Thanks for operating. Good morning and welcome to everyone listening in today. Thanks for joining Cleanaway's financial results briefing for the 2025 financial year. My name is Mark Schubert. I'm joined by Paul, who's Cleanaway's CFO, and Josie, Head of Investor Relations. Following the presentation, we will open the call for your questions. Moving on to slide three, I'd like to acknowledge the traditional owners of the lands on which we operate all around the country and pay our respects to elders past and present. I'm going to take the disclaimer as read and start on slide six. FY 2025 was another year of delivery and progress. I am proud that our results demonstrate that at Cleanaway, we do what we say. We delivered a strong financial performance and attractive returns to shareholders.
This is evidenced by three consecutive years of double-digit EBIT growth, and in FY 2025, 15.8% growth in EPS, a 20% increase in total dividends, and a 50 basis point increase in ROIC. This is the sixth half where we have sustained our EBIT margin expansion, with FY 2025 margins expanding by 130 basis points. This demonstrates that our operational excellence program is delivering. Cleanaway is significantly stronger than it was four years ago, and this underpins our confidence to continue delivering sustainable, predictable earnings growth in FY 2026 and beyond. Two years ago, we set our mid-term ambition, and today I am pleased to confirm that we remain on track to deliver more than $450 million in underlying EBIT by FY 2026, excluding acquisitions. Again, this is evidence that we do what we say.
When we include the contributions from our recent acquisitions of Citywide and Contract Resources, FY 2026 underlying EBIT is expected to be between $470 million and $500 million. This translates to mid-teens to low 20% year-on-year EBIT growth. Strategically, we are on track, having now delivered three and a half years of disciplined execution against our Blueprint 2030 strategies. What I am excited about is that a lot of what we have been doing in this first phase of Blueprint 2030 is simply laying the foundations for the future. These are critical for transforming Cleanaway, creating a platform for delivering growth, and extending our market leadership as Australia's largest total waste solutions provider. Turning now to slide seven and a summary of the financials. Let me just say, this is one of my favorite slides.
Our FY 2025 financial results highlight the strength of our resilient and recurring revenue base and the benefits of our operational excellence program. Net revenue was up 3.4% to $3.3 billion compared to the prior corresponding period, driven by volume and price growth in our largest segment, solid waste services. Underlying EBIT was up 14.6% to $411.8 million versus the PCP. This was driven by double-digit EBIT growth in solids and the oils and technical services and health services segments. Importantly, industrial services finished the year in a stronger position than where it started. While challenging market conditions persisted throughout the year, this business has been streamlined and delivered positive EBIT growth in the fourth quarter. Group EBIT margin expanded by 130 basis points to a record 12.5% at year-end. This is up from 9.9% in FY 2022 and again reflects the benefits of our operational excellence initiatives.
These have been carefully designed and progressively rolled out over the past few years. Our branch-led operating model provides a landing zone for smarter working through data analytics, and coupled with the digitization of Cleanaway through CustomerConnect, we expect to continue driving margin expansion in the years ahead. Free cash flow was $270.2 million compared with $288.1 million in FY 2024. The key point here, and the one that Paul will explain further, is that excluding the catch-up tax, free cash flow increased by 26.1% to $363.2 million. Underlying net profit after tax was up 16.1% to $198 million. For the third year in a row, we have delivered an improvement in ROIC, finishing the year at 6%, 150 basis points higher than it was at the end of FY 2022. Our directors have declared a fully franked final dividend of $3.20 per share.
This takes total dividends for the year to $0.06 per share, equivalent to a 68.2% payout ratio. I'll now turn to slide eight and health, safety, and environmental performance for the year. Our FY 2025 safety performance reflects both the progress and the challenges of implementing our comprehensive five-year HSE strategy. I am deeply disappointed to report that we experienced three fatalities in our operations during the period. On behalf of the board and the management team, we extend our deepest sympathies to the families, the friends, and the colleagues affected by these tragic events. The health, safety, and [audio distortion] of the Cleanaway team and our contractors is fundamental to how we operate, and these events weighed heavily on all of us.
Following these tragic events, Cleanaway's board, the executive team, and safety leadership team worked together to embed the learnings of these incidents and review our HSE strategy and five-year action plan. In addition to confirming that it is fundamentally sound, we identified opportunities to accelerate a number of initiatives, including the rollout of in-vehicle monitoring systems to promote safe driving and accelerate our fleet replacement program to ensure vehicles are equipped with modern safety systems. Our personal safety performance fell short of our expectations, especially in the context of the efforts and focus we have placed on improving our safety performance over the past 24 months. However, it is encouraging to see our second half safety performance showing an improvement on the first half, and I'm pleased to say this has continued into FY 2026. Moving now to our environmental performance.
Just like safety, our environmental performance is foundational to how we operate. Compared to last year, we saw a 30% reduction in the number of environmental notices received. Managing our fire risk continues to be a key focus, especially given the ongoing challenge of batteries and household waste. Our continued focus on fire risk reduction has led to a 62% drop in medium-sized fires, reflecting the impact of early detection and suppression. As reported back in February, we had a fire in our Christie Street site in St. Marys. The site's fire systems and evacuation protocols were critical in ensuring no injuries occurred. The financial impact is expected to be towards the lower end of the previously reported $20 million- $40 million range net of insurance recoveries. I'll now move to slide nine.
Every day, working together with our customers, we recover resources and we protect the environment by providing safe and responsible waste management solutions. Our extensive five-year people and culture strategy is fostering a more engaged, more inclusive, and more stable workforce. Female participation at the group and operational level has improved for the fifth year in a row, and voluntary turnover is around record lows. Our recent engagement survey of 63% showed an improvement year on year, while highlighting inclusion at Cleanaway is real and strengthening. It was a big year for resource recovery capacity. We commissioned our Western Sydney Material Recovery Facility, or MRF. We upgraded the maturation hall at our Eastern Creek organics site to enable photo processing, and we cemented our position as Australia's leading container deposit scheme operator alongside TOMRA, with the commencement of the Tasmanian CDS.
We also expanded our ability to protect the environment through the provision of total waste solutions with the acquisition of Contract Resources, which positions us just where we want to be so we can capture our share of the decommissioning, decontamination, and remediation vector in both offshore and onshore oil and gas in Australia. To put our impact in context, in just one of our SBUs, in health services, we safely managed 32,000 tonnes of hazardous healthcare waste, and in so doing, protected the natural environment and surrounding communities. Our fourth pillar, reducing emissions, continues to be an area where we are leading the waste industry. We've increased our methane capture rates at our landfills by approximately 31% compared to FY 2022, and as a result, reduced our combined greenhouse gas emissions by 13% since FY 2022. We remain on track to meet our 2030 emissions reduction targets.
Moving to slide ten, I'll give you an update on our two strategic acquisitions, which collectively are expected to deliver approximately $30 million in EBIT in FY 2026. Starting with the acquisition of Citywide's waste and recycling business for $110 million, which includes a 35-year lease over the Dynon Road transfer station in West Melbourne. As a reminder, this is Victoria's second largest transfer station and is located just 5 km from the CBD, which is why this is about location. The transfer station efficiently connects the Western Corridor of Melbourne to MRL, complementing our position in the southeast with SEMS. The acquisition is about creating the efficient and integrated collections and post-collections network we have been looking to establish in Melbourne for some time.
