Good morning, and thank you for joining us to hear about our acquisition of Contract Resources. My name's Mark Schubert. I'm joined by Paul Binfield, our CFO, Frank Lintvelt, our EGM of Strategy and M&A, Scott Nicholls , our EGM of Environmental and Technical Solutions, and Josie Ashton, Head of Investor Relations. I'd like to start by acknowledging the traditional owners on the many lands on which we operate all around the country and paying our respects to elders past and present. I'm going to take the disclaimer as read, and therefore I'd ask you please to turn to slide four, starting with what we see as the key elements of the transaction. Today we are taking a strategic and value-creating step in the execution of our Blueprint 2030 strategy.
We are acquiring Contract Resources for AUD 377 million, implying an acquisition multiple of 5.9 times FY25 forward EBITDA post net cost synergies. Contract Resources is a strategically aligned and complementary business that is the go-to provider for catalyst handling, decontamination, chemical cleaning, and related services to the oil and gas industry. Contract Resources' stable, recurring, and growing earnings stream is underpinned by its long-term tier-one customer relationships, which have been built through the delivery of their production-critical services.
The combination of Contract Resources with Cleanaway's IWS repositions our business and creates a leading specialist provider of integrated and technical services. This fast-tracks IWS's transition away from metro ad hoc work, aligning with the deliberate strategy I've talked to you before about. Also, as we've talked about previously, the decommissioning, decontamination, and remediation, or DDR, opportunity represents an attractive growth vector for Cleanaway.
This is given the sizable and complex waste streams that these projects will create. Acquiring Contract Resources accelerates our DDR strategy by enhancing our value proposition, expanding the addressable market, and leveraging our respective customer relationships. Acquisition is expected to deliver approximately AUD 12 million in annual net cost synergies once Contract Resources is combined with IWS.
Together, again, they will create a leading integrated provider of specialist technical services to the oil and gas resources and industrial customers and provide a platform for growth. The financials of this transaction reinforce our disciplined approach to M&A. It's expected to generate high single-digit EPSA accretion post-performance synergies in the first 12 months and deliver a double-digit IRR both pre and post-synergies. Now moving on to slide five, we provide an overview of the transaction details about Contract Resources and our strategic rationale.
While I've already touched on several of these points, I'd like to highlight a few additional ones. Firstly, the transaction will be fully debt funded, with the completion expected by late calendar 2025, subject to regulatory approvals and other customary conditions. Next, a key strength of Contract Resources is its reputation and brand, which we are keeping.
Under Cleanaway's ownership, Contract Resources customers can expect things to be business as usual in terms of performance, in terms of capacity, in terms of brand, and in terms of leadership, with the existing management team staying with the business. Finally, the combined business will provide a platform for growth, enabling cross-selling of Cleanaway's waste management solutions to Contract Resources customers.
Importantly, while we are buying Contract Resources for the opportunity it presents today, we can clearly see the value it will create tomorrow through accelerating our DDR growth strategy, which I'll talk about more shortly. As we move past slide six and on to slide seven, and starting with a few financial and operational highlights, Contract Resources is a leader in critical path services to tier-one oil and gas customers.
It's their safe and reliable execution of these complex and critical path services in hazardous environments that commands attractive margins. It benefits from a strong pipeline of opportunities driven by customer growth and the broader energy transition tailwinds. Contract Resources is well positioned to support the commissioning and ongoing maintenance of new oil and gas sites as they come online, as well as the decommissioning of aging infrastructure at the end of life.
Contract Resources has a strong record of growth. They are on track to deliver a four-year revenue CAGR of around 13% and an EBIT CAGR of 21% as of the end of this financial year. For the same period, their average EBIT margin is expected to be around 10%. Contract Resources has a well-established recurring revenue base, with 90% of its revenue generated from existing customers.
Additionally, its top 10 customers contribute 60% of total revenue and have an average tenure of 16 years, highlighting the strength and longevity of these relationships. You may recall that I described them as a go-to provider. This is a reputation underscored by the fact that they are embedded on all major Australian refinery and LNG sites. Now, turn to slide eight. Contract Resources' core catalyst handling and related services are essential to the safe and efficient daily operation of industrial plants.
These are non-deferrable services and generate approximately half of Contract Resources' annual earnings. Their strong performance on both offshore and onshore sites has enabled them to vertically integrate into providing additional industrial services, further enhancing value for customers. Turning to slide nine, a key differentiator for Contract Resources is its commitment to innovation. Its proprietary CatSpider and Rugby Ball are just two examples where they have developed innovative solutions to deliver increased efficiency whilst minimizing personnel risks in hazardous environments.
