes over time, 10, 15 years, the tenements' locations change. So you could have a bunch of housing on floor and then you have the whole street of 5 units. Now that becomes rather than -- you might be collecting a combined front lift truck. So there is no comparing what was happening before and what was happening after. And especially if the municipal contract was run by council themselves, and I'm not sure whether they've been involved, but if I recall it was, then, of course, it's going to be cheaper. I mean that's just a fact of life. Now if it was run by other players and the pricing was given 10 years ago in a particular tenement. And remember, even in muni contracts, prices keep going up every year, there's a price escalation every year. So I can't tell you what the price escalation mechanism was 10 years ago, whoever was doing that. We know when we win, we know our expectations, exactly what our expectations are. And I can assure you, no contract has gone below those expectations. We would not sign those contracts. -------------------------------------------------------------------------------- Operator [50] -------------------------------------------------------------------------------- The next question comes from Jakob Cakarnis from Jordan Australia. -------------------------------------------------------------------------------- Jakob Cakarnis, Jarden Australia Pty Limited, Research Division - VP of Equity Research [51] -------------------------------------------------------------------------------- I'll keep it quite brief. And can you just please speak to some of the competition that you're seeing in the health segment and maybe delineate that between collections and post collections, please? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [52] -------------------------------------------------------------------------------- Sure. So as you know, the collection side -- we believe we are a market leader on both sides. So on the collection side, obviously, we are competing with a couple of players to whom we also supply our Sharpsmart system or the system which we -- bought by ASP, a generic system. So even when the competitors are doing some collection, we have an opportunity to grow our business. On the post-collection side, obviously, as you know, we've got the autoclaves and incinerators spread across the country, and that gives us a significant amount of benefit. And we continue to develop them further. Now there are private owners who have incinerators in Brisbane and Melbourne, and there's one company who has an autoclave in Newcastle. Only one big company have a priced health assets in Sydney, and I think one has a shrinking asset in South Australia, and we collectively (inaudible) has 6 of its own. So we do believe we have a very good competitive advantage on both sides. With ASP coming in into our portfolio, we are manufacturing those Sharpsmart businesses locally in Australia. So we are not at the mercy of import channels, especially in the pandemic world. So that has given us a lot of good story. And the other thing is, once the plastic pelletizer plants are complete, just think about the selling pitch from our side to a hospital. We collect container deposit scheme, plastics. We process them through a plastic pelletizing plant. That flake and pellet then makes HDPE or whatever it is, then goes and make them as Sharpsmart, which goes into hospitals. So there's a circular economy story on the collection side. And obviously, to have good assets, well-run assets from a post-collection. So that's where we stand today on a leadership position on both ends. -------------------------------------------------------------------------------- Jakob Cakarnis, Jarden Australia Pty Limited, Research Division - VP of Equity Research [53] -------------------------------------------------------------------------------- So is it right to think even if the collections intensity of competition increases that you benefit on the post-collection side of things just based on the infrastructure that you just laid out there from competitors? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [54] -------------------------------------------------------------------------------- That would be the case. If nobody else builds any more post-collection assets, which are extremely hard to come, considering the complexity and the licenses available in there. If there's a more intensity of collection doesn't -- I mean, we'll still have a benefit on the post-collection side, which is actually the core of our Footprint 2025 strategy. But price asset at the back end, and it becomes (inaudible) to the fragmentation -- fragmenting nature of the collections. -------------------------------------------------------------------------------- Jakob Cakarnis, Jarden Australia Pty Limited, Research Division - VP of Equity Research [55] -------------------------------------------------------------------------------- Okay. Just a quick one for Brendan. The other cost line other than the waste disposal costs seemed as though the biggest mover in cost in the half. Can you just elaborate what happened in that and the sustainability of that moving into the second half of '21, please? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [56] -------------------------------------------------------------------------------- Sorry, Jake, you're looking at the consolidated income statement are you in the collection response to waste disposal? -------------------------------------------------------------------------------- Jakob Cakarnis, Jarden Australia Pty Limited, Research Division - VP of Equity Research [57] -------------------------------------------------------------------------------- So obviously, that's going to be related to volumes. But I was wondering if you could just add some more context of what's happening to the other cost line and just the sustainability of that into the second half, please? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [58] -------------------------------------------------------------------------------- Yes. So one of the big things that I think it was pointed out in one of our callers earlier about the levy payments reducing. At the end of day, levy payments are our cost in our statutory P&L. What we do in our presentations is show you net revenue, but the levies are actually a cost. So they've reduced in that line there together with the rebates to -- on commodity as well. So they are the 2 big line item movements. -------------------------------------------------------------------------------- Jakob Cakarnis, Jarden Australia Pty Limited, Research Division - VP of Equity Research [59] -------------------------------------------------------------------------------- Sorry, Brendan, I think I may have been confused. Can you just clarify what's moving into other cost line? I think the volumes explain what's moving in that waste disposure cost line. Can you just explain what's moved on to other costs? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [60] -------------------------------------------------------------------------------- The other expenses and the rebates. -------------------------------------------------------------------------------- Operator [61] -------------------------------------------------------------------------------- The next question comes from Raju Ahmed from CCZ Equities. -------------------------------------------------------------------------------- Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [62] -------------------------------------------------------------------------------- Just a couple of questions. First one, if we could just revisit your outlook commentary. So based on the few analyst questions before, from the view that your outlook commentary is cautious, and that's it. Fair enough. So on that assumption, Vik, Brendan, are you able to give us a sense of at what point in the next 1, 2, 3 months do you say that we're in the home stretch in terms of meeting our moderate growth expectations? Are you looking for specific catalysts to emerge or -- or any changes in the mechanics of the company? Can you just give us some color in that respect? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [63] -------------------------------------------------------------------------------- Yes. So I mean, it's stay for , Raju. I mean we are sitting at now mid of February. There are about 21 working days in each month. So if you think about that, you're looking at 84 to 90 working days between now and 30th of June. Every month, our team will have their numbers come through from bottom up. So we'll get a -- start getting a pretty good sense around March, April. I think that will be a good sense, I guess. And then -- but because of the system we have in the organization, there is an opportunity to take action early around April, May, if we feel there's a concern, but I don't see that. But Brendan, anything to add to Raju's point? I think we've worked pretty well on that one. You're on mute. You're on mute. -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [64] -------------------------------------------------------------------------------- Sorry, it had to happen sooner or later during the call. Look, nothing to add, Vik. Thank you. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [65] -------------------------------------------------------------------------------- Raju? -------------------------------------------------------------------------------- Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [66] -------------------------------------------------------------------------------- Yes. The next question is just going back to your earlier slides, you mentioned the commodities revenue is about 4% of net revenue, I think, gross revenue right now. And you do separately highlight it. Looking ahead in this financial year with some commodity prices starting to increase like the corrugated cardboards and so on, do you see the prospects of the earnings feed from that commodity revenue to increase in this second half? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [67] -------------------------------------------------------------------------------- Well, I mean we would have taken that into forecast anyway, Raju, the boys and girls would have done that. So that's -- it's difficult to predict commodity pricing in such a volatile world at this point. I do want to remind you, though, mate, is that when we presented commodity details about a year ago when there was a lot of discussions around that, I -- if you remember, I said, it's actually not the revenue, it's about how you manage the rebates post that. One of the challenge in commodity was that we are paying substantial amount of rebates back to the customers. If you remember, we then committed that we will stop that. We don't pay rebates to small SMEs or mid markets, and we only pay to national accounts. So basically, what we did was we fundamentally derisked ourselves from commodity price going up and down because what used to happen was prices would go up or down, but we'll lock into rebate mechanism, and that would affect us. Now we don't do that. If it goes down, then our rebate to national accounts goes down significantly, same with it. So we have derisked that. But on the flip side, we don't get the upside. When it goes up, rebates for national accounts goes up. So that was necessary because we knew there will be volatility for next, at least 2- to 3-year of decision. -------------------------------------------------------------------------------- Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [68] -------------------------------------------------------------------------------- Okay. That's helpful. The last one is more around the management transition. Obviously, you're leaving the MD's role. I suppose in the context of the Footprint 2025 strategy where acquisitions, it appears will play a big part going forward with the transition and key executives in the months ahead. Are you looking to slow down on the acquisitions front? Do you allow the next MD to have a greater responsibility on that front? Or is it a case of just keeping keep going as it is? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [69] -------------------------------------------------------------------------------- Okay. I'll make a comment, and then I'll hand over to Brendan. I think, as Brendan said, there's no change to strategy. I also would make a point, which I was going to make it at the end, and I'll remake it at the end, Cleanaway has a very good management team. I mean the result shows that. The earnings by segment shows that. And it is just not the direct reports to CEO and MD, Raju, it's the next level, which is very good, which we call our executive leadership team, which is a top 46 people. They are class, class operators, absolutely class operators. So I don't think anything stopping. They're fired up. They want to keep -- they've seen the success of what company can do over the last 5.5 years. And I'm absolutely certain they'll carry on to that. Brendan, do you want to add to that Raju's concern, if any? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [70] -------------------------------------------------------------------------------- Yes. Look, I will, and that. Raju, I think, yes, Vik's put a lot of process in place. Our Cleanaway Way, which supports the way we do things. We're all very focused, very committed. Our leadership team, as Vik said, the top 46 committed. Our EXCOM have been around for years, many years. In fact, Vik and the 2 leaders running the Liquid Waste & Health and also Solid Waste. And the Board is absolutely committed to our strategy. So it doesn't change, and we will progress. -------------------------------------------------------------------------------- Operator [71] -------------------------------------------------------------------------------- Our last question comes from Amit Kanwatia from Jefferies. -------------------------------------------------------------------------------- Amit Kanwatia, Jefferies LLC, Research Division - Equity Analyst [72] -------------------------------------------------------------------------------- So I just wanted to pick some of the outlook comments that you have mentioned. So essentially, you've kept the outlook same, which is moderate growth in the EBITDA. Based on the other comments you mentioned at the AGM, it looks like your second quarter EBITDA growth was higher than the first quarter as well as if I think about second half '21 versus an easy PCP on the second half '20, given the EBITDA decline. So is it fair to think that the second half '21 EBITDA growth would be ahead of the first half '21? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [73] -------------------------------------------------------------------------------- Yes. Simple as that. Absolutely, yes. That's a fair assumption. -------------------------------------------------------------------------------- Amit Kanwatia, Jefferies LLC, Research Division - Equity Analyst [74] -------------------------------------------------------------------------------- And I mean, the first half '21 grew by 2.9%. So how would you say -- would you say this is a moderate? Or what kind of -- what's the moderate for you guys? Is it mid single? Or am I stretching too much into this? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [75] -------------------------------------------------------------------------------- Yes, I think you're expecting a little bit, mate. I think last year, we did $515.6 million, right? $515.7 million, Richard just tells me. And the consensus is sitting at $532 million, $533 million. That's about 3% above where we finished last year, right? And so even all of you guys believe it's more directly, modest growth anyway. So I'll leave it at that. I think the second half will be stronger, just mathematically, it will be stronger. We do not expect the level of lockdown we faced in the first half as peak. But again, the problem is we had a lot of discussion within the business. We can give and -- we -- there's a really split camp within whether we give an earnings guidance or not, and it is purely boils down to the ambiguity around the environment, which we face ourselves. Simple as that. So we are confident we're going to grow. But obviously, as you can see, we're not the only one. Most enterprises are saying we're in an ambiguous environment. So taking it that way. And if the COVID-19 doesn't hit second half, then you'd expect your assumptions are right. -------------------------------------------------------------------------------- Amit Kanwatia, Jefferies LLC, Research Division - Equity Analyst [76] -------------------------------------------------------------------------------- Great. Just a couple more. Just on the Industrial and Waste business, now obviously, net revenues, they seem to be declining as you are exiting low-margin work. But then your margins are already at the targeted levels. So is it fair to think that there won't be any ongoing decline? Or you have exited all of those low-margin work from your business? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [77] -------------------------------------------------------------------------------- Are you -- which segment are you talking about, IWS or generally? -------------------------------------------------------------------------------- Amit Kanwatia, Jefferies LLC, Research Division - Equity Analyst [78] -------------------------------------------------------------------------------- IWS. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [79] -------------------------------------------------------------------------------- No. Yes. So we mentioned about -- when we acquired Toxfree, this business used to do, I think, 6% EBITDA, if I remember, combining. And we said at that particular time that, that is not good enough. And I said it very clearly, we have businesses doing 25% EBITDA, and we have enough opportunities for allocate our cash. We are not going to waste time and energy and do a business, which only give 6% EBITDA. And we said -- and then when we did the integration work, we realized that they were actually because we had some very-bad-for-margin contracts. So what we then went on a journey as part of the transformation of this business was, we will focus on a sector of resources and infrastructure only. We will not deal with second-tier contractors who normally never pay us on time, plus you end up dealing with literally handyman rates. Walked away from that. We will only deal with Tier 1 companies. And on a proportionate way with a good rate, who value our safety, who value what we do as an established company. And that's what the margin you saw. And we set up a target of where we need to be. Now we have just achieved that second round target of 15.7% EBITDA, and we need to maintain and grow it, of course. I mean if the infrastructure boom, and it happens as people -- everybody tells me, then it should grow. But at this point, it doesn't mean we need to go backwards. I'm saying that's a target we set, and we've got to consistently deliver those targets. -------------------------------------------------------------------------------- Amit Kanwatia, Jefferies LLC, Research Division - Equity Analyst [80] -------------------------------------------------------------------------------- All right. Great. And just a final one. Just on the recycling fund. Now obviously, there's $190 million of the federal government grant that's there. So can you just provide an update of how much of this is already granted by the government in total? And what's your share of this? and maybe touch on what's the kind of target you're looking internally to pursue these opportunities over the medium term, please? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [81] -------------------------------------------------------------------------------- Yes. So I don't know how much that has been granted as you probably have to go to the government website to find that out. Listen, we are not -- I mean, we're targeting, we are applying for whenever grants are applicable, but there's no internal target that we need to get $50 million of them. It's -- our strategy drives the grant application. If we get it, we get it. If we don't get it, strategy is still sound. And it makes mathematically sense for us to still invest in that. So let's -- I will stop it at that because I want to just give a couple of other people to ask more questions to wrap up. Is that okay? And then we can take it offline. (Operator Instructions) -------------------------------------------------------------------------------- Operator [82] -------------------------------------------------------------------------------- The next question comes from Scott Ryall from Rimor Equity Research. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [83] -------------------------------------------------------------------------------- I was hoping you could make a few comments on the changes in the industry you've seen over the last 5 years and what you're expecting for the next 5 to 10. So the first one, just in terms of the customer environment, and maybe it's different with government and commercial enterprises. But has the drive for the most competitive price changed somewhat in terms of the priorities of what customers are looking for versus the ability to offer a circular solution to be more sustainable, those sorts of things? Have you noticed any changes? And do you expect any changes for the next number of years? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [84] -------------------------------------------------------------------------------- Listen, I think the ball has changed in our world. It's gone from a waste management to sustainability discussion. So I mean, the large customers, I mean, obviously, they want the best price, of course. But the large customers and large customers start the conversation from a waste management perspective first before they go into a -- from sustainability first before they go to waste management. And hence, when you have price infrastructure like us, you have the capacity to have a different discussion on what we can offer. So without naming a customer, they had a very clear sustainability goals over the next 4, 5 years. We committed to those goals, and then the pricing discussion came after. Five years ago or 10 years ago, it will be a classic old fresh and service, go and pick up my bin and they give me the cheapest price. I'm absolutely seeing that conversation changing. We saw that 5 years ago, and that's the reason we start building the assets, and I think that will carry on. I absolutely see that carrying on. Now the SME sector will take a long time, of course, to get there. But the large and medium enterprise and the government sectors will carry on doing that. So that's what I expect. -------------------------------------------------------------------------------- Operator [85] -------------------------------------------------------------------------------- The next question