All right. We might get started if we can. Getting the thumbs up from Bruce at the back, so that's a good sign. We're good to go, Bruce? Okay, cool. All right. Well, good morning, everyone, and welcome to Cleanaway's Blueprint 2030 2.0 strategy briefing. Big thank you for joining us, and thanks especially to those who've traveled to get here this morning. Today's agenda is on the slide. I'm going to do some general housekeeping before we begin the main presentation. It's really quite simple. The staff know that we're in this room. If there's an emergency, they're going to come in here, and we're going to follow what they say. Please do follow their instructions if something should happen. All right, so here we go.
Today is about the next phase of the strategy, and importantly, why we believe it positions Cleanaway to deliver strong cash flow, improving returns, and strengthening shareholder outcomes over time. You can see on the screen there, I'm joined by members of the executive team and senior leaders from across our business. You can see the names and faces on the screen. I've asked each of them to introduce themselves as they start each of the case studies. You're going to get a real opportunity this morning to hear from the executives leading their parts of the business. I'm going to start by framing how the strategy has evolved, what we achieved under Blueprint 2030 1.0, and why Blueprint 2030 2.0 is the next logical phase.
We're then going to bring it all to life through a series of focused case studies, again, led by the executives accountable for those parts of the business. Our objective today is really simple. We want you to leave with a clear understanding of where the next phase of value creation comes from, and why Cleanaway is now positioned to convert that into stronger and more stable cash flow. Let's start where we have come from, because an understanding of Blueprint 2030 1.0 and what it delivered is essential to understanding what Blueprint 2.0 is designed to do. Blueprint 2030 1.0 was launched, if you recall, back in February 2022, and at the time, it was about building the platform for Cleanaway's next phase of value creation.
If you rise above it, what you see is it focused on three things, modernizing the business, strengthening operating disciplines, and expanding and integrating our infrastructure network. Over the last four years, we've done a substantial amount of work, of that foundational work. We strengthened our HSE platform and operating disciplines. We embedded the branch-led operating model, including clear value drivers at each branch. We reset our data analytics capability. We progressed Customer Connect, and we continued to build out what is today Australia's leading waste infrastructure network. A really simple way to think about it is that whereas Blueprint 1.0 was about building the platform, Blueprint 2.0 is about making the platform work harder. The foundational investments are substantially complete. The network is largely built, our operating disciplines are stronger, and the integrated infrastructure platform is much more stable.
Blueprint 2.0 is therefore about extracting significantly more value from what we have already built. As we discussed in the first half results, we believe our current investment in HSE is appropriate and that that was validated by the external safety review findings. As we continue to execute our five-year HSE plan, we have delivered improvements in our key metrics and will stay the course each day, embedding and assuring our controls. We expect to see further improvements from the investments to upgrade fleet and facilities. At the same time, we continued to build and integrate the asset base. We integrated the Sydney Resource Network assets. We commissioned the Western Sydney MRF. We expanded into the Victorian and Tasmanian CDS schemes. We acquired and integrated GRL. We expanded our East Coast food depackaging infrastructure. We completed the Citywide acquisition.
We progressed landfill expansion projects in New South Wales, and we secured the long-term future of Melbourne Regional Landfill, which you'll see later today. In circularity and innovation, we formed three Circular Plastics Australia joint ventures. We entered used cooking oil through the acquisition of Australian Eco-Oils. We progressed the Cycleback soft plastic feasibility work with Viva. We announced the acquisition of Contract Resources, and we expanded our DD&R capability. In energy from waste, we continued our capital light originator model. We are pursuing the long lead time tasks while customer demand builds and policy settings become more favorable. This included the recent signing of the Parkes joint development agreement with Tribe and Tadweer.
In landfill gas and carbon, we established the joint venture with LMS and almost tripled landfill gas revenue while reducing methane emissions by 14%, meaning that we are tracking ahead of the 1.5 degree Celsius target we set. Operationally, we embedded the branch-led operating model across the group. We completed more than 20 SWATs and stood up business teams that developed initiatives worth more than AUD 20 million in EBIT improvements. Digitally, we built a scalable data analytics and AI-ready enterprise data platform. We deployed advanced analytics and machine learning use cases, including the pricing engine and route optimizer. We embedded Power BI across the business, and we completed Customer Connect Release 1. We also began trialing new scheduling and routing technology, which will become the backbone of Customer Connect Release 2. Importantly, we completed our fleet strategy and commenced the initial phase of our fleet modernization program.
When we say the platform is stronger, that's what we mean. It's stronger operationally, it's stronger digitally, it's stronger organizationally, and it's stronger strategically. Importantly, while making those foundational investments, Blueprint 1.0 also delivered strong underlying financial performance. You can see the stats on the screen there, but underlying EBIT increased by 60% from FY 2022 to FY 2025. EBIT grew at 17% per annum since launch. EBIT margin expanded by 260 basis points to a record 12.5%, and ROCE improved from 6.9% to 9.1%. The incremental return on capital employed over the period was 20.9%. We recognize that that number, that 20.9%, is not purely from new investments, but directionally it's relevant. It somewhat normalizes the significant goodwill, legacy goodwill, that creates a drag in terms of how quickly we can improve the reported ROCE.
The improvement was driven by broad-based organic growth, operational excellence programs, the turnaround in Health and Queensland Solids, and selective acquisitions, including SRN, GRL, Citywide, and Contract Resources. The first part of the story is this. Blueprint 1.0 built the platform and has delivered strong underlying earnings growth. The second part of the story is equally important. While earnings improved strongly, free cash flow did not yet reflect that performance. That was because this period included foundational investments, a number of one-off and legacy items, and catch-up tax payments. That is what makes this point in the journey right here today so important. We believe Cleanaway is at an inflection point from a cash flow perspective. Many of the investments required to stabilize and modernize the platform have now been made.
Non-recurring cash costs, such as legacy waste, restructuring, and acquisition integration costs are coming to an end in FY 2027. These significant catch-up tax payments of recent years have now also largely washed through, meaning future tax payments should more closely mirror tax expense. In the medium term, we will also benefit from the indirect cost review. The initial AUD 35 million of annualized labor savings is already executed. Our focus now is shifting to significant further non-labor OpEx opportunities identified as part of the strategy work, particularly through smarter purchasing and procurement. Put simply, we are moving to a period where the focus is on converting the benefits of that platform into stronger and more stable free cash flow, and that's what's central to Blueprint 2.0. Okay, so let's get into Blueprint 2.0. That's why you're here. We commenced the development of Blueprint 2.0 around nine months ago.
We did that because we wanted to ensure that we were ready to accelerate into FY 2027 following our midterm year, which is obviously FY 2026. As part of the strategy refresh, we stepped back and we analyzed three fairly simple questions to say, a bit more complex to answer. The three questions were. What did we learn during Blueprint 1.0? Second one was, what is changing in our markets now and looking forward? The third is, given our position, where do we now see the best opportunities to create value? Four things became really clear. The first was that customers overwhelmingly prioritize seamless service and competitive pricing. Sustainability remains important and is increasingly relevant in certain segments, but for most customers, it's not the primary buying factor. That insight required a refinement of our customer value proposition.
The second key insight was that with the scale and infrastructure network that we have built, the biggest opportunity now is to optimize the assets we already own and improve the returns we generate from them. That's why Blueprint 2.0 shifts from installing foundations and expanding hard assets towards utilization, reliability, margin, and cash generation from the network we already have. The third insight is that technology, data, and AI are becoming increasingly important, but not as a standalone agenda, but as practical tools at scale to lower our cost to serve, to improve customer experience, to support the branches, and to lift performance across the network. We have seen U.S. peers use technology to reshape operations, to improve pricing precision, to increase route density, to automate more workflows, and make our scale more valuable, and we're going to do the same.