This commitment to innovation and reliability has fostered long-term customer relationships, exemplified by their 10-year sole source agreement with Chevron for catalyst handling and industrial services across their major Australian assets, including Gorgon, Wheatstone, and WA Oil. If we move to slide ten, Contract Resources has built a strong customer value proposition through its commitment to safety, innovation, and its track record of service delivery.
This has enabled the company to steadily expand its role within customer operations, broadening its service offering, and capturing a greater share of customer spend. This value proposition was central to Contract Resources' successful move into the Middle East in 2011. Catalyst handling and its related services, while highly specialised, can be delivered consistently regardless of location. Engineering principles, controls, safety standards, and customer expectations remain unchanged whether you're in Australia or in Qatar.
This ability to deliver best-in-class services irrespective of location has allowed Contract Resources to establish a strong foothold in the region, where it now provides services to eight of the 10 largest LNG facilities. If we move to slide 11, we'll discuss how Contract Resources creates value today through the price we're paid, the synergies it unlocks, and the opportunities it brings to our business.
Looking ahead, we see an exciting long-term value creation opportunity as the addition of Contract Resources into Cleanaway accelerates our DDR strategy while expanding our addressable market. The acquisition enhances our industrial services offering, particularly within the oil and gas sector. Decommissioning projects generate complex hazardous waste and recycling challenges to which Cleanaway specializes, bringing industry-leading hazardous waste management expertise supported by 135 EPA-licensed sites across Australia.
Our leadership in circularity and carbon solutions ensures we provide our customers with safe, compliant, reliable, and sustainable outcomes. Contract Resources' presence on offshore platforms provides early involvement through incumbency and greater visibility into DDR planning, strengthening our competitive position. By leveraging our combined strengths, we can capture more project work further down the DDR value chain. Move to slide 13 now. In short, Contract Resources has a highly attractive financial profile with a strong track record of EBIT growth, attractive margins, and low capital intensity.
On a standalone basis and before purchase accounting adjustments, EBIT is expected to be around AUD 35 million for FY2025. The expected customer contract amortization is around AUD 10 million per annum. This reflects their high-quality long-term customer relationships, noting, of course, this amortization is non-cash. Again, the deal is highly attractive and is expected to both deliver double-digit IRR pre and post-synergies and be ROIC accretive once it's fully integrated in FY2027.
At completion, our balance sheet remains strong with leverage expected to be approximately 2.5 times, including the impact from the Citywide acquisition. We expect leverage to reduce over time as we progressively deleverage from the business's cash generation and continued earnings growth. We remain committed to maintaining an investment-grade credit profile and a disciplined approach to deploying capital.
Now I'm going to turn to the final slide, which is slide 14, and I'm going to end where we began, firstly by saying Contract Resources is an attractive standalone business with a clear line of sight for synergies of approximately AUD 12 million annually, yielding an attractive acquisition multiple of 5.9 times post-synergies, high single-digit EPSA accretion post-synergies, and EPS accretion pre-synergies. This is all before we think about cross-sell and internalisation opportunities. You add the attractive growth enabled by integrating IWS into Contract Resources, enhancing our value proposition and exposure to tier-one oil and gas markets,
and accelerating our industrial services strategy. You get the acceleration of our DDR growth strategy through the creation of an exciting and leading T-shaped position in terms of capabilities, in terms of customers, and reputation, enabling an exposure to a larger share of the addressable market. We are very excited here in Cleanaway to have executed another milestone on the Blueprint 2030 journey. Thank you for your time this morning at short notice, and we're now going to move to questions. Thanks, Operator.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We ask today that you please ask all your questions upfront at one time. Your first question comes from Lee Power with UBS. Please go ahead.
Good morning. Mark, is it possible just to give us a bit of an idea around the contracting structure? I get the long-term contracts a bit. What are they? Cost plus, fixed price. And then maybe as part of that as well, you can also just confirm that it's all—is it all kind of maintenance and services style? Only because I've seen some press stuff that they've done construction contracts in the past. And then maybe the final leg of my long question, just how you're thinking about the 2026 target in line given this acquisition.
All right. Good stuff. Let me start with the last one. I am sure I remember them all. Maybe not a good idea to ask for all the questions at once. Okay. In terms of the midterm target, just remember, if you think about the midterm ambition, greater than AUD 450 million in FY2026, if you look at the scorecard down the bottom, what it says is this excludes major M&A. Major M&A got defined as M&A greater than AUD 50 million, which of course this is. Therefore, you should think about this being an additive to the target.
That was because we did not want to take this and buy our way to those targets because we could see clear margin expansion and strategic infrastructure growth for that good stuff. That is the first one. The one before that was construction. We do not see Contract Resources doing construction work. That is not something we have seen, and it is not something we would be doing.
