Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cleanaway Waste Management Ltd (TSPCF, Financial) delivered double-digit EBIT growth for FY24, surpassing guidance.
- The company completed its Queensland recovery and transformed its health services business, reducing costs and increasing capacity.
- Operational excellence initiatives are gaining momentum, contributing to a 100 basis point increase in EBIT margin to 11.2%.
- Net operating cash flow increased by 12.5% versus FY23, reflecting growth in EBITDA and lower cash outflows.
- The company declared a fully franked final dividend of $0.0255 per share, contributing to a full-year dividend of $0.05 per share.
Negative Points
- A tragic accident involving a Cleanaway vehicle resulted in a fatality, highlighting ongoing safety challenges.
- Net finance costs increased by $19.6 million due to higher interest rates and marginally higher average net debt.
- Landfill EBIT declined by 2.4% year-on-year due to competitive market conditions and increased costs.
- The industrial and waste services segment saw a decline in EBIT margin by 60 basis points to 6.5%, impacted by deferred or canceled projects.
- The company faces ongoing challenges in the Victorian market, with competitive pricing and higher costs affecting profitability.
Q & A Highlights
Q: Can you discuss the competitive dynamics in the solid waste business and the impact on EBITDA margins?
A: Mark Schubert, CEO: The competitive landscape, particularly in the Victorian market, has been challenging with irrational pricing. We have focused on disciplined price increases and leveraging data analytics to implement differential pricing across our customer base. This has resulted in lower customer churn and improved profitability. However, higher fleet repair and maintenance costs and the general inflationary environment have tempered the benefits of price increases.
Q: Can you clarify the expected contribution from the health services business in FY25?
A: Mark Schubert, CEO: We hit the run rate of $15 million in the fourth quarter of FY24. For FY25, we expect the health services business to deliver approximately $15 million in EBIT, up from around $6-7 million in FY24.
Q: Does the net interest guidance of $130 million include any impact from the Citywide acquisition?
A: Paul Binfield, CFO: The guidance assumes no impact from the Citywide acquisition and no changes in interest rates. If the acquisition is approved, it could add around $8 million to net interest costs.
Q: What are the key elements driving revenue growth in FY25, and what are the swing factors within the EBIT guidance range?
A: Mark Schubert, CEO: Revenue growth will be driven by the restoration of the Queensland business, operational efficiency initiatives, and strategic infrastructure projects like the Santos contract and VIC CDS ramp-up. The swing factors within the EBIT guidance range will primarily be the momentum from branch optimization and the fleet strategy.
Q: Can you provide an update on the contract pipeline and key upcoming renewals?
A: Paul Binfield, CFO: The contract activity has been relatively muted, with a focus on maintaining a good balance of municipal contracts. We have been selective in pursuing new contracts and have seen a good year in terms of national accounts, winning more than we lost.
Q: How do you see the landfill dynamics evolving, particularly in Melbourne and New South Wales?
A: Mark Schubert, CEO: Melbourne remains highly competitive, impacting volumes and profitability. In New South Wales, we have focused on maximizing returns through price increases and operational efficiency, resulting in improved profitability per cubic meter. We are implementing a performance improvement plan for our Melbourne landfill to address current challenges.
Q: Can you elaborate on the expected margin improvements in FY25?
A: Mark Schubert, CEO: Margin improvements will be driven by the full-year impact of the health services business, labor productivity gains, and operational efficiency initiatives. Strategic infrastructure projects like the Western Sydney MRF and ECO site transition will also contribute, although they will have startup costs in FY25.
Q: What is the long-term growth potential for the hydrocarbons business?
A: Mark Schubert, CEO: We see significant growth potential in the hydrocarbons business, particularly in the evolving low-carbon, high-circularity lubes and fuel oil market. We aim to grow the business by a third in terms of EBIT over the next few years.
Q: How has the Victorian government's change in landfill levies impacted the economics of energy-from-waste projects?
A: Mark Schubert, CEO: The increase in landfill levies has brought us closer to making energy-from-waste projects economically viable. Recent council agreements for long-term energy-from-waste services further support the positive outlook for these projects.
Q: Can you provide insights into the cultural evolution and engagement scores at Cleanaway?
A: Mark Schubert, CEO: Voluntary turnover has decreased, and vacancy levels are down, indicating improved engagement. We have seen productivity improvements and reduced use of expensive subcontractors. Our engagement score was 62, slightly below the industry average, but we expect it to improve as we continue to roll out our guiding principles and Respect@Cleanaway training.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
