Operator: Thank you for standing by, and welcome to the Cleanaway FY '26 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Schubert, Managing Director and CEO. Please go ahead.
Mark Schubert: Good morning, and welcome, everyone, listening in today. Thank you for joining Cleanaway's financial results briefing for the 2026 financial year. I'm Mark Schubert, and I'm joined by Nigel Simonsz, Cleanaway's CFO, who joined the business in July; and Richie Farrell, General Manager of Investor Relations and Sustainability. Following the presentation, we will open the call for questions as usual. Moving to Slide 3. Before we begin, please note the usual disclaimer. Unless specifically called out, I will be talking about underlying performance of the business and the associated financial metrics throughout this presentation. The agenda for today is set out on Slide 4. The plan today is that I'll take you through the highlights and overview. I will then step you through the segment performance and what drove the result. Nigel will then cover the financial performance and cash flow. And finally, I'll address our strategic progress and outlook for FY '27 and beyond. Moving to Slide 5, which will be familiar to a lot of you on the call today. For those new to the Cleanaway story, it sets out our investment thesis. Cleanaway remains Australia's leading total waste solutions provider with scale, network reach and a highly diversified customer base. The strength of the business is that it is not just one business. Instead, it is a portfolio of assets, services and customer relationships and together create the leading national waste management platform. Our strategy is about working that platform harder. This means executing better at branch level, improving asset utilization and operational efficiency while maintaining disciplined capital allocation. It also means continuing to invest in the systems, the people and the data that allow us to run the network smarter and efficiently and to lift returns over time. With the strong foundations built, we are investing to build a more modern, data-led and more cash-generative business. Moving to the executive summary on Slide 7. On behalf of the approximately 9,700 Cleanaway team, I'm pleased to report that FY '26 was another year of earnings growth for Cleanaway, but it was not without challenge. The year's earnings were predominantly driven by strong performances by Solid Waste Services and Contract Resources and the benefit of the indirect cost reduction. Certain parts of the portfolio underperformed our expectations, leading to modest organic growth on a net basis across the group. The conflict in the Middle East resulted in some market softness and higher fuel prices. Solid Waste Services delivered a strong result with good pricing, better productivity, higher landfill volumes and CDS growth. Contract Resources also performed ahead of the acquisition business case. Health Services, Industrial Services and OTS project volumes weighed on the result. Ultimately, high fuel costs did not have a material impact on the group result, but mitigating those costs and managing the related issues took significant time and enterprise-wide attention. This included substantial proactive engagement with our suppliers, including owner drivers and subcontractors to ensure they are being treated fairly and paid appropriately. Moving to Slide 8. We delivered underlying EBIT of $470.2 million, up 14.2% and net revenue increased 13.1% to $3.7 billion. Group ROCE increased 60 basis points to 9.7%. This reflects our disciplined approach to capital allocation and the improvements we are making to operational efficiency. The Board declared a final dividend of $0.035 per share, taking the full year dividend to $0.0685 per share, an increase of 14%. This reflects the Board's confidence in our trading outlook, sustainable cash generation ability and its commitment to providing attractive returns to shareholders whilst maintaining balance sheet strength. Statutory NPAT was lower at $98.5 million, reflecting the net costs associated with significant items. These largely related to legacy matters, the recent business reorganization, IT modernization and non-cash impairments. Going forward, we expect fewer events that give rise to these costs due to the significant foundational work we've already completed. Furthermore, we expect to materially reduce the number of items classified as significant in future reporting periods, which Nigel will speak to later. Pleasingly, free cash flow improved materially, up 64% to $213.8 million. This was driven mainly by good working capital management, timing of fleet delivery and improved payment terms for our new trucks. We've also updated our definition of free cash flow. The measure now includes all cash capital expenditure while excluding proceeds from land and property sales. In summary, FY '26 delivered earnings growth and cash flow growth, but the underlying organic growth was weaker than we would like for reasons we understand. Importantly, we have plans in place to improve and restore performance across those business lines. Our focus remains on delivering a more stable, more cash-generative outcome in FY '27 and beyond. This will be achieved under the 3 pillars of Blueprint 2.0, whereby we will generate higher-value revenue, use our scale as an advantage and become a leaner, lower cost and more scalable enterprise. Moving to Slide 9. This slide bridges the FY '26 result to the midpoint of the guidance range we provided in February. If you recall at that time, we expected underlying EBIT of $480 million to $500 million. Following the escalation of the Middle East conflicts and the associated fuel price volatility, in April, we revised that range to $460 million to $480 million. The result of $470.2 million was within that range. We thought it would be helpful to use the bridge to explain what changed relative to the expectations we had back in February. Solid Waste Services and Contract Resources, excluding the Middle East, performed strongly in line with our expectations. We outperformed our expectation with respect to managing the fuel price volatility by responding rapidly. We applied the contractual mechanisms available to us, and we also benefited from external support mechanisms introduced during the event. At the same time, our team responded to and supported our affected suppliers and subcontractors as appropriate. To give you a sense of the activity levels, we had to review over 400 suppliers and around 18,000 invoices. Looking at the graph. The left-hand side of the bridge addresses the elements related to the Middle East conflict. At a group level, we recovered a large proportion of the direct fuel costs in year. Recovery was not uniform across our segments, however. There is a lag in recovery for a small proportion of direct fuel costs and Contract Resources operations in the Middle East were directly impacted. Conversely, re-refined