It is absolutely clear to me when I spend five days in the Middle East, there is no construction work going on of any sort in the Middle East. That is not the work. It is core work straight down the runway of highly technical industrial services work centered on catalyst loading, decontamination, and chemical cleaning. There are a few associated services, specialized mechanical services that they do when customers say, "Hey, could you do this for us as well?" That is kind of the business model.
If we go back to the nature of the contracts, the nature of the contracts is they are long-term contracts. There is a combination of contracts where they are embedded on the sites doing daily work, and there are call-off contracts as well where they are called in at short notice to do work that may be required or scheduled type project work. 75% of the work is on a schedule of rates.
Excellent. Thank you. And good memory. Thanks.
Got a few friends there. Yep.
Your next question comes from Russell Gill with JP Morgan. Please go ahead.
Hi, guys. A couple of things. You answered a lot of the questions there and through the presentation. Just on because the IWS business has historically been quite lumpy around project work. Just a further breakdown of that 325 of revenue, what would be, I guess, project-related work and whether that is just projects every single year that it relates to? You said 75% essentially schedule of rates. I guess within that revenue, a possible breakdown of contracts that are on essentially the focus of this is going to DDR mode, but what sort of percentage revenue is on projects that I guess are expiring and therefore going over that decommissioning phase and therefore, I guess, rolling off?
Secondary synergy, just a breakdown of those AUD 12 million of synergies, what they are and how you get to achieve them. Finally on DDR, in the future, what role do you see Cleanaway actually playing? Because Cleanaway is IWS business. You talked about contamination and contaminant rates and the like. Are you looking to become, I guess, more of an engineering prime in the whole DDR space in the future and therefore there probably are further tuck-ins required to round out your entire capabilities here? Or how should we think about your role, I guess, in the DDR position sort of five years down the track? Thanks.
Yeah. Cool. Okay. I'll try and remember them all. If we go—oh, there they are on the board. That's good. If we start with the breakdown of contracts expiring in the DDR. We have had a really close look at that, Russell, and we do not see there being this thing where contracts roll off and therefore you see sort of revenue and earnings decline. Actually, the way it works is you will see some roll-off of some contracts where you are doing the DDR work, but then we see a significant growth pipeline available as part of the energy transition.
Are new facilities starting up, there are new gas plants, there is all sorts of stuff that is available for growth, and we have had a close look at that growth runway. For example, there is work going on in Barrow on Barrow Island for Chevron, which is the WA oil decontamination work where it is Contract Resources doing that decontamination work, that chemical cleaning, getting the plant ready for the next step. At the same time, there is growth work associated on that island for Gorgon. Those things will be offsetting. If we think about the synergies, what are they? The way you should think about it is around half is sort of admin and support type roles.
Around a quarter is probably aligning sort of leadership structural alignment type synergies. The final quarter would be sort of procurement and supplier efficiencies. Let me remind you that that does not include—it does not include revenue synergies or internalisation synergies. We do not get any of that internalisation today. It is not the Contract Resources business model to sort of get access to the streams they generate. That is a whole opportunity for us to actually provide that service as well and step into that role.
The next one is a DDR role for Cleanaway. I think what you should be thinking is with Contract Resources and Cleanaway combined, you really do have the customer list, the customer incumbency, which is absolutely key, which means you have a seat at the table as the thinking begins by companies with facilities that need DDR work. We can see that absolutely is what is going on on Barrow Island. We can see that's what exactly happened in Esso where they are part of that decontamination of those dozen or so platforms. It's the incumbency that then drives what happens next.
I think you should think that CR have significant in-house engineering capability and innovation capability. Rugby Ball is a great example of that. That was Contract Resources IP developed specifically for Esso in the Gippsland Basin, low-cost innovation built in the Middle East and then transported back. You can really see that they can bring that capability. I think then when you connect it to the rest of Cleanaway, you can see the opportunities for the solids and liquid streams to play as well. I think this actually is the T-shaped position that we wanted. I don't think that there is a lot of tuck-in style stuff to go. I wouldn't be thinking that's sort of next on the agenda.
Just on that Mark, just to understand the role that the business will be in DDR. You're not talking about plugging holes or plugging wells and this sort of stuff. It's really just more—yeah. Okay.
The way it would work is just like what happened in Gippsland. You bring in a rig that does the P&A of those wells, the plug and abandon, and the subsurface work. You're then left with basically the topsides and the platform. That's where you already have CR as incumbent out there. They would be doing chemical cleaning, cleaning of piping, all that flow lines, all that sort of stuff, decontamination, chemical cleaning, that sort of thing. The mooring is then to be cut and transported by someone else to the shore, and then there will be more activity onshore.
We will not be doing—we definitely are not doing heavy lift boats and offshore lifting, and we are definitely not doing plug and abandon work. We are doing the work that CR already does today, plus the onshore component of decontamination.
Got it. Understood. Thanks, mate.