The fourth insight is that we have become more selective about where we play. We continue to see attractive long-term opportunities in areas such as energy from waste, DD&R, soft plastics, and carbon. We're also clear that capital must be disciplined. Where we do invest in new infrastructure or new business areas, and this is key, the opportunities need to be sizable, they need to deliver attractive returns, they need to provide broader network benefits, and be supported by clear regulation or policy settings. At the same time, we've identified areas where reducing exposure can improve earnings and returns, and that includes exiting from construction demolition waste, rationalization of our IS metro exposure, and limiting the acceptance of certain waste types in hazardous waste. Those four insights really shape Blueprint 2.0, which is now what I'm going to explain to you.
Okay, Blueprint 2.0 is about creating superior shareholder value by extending our position as Australia's leading waste management and technical services company, and maximizing the cash flow and growth potential of the business. The next thing you need to understand is that there are three strategic pillars that each reinforce one another. Don't see them alone, see them as reinforcing one another. They are customer value, optimized branch network, and advanced ways of working. On customer value, this is about winning higher value revenue through better service, smarter pricing, and deeper customer relationships through our refined customer value proposition. We are centralizing and professionalizing sales and customer service using a single view of the customer and embedded data-led pricing and retention decisions to grow revenue in ways that strengthen the network.
On the optimized branch network, this is about making our leading infrastructure network work harder by improving utilization, reliability, and internalization. We're shifting the emphasis from building more capacity to extracting more margin and returns from the assets we already own. On advanced ways of working, this is about becoming leaner, lower cost, and more scalable organization, and accelerating this by technology, data, and simpler ways of working. Blueprint 2.0 is designed to make Cleanaway a more customer-led, more efficient, and more digitally enabled, and a more cash flow and returns-focused business, one that extracts more value from our scale, our existing network and capabilities, while being disciplined about where to play and where we invest and win.
From a shareholder perspective, the important math here is that these three reinforcing pillars together deliver significant improvements in 10 key value levers, which then drive improved shareholder value through stronger free cash flow. In terms of top-line growth, our business continues to benefit from overall population economic growth and favorable secular trends. We expect this to drive underlying revenue growth through volume and price increases with targeted variations at a regional and business unit level, reflecting strategic choices. For example, the exit of C&D, construction demolition, and Metro IS. On margins, following the 260 basis points increase in EBIT over the last three years, we can see a pathway to at least a similar margin expansion over the life of the strategy. This combination of continued top-line growth and margin expansion will translate into a 10%-15% EPS growth from FY 2028 and beyond.
Now, FY 2027 EPS is expected to outperform that growth as it will benefit from the indirect cost review and recent acquisition synergies. On CapEx, the shift is toward existing asset upgrades, digitization, fleet replacement, and selective growth investments with mid-teen return hurdles. Total CapEx should remain broadly within our AUD 415 million envelope. While the development of major projects like energy from waste and the Dynon Road Transfer Station will sit outside that envelope and remain subject to hurdle rates and strict strategic discipline. The largely flat CapEx with increasing revenues will see our capital intensity reduce over time, and that will support higher free cash flow. Our M&A program has been instrumental in accelerating our strategy. Our network is now in a very strong position. With the emphasis of our strategy to optimize existing assets, we see a more limited role for M&A in the next few years.
We are making cash flow the currency of Blueprint 2.0. It is the clearest expression of how we are translating our strategy into shareholder value. To ensure alignment and accountability, the short-term incentive plan is being reworked, with free cash flow being introduced as a key financial target for FY 2027. Finally, we expect to continue to pay out 50%-75% of underlying NPAT to shareholders whilst deleveraging and maintaining an investment-grade credit profile. We have taken investors on our value driver journey, and to bring it to life in Blueprint 2.0, we plan to share our company level key value driver metrics with you so that you can observe the performance improvement journey through an operational metric lens. We'll provide six monthly updates of those levers and drivers starting at the full year results.
Now I'm going to unpack each of the three pillars in a little bit more detail before we get into the case studies. Okay. For customers, the goal is a stronger value for money proposition. Blueprint 2.0 refines our customer value proposition to seamless service and competitive pricing. A major part of this is to improve the overall customer experience, and we'll do that by making customer engagement increasingly digital-first with self-service, AI-enabled customer service, pricing portals, and more seamless interactions across the company. For Cleanaway, the goal here is high-value revenue growth. In terms of delivering high-value revenue, this is about targeted volume growth in areas that deliver strong integrated margins, combined with smarter pricing. We'll now grow our volumes by leveraging our scale and integrated network to deliver unique solutions to win new customers, as well as extracting more business from our existing customers.
We'll improve customer retention by offering a seamless customer experience. It's important to note that waste is a low share of mind, utility type spend. This is about not giving our customers a reason to leave. This helps retain high-margin volumes to increase the total customer lifetime value. We'll increase our share of wallet through total waste management solutions, using a single view of the customer, led by the now centralized sales and customer service teams, through better segmentation, and through more tailored solutions for priority verticals, including mining, health, retail, and oil and gas. From a pricing dimension of customer value, Alex will take you through smarter pricing, which for the first time allows us to price with precision. This will ensure we protect and grow value where our service proposition is strongest, while also retaining more price-sensitive customers through more targeted pricing actions.
All these initiatives will be supported by our accelerated investment and rollout of data analytics program, which will play an active role in commercial decision-making. If we move now to the second pillar, which is optimized branch network pillar, and as Tracey will describe to you shortly, this is where we make our network work harder to deliver higher margins, stronger and more stable cash flows, and improved returns. We will attack each of the six value levers you see on that slide. The first three levers drive our margins by reducing the overall unit cost to serve and process waste and materials. This is about improving asset utilization through the increase in volumes, and then to maximize the value of those volumes by driving internalization. Next, it's about running lean and efficient operations to reduce fixed and variable costs.
For example, through better routing, greater plant uptime, higher processing yields, and more efficient labor deployment. The next two value levers support our ROCE by reducing the capital intensity and being disciplined about how and where we spend our capital. Initiatives to reduce capital intensity include things like site rationalization, which Ciara will discuss with you shortly, or through procurement savings. It'll also be about pursuing capital-light solutions to achieve our objectives. The landfill gas processing JV with LMS is a good example, contributing AUD 15 million in incremental EBIT with no upfront capital from Cleanaway. The final lever is increasing the stability of our cash flows by running safe and reliable branches, enabled by the branch-led operating model with the advanced ways of working, providing robust standards, systems, and processes. The third strategic pillar is advanced ways of working.
The goal is to continue to make investments to create a leaner and more technology-enabled organization. This is simply what U.S. peers have done well to make scale their advantage, and we will do the same. You're going to hear from Dean later today. What he's going to say is that technology, AI, and automation are not just support tools in this strategy. They are the core enablers to drive scale performance improvement in our branches and to unlock the improved digital-first and more personalized customer experience I discussed earlier. Importantly, as Dean will show you, much of the foundational digitalization and data analytics underpinning work is already in place. Lastly, this pillar is about creating a lean and efficient organization. We've already centralized key functions, making it simpler, more efficient, scalable, and aligned to strategy delivery.
This resulted in AUD 15 million of lower indirect labor cost out in FY 2026, becoming more than AUD 35 million of recurring savings in FY 2027 onward. The important thing for shareholders here is that we also benchmarked other indirect costs during the strategy. We have strong plans in place to deliver significant non-labor savings incremental to AUD 35 million and building from FY 2027 for a number of years. All right, so if we rise above it for a moment, the strategic logic is this. Blueprint 1.0 built and stabilized the platform. Blueprint 2.0 is about making that platform work harder. It's about making scale our advantage. It's about converting stronger customer value, better asset performance, and simpler ways of working into stronger cash flow, improving returns, and better shareholder outcomes.
Now, what you're going to see next is each of the speakers today will bring one part of the strategy to life.