base oil or RRBO in OTS more than offset its direct cost impacts. Mitigating the impacts involved an extraordinary effort from the team, and I'd like to acknowledge those efforts. Moving to the right-hand side of the bridge, where importantly, the variances were concentrated in a small number of businesses. In Health Services, the anticipated second half recovery was slower than expected. This was in part due to the reorganization and sales centralization, which delayed our efforts in addressing revenue leakage opportunities. Our new liquid injection and product destruction facilities were safely started up but later than expected. In the Industrial Services business, we experienced lower project activity, fewer shutdowns and weaker utilization across parts of the portfolio. And finally, in our OTS business, project waste volumes were below our expectation with some large anticipated second half projects not proceeding, including due to customer credit constraints. In FY '27, we'll build on the FY '26 outcome. We'll recover those specific areas of the business and focus on growing core volumes and revenue, improving productivity and making sure we leverage the opportunities and benefits identified through Blueprint 2.0. I'll now take you through the segment performance. Solid Waste Services delivered a strong performance in FY '26, and that was despite lower commodity prices and the temporarily lower contribution from ECO ahead of the completion of the Compost refinery. We grew net revenue by 6.4% to $2.5 billion, and EBIT was 9.1% higher at $405 million. We also demonstrated the operating leverage in the business by expanding EBIT margins by 40 basis points to 16.2%. This evidences that Cleanaway continues to benefit from scale, pricing discipline and better utilization. Within collections, we saw good performance across C&I and municipal, supported by price and productivity. The Citywide contribution is now flowing through. Integration remains on track, and the business continues to show good labor, fleet and overhead discipline. We also renewed the Port Phillip and Merri-bek Council contracts. Pleasingly, we secured the Cairns municipal collections contract. This is a 7.5-year agreement starting in December 2026 and will contribute over $100 million of revenue over the life of the contract. This is a strategically important win that demonstrates our ability to compete successfully in the municipal tender market when the economics are right. Our landfills and transfer stations also performed well, supported by higher volumes, project activity and ancillary revenue. CDS was another positive contributor with a full year Tasmanian contribution supporting organic growth. As planned, we closed New Chum landfill on the 30th of November, which incurred a loss of approximately $3 million for the period. As part of the strategy refresh, we made the decision to close the Construction & Demolition SBU. The decision was based on focusing our efforts on the parts of the market where we can achieve an adequate return and illustrates our commitment to disciplined capital allocation. The key takeaway on this slide is that Solid Waste Services remains a strong and resilient core earnings engine for the group. Moving now to our Oils & Technical Services and Health Services business. In aggregate, net revenue fell 1.2% to $676 million and EBIT fell 10.7% to $75.1 million. EBIT margin contracted 120 basis points to 11.1% with the underperformance driven by Health Services. OTS delivered a solid reported result with year-on-year growth across the portfolio. RRBO pricing and Cleanaway Equipment Services were the strongest drivers of earnings growth. This was offset by expected project work not proceeding into the second half. We realized the integration benefits from the former LTS and Hydro business units and identified opportunities to simplify the network. Our focus remains on high-margin project work where our portfolio of total waste solutions, network and safety standards provide a competitive advantage. Health Services experienced a difficult transitional year. Following a competitive tender by a major customer, we retained most of the volume at lower rates. This reduced revenue and earnings materially. The disruption to our Yatala Health facility in Queensland in the first half following damage from Ex-cyclone Alfred resulted in approximately $2.4 million of higher logistics costs and overall volumes were lower than expected. As we look at FY '27; product destruction and liquid injection facilities came online in the final quarter of FY '26, the Yatala facility in Queensland was restored, and the team is working through a more focused operating model. The team has a recovery plan in place, including dedicated specialists supporting central sales to drive revenue growth and restore EBIT and margin. Turning now to Slide 13. The performance of the Industrial Services segment is largely reflective of the initial contribution and outperformance from the Contract Resources acquisition. At the overall segment level, we delivered 77% net revenue growth to $670 million and 135% EBIT growth to $55.9 million. EBIT margins increased 200 basis points to 8.3%. Contract Resources outperformed the acquisition business case, delivering $320 million of revenue and $36.1 million of EBIT, excluding $6.4 million of synergies. This highlights the capability of the team and illustrates the quality and resilience of this production-critical and turnaround services business. And this was delivered with the backdrop of the headwind of the Middle East conflict. EBITA for the year was $41.4 million and converts to an EBITA margin of 12.9%. This is comparable to the overall group EBIT margin of 12.6%. The integration of CR and our Industrial Services segment is on track and delivering synergies ahead of plan. The new structure has been in place since 1 January under the leadership of the Contract Resources' CEO. We are beginning to realize further synergies, particularly in shared customers, workforce planning and greater asset utilization, and we expect these to build during FY '27 through cross-selling and operational leverage. We now have the leading industrial services platform, and that positions us to execute on the growing pipeline of significant Decommissioning, Decontamination and Remediation opportunities. Cleanaway Industrial Services was weaker. Lower contracted and project activity and fewer shutdowns led to lower utilization and profitability. The operating model realignment with Contract Resources is well underway; improving consistency, scalability and long-term performance, and this work will continue. We will focus our IS work on activities like we're in CRs, we can earn appropriate risk-adjusted returns with less variable outcomes and as a result, transition towards a structurally higher-margin portfolio and build on the real momentum provided by Contract Resources. And with that, I'll hand it over to Nigel.