In FY 2026, Citywide's EBIT contribution is expected to be in the low single digits as we begin planning for the redevelopment of Dynon Road, which will effectively double its capacity and is expected to deliver capacity-led growth from FY 2030 onwards. Through the realization of network efficiencies in the near term and capacity-led earnings growth in the medium term, Citywide showcases how we're delivering a platform for sustainable growth. Moving to slide 11. Two and a half weeks ago, we welcomed the Contract Resources team to Cleanaway. What we have acquired, in our view, is the market-leading production-critical services provider to Tier 1 oil and gas operators. It has a growing earnings profile, EBIT margins significantly above those of our existing industrial services business, and long-standing customer relationships, many spanning over a decade. Strategically, the business is an excellent fit and acts as a growth multiplier across the group.
It does this by providing a platform for future growth by expanding our decommissioning, decontamination, and remediation capabilities, while also adding a new sales channel for our core solid and liquid waste services. The integration of our industrial services operations into Contract Resources will be transformative, elevating industrial services to Contract Resources' best-in-class standards and unlocking new opportunities for scale, efficiency, and customer value. Once the integration is complete, we expect to realize $12 million in annual cost synergies at full run rate in FY 2028, with a back-end profile and only modest realization in FY 2026. For FY 2026, Contract Resources is expected to contribute around $25 million of EBIT for the 11 months of ownership. That's before synergies and after amortization of acquired customer intangibles of approximately $10 million. It has been a super busy few weeks welcoming both the Citywide and Contract Resources teams to Cleanaway.
There is lots of genuine excitement across the group, and it's great to see our teams already working together in the way that they are. I'll hand over to Paul to take you through the financials.
Thank you, Mark. Now turning to slide 13 and starting with a summary of our financial performance for 2025. As Mark mentioned, these results reflect another year of delivery and progress. Group net revenue of $3.3 billion was up 3.4% on FY 2024, underpinned by revenue growth in our largest segment, solid waste services, of 6%, which was driven by a mix of volume, growth, and pricing discipline across the collections and post-collections lines of business. Group net revenue was tempered by lower revenue from OTS as a result of network congestion caused by the fire at Christie Street, as well as industrial services, which continued to face challenging operating conditions. After adjusting for significant items, the group delivered a strong underlying EBIT at $411.8 million, presenting another year of double-digit growth of 14.6%.
EBIT growth reflects a 130 basis point margin expansion supported by strong solids performance, underpinned by the branch-led operating model, and strong contributions from health services, as well as higher margin project work in the second half from OTS. Net finance costs were $121.5 million, which was at the lower end of our guidance. Our effective tax rate increased to 31.8%, and we expect this to reduce in FY 2026 to between 30% and 31%. Underlying EBIT of $198 million was up 16.1%, with EPS of $8.80 per share, up 15.8%. Both measures reflect a substantial step up in performance over the past three years, reflecting our efforts to strengthen the business and deliver sustainable growth.
Against this strong increase in underlying EBIT, we continue to improve up another 50 basis points year on year, primarily driven by the Capital Light operational efficiency initiative, increasing profitability, as well as the incremental returns from strategic growth investments. The balance sheet remains strong with a group leverage ratio of 1.85 x at the end of 2025. Post-acquisitions, the group leverage ratio remains very comfortable at around 2.4x , and we continue to maintain a strong balance sheet and have a clear, actionable path towards further leveraging. Turning to slide 14 for a quick overview of the underlying adjustments this year. Underlying adjustments in 2025 were largely driven by the following three significant items. As we advised back in February, the cost of $23.2 million related to the fire at Christie Street St. Marys was taken below the line.
These reflected clean-up costs of $7.8 million, additional costs of working of about $6 million, asset write-offs of $11 million, all partially offset by insurance recoveries of $1.6 million. Our expectation for FY 2026 is that the insurance recoveries will largely offset incremental costs. There was a $16.9 million P&L loss recognized as a result of our divestments in Res ource Co and $5.7 million of acquisition and integration costs associated with Citywide and Contract Resources acquisitions. As previously flagged, there were IT transformation costs of $18.2 million, which were expected to be ongoing until the completion of CustomerConnect in FY 2028. Turning now to slide 15 and the group's cash performance, free cash flow was $270.2 million compared with $288.1 million in 2024, as a result of the catch-up tax payment related to FY 2024 of $93 million, following the end of the Commonwealth Government's temporary instant asset write-off scheme.
As seen back in February, the resumption of tax payments had a distorting effect on this year's cash flow and is expected to have a similar but smaller impact in FY 2026 before normalizing in FY 2027. In FY 2025, the total tax paid of $115.4 million reflects $22.4 million of monthly tax installments for 2025, which resumed in March of this year, and $93 million of catch-up tax associated with 2024. In FY 2026, our total tax payments are expected to be between $145 million and $170 million, and will be the sum of two components. The first is our regular FY 2026 monthly tax installments, which are expected to be between $90 million and $110 million. The second will be a catch-up tax payment associated with FY 2025. This is expected to be between $55 million and $60 million and will be paid in December 2025.
Also included in this result is the one-off $15 million option fee paid to Boral, which secured access to land adjacent to the MRL site. This provides greater certainty for our MRL operations, with more efficient airspace and stronger prospects for approvals compared to the northern area of the site. There was a free cash flow benefit of $45.3 million due to the reduction in maintenance cash CapEx to $217.6 million, largely reflecting the strength in capital management discipline throughout the business. Net proceeds from the sale of PP&E were $30.6 million, reflecting our focus on exiting excess fleet and property. With a national network of branches enabling our broad range of services, we actively manage our property footprint. In FY 2025, we've sought efficiencies by combining businesses on shared sites and, where possible, exiting excess property holdings.
We would expect this program of property rationalization and sales to continue for a number of years. When considering what this means for 2026 and 2027, it's worth keeping in mind that for some of our non-core sites, given their historical use, these are complex deals and their timing is hard to predict. Turning to slide 16 and CapEx, it's pleasing to report that, as we committed to back in May 2024, we've stepped down our total capital expenditure envelope from around $450 million in FY 2024 to below $400 million in the current year. Total CapEx for 2025 was $382 million, reflecting the benefit of the capital management disciplines that we're instilling across the business.
During the year, we continue to fund our fleet replacement program and our investment in growth assets such as the Western Sydney MRF , Eastern Creek Organics, and other smaller projects such as TA CDS and the Department of Defence contract. In FY 2026, we expect total CapEx to be around $415 million, reflecting the continuation of our existing CapEx envelope of $400 million, which is inclusive of Citywide spending, plus another $15 million for Contract Resources. Looking ahead, with several major capital projects such as the MRF nearing completion, our focus is shifting towards accelerating the fleet replacement program, which is an important part of our broader fleet transformation.
Fleet replacement represents a compelling opportunity, offering a lower risk profile and attractive returns, driven by the benefits of newer vehicles, which include enhanced fuel efficiency, reduced repair and maintenance costs, and importantly, the integration of advanced safety technologies. Turning to slide 17, net financing costs were $121.5 million for the year, an increase of approximately $6 million on the prior year, but at the lower end of our guidance. The higher finance costs primarily reflect marginally higher net debt during the period, as well as the continuation of maturing leases being replaced with new leases at higher interest rates. These increases were partially offset by reductions in the RBA's cash rate. In FY 2026, net finance costs are expected to be approximately $150 million, driven by the following factors.