They're going to show you how Blueprint 2.0 translates into exactly what I've just talked about, better customer outcomes, stronger asset performance, lower cost to serve, and ultimately stronger cash flows and returns. With that, I'm going to hand to Tracey.
All right. Thanks, Mark. Hi, everyone. I'm Tracey Boyes. I look after the Solid Waste Services segment here at Cleanaway. What we want to do in this section is we want to take you through the waste value chain, and we want to bring that to life for you through the case study of our network in Sydney. On this slide, you can see that our network in Sydney is diverse and it's also dispersed. In fact, get ready for it, we have three landfills, six transfer stations, we have three organics processing facilities, a MRF, a container deposit scheme processing facility, a health waste treatment facility, and also an extensive hazardous waste network. Our network in Sydney is really strong.
Now, there are four things to listen for as I walk through the value chain and our network to understand why we keep saying that our scale and our network are a competitive advantage. The first is that we accumulate margin across multiple points in the value chain. Many of our smaller competitors, they only capture margin once, then they're also subject to price fluctuations elsewhere in the network. That's the first one. Second thing to listen out for is that our total waste management offer is market competitive, and it is so because every single Cleanaway site gets the best market rate that Cleanaway offers for that same service. What that means is our sites are incentivized to internalize, our combined offer to customers remains competitive, and also, we can increase our share of wallet.
The third thing to listen for is that we can maximize asset utilization because we use our collections business to fill our downstream treatment, resource recovery, and landfill assets, rather than only relying on third parties to do that for us. Then fourth, our position across the value chain gives us a much richer data set on customer behavior, on waste flows, and also competitor activity. What Blueprint 2.0 is about, is about turning that into deeper insight, better decisions, and competitive advantage. If we go to our value chain, this is a simplified version of our value chain, and you'll recognize the hard assets shown along the chain as all existing in the Sydney network.
Now, as a general rule, we want to operate from right at the start of that value chain, because if you are listening, you'll know that that allows us to internalize waste. It means we can control what happens from that point, and we can earn and accumulate margin at every step along that chain. Which means we start at collections. Now, for the vast majority of our customers, get this, we have 170,000 of them, their interaction with Cleanaway is through our collections business and our hundreds of collections depots nationally. We have an agreement. They pay us to come to their home or business and collect their waste, and they essentially just trust us to look after whatever happens after that. Now, success in collections is a true team effort, and you're going to hear that quite a lot today.
We rely on our newly centralized sales teams to drive volumes into our network, which Alex will discuss in the next case study. We rely, of course, on our fleet team, which Hugh will talk to you later, and then at that scale, at the scale of 170,000 customers, the only way to shift our value drivers materially here is through digitization, which Dean will take us through. If we move on from collections, the second step in the value chain is aggregation at our transfer stations, and that helps us with a couple of things. It helps us to manage logistics costs, but it also helps us to efficiently push volumes through the rest of the network. Now, if we look at Sydney, our coverage across greater Sydney really matters here.
In fact, if you got that map of Sydney and you drew a 10 km radius around each of our transfer stations and landfills, you would see we cover almost all of Greater Sydney, and I can tell you that in the areas that we don't, neither do our competitors. That matters because it means our collections teams are never too far away from a Cleanaway transfer station, which improves their logistics costs, and then for the same reason, customers and competitors also use our transfer stations, and they pay us a gate rate on the way in, and that increases the volume in the network and lowers our unit cost.
Now, our focus then, if you think about all of that, is pushing volume through those transfer stations by keeping our turnaround times short and improving payloads in the haulage fleet that then takes the waste out of those sites. To give you a sense of scale, our New South Wales transfer station network, through that, we aggregate about 624,000 tons of waste every year. That's transfer stations. The next touch point for waste that is not going to landfill is resource recovery or treatment. The neat thing here is that we receive both a gate rate for the waste that is brought into our facility and revenue for the products or commodities that we sell out of those facilities as well.
Now, if we think back to Sydney, outside of our Western Sydney MRF, this part of the chain includes Eastern Creek Organics, it includes our health facility, and also our OTS facilities that process contaminated soils and liquids, which includes internalizing leachate back into the chain from our own landfills. Now, at this touch point, there are two focus areas here that are particularly relevant to Blueprint 2.0. The first is asset utilization. If we can maximize throughput and plant uptime, quite simply, we have more capacity to sell. I'll give you a couple of examples here. At ECO, we're increasing licensed capacity from 220,000 tons per annum to 300,000 tons, which means that when that's full, we could take around 75% of the potential municipal FOGO market in Sydney. At the Western Sydney MRF, we are still ramping.
We're already delivering positive EBIT, and we have the capacity to materially increase volumes through that facility. As you can imagine, with the fixed costs already covered, every incremental ton delivers really attractive margins. Now, the second focus area in this part of the value chain is yield and product quality, and we need targeted technology investment usually to improve both of those. Whether that is capturing more aluminum at a MRF, whether it's improving compost quality at ECO, or whether it's producing better quality outputs in OTS, the principle is the same. Better yield gives us more volumes, and better product quality lifts margin on the sale of those products from the same underlying input volume. Now, back to the value chain, the final touch point is landfills, where again, we have two opportunities to earn revenue.
First, we earn a gate rate for every ton that comes in over the weight bridge, and then as that waste decomposes underground, we also create value by capturing and destroying that landfill gas, and this value comes in the form of ACCUs, plus, where we have generation, in the form of saleable electricity. Now in Sydney, we have one putrescible landfill and two inert landfills, including the only restricted solid waste cell in New South Wales, which is a cell that can accept contaminated waste. Now, to increase seamless service, which Mark talked about, and also saleable capacity at our landfills, the key value drivers include short turnaround times for customers, again, waste compaction, and also efficient cover soil usage.
What Blueprint 2.0 does is it brings technology and better operating rhythm to those value drivers, as Dean will walk you through shortly, while separate projects continue to extend airspace where that's economically attractive to do so. Now, if we step back and take the national view, we have the most extensive network of depots and sites, which are our branches, not only in Sydney, but also in Australia. The value is not only in the dots on the maps, it's how we connect them, because together, those sites create the network effects through the value chain that we've just discussed. Blueprint 2.0 is about optimizing not only individual sites, but also how the network is operated, how capacity is created and sold, and how that network is leveraged to lower cost to serve and to lift returns.
The final takeaways from this section on network and scale is that our national network and scale create a structural advantage in three important ways. The first is that strength in one geography improves our position in another. Victoria, like New South Wales, has a really strong and diverse network, and in fact, now with Dynon Road, we have the leading transfer station network also in Victoria. Nationally, aside from having significant collections volumes, we also have landfill positions in or near most major metro markets. All of that gives us leverage when we are negotiating access to third-party facilities in markets where we are less strong. The second reason we believe our national network and scale creates a structural advantage is that we can win national contracts because we have the leading collections depot network in Australia with close to 200 depots.
National customers who want that service certainty and who do not want most of their work heavily subcontracted, they choose us, and Department of Defence in Queensland was a fantastic example of that. Those national customers then create route density right across the country, and we can use data and analytics to fill out those routes in a really targeted and profitable way, which then further lowers our cost to serve. The third reason we believe our national network and scale creates a structural advantage is we can learn in one location or build the digital for once or trial a new technology once, and then we can rapidly deploy that across all similar assets. We proved that model works through our SWATs and our business teams. Now we've reorganized ourselves by similar asset types nationally so that we can do this much more efficiently under Blueprint 2.0.
For example, in solids, we now have one General Manager for all of our transfer stations and landfills nationally, and those coming on the site visit to MRL will get to meet our GM, Claire Halsey, later. Now, because Claire is looking across the country, she can have a singular focus on just that set of value drivers or just that set of risks, and she can deliver on improvements relevant to all of her sites very rapidly. That is how network and scale become a real competitive advantage in Blueprint 2.0. With that, I'll hand over to Alex to talk about customer value.