Nigel Simonsz: Thanks, Mark. It's my pleasure to be able to report my first results as Cleanaway CFO on behalf of the entire Cleanaway team. So with the segment drivers in mind, we now turn to the financial performance and the bridge from the operating story into the reported numbers. The financial summary shows the benefit to shareholders of earnings growth and improved cash flow through progressively growing dividends. Revenue, underlying EBIT and underlying NPAT have all improved. Cleanaway has a sustained long track record of revenue, earnings and underlying EPS growth. This reflects the quality and resilience of our business model and shows the strength of our established integrated network of infrastructure. Looking at the key underlying metrics on the slide, net revenue for the year came in at more than $3.7 billion, up 13.1%. Group underlying EBIT was $470.2 million, up 14.2%, with EBIT margin improving 10 basis points to 12.6%. This reflects improving asset utilization, cost efficiency, including the indirect cost reduction program and demonstrates our operating leverage. While not shown on this slide, underlying EBITA was 14.9% higher at $491.4 million. This metric excludes non-cash acquired amortization charges and offers a clearer view of the business' underlying cash-generating capability. Free cash flow was $213.8 million, up $83.2 million or 63.7% higher than the prior period. Underlying NPAT was 13.6% higher at $223.1 million with underlying EPS also up 13.6% to $0.10. Return on capital employed, or ROCE, is a metric that we are transitioning to as it is more commonly used by our peers and adjusts for the non-cash amortization of acquired customer contracts. ROCE improved 60 basis points to 9.7%, demonstrating that we're deploying capital more efficiently and generating better returns from our asset base. Similarly, ROIC has improved 60 basis points to 6.6%. The earnings trend across the last few years is moving in the right direction. FY '26 continues the pattern of growth from earlier years, which is a credit to the scale of the platform and the operating discipline in the business. Now moving to Slide 16, underlying EBIT adjustments. Most of these are items that were spoken about in the first half and the annualized impact of these are presented here. New items relate to the MRL levy provision, transactions related to closed landfills and C&D closure costs. The MRL levy provision was flagged in an ASX release in July when we decided to appeal the decision of the Supreme Court. The amount presented here is lower than the amount in the announcement, but this nearly relates to the classification of the interest element sitting further down the P&L. There was a net benefit from transactions related to New Chum and Willawong with the latter sold during the year. The C&D business was ultimately closed in the second half, having failed to attract an adequate bid. The strategy refresh has refined where we want to play with our focus on attractive return segments and capital discipline. This can be seen through the rationalization of our C&D service offering and reducing certain inefficient IS Metro activities. The Board is reviewing the underlying adjustment policy to improve clarity and raise the threshold for significant items. It will help sharpen the distinction between recurring underlying performance and exceptional or transitional items. This is intended to make the reporting framework easier to interpret. Should the change be adopted, the outcome would not materially affect the current FY '27 underlying EBIT guidance range. The only item that would be treated as a significant item for FY '27 on that basis would be the IT transformation program. Now moving to free cash flow on Slide 17. As Mark mentioned before, we have updated our definition of free cash flow. The measure now includes all cash capital expenditure while excluding proceeds from land and property sales. Focusing on the material items in the bridge, we generated $101.3 million or 12.8% more underlying EBITDA. Cash outflow relating to the underlying adjustments detailed in the earlier slide was $90.7 million, being $40.6 million higher than the prior corresponding period. Working capital movements were $49.1 million favorable. This represented a marginal positive inflow of working capital in FY '26 compared with an outflow in the prior period. We aren't anticipating any significant net working capital movements through FY '27. Net interest paid was $23.7 million higher than pcp. This reflected higher average debt balances from debt funding approximately $470 million of acquisitions. Tax paid was $14.5 million higher, and this reflects our higher taxable earnings and a $58.7 million catch-up tax payment in the first half. This is the final catch-up tax payment. Cash CapEx was $8.3 million lower. There was a timing benefit of around $40 million related to fleet, reflecting delayed deliveries and improved payment terms. The structural drivers of improved cash generation are in place and should continue to support the business over the medium term, although FY '27 will still absorb a number of timing and transition-related cash costs. And now moving to Slide 18. Cash CapEx came in lower at $326.8 million versus $335.1 million in the prior year. As referenced earlier, FY '26 CapEx was lower than expected due mainly to the timing of fleet deliveries and improved payment terms. We expect this benefit will not repeat in FY '27. Having largely built out our infrastructure network of scarce processing assets, our capital intensity as measured by CapEx over net revenue is on a declining trajectory. This year, our CapEx as a percentage of net revenue was the lowest for 5 years. The nature of our CapEx is also changing. There will be fewer larger projects that have characterized our spend over the last 5 to 10 years and an increasing proportion of our spend on fleet. Fleet CapEx by its nature is lower risk, but still delivers good returns through reduced running costs, improved utilization and more reliable customer service. The growth investment pipeline is now focused on a number of smaller items, but these remain important. It includes core waste management assets to support our growing business, including fleet, compactors and bins. We have also invested in technology that will support our Advanced Ways of Working, including data and analytics infrastructure and tools such as Smarter Selling and the Pricing Engine. And while capital discipline remains very much our focus, the business is still investing in the platform needed for future growth. In FY '27, we expect total CapEx to be between $400 million to $410 million, plus around $40 million related to cash payments for trucks delivered in FY '26. Cash CapEx for FY '27 is expected to be around $360 million. And finally, I'll turn to net finance costs and dividends on Slide 19. Underlying net finance costs increased $34.7 million to $156.2 million, driven by the debt financing for the Citywide and Contract Resources acquisitions, which was possible due to the strength of our balance sheet. There were also a number of cash rate increases during the year. Our FY '27 outlook for net finance costs is around $170 million with the cash component being around $140 million. This reflects the annualization impact of rate rises. We have undertaken some additional hedging, which has lowered our sensitivity to around $2.6 million cash net finance costs per 25 basis points movement. And moving to dividends. The Board has declared a fully franked final dividend of $0.035 per share, taking the full year dividend to $0.0685 per share, up 14.2% on last year. This increase reflects the business' strong underlying growth, our confidence in future delivery and strategy execution, including our ability to deliver strong free cash flow growth. And with that, I'll hand back to Mark.