Your next question comes from Jakob Cakarnis with Jarden Australia. Please go ahead.
Morning, guys. Just three from me, please. Starting with slide 13, can you let me know how about you have spoken to the ROIC, accretive nature of the investment? Is that on a post-synergies basis, please? And what does it look like on a pre-synergies basis? I am just interested that you are investing more capital in what is ostensibly your lowest margin segment of the operations.
The second part of the question on slide 18, can you just step through the EBIT margin improvement for me, please? It looks as though that's accelerated in 2024 and 2025 forecast. Obviously, you're buying this off PE. So I'm just interested in what DD showed up as being the sources of that EBIT margin improvement. And then just finally, can you talk to the capital intensity of this business? It looks like it does about AUD 17 million of D&A. I think you've told us that customer contracts is 10. What's the balance, please?
Can you ask Paul ?
Yeah, sure. I'll crack into some of those, Jakob. In terms of the approach we've taken to this, CR is a business that we've known for a long period of time, but we've been following them very closely for probably a good 10 years. In terms of our diligence process, it's been a long process. We've not had to sort of rush this. We've taken a very thoughtful approach. We've seen across the business, both pre and post-synergies, double-digit IRRs. We're seeing this as being a really accretive transaction from a return perspective.
In terms of EPS, I think the focus we've spoken to has been absolutely EPSA, simply because we're seeing, obviously, the amortization of those customer contracts, the A is obviously non-cash in nature. We're seeing really strong EPSA accretion and also positive EPS accretion as well, both pre and post-synergies.
Sorry, the question—sorry, the orientation of the question on ROIC, please. I've seen the presentation materials about the EPSA and EPS, but I just want to dive into why you're putting AUD 380 million of EV into the lowest margin division. I'm interested then on slide 13, the comments about it being ROIC accretive. I understand the IRR and the EPSA and EPS, but I just want to understand the ROIC balance. I think you've done a good job to date improving the ROIC. I'm just wondering whether or not this is going to puncture some of that.
No, it won't. Essentially, this transaction from the get-go will be ROIC accretive. It will be increasingly ROIC accretive as we bring those cost synergies in as well.
After that, as we bring in the rest of the growth factor associated with DDR. When we talk about IRR mid-teens, we value that very conservatively around the growth factor. We're not paying for that. That's a free option to us as to what we do next and all that stuff.
Just slide 18, the EBIT margin improvement, please. It looked as though the vendors got towards sale. Can you let us know what that was through the DD process, please?
Jakob, I can't tell you what's driving sort of the EBIT margin growth from 10.8% to 10.9%. Obviously, you've seen a step up 2023 to 2024, and primary drive there is largely to do with scale. I think an important message here is that we're seeing a business that has improved in quality over a significant period of time. We've seen them grow their Middle East business from being relatively immature when we first looked at this 10 years ago to a business now which is well established and has a strong presence in that Middle East region.
That is simply allowing them to go out there and essentially charge a more appropriate rate for those services and hence improve utilization both in an asset and labor. That's enabling them to simply drive that margin higher.
Okay. Just a quarter of the revenue from the Middle East. Just interested in your view on the complexity now of offshore revenue and management.
I might have a go at the Middle East because I think it's worthy of just saying it on this call. Just so everybody's clear, I spent five days in the Middle East visiting Contract Resources sites, customer sites, locations where CR were working, met with their suppliers, and visited their camps. There are really four observations here that I'd really like investors and panelists to have in their minds. The first is standard Middle Eastern Ops in CR is the same as Contract Resources Australia Ops. They have very strong labor practices. That's point one. Point number two is that this is a well-established business.
Like Paul said, CR have been there for 15 years. They made a well-planned entry. They entered on the request of their Australia and New Zealand customers, and today they're working for the world leaders. These are names like Dolphin Energy and ADNOC, both of whom I met. The Middle East is a competitive advantage for CR. That might sound surprising, but let me explain why. The first is they get low-cost innovation there where they do equipment design and development in supplier workshops or engineering houses, which are then deployed to customers to reduce costs. Secondly, they get a counter-seasonal workforce.
For example, this Australian winter, they will deploy more than 100 highly trained and experienced personnel to complete production-critical work in Australia. They do that counter-seasonally. Imagine the winter in the Middle East isn't just the winter in Australia timing-wise. The third is there's a strong funnel of growth. They've been there for 15 years, and their capability and their reputation is now flowing into further growth, and there's significant further growth available.
The fourth is certainly a point around distraction. It's the same Middle Eastern leadership team, which will be retained, and it's the same Contract Resources leadership that will be retained. That team will report to Scott. Effectively, it's not going to be a distraction for the executive team.
The capital intensity, finally, just before I hand it over, please, Paul.