comes from Xindi Shao from Morgan Stanley. -------------------------------------------------------------------------------- Xindi Shao, Morgan Stanley, Research Division - Equity Analyst [86] -------------------------------------------------------------------------------- Just one question on plastic pelletizing facilities. Do you see -- like do you see the current competition landscape in general for this plastic reprocessing facilities like? And do you see your JV in New South Wales has direct competition against a Smithfield or a PET facility? -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [87] -------------------------------------------------------------------------------- Well, I think, as I said before, what is happening in this space, is in the convergence of industries, right? So waste management either goes downstream because they collect the waste, either they go downstream and then process or the manufacturers come upstream and create -- buy the raw material from us and then change it. But none of that -- and that's -- so our competition is not necessarily waste companies. As the largest collector, our competition is mainly the nonwaste companies, the manufacturers who might want to come up, enhance our joint venture with the manufacturers like Asahi, et cetera, to make sure we participate in the supply chain. So the plastics and glass of the world is now converging into 2 different sectors, and I absolutely was keen and Brendan agrees with me is that we cannot miss this opportunity of going downstream and optimizing margins. And that's what we're going to do, and that's the plan. -------------------------------------------------------------------------------- Operator [88] -------------------------------------------------------------------------------- The next question comes from James Brennan-Chong from UBS. -------------------------------------------------------------------------------- James Brennan-Chong, UBS Investment Bank, Research Division - Associate Director and Mining Associate Analyst [89] -------------------------------------------------------------------------------- I'll be brief. Brendan, perhaps more direct that you've given, you spoke about the outlook commentary, but I'm just wondering if you could cast some views on how costs will come back into the business as we exit COVID. Specifically, I noticed your voluntary staff turnover is still depressed relative to even pre-Tox era. I'm guessing that as SMEs come back, the truck trip will start to lengthen as there are more pickups, and more traffic on the street might mean that truck lengths lengthen and over time starts to creep back into the business. Just wondering how you think about that. And does that mean that recent margin growth needs to take a bit of a breather? -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [90] -------------------------------------------------------------------------------- Thanks, James. Look, I actually don't think so. Firstly, we're an industrial business. So we've always got our cost focus in our business. When we see volumes coming back, the leverage that we will get will more than outweigh the costs, and we will make sure of that. So no, I'm not concerned about that. We've got our disciplines. We've got our plans ready. We've done it in some other states already. We've got a playbook. We know where that playbook goes and takes us to, and we're ready to, say, more come back in Victoria and how we'll actually, yes, there will be some extra overtime there. But you remember, there's no more depots, there's no more Brendans or Viks. There's no other cost there. It's just the marginal cost of picking up those extra bins. So very comfortable with that and very comfortable how our costs are under control. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [91] -------------------------------------------------------------------------------- Operator, we'll wrap it at this point, if that's okay. James, we can take any other questions off-line, mate, if that's all right with you. Thank you. Listen, I just want to -- if you can please indulge me for 30 seconds considering it's my last session. I just want to sincerely thank you for your support and friendship. Business is done when you enjoy it, and I've absolutely enjoyed every single minute of it, every single day of it. An interaction with you guys have made me a better executive and a better leader. I also -- it will be remiss in me saying I've led a great organization. These are good people, honest people, salt of the earth people, and they do great service for the country and great service for this society. And there are 6,000 of them who have given me an honor to lead this organization. And without their support, I wouldn't be able to do what I did. So I thank them all. I thank you all. I thank all the shareholders, all the employees. And goodbye, and I'll see you around in investor world, and hopefully, see you in the second inning. Thank you very much. All the best. Good luck. -------------------------------------------------------------------------------- Brendan J. Gill, Cleanaway Waste Management Limited - Executive Officer [92] -------------------------------------------------------------------------------- Thank you all. -------------------------------------------------------------------------------- Vikas Bansal, Cleanaway Waste Management Limited - Executive Director [93] -------------------------------------------------------------------------------- Bye. -------------------------------------------------------------------------------- Operator [94] -------------------------------------------------------------------------------- Thank you. That does conclude our conference for today. Thank you for your participation. You may now disconnect.