Mark Schubert: Thanks, Nigel. We now move back into the outlook. We're guiding to an underlying EBIT range of $500 million to $530 million. That range is built first on organic growth in the core solids business; supported by pricing, volume and productivity; then on recovery across Health, OTS and Industrial Services; together with the incremental benefit of indirect cost actions already underway. At the same time, the guidance recognizes a higher central investment requirement for IT systems modernization and systems and capability that will enable Blueprint 2030. For the latter, the costs will be incurred before the benefits are realized. As we discussed back in April, free cash flow is the currency of Blueprint 2.0. Given the inherent variability of cash over balance dates, as illustrated by the $40 million benefit recognized in FY '26, we felt it would be more prudent to guide the building blocks of free cash flow. We also recognize investors may have different cash flow definitions. We expect depreciation and amortization of $435 million to $455 million. And taken together with our EBIT guidance of $500 million to $530 million, you can derive an underlying EBITDA range of $935 million to $985 million. We expect cash CapEx of approximately $360 million. As Nigel said earlier, we don't expect any material working capital movements during the year. Cash interest paid is expected to be approximately $140 million, subject to no further cash rate movements. We continue to expect total landfill remediation costs of around $180 million over FY '27 to FY '29. And finally, we expect the net cash impact of underlying adjustments to be $40 million to $50 million. With our foundational investment now complete and legacy issues mostly behind us, we are focused on delivering improved quality of earnings, maximizing cash flow and generating sustainable value. I'll now move to Slide 22, where I want to briefly recap on our strategy. Blueprint 2030 2.0 is the next phase of Cleanaway's value creation journey. Blueprint 1.0 was about building the platform. We strengthened the business, we improved operating discipline, we embedded the branch-led operating model, we reset data analytics, we progressed CustomerConnect and we built Australia's leading integrated waste infrastructure network. That work is now substantially complete. Blueprint 2.0 is all about making that platform work hard. We want to create superior shareholder value by extending Cleanaway's position as Australia's leading waste management and technical services company and by maximizing the cash flow and growth potential of the business. The key shift here is from building foundations to extracting value. This matters because Blueprint 1.0 delivered strong earnings growth, but free cash flow did not yet fully reflect that improvement. That was due to foundational investment, one-off and legacy costs and catch-up tax payments. Those pressures are now easing. Cash flow is now the clearest measure of how strategy converts into shareholder value. Moving to Slide 23. Together, these 3 pillars support the value creation framework. This framework is useful because it shows how the pieces fit together and it's deliberately straightforward. Revenue growth comes from market growth, pricing discipline and targeted investments. Margin expansion comes from operating leverage, better pricing, lower cost to serve and improved asset utilization. Capital efficiency comes from keeping overall CapEx disciplined, focusing growth capital on mid-teen return opportunities and limiting M&A where the network is already strong. Those drivers support EPS growth, stronger free cash flow, improving returns and sustainable dividends. So the simple investor message is, Blueprint 1.0 build the platform. Blueprint 2.0 converts that platform into value. We're making scale our advantage. We're using data and technology to improve customer outcomes and lower costs, and we're optimizing the network we've already built. And we're applying disciplined capital allocation to ensure growth translates into free cash flow returns and shareholder value. Moving to Slide 24, the track record slide is there as a reminder that this is a business that has built earnings, scale and cash generation over time. The FY '26 result is part of that broader trend. The key message here is that the platform is much larger, stronger and more profitable than it was a few years ago. The next step is to make the quality of that growth more consistent and more repeatable. Moving to Slide 25, and I'll briefly touch on last week's announcement before wrapping up. Cleanaway received a non-binding proposal from EQT Infrastructure to acquire 100% of Cleanaway shares for $3.13 per share. The proposal is all cash and was improved from EQT's initial proposal. The proposal allows the company to pay a franked special dividend and the Board expects to do so if the transaction is implemented. The cash amount of any dividends would come off the offer price, but this could be efficient for domestic holders from a tax perspective. The quantum of this dividend is yet to be determined. The Board has carefully assessed the bid and has come to the conclusion that it will recommend the bid, assuming EQT completes its confirmatory due diligence and delivers a binding bid at this level and subject to agreeing a scheme implementation deed. The proposal represents a premium to pre-announcement trading of 34% to the 1-month, 3-month and 6-month VWAPs. It represents an EV/EBIT multiple of 20x based on our FY '26 result. At the same time, we remain confident in the strength of our existing business and the long-term value Blueprint 2030 can create for Cleanaway shareholders. EQT's proposal attributes value to our strategy today. While the Board works through the next steps in the process with EQT, the priorities for the business do not change. We remain focused on safe and reliable operations, serving our customers, supporting our people and executing Blueprint 2030 with discipline. Moving to Slide 26. To close the formal presentation, the core message is this. FY '26 delivered solid earnings and cash flow growth, but the organic growth was weaker than we would like due to some pockets of underperformance. The underperformance in Health, Industrial Services and OTS is understood, and we are addressing it. Solid Waste Services' and Contract Resources' stability and resilience supported an improving cash generation profile. The focus for FY '27 is to convert the scale of our platform into consistent organic growth, better execution, stronger cash flow and high-quality earnings. Before we hand over to questions, I want to take this opportunity to thank our employees for all their hard work. These results would not be possible without them. And with that, I'll now take questions.
Operator: [Operator Instructions] Your first question today comes from Jakob Cakarnis from Jarden Australia.