Good morning, everyone. My name is Alex Smith, and I look after our Customer and Commercial functions. Today, I'm going to walk you through how we're bringing Blueprint 2.0 to life through the customer value pillar. The core idea is really simple. We want to grow revenue in a more customer-led, more efficient way that strengthens the network and improves returns. That means being much more deliberate in how we sell, how we price, and which customers and segments we prioritize. The work completed in the first phase of the strategy has set us up really well. Through Customer Connect, better visibility of our network, and the embedding of data and analytics into our branches, we now have much better insight into how our network is performing. This means we can be far more deliberate and targeted in how and where we grow.
Our network is a key competitive advantage, and our ability to direct activity to strengthen that network by improving utilization, reducing cost to serve, and deepening customer relationships is what drives value. The role of the customer value pillar is to support that, ensuring we sell, price, and grow in a way that strengthens the network and improves returns. Today, I'm going to focus on two things. First, the changes we've made to our customer value proposition and our sales model, and second, how we're using data and technology to drive higher value revenue through two case studies, so smarter selling and our pricing engine. As a part of Blueprint 2.0, we've reshaped both our customer value proposition and how we go to market. At the core of that is a shift towards total waste management selling.
That's moving from selling individual services to delivering integrated end-to-end solutions for our customers. To enable that, we've centralized our collections sales team, moving from state-based service line sales to a national segment-aligned approach. Historically, sales teams were SBU-based. In practice, that meant that they sold the services that related to their SBU only. A solid sales team might only sell Solid Services even where the customer had a need for grease trap, used cooking oil, or Health Services. This resulted in multiple salespeople engaging with the same customer, limited cross-sell, and a really inconsistent customer experience. Today, we present as one Cleanaway to the customer, with a single point of contact that can bring together our full suite of services, and that really unlocks significant value. We can grow within our existing customer base.
We can sell more services, increase our share of wallet, extend customer lifecycle value, and reduce acquisition cost. At the same time, we've expanded our effective sales coverage. Instead of having a handful of salespeople selling particular services nationally, we have much broader sales capacity across the country. I'm going to bring that to life, and I'm going to tell you a story about a very special customer of ours, which is actually my younger brother, Sam. Sam runs a pub and restaurant group in Sydney, so I get a very, very direct feedback of the customer experience, and fortunately for me, that's mostly at the family dinner table.
As you can imagine, it's especially animated when he gets his annual price adjustment letter signed by his older brother. So, we currently look after Sam's general waste, his commingled services, and his cardboard services, but we don't do his grease trap or his used cooking oil. Why? Because those services sat in a different sales team. They sat in our OTS sales team. It was a much smaller specialist team that had to prioritize larger customers, and because of the size of the sales team and the stretch capacity that they had, they took a really long time to get back to Sam. Another piece of feedback oversight. From Sam's perspective, he was dealing with multiple Cleanaway representatives, having the same conversation more than once, and if he had taken the extra services, he would've likely gotten two bills from Cleanaway.
Lucky for Sam and for me and for the rest of our family, that's changing. This is exactly the type of fragmented customer experience that we're changing. As of a few months ago, that same interaction is now handled by a single sales representative. They understand the full needs of the business. They can bring together all the relevant services in one conversation and provide a much more complete solution upfront. Through Customer Connect, we've simplified what happens after the sale, streamlining quoting and onboarding and enabling consolidated billing. Sam gets a simpler, seamless process, a single point of contact, and importantly, one bill. Cleanaway gets to capture more of the value of the customer relationship by expanding share of wallet, reducing our acquisition costs, and increasing the lifetime value of that account.
For my family, well, we get to have a meal without talking about Cleanaway's customer experience. The second part of the story is pricing. Pricing is how we capture the value that we actually create in the network, but it's also how we shape the network by influencing what work we win, where we win it, and at what quality. As our data and technology and understanding of our customers have improved, we're now able to price much more effectively based on how well that work fits within our network, what it actually costs us to service, and the type of customer that we're dealing with. Historically, we priced using postcode-based rate cards with pricing bands layered on the top. On the right-hand side of that slide in the blue box, you can see an example of the rate card. Actually, you know what?
I don't know if that image really gives a true reflection of what the rate cards are. A real rate card is probably a piece of paper that's kept in a salesperson's glove box. It's probably been crumpled up, it's probably got some coffee stains on it, and it's probably got the incorrect pricing on it as well. See, our rate cards are actually updated manually once a year, and they were distributed to our sales teams, who would print them off so that they could sell to our customers. There was no version control. The prices didn't reflect any of the changes in the network, any new infrastructure that was put into the network, any new customers that were put into the network, and it was a really highly manual process for our sales teams to sell.
Now, on the map on the left-hand side, each blue area represents a postcode. So in this example, all those postcodes sit on the same rate card or, as I said before, piece of paper, which means every customer in these areas was getting the same price, and that clearly doesn't reflect the reality of how we operate. A practical example we found was we were charging the same price for a general waste service in Chapel Street as we were in Healesville, which is about 130 km away from each other. In Chapel Street, we're running really dense routes. The incremental cost to pick up the bins is really low, and we're servicing multiple customers in close proximity with really highly utilized assets and a really good transfer station network around it.
In Healesville, that same service requires much more time on the road, lower route density, and higher fuel and labor costs. The cost to serve those two customers is fundamentally different, but historically, we were pricing them the same. It's not just about the location. Pricing was also not tailored to the customer. As Australia's largest waste management company, we have a significant amount of data on our customers, industries, services, behaviors, service patterns, but we weren't using it well enough. Two customers could be priced the same even though one generated heavier bins, required more servicing, or was a less efficient fit for us in our network. The pricing engine fixes that. Instead of static-based rate cards, we now price at a much more granular and personalized level.
We bring together data on the customer, the service, and critically, how that work fits within our network. On this slide, each hexagon there, the blue hexagons, represent a service zone. Each zone has a set of attributes that the system uses to calculate pricing for every opportunity, the route that it will sit on, the distance and time required, the utilization of the asset on that particular route, and the disposal costs across our network. From that, the engine generates a price that reflects both the true cost to serve and the value of that work to Cleanaway. This is where we really get to leverage our scale. Because of the size of our network and the depth of our data, we can price far more accurately than smaller competitors, ensuring we win the right work at the right price in the right locations.
Importantly, this is embedded directly into our sales process through Salesforce, so teams receive pricing instantly with really, really clear guardrails. In practice, that means that our pricing reflects our true cost to serve, and we get much more consistency with less manual work. Over time, we get to improve margin across the network. We've begun piloting the pricing engine in two of our core services, and so over the next 18 months, we'll progressively expand it across the rest of our service offering, continuing to refine it and model as we scale. The second component is smarter selling. We are aligning our sales activity much more closely to the economics of the network, targeting customers along underutilized routes, prioritizing opportunities that improve density, and running campaigns informed by data, not just inbound demand.
The work of our sales team across the organization is to feed our network, directing work into the right parts of it to improve asset utilization and increase the returns we generate from incremental volume. As utilization improves, the economics of your network improve with it. Each additional customer added delivers a higher return than the last. Let me show you how we're doing that through our data and technology. Historically, sales responded to inbound demand. Now we actually start with the network. Using our route opportunity tools, we identify underutilized routes, areas where trucks are already running but are not yet at full capacity. You can see that on the left, a snapshot of our existing routes. Our smarter selling tool then overlays the potential customers that we could be servicing along those routes. You can see those represented by those green dots in the second box.
These leads are customers who fit our network. They score well on our customer value, and we believe we can price them competitively. For example, as we stand here in Melbourne's North West and Essendon Fields, we can clearly see that there are clusters of opportunity sitting close to our existing routes. This allows us to run really targeted campaigns. That's focused sales teams using tailored pricing to target those customers who will improve the overall network. Instead of our sales team taking a scattergun approach, we're taking a much more targeted approach and asking: Where do we want more volume, and which customers will help us get there? At a really practical level, this is going to change how our sales teams work day- to- day.