The increase in net financing costs reflects high borrowings following the 100% debt funding of both Citywide and Contract Resources completed in July of this year. Including the acquisition funding, our leverage ratio remains very comfortable at 2.4 x. In May, we priced our second USPP notice issue following our normal issuance in 2019. Our banks have advised us that this was the tightest priced BBB or equivalent rated USPP transaction for any issuer since February 2022. The new $510 million of USPP notes have an average maturity of 11 years, and we swap the cash flows associated with them back to AUD. The notes will be funded next month and will be used to repay a lower cost with short-term bank loans. Similarly, the maturing Green Energy Finance Corporation term loan facility, which is at a low fixed rate of interest, will be refinanced into a new seven-year facility.
Offsetting the increase in net financing costs are lower underlying base rates. Our interest rate forecast includes an assumption of one further 25 basis point rate cut by the RBA occurring in FY 2026, and is in addition to the rate cut last week. For context, every 25 basis point cut in RBA cash rate results in an annualized interest saving of approximately $3.5 million. Turning to slide 18, just to finish a few words on dividends. The board has declared a final dividend of $3.20 per share, bringing the total fully franked dividends for 2025 to $0.06 per share, representing an increase of 20% year -on- year. The increase in dividend reflects the board's confidence in the future prospects for the business, given the strong momentum.
We've also introduced a modest 1.5% discount on our existing dividend reinvestment plan as a proactive capital management tool, given that we fully debt funded the acquisitions. I'll now hand you back to Mark to take you through the segments.
All right, thanks Paul. We're now turning to the segment updates and starting with our largest segment, which is solids, which delivered another strong result. We saw 6% revenue growth, which was driven by disciplined price management and volume growth. We saw a 12.8% increase in EBIT driven by strong earnings growth in our resource recovery and Metro Muni collections lines of businesses. We saw steady results from C&I collections and landfills and transfer stations. After a 150 basis point increase in solids EBIT margin in FY 2024, it was great to add a further 100 basis point increase in margin in FY 2025 flowing from our Cleanaway operational excellence initiatives. This growth was achieved despite lackluster market conditions in recent years, underscoring the value we're unlocking by strengthening our foundations and focusing on what we can control. Our branch-led operating model is continuing to prove its value.
It delivered labor efficiencies in the second half by giving local leaders greater ownership, backed by consistent processes and data. Having been rolled out across 92% of branches as of 30 June, the rollout of the BOM across solids will be complete in the first quarter and embedded over FY 2026, really setting us up to realize further benefits. Fleet transformation is also delivering. We've reduced fuel costs by renegotiating pricing, tightening governance, and driving supplier compliance. At the same time, we're optimizing our ownership model and asset lifecycle. We're now expanding our focus to better manage our fleet repairs and maintenance costs. With the fleet replacement program delivery starting this year, we'll see immediate gains in operational costs and safety across the network. Turning now to some additional detail on our collections line of businesses on slide 21.
Commercial and industrial, or C&I, customer collections, combined with our regional muni operations, account for around 45% of solids net revenue, and the results demonstrate the resilience of our diversified recurring revenue base. Metro and regional C&I collections net revenue grew by 3.4%, as disciplined pricing drove 4.4% growth, which was partially offset by a 1% volume decline in metro markets. Overall, EBIT was stable, as operational excellence initiatives, including a focus on route and lift efficiency and the completion of 15 SWAT programs, offset the impact of softer market conditions, primarily in metro markets. We demonstrated strong customer retention, renewing major national contracts with the Coles Group and Hungry Jack's, and extending our contract with Spotlight Group and Collins Foods, to name a few. We also saw improved customer churn and higher new business wins compared to last year.
In FY 2026, we expect pricing discipline to drive top-line growth and BOM initiatives to lead to further margin expansion. If we stay in collections but move to Metro Muni, where we saw revenue growth supported by the addition of new services in Queensland, including the Moreton Bay Green Bin rollout and Organics contract. Double-digit EBIT growth was driven by stricter contract management, ensuring we're paid for the services we perform and that we're meeting customer KPIs, as well as the realization of operational efficiencies through the branch-led operating model, particularly in New South Wales, where it was first adopted. We maintained our disciplined approach to tendering, only bidding for contracts that deliver sustainable returns, securing this line of businesses' contribution to earnings well beyond FY 2025.
If we turn to slide 22 and shift to our post-collections operations, our core landfill portfolio delivered 2.3% EBIT growth through a combination of pricing and higher volumes. If we run through the larger landfills. At MRL, we benefited from project volumes in the second half. At Lucas Heights, pricing discipline, density management, and tight cost control offset lower volumes. At Kemps Creek, we saw continued competitive pressure in the construction and demolition market and felt the impact of a sluggish construction sector. Landfill gas and carbon revenue increased year on year, driven by additional landfill gas capture, which in turn generated additional accu-sales and gas royalty revenue. The Lucas Heights Capital Light joint venture contributed $5 million of EBIT. It will continue to contribute an additional $5 million in FY 2026 and a further $5 million in FY 2027. Outside of the core landfill portfolio, New Chum reopened in late May.
Its reopening was delayed by Cyclone Alfred, which resulted in higher than expected costs being incurred in FY 2025. It is expected to close permanently in FY 2026 as planned. As some of you might know, on the 1st of July 2025, Victoria increased their landfill levy by $40 a ton. This is likely to prompt some customer movement across the market, which we expect to manage through proactive engagement, minimizing any impact in FY 2026. Importantly, the levy increase is a clear signal from the Victorian Government of their intent to create the conditions for energy-from-waste projects to be commercially viable, an outcome that will require further levy rises. We support this approach as we see a role for both landfills and energy-from-waste in meeting the state's long-term resource recovery and disposal needs.
Finally, moving to the fourth line of business in our solids segment, which is resource recovery, collectively accounting for 25% of the solids net revenue segment. These lines of business delivered strong EBIT growth, mainly driven by CDS and from our MRFs , driven by higher yields, commodity volumes, and pricing. CDS's EBIT growth was driven by Victoria, with a full-year contribution versus eight months last year, the expansion of the program in Queensland to include wine and spirit bottles, and the initial contribution from Tasmania, which commenced operations on the 1st of May . We now turn to slide or page 23 and the oils and technical services and health services. To avoid confusion, this used to be called liquid waste and health services. OTS was established in the second half of the year through the consolidation of our liquid and technical services and hydrocarbons businesses.
Their combination leverages a shared customer base and a complementary branch network, creating opportunities to optimize assets, drive operational efficiency, and capture cost synergies, with benefits expected from FY 2026 onwards. OTS's liquids-related business delivered strong first-half revenue growth across all regions. However, momentum in the second half was tempered by network congestion in both New South Wales and Victoria following the Christie Street fire. EBIT growth for the year was supported by higher margin project volumes in Queensland, increased decommissioning and emergency response activity, and the successful commencement of the Department of Defence contract in both Queensland and Western Australia. OTS's hydrocarbons-related business also delivered strong solid earnings growth. Increased oil collections from key customers and a shift towards higher quality, higher margin Group 2 base oil products helped offset lower base oil pricing.