Darcy White: It's Darcy White here on behalf of Jake. Just first one, on the $500 million to $530 million EBIT guidance, can you help us bridge from FY '26? Specifically, can you talk us through what organic growth is assumed for FY '27? Whether there's still plans to generate savings from corporate cost reductions? And how much is carried from Contract Resources and any deal-related synergies, please?
Mark Schubert: Yes, sure. Thanks for the question. Yes, so if we try and bridge from $470 million to say, somewhere around the midpoint of the range, you probably want to think about it in 4 buckets. So the first would be sort of a bucket which includes those businesses that we've closed plus, say, the Yatala roof being repaired, which obviously -- that work is all done. So like C&D business being shut down, New Chum has been shut down. Yatala roof has been repaired. So you don't have those headwinds of '26 in '27. You then -- the second bucket would be the indirect cost benefit. So if you remember what we just said, so we talked about an incremental $25 million additional to the $13 million that we saw in FY '26 coming from the indirect cost program. Third bucket would be organic growth, including sort of the recovering SBUs would be the third bucket. And then the fourth bucket is a negative, and that would be those sort of IT and Blueprint 2030 capability upgrades that we'll be spending on '27. And they kind of fall into perhaps sort of 3 buckets themselves. There's some incremental cyber costs in there. There's the spend -- there's the real spend on IVMS and Pedestrian Detection and the control room where we'll have the cost without the benefits this year as we ramp that program in. And then there's the sort of Blueprint 2030 sort of future tech to allow the Advanced Ways of Working that spend to make sure we get that margin expansion that we've promised. So that's the kind of -- that's the 4 buckets, 3 positives and I guess, a negative in terms of cost.
Darcy White: Just as a follow-up on the organic growth that you mentioned. Can you talk about the type of considerations we should think about for the operating environment in FY '27?
Mark Schubert: Yes, sure. I think what you should think about is, firstly, '26 was weaker than we'd anticipated. So we're starting about $20 million behind where we thought we would be the first thing I'd say. I think secondly, I'd probably say that when we did the bottom-up budget build that sort of underpins the range today, what we saw was '26, a higher proportion of landfill volumes were project related. That's obviously less predictable than our muni and C&I volumes going into the landfill. And so because of that, we think landfill volumes aren't necessarily going to grow at the same rate as you saw in '26. I think also in Resource Recovery, what we're seeing there is we're seeing glass being separated from commingled in Victoria. Remember the mandate where the councils have to roll out the glass bin, and that's obviously coming out of the commingled bin, which would come to us. And then similarly, we're seeing the ramp-up of the CDS in Victoria and TAS, and so we're seeing less volumes come through just generally into the MRF. The third would be, we dedicated a significant amount of sort of horsepower of the organization to managing the fuel-related issues, supporting suppliers. That meant we didn't get at the nonlabor indirect costs that we're targeting. And so we're a bit behind where we thought we would be at this point coming into '27. I think fourth, obviously, we've talked about the IT strategy and the spend that we need to do there. And then lastly, I think just probably have in your mind and it is important that when you think about the $500 million to $530 million, think about what Nigel was talking about just before in that we are reviewing the underlying adjustment policy, and we have budgeted on that basis. That means the only adjustment we expect to make to the statutory result is IT transformation costs. And so things like reviewing EAs and stuff like that will be -- is included in the underlying results. So there should be no surprises when it comes to results going forward. I hope that helps.
Operator: Your next question comes from Dylan Adrian from JPMorgan.
Dylan Adrian: Just filling in for Lee Power. I just want to clarify the comment on lower IS contracted and project activity, should we be reading that as projects not proceeding or that get delayed? And what are you doing to fill that gap?
Mark Schubert: Yes. So that's an IS question, isn't it? I mean just on there, so what you should be thinking there is, that was deferrals of maintenance project work and turnarounds that IS was looking to complete in the second half. When that gets deferred, it's very hard for the team to -- they can flex their cost, but it's very hard to flex their DNA down. So that work will come. It's just obviously getting delayed. I do think there's a bit of a Middle East impact there because what's happening is you're seeing Australian type activity not get delayed, so production can be boosted so that then the interruption from the Middle East is mitigated in some way. I think what are we doing about it? To your question, so obviously, we're restructuring. We've restructured IS in the last sort of 6 to 9 months. The thing to have -- the thing to be thinking about there is we're very much adopting an IS operating model that looks like CR. So that is all around embedded branches. In other words, a branch on location at the client site dedicated to that and scaling up and down to do turnarounds et cetera. And of course, that just leads to more predictable work, better reallocation of people and equipment and that sort of thing. So that's what we're doing to fill that gap.
Dylan Adrian: Okay. That's clear. And just a follow-up to Darcy's earlier question. Of the $6 million-odd synergies still to come from Contract Resources, what's the expected phasing into FY '27 and '28, please?
Mark Schubert: Yes, cool. So, just -- okay, the way you think about that is the $6 million of synergies that's sitting in the IS number. So that's the first thing. We promised $12 million. We're on track to the $12 million. We'll have delivered the $12 million in the FY '28 number. And just remember, those are only the sort of the cost synergies, they're not the revenue synergies, and we're already seeing revenue synergies elsewhere. And I think we've talked about before, we're definitely seeing the cleaning, the outcomes of cleaning, in other words, the liquids coming to the liquids team, et cetera.
Operator: Your next question comes from Samantha Edie from Morgan Stanley.
Samantha Edie: Congratulations to Nigel on starting the new role. And also congratulations on the proposed takeover. So I just have 2 questions today. So the first is around the free cash flow. So I see that you've changed your free cash flow calculation, so you're now taking away cash CapEx rather than maintenance CapEx. Can we just get some color around the reasoning behind that change? And then just secondly, if we look at those line item guidance that you've given, so if you work backwards, you get to about $316 million. And then if you take off the cash tax of, let's say, $100 million, that gets you to around the same levels as where you're at for FY '26. Is that the right way to be thinking about it?