In the past, a sales rep, like my team member, Claire, she would start her day working through emails, leads, or accounts, often reacting to demand rather than targeting where value most sits. Now she starts with a single prioritized view of her portfolio. Smarter selling brings together customer requests, at-risk customers, new opportunities, and prioritizes them based on where Claire can add the most value. It then builds out her day for her, sequencing visits based on proximity, urgency, and commercial value. Instead of driving across Melbourne between appointments, she's working in really concentrated pockets of high-value opportunities. What does Claire actually see, and what really changes for her? On the left-hand side, you can see her dashboard. Rather than searching through reports or within Salesforce lists and databases, the tool surfaces all of the moments that matter.
Things like at-risk customers, renewals, total waste management opportunities, and new leads in priority areas. These are informed by what's happening across our network, our customers, and within the market. On the right, the tool turns it into action. For example, you can see that the tool's recommending that Claire starts the day by visiting a customer at risk due to some service issues. She's going to check in on that customer, understand their concerns, and then provide them with a solution. After she finishes that meeting, the tool has provided a list of other customers in the area that fit our network. They're the right type of customer, and they present high-value opportunities for Cleanaway. When she meets these customers, she's equipped to sell.
She's been trained in total waste management selling, she's supported in real time by our pricing engine, and she's able to generate a quote through Salesforce, an experience that my brother Sam would have loved. Instead of a visit to an at-risk customer, she's effectively undertaking or executing a targeted campaign. We're shifting from reactive selling to data-led selling aligned to how our network creates value. And on this side, you can see how it really comes to life. What Claire sees is. Next slide. What Claire sees is a clear set of actions and priorities for the day. Behind that, the entire Cleanaway network is feeding the system, something that you're going to hear about from Dean in a moment. Our operations and network performance teams provide data on route performance, asset utilization, and capacity across our network.
Our drivers and our operations teams are capturing what's happening on the ground, competitor activity, service issues, changes in customer behavior, and we're bringing that to life through our customer data, service history, and through our data and analytics platform. The result is that our scale turns into a competitive advantage. We have a richer, more connected view of customers and networks than anyone else in the market, and that allows us to direct our sales effort far more effectively into the right locations, towards the right customers, and aligned to how our network actually operates. Ultimately, this will improve the utilization of the asset, lower the cost to serve, and increase the returns we generate from incremental volume. We're currently piloting the smarter selling tool in two regions, and we'll have a phased rollout through the sales team as we continue to refine it.
With that, I'm going to hand across to Dean.
Good morning, everyone. I'm Dean Reynolds, and I lead digital data and AI at Cleanaway. Today, I want to talk to you about the central role that digitization plays in delivering Blueprint 2.0. When we talk about digitization, we're really talking about how the business runs, our processes, our ways of working, our systems, and the signals that we capture from our assets and operations. How we use those to embed intelligence back into our business. The objective is practical. Make the business more efficient, more informed, more automated, ultimately easier for our teams and our customers to use. For us, digitization shows up in very practical ways. It's how our routes are planned and optimized, how our drivers capture information in the field, how our bins and vehicles send data on assets and utilization, how our customers are set up and billed, and how our teams make decisions.
You heard Mark talk about what we delivered in Blueprint 1.0. From a digitization perspective, that phase was about putting the foundations in place. A key part of that was the branch-led operating model, which created the platform for our digital programs to land and be embedded into our branches. It also defined and embedded the value drivers to focus the business on what matters most day-to-day. Building on that, we invested in our data and analytics capability through our enterprise data platform, and we digitized key parts of how we operate. Digitization is not a separate initiative within our strategy. It is a combination of technology, data, and AI that underpins how we run the business and how we deliver the strategy. The way to think about our digitization program is like a staircase, as you see on the slide. Step one is standardize and control.
We put consistent processes and measures in place so that the business runs the same way every day. Think about our branch -led operating model, our value drivers, and our visual management boards. Step two is digitize the core. We digitize how work gets done, captures data from operations, and reduces fragmented manual processes. Think of Customer Connect. Step three is optimize performance. We use that data to improve decisions, and as a result, better asset utilization, lower cost to serve, and stronger performance across the network. Step four is enterprise intelligence. We embed advanced analytics and AI into the business so that decisions are run more automatically and at scale. Think of our smarter selling app that Alex talked about earlier today, and AI and procurement, which I'll touch on later.
Each step builds on the last, and we've been laying those foundations for over the last four years, and this is the first phase of our strategy. Now, different parts of our business are in different points of the staircase. The exciting part financially is that that gives us a long way for growth and margin improvement. In more mature parts of our network, we can now move into three and four, which is optimize and intelligence. In less mature parts, we keep building the foundations, and the pathway is clear. The first example I want to talk to you today is how digitization can help us improve utilization and lower cost to serve through Landfill of the Future, which you will attend with Claire and us later today at MRL.
This is a great example because it shows us how the foundations we've put in place through Blueprint 2.1 now create the opportunity to unlock more value in Blueprint 2.0. This work was triggered by the increased turnaround times at MRL after we changed our controls around mobile, people, and interactions. In response, we used simulation modeling to understand the bottlenecks and test the operational levers available to improve flow. That became the foundation for a more systematic approach to landfill optimization. Because steps one and two are already in place for the landfills, we can now move to step three, optimize performance. With better data and more connected view of what's happening on site, we can improve landfill performance day to day by reducing bottlenecks, improving flow, and supporting better operating decisions. The value creation opportunity is clear.
By improving how landfill sites operate, we can unlock more value from the existing capacity, reduce unnecessary costs, and provide a more consistent experience to our customers. In P&L terms, that supports stronger margin through lower demurrage, fewer disruptions, and better revenue outcomes. This allows us to step into number four, where the landfill becomes a more intelligent asset. We can apply advanced analytics, optimization, and AI to identify issues earlier, support faster decisions, and over time, automate more routine tasks. We now have a very clear four-phase step strategy from here: journey mapping, inbound logistics recommendations, real-time optimization, and scenario planning. The important point for investors is that step one and step two is already in place, and that Landfill of the Future is a smarter, more productive operation that improves utilization, reduces costs, and generate better returns from the infrastructure we already own.
My second example is AI and procurement. This example is particularly relevant to our third pillar, advanced ways of working, because it shows how data and AI can simplify work, augment our workforce, and take indirect cost out of the business. Cleanaway already has a strong foundation in AI. With machine learning already used today in programs such as pricing, smarter selling, and route optimization. What has changed is the emergence of generative AI and agentic AI, which significantly expands the opportunity set for us. In procurement, the next step is about using AI as a domain assistant to support both procurement teams and our branches. It helps members navigate policy, process, and supplier choices more easily so that they can make better decisions, reduce errors, and move faster. For example, take Mary, a branch manager who needs to order a 240 L bin.
It sounds quite straightforward, but there are multiple bin configurations, colors, lid types, suppliers, and the buying rules to work through. Because branch members and teams do not live and breathe procurement every day, a simple purchase can quickly become manual, frustrating, and error-prone. Today, Mary needs to search through many catalogs, interpret lots of specs, and check that she's using the right supplier and following the right process. With the procurement assistant, Mary can simply say what she needs. This assistant will guide her through the request using Cleanaway's approval pathways. It helps identify the right bin, confirm the right supplier, make sure she's chosen the right specs, and with less effort and greater confidence. We can then move on to step four, where AI becomes a more core part of our process rather than simply helping out the user itself.