Health services delivered EBIT ahead of its $15 million target, driven by strong results in Victoria and New South Wales and retention of the majority of the Health Service Victoria contract, albeit at reduced profitability. The three-year transformation of health services has been a real success, showcasing how our data-enabled branch-led operating model drives sustained operational improvement, delivering earnings growth and improved customer outcomes. For example, on customer service, we saw an uplift in the health business' service in full and on time, or SIFOT, from the mid-70% in June 2023 to the mid-90% in June 2025. Looking ahead, we expect the OTS merger to deliver cost synergies, with the branch-led operating model to be rolled out across the business in FY 2026. The network constraints associated with the Christie Street fire are expected to be resolved during the year. Turning now to slide 24 and industrial services.
In FY 2025, we reshaped and repositioned industrial services against the backdrop of challenging market conditions. We think about our industrial services business through the lens of projects, metro, and contracted revenue. The 6.4% net revenue decline reflected the impact on project revenue as customers deferred, delayed, or canceled activity, as well as our strategic decision to step away from unprofitable metro contracts. On the contracted revenue side, which represents about 60% of industrial services revenue, we continued to see stable earnings from these customers, which provided a degree of resilience through the period. If we put that all together, industrial services EBIT was down 10.2% year -on- year, but second-half performance improved as the benefits of the restructure came through. We delivered a Q4 EBIT run rate slightly below target due to the impact of Cyclone Alfred, but still ahead of Q4 FY 2024.
The restructure will deliver $10 million in annualized cost savings in FY 2026, with $7 million realized in FY 2025. Those savings have come from consolidating operating regions, streamlining the metro network and fleet, and reducing headcount. As we enter FY 2026, our industrial services business is more focused, particularly on Western Australia, and ready to capture opportunities from its integration with Contract Resources, which importantly only does contract and associated project style work. Now turning to a few slides on strategic progress and outlook before we get into the questions. On slide 25, I want to start with a recap on who we are and how we can create value for shareholders. We are Australia's leading waste management company. We have the largest national network of integrated collections and post-collections waste assets, and we are a leading provider in every segment we operate in.
Our prized assets and national collections service service a diversified base of customers and, as evidenced today, generate a stable recurring revenue base that delivers predictable and growing earnings. The tailwinds are firmly in our favor. We grow as Australia grows, with waste volumes growing in line with real GDP. Federal and state government policy is pushing harder on sustainability and self-sufficiency, and community expectations are increasingly seeking better resource recovery and responsible disposal solutions. These are the markets where we lead and where we see significant opportunities ahead. Just as we've seen our North American peers do successfully, we are modernizing and transforming Cleanaway. We're digitizing core processes like the call-to-cash cycle through CustomerConnect. We're transitioning to a best-in-class fleet logistics model, and we're using data to make smarter, more profitable decisions and drive productivity.
Through the branch operating model, we are systematically and sustainably lifting the performance of every branch with structured programs that build culture, capability, and capacity. We see a not-too-distant future where the combination of our scale, our modernization initiative, and the branch operating model reduce our cost to serve and extend our market leadership. Our commitment to capital discipline was a core tenet behind our decision to evolve the business's focus from EBITDA to EBIT. Our approach to capital management is grounded in a disciplined and strategic intent, with centralized CapEx processes giving us tighter control over our spend, while a rigorous evaluation model anchored in risk-adjusted IRR hurdles is allocating capital to where it creates the most value. We've transformed our project's delivery capability on the ground, which has improved schedule, cost, and safety outcomes. We are deliberate in how we grow.
M&A is used selectively only where it accelerates strategic objectives or it involves assets that cannot be replicated organically. At the same time, we favor Capital Light solutions that enhance flexibility and returns, such as the LMS landfill gas joint venture. Collectively, this discipline means we can keep investing in growth while delivering stronger returns to shareholders. Now to our FY 2026 scorecard on slide 26. As mentioned at the start of this presentation, we are on track to deliver on our mid-term ambition of more than $450 million of EBIT in FY 2026. I do want to explain what I see when I look at that scorecard on the screen because there's a lot to be proud of on the page. What I see and what I'm most excited about is the progress that we've made over the last three years to structurally and sustainably transform Cleanaway.
I don't use the word transform lightly. Items like building our data analytics capability and scaling it, transforming our fleet and how we operate every part of it, digitizing the call-to-cash process, or designing and installing the Cleanaway performance system that is our branch-led operating model is what I'm referring to when I use the word transform. Combined, this is about creating a stable platform that can deliver great customer service, that unlocks the benefits of our scale, and that drives our leading position forward. Now moving on to slide 27, which is the final slide. For FY 2026, we expect to deliver underlying EBIT of between $470 million and $500 million, which includes approximately $30 million from acquisitions. We often get asked the question around how to think about the factors that shape the lower and upper bounds of that range. We thought it'd be good to cover it now.
What I would say is first, the underlying business is stable and performing. This is evidenced by today's results and the fact that we delivered in the middle of our FY 2025 guidance range, just as we said we would do. We believe the base business in FY 2026 will comfortably deliver greater than $450 million of EBIT. Secondly, our two acquisitions are looking good. We've had Citywide for seven weeks and Contract Resources for 20 days. Both are performing in line with our expectations, expectations set during our extensive due diligence processes. Our FY 2026 guidance range of $470 million - $500 million reflects a performance range of only ± 3%. This narrow range reflects our focus on tightly controlling the controls.
The lower end of the range captures scenarios where a number of risks realize themselves, such as a significantly weaker economy when compared to the current lackluster one, and where this is not able to be offset by the opportunities we're working on. Again like last year and the year before, our plan is not to deliver the bottom of the range. We also think it's prudent to have a range that allows for upside and downside risks. Again, we are confident the base business will deliver more than $450 million of EBIT. Alongside delivering on our mid-term ambition, we will progress the integration of both Citywide and Contract Resources. This will be done in a disciplined and systematic way. I'm pleased to report that we have a number of the key leaders who successfully integrated the Suez and GRL assets once again overseeing the integration of these two businesses.
Before I hand over the call for questions, I want to finish with what I think the three key takeaways are from this result. Firstly, we have done what we said we would do. We've delivered FY 2025 at $411.8 million. We're on track to deliver on the mid-term ambition of greater than $450 million, whilst continuously improving ROIC. The strategic acquisitions are on track and performing as expected. Secondly, we are transforming Cleanaway, creating a stable platform that can deliver great customer service, that unlocks the benefits of our scale, and that drives our leading position forward. In many ways, this is just the beginning because this platform will power Cleanaway well beyond FY 2026. Finally, this is a team effort. To our now 10,000 Cleanaway teammates across Australia, the Middle East, and New Zealand, a big thank you for making this result happen. I'm looking forward to what happens next.
With that, I'll hand over for questions.
Thank you. If you would like to ask a question via the phones, you'll need to press the star key followed by the number one on your telephone keypad. If you would like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Today, we kindly ask that if you can, please ask all questions up front. Your first question today comes from Jacob Kakarakis from Java, Australia. Please go ahead.