Nigel Simonsz: I'm happy to take it.
Mark Schubert: Okay. Go for it Nigel. Here we go.
Nigel Simonsz: Thank you for your comment earlier. I think Samantha, you're looking at it in the right way. I think, hopefully, we've provided enough reference points to kind of guide the free cash flow. And obviously, we've got the $45 million of IT transformation cost, which we commented on earlier as well as the impact of underlying adjustment's cash impact coming through into FY '27. But yes, we broadly see it the way that you've described.
Mark Schubert: I think the comment there, Sam, would be that like -- clearly, if it wasn't for the $40 million that's kind of swung from '26 into '27 associated with sort of the timing of the fleet delivery in June and the change in the payment terms, you've got sort of $40 million crossing years. And so in many ways, free cash flow in '26 would have been $40 million lower if it wasn't for that and '27 would have been $40 million higher. And so you would have seen a more distinctive step-up between '26 and '27 of like $80 million if those things had flipped the other way. Hope that makes sense. And as to the reason -- as to the reason why we changed from maintenance to total CapEx, it was really around a lot of the investments going forward will be in the fleet. And then there's that sort of discussion that we had at the Investor Day around some of this growth, some of that stay in business. So rather than have that confusion there, it was easier just to lump it all together and factor it in that way.
Samantha Edie: Yes. Okay. Awesome. That's really helpful color. And then just secondly, around that IT transformation cost. So that looks like a bit of a step-up at $40 million to $50 million. Can we just get some more color around what's involved in those costs? And was that a bit higher than you're anticipating?
Mark Schubert: Yes. So that's -- I think you're talking about the underlying adjustments being sort of $40 million to $50 million? Yes, happy to chat you through that. So it probably is higher than what people have been expecting. So probably what the piece that people were expecting was sort of $25 million for CustomerConnect. There's no change to that number. This is the final year. What's exciting for us and hopefully for you as well is that we did release 2 this week, we did on Tuesday morning, about 9:00 a.m. So that means we've now got the golden record for our customer -- golden customer record. That is super important because if you think about revenue growth going forward, revenue growth is all about -- it's about price, it's about volume, it's about churn and it's about share of wallet. And what this enables us to do is it allows us to turn on Smarter Selling and the Pricing Engine, which really helps us drive the share of wallet through Total Waste Management and obviously, volume based on really location-specific pricing at a sort of company-wide scale. So it is like a transformational week for Cleanaway in terms of our capability enabled by that release too. Obviously, the next release is the one that impacts sort of digitize the trucks. That starts in South Australia, and that will start to roll out this half. So we're getting towards the finish line finally on a multiyear program. Coming back to your $45 million, so that's the first $25 million. The other $20 million is really around some muni software that we need to replace. The simple story there is that the vendor -- sorry, the -- I guess, the vendor of the software has been purchased by another company. That company has now decided they're going to switch that software off, not just that it goes out of support, it's actually going to be switched off early next year. And so we have to replace all that muni software on a schedule-driven way across the company. And that's sort of $20 million-ish. Those are the big building blocks, Sam. I hope that explains it.
Operator: [Operator Instructions] Your next question comes from Amit Kanwatia from Jefferies.
Amit Kanwatia: Congratulations on the results. I mean just -- I mean if I can ask the question on the bid, EQT bid. I mean you've demonstrated solid free cash flow today, kind of free cash flow is the currency Blueprint 2030 2.0. I mean the question is, why do you sell the business now ahead of those strong free cash flow delivery earnings still seem to be growing by 10% plus?
Mark Schubert: I think -- I mean what I'll go back to is, the Board has gone through an extensive process from receiving the unsolicited approach. What I'd also say is, just remember, we -- and we've talked about this before, we kicked off the strategy work, the refresh strategy work in July last year. We did 7 months of strategy work. At the same time, we rebuilt the corporate model from scratch. That enabled us to do the valuation work. And we've done that valuation work in advance of the EQT approach. I think you should think that the Board engaged with EQT to get to a point in price, which they could then discuss with shareholders. But to your point, the Board looks at the value of the bid through multiple lenses. One of those is the cash flow analysis. And ultimately, the Board believes it's at a value where it's now time for shareholders and the independent experts to take a look. That's probably really all I can say. I mean, I need to also stick to sort of what we've said already.
Amit Kanwatia: I mean if I just look at the deal multiples, and I'm looking at the EV/EBITDA multiple, which is around 9.7x on a 12-month forward basis. I mean free cash flow yield is around 4%, 4.5%, 5%, which is solid as well at this level. I mean $3.13. I mean if I look at the past kind of sector transactions, it seems to be a bit light to us.
Mark Schubert: Well, again, what I'd say is, it's a trade-off now between upfront certainty today versus the time capital investment execution risk, market risk to realize the 2030 stand-alone value. So I'm not going to comment on multiples and that sort of thing. I'm not going to comment on multiples versus other deals that have been done because they've done in different environments with different businesses.
Amit Kanwatia: Sure. Just unpicking some of the comments you made earlier and good to see that significant cost being classified above the line. So I think that's good. But then just on the fiscal '27 guidance range, and you said the negative is around the IT investments, some capacity into 2030. I mean what -- can you give us a bit more flavor in terms of the cost range around some of that, the payback period? And how should we be thinking into fiscal -- beyond fiscal '27?