The practical example here is compliance, where AI can check requests in real time against policy and contracts, identify issues early, and help resolve them before the transaction proceeds. Over time, the same approach can be extended across tendering, stakeholder support, and other repeatable procurement activities, improving control, speed, and consistency at scale. This is where the procurement becomes a proof point for AI, so we can prove how work gets done in a controlled way and then scale across the business. In P&L terms, the opportunity is clear. Lower indirect cost, faster execution, and a more scalable operating model without proportional headcount and growth. When you step back, the message is simple. Blueprint 2.1 is about building on those foundations of 1.0 to unlock more value, improving how we operate, lowering cost, and delivering a better experience for our customers with more intelligence embedded over time.
With that, I'll hand you over to Hugh.
Good morning, everyone. I'm Hugh Cotton, and I'm responsible for Fleet and Logistics. I've been at Cleanaway for more than 10 years and worked across each of our segments. We operate more than 3,500 heavy vehicles, the largest fleet in the country. Our trucks spend more than 6 million hours on the road each year and travel more than 140,000,000 km. For context, that's the distance from you to the sun. Fleet and logistics also manages one of the largest cost bases in the business after labor. Fleet-related spend exceeds AUD 400 million per year across repairs and maintenance, fuel, tires, accident damage, and workshops. At our scale, small improvements matter. Today, I want to do two things. First, walk through how we have structured fleet and logistics under Blueprint 2.0, and second, step through some practical examples that show how this translates into value.
We organize fleet and logistics around five key focus areas. Our ownership model is about having the right mix of owned assets, owner-drivers, and third-party logistics providers. There is no one-size-fits-all answer. We need the right model for the task, and we need to keep refining our mix as the business changes. We are increasingly using 3PLs to move waste between our transfer stations and our processing or landfill sites where that task is lower value add. For example, in Victoria, we transitioned our waste movements from our transfer station in the southeast of Melbourne to MRL to a third-party logistics provider. This optimized payloads, rationalized routes, and we sold aged assets. We reduced our cost by AUD 5 million per year, avoided a further AUD 1.5 million per year of cost increases, and avoided AUD 8 million in fleet replacement capital.
That 3PL model is scalable, and we're replicating it across the national network. Purchasing and lifecycle management. This is about how we buy, standardize, and manage our fleet through its lifecycle with a clear focus on the total cost of ownership. We're partnering with major OEMs to standardize our fleet, reduce maintenance complexity, improve spare parts availability, and lower whole of life cost. Fleet tech and innovation. That's where we embed technology into the fleet to improve both safety and performance. Network performance, that's how we design routes. How far trucks travel, and how we move waste across the network all directly impact fuel, labor, and the number of assets we require. Increased asset utilization means a lower cost to serve and higher margin. Sales teams feed the network. Fleet and logistics ensure it runs efficiently. Workshops and maintenance is about safety, availability, reliability, and cost control.
Every hour a truck is off the road is lost productivity. Improving workshop performance and reducing maintenance-related downtime has a direct on service, cost, and capital intensity. When we bring those five areas together, the outcome is straightforward. Lower cost per operating hour, better capital discipline, safer operations, and stronger returns. Our Fleet of the Future program is our commitment to invest over AUD 400 million over the life of the strategy to standardize and modernize the fleet, improving safety, fuel efficiency, maintenance, driver experience, and returns. This is about taking a deliberate long-term approach to how we design, procure, and operate the fleet rather than treating it as a series of individual decisions. Let me bring that to life through a couple of examples. The first example is purchasing and lifecycle management, specifically Fleet Replacement Program or FRP. This is a key value lever for fleet and logistics.
Our plan will see the average age of the fleet reduce over the next three to four years and then hold at that level. Our replacement decisions are not just based on age. They're based on performance, including maintenance cost, fuel efficiency, reliability, utilization, and safety capability. That allows us to identify when an asset is no longer economic to operate and replace it accordingly. Over the next three to four years, we will deploy more than 1,000 new vehicles with better safety features, which will be more efficient and more reliable. As we replace older vehicles, we expect to improve reliability, availability, and utilization while also reducing operating cost. That matters in two ways. First, it lowers our cost to serve through lower maintenance spend, better fuel efficiency, and higher asset availability.
Second, it improved capital efficiency, because more reliable assets mean more productive hours per truck, higher utilization, and less need for spare capacity across our network. In parallel, we are also driving greater standardization and more structured supplier partnerships. That improves procurement outcomes through scale, reduces maintenance complexity, improves parts availability, and gives us better access to global best practice in vehicle design and technology. To illustrate the economics, a new vehicle can have an uptime of more than 98%, compared with less than 70% for the older vehicle it's replacing, and the repairs and maintenance cost for the old vehicle can be more than five times that of a new. The second example is fleet tech and innovation, specifically IVMS, our In-Vehicle Monitoring System. Safety is foundational for us.
Our drivers operate in high-risk environments every day, and with the largest heavy vehicle fleet in the country, this is a risk we manage proactively with the right controls and assurance. IVMS gives us a step change in visibility and intervention. It monitors driver behavior in real time and provides immediate feedback, helping our drivers correct their behavior before an incident occurs. The system uses AI-enabled cameras to monitor things like fatigue, seatbelt use, speed, and mobile phone use. It also tracks harsh braking, harsh acceleration, harsh cornering, behaviors that affect not just safety, but fuel, tires, and maintenance cost. For example, if the system detects a fatigue event, it immediately triggers an in-cab alert for our driver, and that kind of intervention has the potential to reduce serious on-road incidents. Rollout is underway, and we expect IVMS to be deployed across all Cleanaway heavy vehicles this calendar year.
Around 500 trucks have already been upgraded, and we are already seeing fatigue events being identified in real time and coaching conversations occurring with our drivers. We are building a 24/7 control room which will give us central visibility across the fleet. Combined with our DriveSafe platform and chain of responsibility controls, that means we can intervene earlier when a driver needs support or when we see a potential compliance risk. Importantly, IVMS is not just about safety. It also has some commercial benefits. We spend around AUD 14 million a year on accident damage and around AUD 170 million a year on repairs and maintenance. We know overseas peers have seen material reductions in accident damage after installing IVMS, so the opportunity for us is significant even before any benefit from lower fuel consumption, higher uptime, and better utilization. IVMS improves safety, but it also improves cost, efficiency, and operational control.
Over time, the data generated by the system will support better routing, better compliance, and much better visibility across our network. In parallel, we are also rolling out yellow gear pedestrian detection technology across more than 470 pieces of equipment operating on our sites, with a second phase planned for our forklift fleet. Using AI cameras, this technology alerts our operators in real time to unsafe pedestrian interactions and captures video for future review and coaching. That's another practical example of how we are using technology to improve safety while also strengthening operating discipline. When you step back, the fleet strategy is not just about replacing trucks. It's about using scale more intelligently. It's about owning the right assets, standardizing where it matters, using technology to improve safety and performance, reducing total cost of ownership, improving uptime, and ensuring capital is deployed where returns are strongest.
That is how fleet and logistics helps turn scale into competitive advantage and supports stronger cash flow and returns under Blueprint 2.0. With that, I'll hand over to Ciara to take us through hazardous waste.
Hi, everyone. I'm Ciara Doran, and I look after our Oils and Technical services business. The hazardous waste sector is a large, attractive, and highly regulated market with significant barriers to entry. We expect this market to continue growing at around 6% per annum over the next few years, underpinned by industrial and manufacturing activity and increased regulation, including in areas such as contaminated soils and PFAS. In recent years, many of the major global waste companies have diversified and expanded into hazardous waste. Cleanaway is in a strong position because we already have a leading hazardous waste business. It's built on the combination of our acquisition of Toxfree in 2018, for their strengths in packaged hazardous waste, and Cleanaway's existing bulk hazardous liquid strengths.