Hi Mark, hi Paul. Three from me, so we'll have to ask them in concert. The first one, I'll direct at Mark. With the guidance range that you've given, I don't think it takes a genius to work out that at the low end, less than $30 million of EBIT contribution from M&A, you're actually trending or guiding below your $450 million ambition that you've emphatically reinforced. Can you just tell us why that would be the case? Two, for Paul, if I could, the operating cash conversion in FY 2025, even if you adjust for the tax catch-up, looks to be about 70%. Can you just talk to us what's going on there? Did some of the option costs flow through the operating cash flow line? Finally, on the net finance guidance, it looks like increasingly the non-cash components are crowding out the cash components.
In FY 2025, your non-cash net finance costs were over 50% of the net finance costs. Could you just let me know what's going on with the lease roles, please, and anything I need to consider either on capitalized interest that comes out in 2026 or anything on the provisioning, please?
I'm glad that you put those ones to Paul, not me. I'll go to the first one. I'm going to give you an answer which pretty much already covered, but I'll go over it again. The first point here, Jacob, is that the underlying Cleanaway business is performing strongly, and that's evidenced by the $411.8 million, exactly where we want it to be, right in the midpoint of that $395 million, $425 million range. Second, the two acquisitions are looking good. Like I said, at Citywide for seven weeks, Contract Resources for 20 days, and the performance is exactly as expected. We love those two businesses. Like in previous years, we see the $475 million guidance range more like ± $15 million around the midpoint or ± 3%. We think that that's pretty narrow. The range reflects our focus on tightly controlling those controllables.
Your question is about the lower end of the range. My answer is that it would require a number of the risks to realize themselves, such as a significantly weaker economy to the current lackluster one. You can form your own opinion whether you think that's likely or not. That's not able to then be offset by all the opportunities we've that we're working on. It's not our plan, and it's not been our history either to deliver at the bottom end of the range. We do think it's prudent to have a range. Yeah. That's why we've said it.
Yeah, thank you, Jacob. In terms of the free cash flow for the year, you're right. The option fee in relation to borrow accounting standards basically require us to sort of treat it as an operating amount, essentially. You could regard it almost being a degree of growth CapEx in nature. That's simply what we're required to do. If you look at the other elements of free cash flow as well for the period, I'm sure you've seen similar benefits coming through in terms of maintenance CapEx being lower this year compared to last year, about $40 million. Our aim is to make sure that we maintain that. We're seeing some really good progress around just instilling a better capital discipline through the group. That's looking pretty encouraging. Landfill remediation, another important line item in terms of free cash flow.
I expect a similar sort of level, certainly for 2025 and 2026, as we start to get very active around capping activity in the likes of MRL and New Chum once it's closed. Importantly, the cash flows, outflows associated with New Chum rectification that you've seen in 2024 in particular, to a degree in 2025, they obviously have ceased now, which is good news. I guess perhaps finish off just with the one-offs. Clearly, it has been an issue in the past. I think the good news in terms of Christie Street, our expectation is that any additional sort of expenses that we take below the line around additional cost of working, they'll be offset by the insurance recoveries that we expect during the year. Again, that should be a [net] one.
In terms of your comment on net finance expenses, if I just take you to slide 17, the non-cash component has been around the $30 million mark for the last three years. Not been any significant shift in that regard. In terms of capitalized interest, there are some capitalized or deferred acquisition costs of debt. They're very modest. They'll come through, frankly, for the USDP over the next 15 years. Not have any material impact at all on their finance expense.
Next question, please go around.
Thank you. Your next question comes from Rob Coe from Morgan Stanley. Please go ahead.
Good morning. Apologies if you covered these questions earlier. I did have to join a bit late. I do apologize. My first question is in relation to the fatalities reported, and if you could give us any update on what the reflections and learnings are on those to the extent you can. My second question is in relation to the MERC announcement. I think, is that today? If you could just remind us how Cleanaway is going to be approaching that waste-to-energy opportunity. Then just a third question. With the Contract Resources, I think you said you've had it for 20 days. Can you maybe just give us a sense of what the pipeline of new contract opportunities is looking like? Thank you.
All right, thanks. Thanks, Rob. If you missed what I said on the fatalities, I did open up with that and obviously, just reiterate tragic events and our sympathy with families, friends, and colleagues. It really has impacted us all. I'm not going to go through the individual nature of them because I don't think that's appropriate, but I'm happy to take shareholders through that in quite a lot of detail as we go through the coming weeks. I think we have completed, we're two years into a five-year plan around improving our HSE. A lot of the items there are foundational items, things like critical risk and critical controls. We've rolled those out for 330 branches. Now we can make sure that we actually, with those embedded, get the benefits of those improved controls and improved assurance. We expect safety performance to improve.
We can see our leading indicators improving. We're pleased with the second half 2025 performance, and the 2026 year-to-date lagging indicators. If I move to the MERC announcement, just to bring everybody up to speed. It's kind of like what's happened at 10:30 A.M. today, which is not particularly helpful in terms of timing. The Victorian Government announced that the allocation of the cap for energy-from-waste projects in Victoria, if you remember, the approach there was to have a cap that allowed for an orderly transition. The government would allocate that cap based on the merits of the component and the technology that effectively each of the parties was putting forward. Originally, the cap was going to be 1 million tonnes, and then there was a whole discussion that wasn't really enough. We thought the government should get rid of the cap completely.
They decided to increase the total cap to 2.5 million tonnes, which is what happened. Today it got announced that Cleanaway got 760,000 tonnes per annum of capacity. We got one of the largest allocations. You could say, why did we apply for 760,000 tonnes? The answer to that is because larger twin line plants are more economic in terms of the way the facility scale or the cost of running the facility scales with the volume. It's not dissimilar to what's been proposed in terms of volume for Maryvale for parks for the Gold Coast. It's similar to the global shift that we're seeing around larger twin line plants.
Really, all we're doing now is we're continuing down our same process that we've talked to investors and analysts about in the past, which is the originator approach where we're going to originate these projects to ensure we get low-cost access that we need whilst then bringing in strategic partners to help bring those projects forward. CR for the last 20 days, what are the pipeline? We're pretty excited. We're pretty excited about the pipeline of opportunities that CR has got. Interestingly, maybe just an observation, Rob. CR , you know, when you speak to the team there, they don't even talk about DD&R because it's basically just work that they do for those existing counterparties. If they're already doing work with Chevron on what we would call DD&R , but for them, which is just project work.
Similarly, they're doing work for [Exxon], which will become Woodside down in Gippsland, which looks like DD&R but is actually just project work for them. We've got a real opportunity now as we bring together the combined scope and really get the synergies cracking as now we attack that scope together. All right. T he next one, operator?
Thank you. Your next question comes from Lee Power from JP Morgan. Please go ahead.
Hi team. Mark, just the upper end of the range is obviously quite tight as well. I'll take your comments around the lower end being worst-case scenario. You're still tracking green against most of your Blueprint 2030 priorities. How do you think we think about growth beyond 2026? Has anything changed around the level of EBIT that those kind of initiatives would contribute in your mind? That's the first question. The second part of it is just on C&I volumes. They're obviously down 1% a year, pretty tough. When do you think that changes going forwards? The third part, Paul, is just around an updated interest rate sensitivity on the net finance cost guidance.