Yeah, sure. CR is a less capital-intensive business. I guess you can call Cleanaway business. Yes, it is a lower margin, lower EBIT margin than your typical Cleanaway business, but it's less capital-intense. Therefore, more cash in return as well.
Thanks, guys.
Thanks.
Your next question comes from Matt Ryan from Barrenjoey. Please go ahead.
Thank you. Just hoping you could talk about the earnouts or lock-ins or anything like that with key personnel. The other thing I was just going to ask about was there seems to be quite a lot of overlap between the Contract Resources customers that you've sort of highlighted on the slides and your current customer base, but some also don't seem to be your current customers. Just any opportunities you might see over time with those introductions through Contract Resources?
Yeah, sure. I mean, what I say just on sort of retention of key personnel, what I say is that's all in hand. We've secured the leadership team of Contract Resources to come across. We're confident of that, and they're excited by the opportunity of working with us in the next phase of making CR terrific. The second point around sort of customers is, I would say the key point here is that Contract Resources has the customer list for oil and gas in Australia. That is an absolute fact. They're in all the LNG facilities, and they're in all the refineries. If you think about how is that different to what we've got today, for example, we do not have Woodside.
We don't have BP. We don't have INPEX. We don't have Shell. There are new customers. There is different scope that they do for some of our existing customers. There is a real opportunity to provide the entire integrated customer list with the full integrated service package that Cleanaway can provide. Right. Thank you.
Your next question comes from Guus Vreeburg with Macquarie. Please go ahead.
Hi, team. Just two questions from me, please. Just firstly, is there any commodity price exposure in the business? And just second, on your customers, could you outline to what extent your Middle Eastern aims at customer list overlap? I think you touched on that a little bit earlier. Just interested to know how much of that Middle East revenue does not have a common customer group. Thank you.
There is no commodity price exposure. I mean, of course, there is some effectively US dollar exposure associated with the fact that the bulk of the Middle Eastern countries that Contract Resources are in are paid in the local currency, and the local currency is pegged to the US dollar. That would be comment number one, even though I know you asked about commodity, I thought I'd just be clear on the other part. In terms of customer, which is the Australia, New Zealand, Middle Eastern overlap, in the Middle East, there's a whole group of companies that aren't in Australia.
For example, you take ADNOC as an example, the Abu Dhabi National Oil Company, major customer of Contract Resources. They are not in Australia, but certainly in the past, their joint venture partners were in Australia. ADNOC had joint venture partners in the Middle East, such as BP. That is how some of these original relationships, of course, started. You should think about it like that.
Of course, then you'll have some obvious overlaps where you've got Shell in Australia, but then you've got Shell in the Middle East, and Shell is part of joint ventures. Generally, what you'll find is there'll be some joint venture overlaps, and that's what's leading to CR being requested to go overseas through the experience in Australia, often in a joint venture, leading to the request overseas into a joint venture project. All right. I'll go to the next one.
Your next question comes from Owen Birrell with RBC. Please go ahead.
Yeah, thanks, guys. Look, I guess my first question, you mentioned that there was no, I think, no internalisation at the moment. Am I just to confirm that Cleanaway doesn't have any downstream waste management contracts with Contract Resources? Just to confirm that.
Yeah, that's right. So there's no overlap. That's not surprising in kind of like two ways. One, because CR doesn't have that capability, therefore their aim would be not to generate that stream and instead hand it back to the sponsor. The other way of thinking about it is where they do generate that stream, they might not have wanted to give it to us because they would have seen us as a competitor.
I guess my next question then is, if we look at the FY2025 estimates, there's, call it, AUD 290 million of cost in that year or that forecast. How much of that is actually waste disposal expense that could be redirected as a revenue stream for Cleanaway going forward?
Again, I would say it would be tiny because their business model has been not to generate that. Instead, you sort of say, "We'll do this cleaning work for you, this chemical cleaning, but you'll take back that material." Whereas what we would say is, "Come alongside," and we would say, "And we'll provide that service as well." Someone else will be getting that volume. A competitor of ours will be getting that volume, and that will be the opportunity to get that from the source by providing the integrated offer.
I guess looking forward, as we look at your ambition targets for 2026 and beyond, I can assume that you're going to adjust for the existing earnings from Contract Resources. Any of these other new add-ons or contracts that come through, I'm guessing, will be part of those ambition targets. Is that fair to assume that? Any organic growth or new contracts will be assumed under the sort of Cleanaway sort of brand?
Are you saying what I'm saying is that the pro forma financials that we provided for today will be additive to the targets, yeah? And then I'm saying and then what I'd be saying is therefore our job will be to beat that. Yeah. That's what we'll be.
Yeah. Yeah. So basically, any additional earnings growth that's coming from either Contract Resources or the combination of Contract Resources and Cleanaway going forward will be included within your ambition targets.