What we have not done is fully optimize that combined network of licensed infrastructure to create a simpler, safer, and more profitable business that fully leverages the scale and network benefits of Cleanaway. That's what excites me about the strategy. What is hazardous waste, I hear you ask? Our hazardous waste business operates in a tightly regulated part of the market, handling hazardous and dangerous goods waste streams that cannot be disposed of through normal domestic and commercial channels. For households, that includes pesticides, weed killers, pool chemicals, batteries, aerosols, and gas cylinders. For industry, it includes industrial gases, refrigerants, fuels, acids, alkalis, as well as bulk liquids such as oily waters, sludges, leachates, and PFAS-affected waste streams. Cleanaway is recognized as the market leader across many categories of hazardous waste, with strong technical capability, a hard-to-replicate network of licensed infrastructure, and clear ongoing growth pathways.
Hazardous waste is the largest operation within the Oils and Technical services business, with revenues approaching AUD 300 million, EBIT margins in the low- to mid-teens%, and strong growth in recent years. Over the last 12 months, we have restructured along business lines and stabilized our operating and safety performance to establish stronger foundations for further improvement under Blueprint 2.0. What makes us unique is our ability to offer national end-to-end solutions for a broad range of complex waste streams and to integrate that as part of total waste management solutions, leveraging the scale of the broader group. That is why, while we serve a broad customer base, the most attractive opportunity is in larger multi-stream, multi-state accounts that competitors struggle to serve without comparable infrastructure and technical depth. It's also why we are excited about the acquisition of Contract Resources.
With CR we now have a large, new internal partner with a stable core business, a top-tier customer base, and a growing pipeline of opportunities. The strategic logic is straightforward, and like Tracey said, internalizing treatment captures margin, reduces third-party reliance, and leverages, in this case, hazardous waste feedstock already within the network. You'll be delighted to know that that internalization has already started and we are now receiving hazardous waste work from CR tender wins that previously would have gone to competitors. There's also a clear commercial growth agenda embedded in the strategy. We are moving away from a fragmented sales model towards a stronger, centralized technical sales capability with better pricing, cross-sell, and customer targeting. Today, we have a very long tail of customers. However, 250 customers represent 80% of our revenue, which means there is meaningful opportunity to improve mix, pricing discipline, and sales productivity.
Turning now to how we process waste through the network. We have a unique national infrastructure footprint of licensed sites across Australia that enables scalable, compliant, and multi-stream solutions for customers. This network is difficult to replicate because of capital requirements, licenses, site approvals, and the technical capability required to operate safely. We integrate that network to leverage scale. As Tracey described earlier, this vertically integrated model improves margin accumulation along the value chain because much of the waste can be processed internally or within the broader Cleanaway Group rather than relying on third parties. We then combine that network with deep technical know-how in managing hazardous waste streams safely and compliantly. Replicating our expertise and the trust we have with customers would require time and market, specialist licenses, and regulator credibility. That can only be achieved through experience and a long track record of proven performance.
In terms of our roadmap to optimize the business, the phrase to remember is easy, safer, simpler, and more profitable. First, we will selectively rationalize the network to improve asset utilization. Where volumes can be redirected without loss of capability, that improves margins and reduces capital intensity. Second, we will invest in modernization and upgrades of strategic sites to improve controls and efficiency and reduce duplication. As an example, in Sydney, Christie Street will be rebuilt with a different role in the network, key metro sites will be upgraded, and the Western Sydney footprint will be simplified. Third, we will reduce the number of packaged waste streams that we accept on-site from 56 to 44 and focus on a smaller number of core, more attractive streams.
More specifically, we will focus on five core DG codes: gases, flammable liquids, toxics, corrosives, and non-dangerous goods such as leachates and soils aligned with our technical expertise, our network, and the market opportunity. The revenue impact of ceasing or limiting the less attractive streams is modest relative to the strategic benefit. In return, we get a simpler network, stronger controls, lower risk, and a more attractive earnings profile. Many of these initiatives are underpinned by fundamental changes in how we run the business. A key part is standardizing how we work. We are standardizing procedures through safe control of work, implementing site-specific waste management matrices, standardizing disposal pathways by waste stream and by branch, improving testing and sorting, and upgrading storage and handling solutions. This creates a simplified network with clear waste pathways by branch, stronger controls, and more reliable performance.
The second part is the creation of a new technical triage team. This team acts as the specialist gatekeeper for any non-core, more complex, or emerging waste streams. Its role is to ensure that such waste is priced appropriately, allocated to the right site, handled with the right controls, and managed consistently across the network. That is important because it moves decision-making away from branches and towards a more standardized, expert-led model that reduces risk, improves pricing discipline, and protects core operations. Many of these initiatives are supported by investments in technology, data, and analytics, including smarter pricing, smarter selling, and inventory management systems. The key takeaway that I want to leave you with is that hazardous waste is a great example of the Blueprint 2.0 strategy in action.
We're leveraging our leading scale and specialized capability, simplifying the network, improving controls, and focusing on the most attractive opportunities to create, what was that phrase? A safer, simpler, and more profitable business. With that, I'll now hand you over to Mike to talk to you in more detail about Contract Resources.
Good morning. I'm Mike Charles, and I look after the Contract Resources business. Today, I want to give you a clear view of what Contract Resources is, what the integrated industrial services platform will look like within Cleanaway, and why that matters, particularly as customers move into larger, more complex maintenance cycles and ultimately into decommissioning and remediation activity, and how this feeds into the wider Cleanaway business. At its core, Contract Resources is a specialized industrial services provider. We deliver complex planned maintenance services to energy and resource customers across Australia, New Zealand, and the Middle East. Our customers operate high-consequence assets, LNG plants, refineries, upstream energy facilities, and mineral processing plants, and they engage us to execute work that must be delivered safely, precisely, and on time. The simplest way to describe the business is this: we focus on critical path services. Critical path is not a slogan.
It is a very practical concept. In any major shutdown, turnaround, or campaign maintenance event, there is this number of tasks that must occur in a carefully sequenced order. If you delay the critical path, you delay the entire event, and that very quickly becomes a production and revenue issue for the customer. When we say critical path, we mean production-critical work where timing is non-negotiable. Interfaces are complex, with multiple trades and contractors working simultaneously. Risk is elevated because the asset is transitioning between operating states, and the customer requires a partner who can plan in detail and execute with discipline. That is why our operating model begins and ends with planning-led execution. We invest heavily in front-end planning, job packs, isolation philosophies, sequencing, labor and equipment coordination, contingency planning, and precise pre-shutdown readiness.
That planning is what enables us, enables safe execution, because safe execution is not something you add in at the end. It is something you engineer into the job from the start. That planning discipline has built something else that is very important for Cleanaway and for investors, deep, long-standing customer trust. Because we live in the critical path, our customers measure performance in three outcomes: safety, quality, and schedule certainty. Consistent delivery of those outcomes has meant we have developed very strong relationships with major customers, reflected in repeat work and long-term contractual positions with major energy operators. To make that real, one service line worth highlighting is catalyst handling. Catalyst handling is a specialist maintenance service typically performed during shutdowns in refineries, petrochemical units, and gas processing assets.
It involves the safe removal, management, and reloading of catalyst media that is central to process performance. It is technically demanding work performed under tight schedule constraints in confined space environments, and it requires the highest standards of planning, controls, specialist equipment, trained people, and disciplined interface management. The reason investors should care is that catalyst handling is a good example of our critical path DNA. It sits directly on the shutdown schedule. It requires exact sequencing with other activities. It is highly sensitive to safety and quality. It is repeatable, which creates strong learning effects, customer confidence, and long-term engagement potential. That is Contract Resources in a nutshell. Specialist, critical path, planning-led maintenance delivered for high-consequence customers, with safety and certainty at the center.