Yeah, cool. Thanks for those questions. In terms of sort of growth beyond 2026, what I would say is the simple answer would be we're very excited about growth beyond 2026. It's similar to what we've talked about before. We would see the building blocks being GDP plus, so we grow as Australia grows. Then you layer in what will come through from that investment in strategic growth. You're going to see the benefits of Contract Resources flow through. You'll start to see the benefits of Citywide flowing through. You'll start to see DD&R and our funnel of activities start to ramp in there. Obviously, we'll get the margin expansion elements from the operational excellence piece. I really want to land this point so everybody understands what we're saying. I've tried to say it like four or five times today, but I'll spell it out again.
When you combine CustomerConnect, the digitization of Cleanaway from the call to the cash, and you combine that with the branch operating model and the scale and then the control of those branches and their improvement, and then you add data analytics, then scale becomes an advantage. That's really what we're going after in that operational space. Operational excellence space is getting that scale. You add to that on operational excellence the benefits of things like transforming the fleet. You've seen us have a crack at fuel. We're right in the midst of R&M, so repairs and maintenance. We're obviously right in the midst of fleet replacement. You add things like landfill gas monetization and things like that. There's a whole other suite of strategic items that we don't talk about because we don't want our competitors to hear about them that we're excited about for growth beyond 2026.
I guess what it's really saying is there's a lot to be excited about. In terms of C&I volume down, just remember we said that was sort of mainly metro, mainly metro C&I. That's a similar story to the last couple of times we've chatted where we're saying interestingly, like churn is down, new business is up, but what remains is what we see is down trading where customers, because they're doing it a bit tough, are saying, or they're more focused on their cost, are saying, we'd like our bin collected a bit less frequently, or we'd like a smaller bin.
The thing with that is that's a trend that we're looking to turn around by being smarter, not working harder, where we can actually now use our data analytics platform and Salesforce to feed pricing engine golden price through to the Salesforce team and target back to fill the route density on those routes that we've lost a little bit of. That's our attack there. That's a really big focus in Cleanaway in the next six, 12, 18 months, then up interest rate.
Yeah, Lee, in terms of interest rates, every 25 basis point reduction is worth $3.5+ billion interest. An annualized $3.5 billion isn't clear. Guidance we've given, we've assumed there'll be one further rate cut. If you believe there are more, then obviously there's further upside in that regard.
Thank you.
Thank you. Your next question comes from Amit Kanwatia from Jefferies. Please go ahead.
Morning Mark, morning Paul. Maybe just thinking of the guidance and thinking about the staircase for fiscal 2026. I mean, you are at $412 million of EBIT, 2025 inclusive of acquisitions. You are at $440 million, so that's a starting point. When I look at the last couple of years, I mean, you've delivered $50 million of improvement, EBIT 2025, 2024. Maybe if you can speak to, I mean, you've spoken to the momentum in the business at the low point as well. Maybe if you can elaborate the swing factors at the top of the range and how should we be thinking about your $50 million EBIT improvement delivery in the last two years versus what you've provided today? That's question number one. Question number two would be for Paul. I mean, you've spoken to the DD&R kind of opportunities in the market.
Maybe if you can elaborate a bit more on the growth CapEx pipeline you are seeing over the next 12, 24 months, excluding DD&R. That's question number two. Again, I just want to touch base on the finance cost as well. $150 million of guidance. I mean, the way I am thinking is there is at least $9 million benefit from the RBA rate cuts that's on 2026 on 2025. Then you've got $500 million of acquisitions should add roughly $25 million, $30 million of higher net interest cost. I mean, the end number still gets me to less than $150 million. Maybe if you can do a bridge in terms of the finance cost movements from 2025 to 2026, please. Thank you.
Okay, I'll take the first one. I'm glad Paul's got the second one. Once again, splitting these questions is working really well. If we think about, maybe just a couple of comments for me just to remind you. Remember when we set the mid-term ambition a few years ago, there was that restoration bucket of $50 million that was Queensland health and labor recovering. Our view would be that kind of like, you know, those buckets in 2026 will be fully delivered. They don't, but like the restoration bucket, that $50 million to ground, that thing doesn't repeat itself. You're left with the other two buckets that do continue to repeat. I think if you're thinking about how do you get to sort of like, you know, $412 million to, you know, up around the midpoint of the range, you've got three building blocks to do it.
The first is you've got to have your organic growth in there. That's things like the Western Sydney MRF , you know, flipping on and starting to deliver. It's the defense contract, the full year. It's the full year of CDS Tas, but just remember those 18 months to start up a CDS operation properly or to ramp it up. That's kind of sitting in that organic growth bucket. Then there's the ops excellence bucket, and that's things like, you know, you start with the branch operating model, the fleet work that we're doing, the first benefits flowing through from CustomerConnect, the OTS synergies between Hydro and LTS, another $5 million from LMS this year. That's kind of sitting in that ops excellence bucket. You should definitely see some margin expansion coming in there.
The third part will be the strategic acquisitions, the Citywide and Contract Resources come in. You get to, you get that, that sort of, you know, puts you into that midpoint of the range. I think if you say, you know, your question started with what do you have to believe to get to the top end? It's just the acceleration of the ops excellence stuff. Again, that is the big bucket and it's how hard and fast we can go. Paul?
In terms of growth CapEx, Amit, essentially there is a shift in terms of activity in this space. I think you've seen obviously Western Sydney MRF largely completed in this year. The FOGO at Eastern Creek will continue through 2026 and complete in 2026. As well, obviously, CustomerConnect, that will also continue through 2026 as well and into 2027. Importantly, of course, one we're very excited about is the Diamond Road Transfer Station redevelopment. We'll start the planning in 2026. Expectation is the majority of that spend will occur in 2027 and probably 2028. I think an important point to draw out now, we've mentioned it a few times in the call, but just to emphasize, we can really see the benefit through expediting the fleet replacement program.
Essentially, we can see with the new technology coming in, we're seeing trucks that will actually deliver us really quite attractive returns at a lower risk. Hence, we are going to be committing probably a greater element of what we would almost call growth CapEx into fleet replacement as well. In terms of the net finance costs, again, clearly, we have assumed that there will be one further rate cut from the RBA in a year. That's our assumption. If you believe there are going to be more, that can be something that you can factor into your net finance cost estimates going forward. In terms of the refinancing activity we've done during the year, we are blessed in many ways by having long-term assets, whether they're actual building, land building type assets, infrastructure style assets, or whether it be customer contracts.
One of the benefits of that means that we can also attract long-term debt from banks, another of our key providers, and we've taken the opportunity to do that during this year. We've gone out into the market and issued our second USPP with maturities out for 15 years. It's a fantastic deal. The bank said it was the sharpest price deal for a BBB rated equivalent since Feb 2022. I think we were very pleased with the pricing we got with that transaction. It simply eliminates refinancing and was going into the future. It obviously provides a key source of funding for the acquisitions that we've done as well. We also mentioned too that the CFC loan that you'll see sitting on the balance sheet due to mature, in fact, in August, in this month, we're looking to extend that out for a further seven years. That was a particularly low rate of interest around the 2% mark.