Yeah. That's right.
Okay. Just one last question for me. That additional 10 million of amortization costs that you've called out, should we be taking that off the 35 million FY2025 EBIT, or has that already been taken out to get to the 35?
No, the 35 is the standalone business EBIT. To get it, the consolidated feature only, you should be deducting that incremental required amortization.
Okay. Incrementally for 2025, for Cleanaway, it's going to be AUD 25 million annually?
Correct. You start, obviously, bringing in the synergies.
Thank you.
The next question comes from Rob Koh with MS. Please go ahead.
Good morning. Congratulations on the deal. My first question is just around what you can share about the vendors' motivation, why are they selling now? I know this isn't your first rodeo, so just be good to get that context. My second question is around just the financing structure where you've talked about a debt at completion around two and a half times. Maybe just double-check that you're kind of using a trailing 12-month calendar 2025 EBITDA to get to that number. Because that's a pre-AASB 16 number, are you taking on much lease debt? I guess it's wrapped up in that debt question.
My third question, because I can't help myself, is an ESG question. Can you give us a steer on what your kind of revenue or earnings from fossil fuels will be post-completion?
I'll do the vendor selling. I mean, obviously, you can ask the vendor yourself. I think the key point there is I imagine they have met their earnings targets, and therefore it's time to sell. I think for us, and I'll just re-emphasize, for us, this is not something we just looked at yesterday and decided we wanted. This is something we've been following certainly for 10 years, but really with an emphasis over the last three since we did Blueprint 2030.
Because we spotted this vector as part of the energy transition, we've been slowly shifting IWS towards these sorts of capabilities, and here comes the opportunity to create that real accelerator and the heart to replicate this. You cannot replicate what CR have got there in terms of their capabilities on catalyst handling. If you wound it back 10 years, Cleanaway tried to do this and failed. This is really hard. This is really hard to replicate. It meets our sort of our M&A criteria of hard to replicate, accelerator, and at the right financials. We want to try and hit a complicated one.
Yeah. That's fair, Rob. It is a trailing EBITDA to be calculated in accordance with our current accounts. As you say, it's a bit of AASB 16 figure. There is not going to be any shift to our leasing strategy.
Just around the fossil fuels one, Rob, it is a good question. I think the way I think about it is we see this as a part of the energy transition. You see the natural evolution of oil leaving the system, gas coming into the system. Our job as Cleanaway is to assist those companies do that in a really thoughtful way. We think that by assisting really tier one oil and gas and resource companies deal with what happens at the end of life on a facility or a site or a wellhead or whatever, doing that in a really thoughtful way, we think that is positive ESG.
We also think that helping those same tier one oil and gas or resource companies working in battery metals or in gas or whatever, helping them improve their efficiency by doing their shutdown work really thoughtfully, doing their catalyst transfer so they can get maximum efficiency, we think that that is positive ESG as well. That is kind of how we think about positioning this and being that player who has a strong reputation and who can do this really thoughtfully and do it in the right way.
All right.
I think I've got a Cameron?
Yeah.
Your next question comes from Cameron McDonald with E&P. Please go ahead.
Good morning, guys. A couple of questions from me. Just going back to the depreciation amortization, it looks as though it's got sort of 18 at the moment of D&A, and then you're saying another 10 on top of it. What's the 18 currently relating to?
Interesting, 18 of D&A. There's a couple of A that relates to old customer contracts. The bulk of it is just your straight normal depreciation on their assets, on trucks, on other gear, plant, equipment that they've got.
Okay. With the profile for that, what, call it 15?
Yeah. Essentially, yeah. Yeah.
Okay. As part of that, with the AUD 377 million purchase price, what's the value of the assets that you've purchased, please, versus the goodwill?
Yeah. Essentially, the book value of the assets that we've acquired in terms of physical assets is relatively modest, so in the range of AUD 30 million-AUD 40 million, say net. The balance will be intangible assets, obviously split between goodwill and those acquired intangibles that we've talked about.
Sorry, how do you get $15 million worth of depreciation then out of 30-40 million dollars worth of net assets?
It is net assets. Essentially, obviously, you have got PP&E. It is a net PP&E thing. It is obviously the cost of that one is substantially higher.
Yeah. You would be acquiring them for fair value though, right?
Yep, we are. Yes. As I say, the carry value for those fixed assets is in the region of that 30-40 million.
Okay. Just in terms of the capability that you are buying, and Mark, you were mentioning looking to be sort of more of a sort of prime role and the relationships that CR has got in particular within the Gippsland Basin around Exxon. If I had a look at Exxon, they did not appoint CR as a lead contractor for this space from what I can tell. What exactly are they actually doing down in Bass Strait for Exxon under their decommissioning at the moment?