Mark Schubert: Yes, sure. No worries. So I think just to orientate people because there's a lot of different IT being talked about. So we're talking now about the sort of the FY '27 guidance, the $500 million to $530 million we're talking about, when I built up sort of the 4 buckets, we're talking about the fourth bucket, which was the negative bucket associated with IT and Blueprint 2030. So again, there's 3 buckets that sit within that fourth bucket. The first one is cyber. So it's a small amount of incremental spend on cyber. In terms of the second part is the safety sort of, I guess, IT spend. So remember, we've installed and the live sort of stats are in the deck in terms of IVMS, Pedestrian Detection. We're almost done on Pedestrian Detection across the yellow gear fleet. We're about 66% on the IVMS. We've stood up the control room. It's live, it runs 24/7. That all comes at a cost. As we ramp that program into the assets, what we see is you get -- you have the cost, but the benefits take some time to come because you create the knowledge of what's going on, you then address that and then those events drop over time. And we're seeing that drop occur, but that will probably take a year for those benefits to appear against that sort of safety-related spend. And we've got analog companies that have seen peer companies overseas that have done this sort of work have seen those costs get offset by the benefits. And then the third part is the spend associated with the sort of Advanced Ways of Working. This is all about making sure we can get at the benefits of CustomerConnect by having enough data analytics, AI capability to sit on top of that and get at that 260 basis points of margin expansion. That is things like how we really operationalize and scale the pricing engine, smarter selling, the branch assistant, all these sorts of things that will really make sure we get -- we just can get the value from our scale and make that our advantage.
Amit Kanwatia: And just around the cost range and cost bucket around some of these 3 buckets, and then it looks like safety should be finished by '27. I mean, what about it?
Mark Schubert: Yes, so that's it. I think cyber is an incremental spend. The safety will be -- will get to steady state during '27. And then I think we'll have a stable amount of spend on Blueprint 2030 and the sort of Advanced Ways of Working. So again, it's not huge -- these are not huge numbers, but when you add the 3 together, it's enough that it's worth mentioning as sort of an offset against why, and I guess, analyst's mind, did we not get above that $515 million number? This is one of the key reasons that dragged us back down.
Amit Kanwatia: Sure. And just a final one. I mean, Health business challenges, I think you've highlighted on the call. But I'm looking at the EBIT margin, 9.7% in second half kind of significantly down versus what delivered in fiscal '25, first half '26. I mean how should we be thinking about that business returning to the normalized levels in the future? Is it more '27, '28 or most of it should be towards the second half of '27?
Mark Schubert: Yes. I mean I think you should think that -- yes, so predominantly that change is caused by Health, you're right. I think you should sort of probably think about a couple of things. So remember, in FY '26, we had this ex-tropical cyclone Alfred. Alfred took the roof off the Yatala facility, and that's the callout that we made sort of around that $2.5 million of costs. That roof is a really good roof now. So it's been replaced, and that came online late sort of '26. I think unfortunately, the repair of that roof wasn't in our control. It was the landlord's job, and it took just much longer than expected. So that was delayed. We brought Product Destruction online in Dandenong in the Health business. Again, we brought online, but it was significantly later than what we'd hoped. But again, it's online now. Liquid injection in Silverwater, we brought online during '26. It was, again, took longer than we had expected. But again, it's online now. I think on the technical sales side of Health, we -- probably one thing we didn't get right in the restructure was we probably didn't respect the technical sales in Health, capabilities that we needed to have going forward to address that. We've got 8 extra salespeople, technical salespeople in Health that we brought in over the back end of the first half. So again, that's sort of addressed for '27 and ramping up. And just we didn't get some of that revenue leakage work in the Health business. I know that sounds very negative, but those are sort of -- those are like the 4 or 5 things that combined that made Health underdeliver. And of course, in '26, the fundamental other issue was we had the major customer in Victoria recontract. We got 90% of the volume, but we got it at a much lower margin. And so that -- when we said before, it was like a reset year, it was a reset to that contract. That's fine. We've got the volume and now we'll just grow from here.
Amit Kanwatia: And are you able to kind of clarify how much is Health I mean in terms of the range contribution to that segment for -- I mean, the EBIT contribution Health is to that -- to the [indiscernible]?
Mark Schubert: We gave you a clue to that on the bridge slide. So if you look at the bridging slide, which is Richie's favorite slide. So it's in Slide 9. So the clue there, I mean, is to look at the $7 million for Health. That's what we're trying to catch up.
Operator: Your next question comes from Nathan Reilly from UBS.
Nathan Reilly: I'm just looking at the free cash flow guidance, and thanks very much for the building blocks that you've just given me for FY '27. I'm just trying to get a sense of how that might look sort of beyond that time frame. So in terms of those underlying adjustments, IT, your use of provisions, do they kind of drop out into FY '28? Or is there some sort of base there that remains?
Mark Schubert: Thank you for the question. We appreciate able to give you an answer on that. The underlying adjustments are sort of the $40 million to $50 million. Obviously, that drops away because CustomerConnect doesn't reoccur and the muni software doesn't need to be replaced the second time. The prior year underlying adjustments that Nigel called out, which is sort of another sort of circa $40 million, that's a combination of the MRL levy issue, the enterprise agreements and legacy waste. And again, they don't repeat either. And so immediately, you see that sort of $80 million step-up in FY '28 before you even start with -- then obviously, you start to see Blueprint 2.0 acceleration and sort of EBIT growth and obviously, that sort of thing. Landfill remediation in the sort of longer term. So remember, we said to you, it's $180 million over FY '27, '28 and '29, which is cared for sort of $60 million a year. We expect that to drop to more like $30 million a year from FY '30 onwards. I know that's not the exact timing of your question, but I give you the clue for sort of the other items in the cash flow building blocks that will move over time. Does that help?