We'll obviously be refinancing that at more current rates. They're floating, so they'll benefit from the rate cuts. Does that help a bit?
Yeah, useful. Thank you.
Next one, please.
Thank you. Your next question comes from [Owen Boral] from RBC. Please go ahead.
Yeah, hi, good morning guys. I guess you have three questions for me. The first two will be around the guidance. Just in terms of what's included and what's not included, the first question for me is, I guess for the Department of Defence contract, you were pretty vague previously about what that might be worth. Just wondering if you can give us a sense as to the contribution that that's going to be making into FY 2026, and, you know, i.e., is it now known? Second question is very much what you're assuming in terms of contract wins, not only in the DDR space, but also, you know, landfill gas and so forth, whether there's anything in that guidance for potential wins or not.
Then just the third question, I'm curious to get a sense as to the messaging that you're sending internally by putting out this guidance, because you're essentially saying that to your internal managers that you're not going to get to your Project 500 targets. I'm just curious to see whether you think that's going to create a foot off the gas sort of dynamic internally in terms of people not getting paid their bonus.
Okay, thanks, Owen. I think in terms of guidance, what's included and what's not around Department of Defence. I think obviously we get the full year benefit of Department of Defence because remember that contract started up April, I think it was. You should expect $2 million- $3 million of EBIT coming in from that this year. That'll be included obviously in the guidance. In terms of what contract wins included, like I mean, what I'd say is we're not going to go through and say this is what we're assuming. I guess what we're saying is there's no heroics in the contract wins. We're having churn, particularly in the C&I, is lower than what we would expect. It is lower than previous times. We think new business is up.
I guess we're looking to really apply our intelligence and our data analytics platform and get the benefits flowing through at CustomerConnect around really ensuring the productivity of our sales force. I think that's going to be pretty exciting. I think in terms of sort of this messaging internally, what I would say there is the top end of the range on guidance is $500 million. The internal team doesn't lack any motivation. Let me assure you of that. That figure, the Mission 500, was an internal light on the hill. It was designed to galvanize the entire organization against a courageous target. I come back to what I said before, which is we will deliver that greater than $450 million EBIT plus improving returns, and we're well on track to do that. When we deliver greater than $450 million, it'll be 50% EBIT growth over three years.
It'll be an EPS going up greater than 15%. We see all that opportunity. That $500 million opportunity is still there, and it will come.
Can I just confirm that the internal target, was that ex-acquisitions or did that include acquisitions?
At the time, we didn't have any acquisitions, so it was clearly excluded. What we'll be focusing the team on is they'll look at that external target, and we'll focus them on the top end of the range. That's what we'll be doing. We haven't been able to do that again until we get through today, because we need to match externally and internally. We'll do that this afternoon. We'll get the internal team on the call this afternoon.
Sorry, just on the contract opportunity, can you give us a sense as to whether there are any major tenders coming out in DD&R?
are always major tenders coming out in DD&R. DD&R has one of the largest, you know, sort of funnels. I guess the challenge there is there's always a lot of discussion, but the exact timing can move around. It's hard to say what will be this year versus next year in terms of those large companies budgeting some of that work. When these projects get rolled, they're not done in a single year. They can be five, six, seven, eight-year projects that you're involved in. The great thing is, I was talking to the CR team yesterday. The CR team has embedded resources today in a large number of those Tier 1 oil and gas companies working on their first phases of their DD&R projects, which is all about how do you hydrocarbon-free and clean those facilities. Naturally, therefore, going to try and continue on those conversations.
We're in a really nice place, and this is exactly the sort of leg in that we wanted.
That's excellent. Thank you.
No worries.
Thank you. Your next question comes from Cameron McDonald from E&P. Please go ahead.
Good morning, guys. A couple of questions from me. Firstly, can you quantify, please, the dollar amount that you've generated from the branch operating model contribution in FY 2025? Secondly, on Contract Resources, your guidance implies that for FY 2026 the EBIT's only going to be up circa 6.5%. When you bought this business, you highlighted that the EBIT growth rate was more like 21%. What's going on in FY 2026 to see that step down in the EBIT? Thirdly, you made an announcement back in late June with MRL and the restructure of MRL with Boral, and there was a $15 million payment that was for an option. In what period is that actually being incurred? Was that in FY 2025, or is that a $15 million headwind that will be expensed in FY 2026?
Okay, cool. Thanks, Cam. The first one is a 20 25 item. It's not a headwind for 2026. We'll start with that one. I think quantifying that.
Sorry, just on that. Your current year, [$411.8 million], includes a $15 million payment?
Importantly, the accounting treatment for that is it's an option payment. Obviously, we don't get value until we exercise that. You have a situation where you're going through the cash flows, being a $15 million outflow, but it's sitting on the balance sheet pending the exercise.
Okay, so it's not a P&L item at this stage?
Not a P&L, but it is cash flow.
Happy to go back to the other ones, Cam. Yep. Okay, in terms of quantifying the exact dollars to the ball, it's impossible to unravel. That is just too hard to unravel. Also, part of the reason why is because you say, what would the team have done if they hadn't had the branch-led operating model? You don't get the sliding doors moment to compare the two. That said, what we see every day, and we can see now, clearly the value drivers, the non-financial metrics that drive the financial metrics are moving in exactly the right direction that we would expect. We can see things like shifts greater than 10 hours declining. We can see overtime as a percentage of normal time decreasing. We can see shift length immunity decreasing, idle time decreasing, lifts per hour increasing, all these sorts of things.
We can see that down to a branch level. We could never see that before. We know that that's because the team is focused on it now. I think in terms of that CR guidance, maybe just I'll play it back to you. We said that CR's EBIT when we did the acquisition was about $35 million. We said that the sort of the acquisition adjustment for purchase price accounting was about $10 million. The 12-month run rate was the $35 million - $10 million, which gives you $25 million. You then say, actually we've only got the business for 11 months and not 12. This is where probably the slight bit you're missing. We go back to, we say, it could come down from $25 million. It's scaled down for 11/12, but then we say it's grown.
We scale it back up to $25 million and just call it $25 million. It does imply growth in CR. I think what I would say is CR is a great business and it's going to be a great platform for Cleanaway. We've had it for 20 days. It's exactly what we thought it was. It is also a long-term asset that we're going to take our time to integrate properly. That growth will come.
All right. Can I just pull you up on that, Mark? The $25 million that you've given for guidance is for the 11 months. I get that. That's 27.3 for the full year, right? That's where I'm getting the 6.5. Yet on the acquisition that you made, you were highlighting that it was growing at 30% or 21%. That's what I'm just, what is driving that step down? Why isn't it growing at the same rate?
Cam, I don't think we're necessarily being that prescriptive in the sense that we're saying we believe the acquisitions together will deliver approximately $30 million. I'm trying to give you an idea in terms of scale. For Citywide, Citywide were basically saying it's low single digit. Clearly we've said that the EBIT was $6.1 million, acquisition adjustments of roughly $5 million. You can see that low single digit is possibly around one-ish. We're saying approximately $30 million from the balance sheet. Essentially, this is a version of integration for CR . We're going to do this integration properly. We're going to take our time and make sure that we actually embed it properly into the Cleanaway group. I think that you've been perhaps a little bit prescriptive in terms of arriving at your 6%. We're fully aware of what was said in terms of the 21%.