What you would have seen them doing is that they're already the incumbent offshore. You could imagine you've got embedded resources offshore. They have worked to do the decontamination work offshore of those facilities. Take, for example, the picture that's there with the Rugby Ball. On those rigs, you will have very large diameter vertical pipes which are used to store oil and all sorts of things offshore. They have been cleaning those with the Rugby Ball, for example. They're doing the offshore preparation work to get the facilities clear so that they can be put on a heavy lift ship and brought onshore for dismantling. They do actually have quite a significant role. Same role that they're playing on Barrow Island.
Remember, Barrow Island being placed, lots of different vintage gear. You've got the Barrow and Thevenard fields there. You've got lots of nodding donkeys out there, hundreds and hundreds of wells. What they're doing is they're doing the decontamination work there, chemical cleaning, vacuum digging, these sorts of things. All activity we don't do today.
Yep. Okay. Now that makes sense. Thank you. Final question from me is you've mentioned the long-dated relationships that they have. What is the weighted average contract book that you are buying?
I don't have that exact number to hand. I know we've given you the 16 years, I guess, the average tenure of the top 10 customers. We can certainly split it if you'd like us to. It's no problem coming back to you separately. Yeah.
I mean, I'm just trying to understand relative to the 7.3 times EBITDA that you've purchased, is the weighted average contract book six years or is it 18 months?
Oh, I think it'd be much longer than 18 months. Yeah. It's certainly not that. Again, let's get the facts and we'll be happy to share them. It's not a secret. I mean, I think the way I think about it is when I look at their customer list and their contracts over time, which we've spent six months of DD doing, we are really confident about the longevity of those customers. We're also really confident of that longevity through change of control events because you can see that they just stick all the way through.
We're really confident that actually not only does the customer stick, but also the share of wallet increases over time because of their performance on the base contract. They get asked to do, "Hey, can you do this as well?" And that as well. We saw that in spades in the Middle East live in front of us as those conversations were taking place. "Oh, we really like what you're doing here. Maybe you could do this for us as well going forward."
Yep. Yep. Yep. Sorry, just very quickly, how competitive was the bid place? How many other parties were actually involved in looking at this business and bidding for it?
I mean, I don't think we know exactly, but I think it was a competitive process. Obviously, like we've said before, we have followed this for some time, which means that as a result of having followed it for some time, it was a business that we feel like we knew and we knew how to value. I think what was different for us this time compared to maybe looking at it 10 years ago was we can really see the acceleration of the strategy now, which is something we didn't pay for in the purchase price. When you think about AUD 377 million, there's no assumption there around revenue synergies, around internalisation, around growth from DDR. That's all free option for us to now go after.
Great. Thank you.
All right. Thank you.
Your next question comes from Amit Kanwatia with Jefferies. Please go ahead.
Thanks, guys. Morning. Most of my questions have been answered, but yeah, maybe on the DDR. Obviously, you've spoken in the past on market opportunity of AUD 500 million per year. You've acquired this business, seems to be a good acquisition. Maybe if you can just tie all of it together and speak to what the success looks like in the DDR space over the next 12-24 months, please.
Let's drive it. I appreciate that question. I'm going to give you a few numbers, and I'm going to try and connect them all together for you. The first is, if you look at the public reports, and we give you the footnote to one of them in the pack. One of them says there's AUD 43 billion to be spent between 2025 and 2075, so 50-year period, decommissioning offshore oil and gas in Australia.
When you think about that number, just remember that the keyword is offshore, it's Australia, and it's oil and gas. If we look at the next few years, we think that equals about AUD 3 billion per annum in the next few years to bring it sort of close to the time period. What we've previously talked to you about, you're right, is the AUD 500 million. That is the Cleanaway standalone sort of addressable revenue, which was made up of 15% of that AUD 3 billion, AUD 450 million, plus about AUD 50 million from onshore oil and gas. That's how we got the AUD 500 million. The exciting part of today's announcement is that when you add Contract Resources' capabilities, when you add the capabilities such as being offshore, their chemical cleaning capability, their decontamination capability, that 15% grows to 20%.
The 500 becomes 650 as you add another $150 million to it. When we talk about the greater share, that's what we mean because we're there. I think the other piece is just this whole concept of incumbency is really important. If you're on board those facilities, you're embedded with those customers, then you naturally get asked, "Hey, we haven't done this before. Could you figure this out with us?" What you see from CR is you see them with small teams embedded in tier one oil and gas companies working this through. Of course, then you can shape it to maximise your involvement.
Okay. Yeah. That's perfect. Thank you. Just one more question for Paul. On the maintenance CapEx spend, what's the maintenance CapEx spend for Contract Resources we should be thinking?