Nathan Reilly: Yes. No, you anticipated my second question. So well done there. Just on the CapEx, in terms of the cash CapEx guidance of $360 million, I mean, that's consistent with that sort of envelope that you've referenced previously in terms of the level of CapEx that you think you'd be needing on a long-term view.
Mark Schubert: Yes, it is. But just remember the exceptions that we've said to that. We've said that [ $14 million ] on sort of a go-forward basis. And then what we've also said to you is that excludes major capital spend on things like Dynon Road, where that is sort of $40 million to $45 million. The timing of that spend is kind of '28 onwards. It also obviously excludes if there's energy from waste spend. And it also excludes Lucas Heights' extension CapEx. So that would -- we're not sure whether we can fit that within the capital envelope at the moment. And that would -- the first spend there would be sort of 2028 onwards.
Nathan Reilly: Brilliant. And final question for me, just in relation to the bid. Can you give me just a sense of the level of engagement that you've had from other parties or interested parties in terms of conversations, informal conversations or otherwise over the more recent time frame or whatnot?
Mark Schubert: Really, Nathan, there's a no shop, no talk requirement in the process deed. So there hasn't been any discussion with any other parties. So yes, it's kind of -- I think that's unfortunately the short answer to your question.
Operator: [Operator Instructions] Your next question comes from Cameron McDonald from E&P.
Cameron McDonald: I've been caught on other calls, so apologies if you've answered these. But just in terms of the guidance that take the midpoint of $515 million, how does that relate back to a greater than 15% EPS growth rate for FY '27?
Mark Schubert: Yes. So I think clearly, let me try and explain to you. So remember, we're broken into 4 buckets. The first is FY '26 was weaker than we'd anticipated. So we're starting probably around $20 million behind where we would have liked. And you can look at the bridging slide for that, and that's really in IS, in Health and in OTS. The second part is that when we did our bottom-up budget build, we saw a higher proportion of landfill volumes were project related. They're less predictable than what we have in C&I volumes going through the landfill. Because of that, we think that the landfill volumes aren't going to necessarily grow at the same rate as prior periods. In Resource Recovery, we're seeing glass being separated from comingled bins. Remember the Victorian mandate is, you must offer the fourth bin if you're a council. We're also seeing a ramp-up in CDS in VIC/TAS, and that's taking volume out of the comingled bin that would come to us. Third, we had to dedicate a significant amount of time to fuel-related costs and sort of add suppliers, roll-in suppliers and third parties in that -- sort of in that Middle East conflict time. The color there is we had 18,000 invoices we needed to deal with. We have 439 suppliers. That's just on the C&I side and then you go across to 109 muni contracts that we need to manage very actively. That meant we didn't get at the non-labor indirect costs that we're targeting. So we're starting the year behind where we would have liked there. Team did a great job on fuel. It's just that, that put us behind on the other part. And then like we talked about, I don't know whether you heard, Cam, but I was talking about in the IT strategy, we need a bit more spend on cyber. We've got the cost of setting up the IVMS control room, installing all the PDD and IVMS and monitoring costs. And that spend won't have the benefits this year, it will flow through in sort of the future year. And then there's also the spend associated with putting more capability to support CustomerConnect and data analytics to make sure we can get to that 260 basis points of margin increase again spend today for benefit going forward. So I think the other thing I'd say to you is that when you think about the $500 million to $530 million, I said this earlier on the call, again, I'll just go over it again because I think it's important is that we are reviewing the underlying adjustment policies. We've budgeted on that basis. That means that the only adjustments that we expect to make to the statutory result is the IT transformation costs. Those things, like we've talked about before, like legacy EAs and stuff that's all going to get included in the underlying results. So there should be no surprises when we come to results going forward. That's sort of -- that's probably the bridge between -- and that leads to us not being at that north of 15% comment that you made before. And obviously, we're just at slightly sub-10%.
Cameron McDonald: Well, yes, I mean, based on the numbers you've given so far and making a very quick adjustment to the non-cash interest that goes through, I mean, you're close to single-digit -- mid-single-digit EPS growth, aren't you from the $2.33?
Mark Schubert: Yes. I don't know. That's not the same number I've got in my mind, but happy to take it offline.
Cameron McDonald: Sorry, the $2.23 Yes. I mean I'd be interesting to unpick that, particularly given like -- I mean, this is a significant change since the April Investor Day. And so I'm a little bit surprised that things have changed so quickly. And then -- but then you'd stand up and say that you're going to deliver 10% to 15% EPS growth CAGR out to 2030 and yet you've got it within 4 months, you're not even within that range anymore.
Mark Schubert: Well, I think, in my view, we've been over it. We've been really clear with you as to what has caused that weakness that we've just walked through. I think -- we've got clear weakness in IS, in Health and in OTS all at the same time, which means that, that starting point is weaker. We've got -- and then plus that, we've got some incremental costs that we do need to spend that has a cost now but a benefit later on. You can't get at some of that 260 basis point margin increase if you don't put a layer on top of CustomerConnect, so you can use the smart and the digitization that we've installed. Similarly, the IVMS PDD control room spend is real spend. People who run these fleets understand that you make the change and there is a year-long lag whilst you -- the behaviors change that then leads to the savings. So that's unfortunately just a situation we find ourselves in, and when we've done the detailed modeling, this is where we're at. Like I said to you before also, this is a clean -- this is a much cleaner guidance because we're changing that underlying adjustments policy. And you should expect there'd be less in that bucket, and there's only $45 million of that IT transformational spend, and that drops away in 2028.
Operator: Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.