We're not stepping back from the fact that we think this is a great business and will add significant value to Cleanaway going forward.
Thank you.
All right.
Thank you. Your next question comes from Nathan Lee from Morgan's. Please go ahead.
G'day, Mark and Paul. Thanks for your presentation. My three. First up, Cleanaway historically has been a heavy user of equipment leases, and you said that you're going to be increasing the use of those. Could you talk about where the effective or average rate of interest is on those leases at the moment versus where you think market rates are, and just what the expiry profile of the leases is? It's kind of like fixed rate debt, and it's going to be peeling away at a higher amount over time, I would have thought. It sort of impacts 2026 and 2027 and beyond. That's my first question.
Second question is, with the cash spend on acquisitions and tax ramping up and CapEx, et cetera, just wondering how you're thinking about the capacity in your balance sheet versus your target credit metrics within that target BBB credit rating and whether you think you're coming close to needing more equity. Third question is slide 21 and 22. I appreciate the color there in terms of the percentage of revenue across the different segments, but obviously that doesn't quite paint the picture in terms of economic contribution at the EBIT or EBITDA line. Is there any way you can give us a little bit more color in terms of the composition there with on earnings? I think that'll highlight the differences in margins for the different segments.
Okay. In terms of leases, we can just sort of step you through there. Clearly, when we look at the most effective way to finance our assets, often taking out a lease for, say, eight years to match the life of a truck is a sensible way to go. Our use of leases will be driven largely by the composition of the assets that we're acquiring during the period. We're talking about the fact we are likely to use a greater proportion of leases going forward simply because we expect to be spending more CapEx on fleet going forward. That's the thinking behind that process. Clearly, in terms of our position, we have a panel of lease providers through our banking syndicate, and I can assure you that they'll compete very aggressively for our business.
I've got no concerns about the ability of getting good commercial rates going forward on those leases. [Crosstalk].
Where's the market rate at the moment, Paul? Just so we can sort of see the disconnect between where you are now and where it could go to if the whole of the lease book eventually transitions into current market rates.
It's fairly, the answer is it depends in the sense that it depends on the term of the particular lease, but you should basically assume that for something like a five-year lease, you'd be talking about something like 170, 180 basis points over a floating rate. In terms of balance sheet capacity, I think I made the comment to you there in my notes that the USPP transaction that we undertook was the tightest priced BBB equivalent in the last three years. That's because basically we've got a bunch of investors out there who did the credit work on us. Frankly, they'll look that we were a very attractive credit risk. In terms of our focus, you can see we're absolutely focused on free cash flow. The issue around tax payments is temporary. We know we've got an additional catch-up tax payments to make in December.
Once that's done, that's finished. We're seeing margins expand. We're seeing good earnings momentum. From my perspective, I'm feeling very comfortable around balance sheet assets. I don't have any concerns about that element whatsoever. In terms of earnings on solids, it's always the way now. Can you always give a little bit more information to the market to help them understand your business? Can you always want a little bit more? I think at this stage, I think we're trying to give you a bit more color about the nature of that business and what drives the profitability. I'm obviously more than happy to take you through some of the specifics in more detail, but we're not going to be providing a breakdown at a profit level.
It's fair to assume though that the earnings percentage is skewed more towards landfills and resource recovery than collections versus what the risk issue is.
Yeah, I think it's fair to say that landfills probably has the highest EBIT margin.
Yeah, okay. Thank you.
Thank you. Your next question comes from Scott Ryall from Rimor Equity Research. Please go ahead.
Hi, thank you very much. I've only got two, and I hope they're relatively quick to answer. First one, I'm looking at slide 15. Thank you very much. That's a very useful waterfall chart. I'm trying to get a sense of the 2026 and 2027, what amount will be similar and what will be lower and higher. You've been through the tax issues, so thank you for that. CapEx looks like it's roughly in the order of magnitude. Unless I'm wrong about that in terms of looking at your guidance, interest is pretty clear. Boral payment's not there. It's really the three on the left, the remediation, underlying adjustments, and other working capital. I'm just wondering if you can give us a sense, it's over $100 million of cash impact there, where they go over the next couple of years, please.
My second question is further to Mr. Coe's submission before. Mark, you've had now an hour and 20 minutes to think about your business plan to not melt and waste your energy. I'm wondering whether you can just give us a sense of what we should expect in terms of milestones, stage gates over the next couple of years. I think I saw somewhere that you're expecting it to be in operation in 2028. Maybe your initial thoughts about what would be the milestones would be very helpful. Thank you.
Okay. I'm going to actually start off free cash flow to the left. The remediation land was only made a comment that expectation is that probably expect around that $40 million- $50 million mark for 2026 and 2027 for the land to remediation. Underlying adjustments, clearly, I mentioned in terms of Christie Street, expectation is that for 2026, 2027, it'll be contingent on the timing of insurance recovery, but we would expect that to be relatively cash flow neutral over that timeframe. CustomerConnect, there's a further year of spend in 2026 and 2027, a smaller year in 2028 at a similar level to what you've seen previously. That gives you some indications to what to expect in underlying adjustments. In terms of other working capital, I think we generally do a pretty good job in terms of keeping tight control over debtors and our payables.
I think in terms of that debtor book, and in fact, again, a disclosure in one of the notes in the stats, you'll see that our credit profile has actually improved over the last 12 months. Overdues have come down, and essentially cash flow in that space is pretty good.
Okay, just in terms of milestones, thanks Scott for the question. I think the way you think about Victoria is there's a few approvals you need. CAP, you say tick. What comes after that is sort of environmental license or EPA license. We think that will come as well. I think that'll come. That's been sort of held ready and behind the CAP because the CAP is the first part. There are planning approvals. You've got to get approvals for that location and the planning approvals, and obviously we'll work through that. That's long lead time originator style work. You need your customers to sign up. You know, remember, we think in Victoria, there's room for two scale facilities. There are two sort of 760,000 ton facilities. We think one will be the oldest one of Maryvale and we think the other one will be ours.
It will just require those remaining muni customers to have the confidence to sign up. Obviously, the CAP being allocated is a good step in that direction. That will drive the timing. It will be partnering and EPC and stuff like this. This is going to take multiple years before we're anywhere near EfW FID with partners for a project. I think that's fine as well because we've got MRL and post the sort of the borrow option agreement. We've got plenty of airspace and plenty of low cost adjacent airspace directly where the existing landfill is. It's kind of happy days either way. We'll do that low low cost origination work and we'll obviously keep you informed as we go through. Hopefully that helps in terms of, you know, there's a number of milestones still to go.
The fiscal 2028 timeline that I mentioned, that sounds like that would be ambitious based on what you just said. Is that fair?
I think, yeah, I don't know where 2028 is coming from.
I just saw it in the news article. It's [not talked] to Cleanaway.
Yeah, I mean, that might be what they think, but you know, that requires customers to sign up. It requires levies to continue to increase. Lots of work has to go on before you're anywhere near that. I think given where we are today, I think 2028 would be pretty aggressive.
Okay, perfect. Thank you.
Cool.
No worries. Thanks, operator.
Thank you. There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.