Yeah. Total CapEx spend for CR is in that range of 10-15, I mean. Essentially, you should probably view that in a manner similar to how Cleanaway typically deals with that. Probably maintenance CapEx would be in the region of 10, and growth CapEx could be in the region of around that 5 sort of level. Obviously, it's going to depend on projects that are coming through the door year on year, but that gives you sort of an idea of the sort of scale that we're talking about.
Okay. Thank you.
Thanks for that.
Your next question comes from Scott Ryall with Rimor Equity Research. Please go ahead.
Hi. Thank you. I just have two questions. One, I think it's going to be Mark, and then one Paul. Mark, you mentioned in your comments on the ACCC, the lack of business overlap and those sort of things. Obviously, I would observe, and I'm sure you agree, that the ACCC has become harder to get things through in the last couple of years than it was previously, perhaps. I guess on this one, given you've highlighted some of the potential for business revenue internalisation, other opportunities, and things like that, there's obviously going to be. The sheer fact you've raised it as a subject to ACCC approval means that they're going to have a look.
I wonder if you could just tell me, where do you think they look closest? I guess from my perspective, when you went in and did your due diligence and visiting customers, did they actually want you to be there? Did they see upside for themselves on having Cleanaway operate this business as opposed to standalone Contract Resources?
I think I'll answer the first one as a second one. I think on ACCC, I mean, Scott, in terms of the size of the transaction and the sector means the ACCC will do a review, and that's just the fact of the matter, and that's absolutely fine. I think similar to any transaction that Cleanaway does, we do a lot of detailed work in advance to make sure this is something that we strongly believe will get approved because otherwise it's a waste of time and resources, and we don't have infinite resources. We are very thoughtful about that. You wouldn't see us doing a transaction that we don't think will ultimately get approved. We don't think there's any major hurdles there. We are well prepared for that.
We should expect, therefore, there will be a time to that process, and we should expect completion something like late calendar 2025. Just keyword there: calendar 2025. In terms of the second question, which was what was it again?
In your due diligence with customers, do they want you there?
Did they want CR there, or did they want us there? Which one are you saying?
No. Did they see it as a positive that Cleanaway would operate Contract Resources lower than Contract Resources being standalone?
I think what I would say there is we were very thoughtful during the due diligence process to not overstep the mark as to why we were there, because we do not want this thing running ahead of itself in the press by customers becoming fully aware as to why we were there. I think certainly in the Middle East, there was genuine excitement about Cleanaway being there and the capability and the size of the company that would be sitting behind CR to facilitate the growth that those customers could see and based on the reputation of the work that CR was doing over there.
I think generally my hope would be that customers will see Cleanaway going in behind CR and establishing our IWS business as a CR business as an upgrading capability that can then provide them with full integrated solutions. I think they'll see that as a real positive. Obviously, that'll be our job.
Yep. Okay. The second one, just on gearing, and it's further to Rob's question before. Paul, can I just confirm that the pro forma two and a half times leverage ratio that you gave, so that's including both this and Citywide and a full year of earnings for both, I take it. Correct me if I'm wrong, firstly.
Yeah. No, that's correct.
Yep. Just remind me, you've released this before, I'm sure, but I couldn't see it in the half-year presentation where you talked about being comfortably inside covenant ratios for leverage. Can you just remind us what your covenant is and what your board target is for leverage, please?
Yeah. We don't actually sort of publicise our covenant ratios. I guess importantly, the board have come out and said that they are committed to an investment-grade credit profile. I think we are pretty clear that we're quite comfortable with you taking up leverage of two and a half times to do these two transactions on the proviso that there is a clear deleveraging pathway. We can absolutely see that both in terms of the core Cleanaway business, in terms of increased margin expansion through Ops excellence. You also seem to, Scott, I guess the strengthening around the discipline in terms of CapEx as well.
We can see as earnings increase, cash flows are going to improve, and we can see that deleveraging profile taking us down rather than that two and a half times.
Okay. Just in terms of the question, what have you guys said publicly about the board-approved leverage ratio? I get you're over it and you've got to deliver, but what have you got to get back down to?
Yeah. Yeah. We have not actually publicly said what the board-approved leverage ratio is. I think we have been making pretty clear comments as to this specific transaction, and the board are very comfortable to take the leverage up in the business for two and a half times because we have demonstrated there is a clear deleveraging profile.
Okay. That is fine. Most companies are quite comfortable giving the board target. The covenant ratio, I get that. For my knowledge, would you suggest that you still remain comfortably within your leverage ratio even on a pro forma basis?
In terms of our policy, we are absolutely within our policy. Absolutely.
Right.
All right.
We might call it there just given the time. Thanks for your time today. A short note is really appreciated. Hopefully, you have heard from us how excited we are about the transaction. We'll look forward to catching up with both investors and analysts over the course of the next couple of days. We'll close the line.