This specialist critical path service model differentiates Contract Resources from the likes of other tier one mechanical contractors supporting the industry, ensuring the margins achieved are more aligned to the Cleanaway Group with lower capital employed. Let me now turn to what bringing the Cleanaway Industrial Services business together with Contract Resources will look like. At a strategic level, the logic is straightforward. Contract Resources has a primary focus on the oil and gas industry. While the existing Cleanaway Industrial Services business has primarily serviced resources and infrastructure. Those markets are distinct but operationally adjacent, and critically, they demand the same things from their service partners, high standards of safety and compliance, reliable execution under strict production constraints, and a partner with the scale and systems to mobilize quickly. The combination creates something very powerful, size and scale with an aligned service culture.
In practical terms, we are integrating the IS business into the Contract Resources platform, forming a broader industrial services platform for Cleanaway. The strategic outcome of scale is also straightforward. The combination is an industrial services business embedded in all major oil and gas facilities in Australia and, for example, supporting 30% of global alumina production. A larger platform enables the following. Better asset utilization through a shared fleet strategy, standardized maintenance and optimized scheduling, better labor utilization by smoothing peaks and troughs across regions, aligning training pathways and improving mobilization, and better commercial leverage through stronger planning capability, better procurement, and more consistent delivery systems. As we bring the businesses together, we will prioritize the service offering around three pillars, where we believe the combined platform has a sustainable advantage. Oil and gas, mining and mineral processing, and major infrastructure and defense.
We have identified those pillars because they share three features that match our strengths. First, customers. Customers demand a professional, compliant service partner. Second, the work is time-critical and often sits on the critical path of production or delivery. Third, scale matters. Customers want an organization that can ramp up capability quickly and consistently. Focusing on those pillars supports a shift towards a larger contracted portfolio of work. Contracted work matters because it improves planning certainty in two important ways. Firstly, it gives us the confidence in labor and equipment planning. When you have visibility on contracted shutdowns and campaigns, you can plan training, mobilization, and asset use more deliberately rather than reacting to short-term volatility. Second, it improves capital discipline. When work is secured, asset utilization improves, and capital decisions become more targeted and returns-driven. This integration is more than simply combining two businesses.
It is a mechanism to strengthen operating discipline, higher utilization, more predictable demand, a workforce developed to a common standard, and the capacity to execute larger and more complex shutdowns safely across the platform. Importantly, it positions Cleanaway not just as a provider of services but as a trusted industrial partner, embedded in how critical maintenance is planned and executed. From a capital return perspective, it is also important to note that not all earnings are created equal. In more service-led businesses like ours, revenue is generated by people, expertise, and execution, rather than by deploying large amounts of capital. That can mean lower EBIT margins on paper, but higher returns because the business is significantly lighter and the capital turns faster. Finally, I want to close on what this integrated platform means from a decommissioning, decontamination, and remediation perspective.
At Contract Resources, we do not always talk about DD&R as a separate category. We just talk about work. That reflects how decommissioning actually begins. If you think about the first phases of decommissioning an energy asset or a mineral processing facility, much of it is operationally similar to bringing our facility offline for temporary maintenance. Decommissioning starts with safe shutdown and make safe activities, the same discipline we apply in critical path maintenance. What we are increasingly seeing from customers is that when they start thinking about end of life, the initial inquiries come to us first because they want support with the earliest phase, planning, risk management, and execution of the make safe and first stage removal activities.
We are already involved in multiple decommissioning pathways that began exactly that way, including work associated with ExxonMobil in the Bass Strait and Chevron on Barrow Island, where the early phase aligns strongly with our core capability. When you combine Contract Resources with Cleanaway, the DD&R proposition becomes materially stronger because the integrated group can bring together planning-led critical path capability, execution with Cleanaway's broader capability set across waste, remediation, transport, and downstream treatment. The strategic point is this, DD&R is not a new adjacency we are trying to invent. It is a natural extension of what we already do, and the integration with the rest of Cleanaway gives us more capability across the full life cycle. We're excited about what this platform becomes inside Cleanaway, a larger, more capable, more efficient industrial services business where customers can trust for time-critical work today, and end-of-life solutions tomorrow.
I'll now hand back to Mark.
All right. Thanks, Mike, and thanks to the presenters. For investors, the core thesis is relatively straightforward. Cleanaway has the leading national waste and technical services network in Australia. It's a hard-to-replicate portfolio of collections, transfer stations, resource recovery, treatment, and landfill assets, supported by broad customer access and strong strategic positions across a range of markets. As you all know, our network has taken many, many years and significant capital to assemble. What matters now is that we are moving into a phase where we'll make it work harder. The opportunity from here is to improve how the portfolio performs by making scale our advantage through better pricing, stronger customer retention, improved asset utilization, lower cost to serve, more disciplined capital allocation, and targeted technology and data investment. The case studies today were designed to show that this is not some abstract concept.
On our network, Tracey talked about how we're leveraging our scale and integrated value chain to accumulate margin, internalize more volume, and improve throughput and utilization of strategic assets. On customer value, Alex walked through how we're using a more centralized sales model, better segmentation, smarter selling, and data-led pricing engine to win better quality revenue, increase share of wallet, and improve customer lifetime value. On digitization, Dean explained how we are turning data and technology and AI into practical operating advantages with better planning, lower cost to serve, more control, and importantly, more scalable execution. On fleet and logistics, Hugh showed how we're using our scale and strategy to reduce total cost of ownership, improve uptime, deploy capital more intelligently, and raise safety and operating disciplines.
In hazardous waste and Contract Resources, Ciara and Mike demonstrated how we're focusing on growing markets, where our licenses, network, equipment, technical capability, and customer relationships create genuine barriers to entry and attractive risk-adjusted returns. When you put those case studies and the strategy together, we will see stronger revenue quality, continued margin expansion, lower capital intensity over time, and therefore stronger free cash flow and improving returns. This is what underpins the next phase of EPS growth, free cash flow growth, and compounding shareholder returns. I'm going to try and wrap up and summarize the last 90 minutes in 90 seconds. We'll see if we can do that. All right. Blueprint 1.0 was about building and stabilizing the platform, strengthening operating disciplines, extending and integrating the network, and creating the foundations for consistent performance.
This has set us up for the next phase of value creation and gives us confidence in the durability and the predictability of future cash flows. Blueprint 2.0 will make Cleanaway more customer-led, more efficient, more digitally enabled, and a more cash flow and returns-focused business. One that extracts more value from our scale, our existing network and capabilities, while being disciplined about where we play and invest and how we win. This is a really key slide, and one investor said to me, Which slide are you most excited about? And I said, This one. Rather than thinking about it linearly as five sequential points, think about it as a flywheel like this. We see the underlying growth of continuing business linked to GDP and favorable secular trends, and underpinned by our scale, unique infrastructure network, capabilities, and customer relationships.
We will target high-value revenue growth through our refreshed customer value proposition and transforming the sales and customer experience. We will expand margins by greater than 260 basis points and grow cash flow by optimizing our branch network, leveraging the scale and utilization of our assets. We will accelerate our growth through investments in technology, automation, and data and analytics, supported by effective standards and a lean and efficient organization. We will explore selective investments in new, profitable, and scalable growth platforms that connect to and leverage our existing network. The important point is we don't do it once. We do it again and again, using the advantage created to create more advantage, accelerating as we go, like a flywheel.
For shareholders, what that means is revenue growth and margin expansion, supporting the 10%-15% EPS growth over time. It means disciplined capital allocation and a more stable business model. It means stronger and more sustainable free cash flow and improving returns, and it means the capacity to continue paying out 50%-75% of underlying NPAT while de-leveraging and maintaining an investment-grade credit profile. We believe the strategy and plan is clear, that the business and our platform is stronger than it has ever been, and that the opportunities ahead are practical and tangible. You can see and feel from the Cleanaway team that we are laser focused now on execution.
Before I open up for questions, I will provide a brief update on fuel, and the impact of the Middle East conflict, which I hope will go to address some of the questions that some of you are already thinking about. Cleanaway's business model continues to demonstrate resilience in a period of elevated fuel prices. As we said in the market announcement last week, we have contracted fuel supply arrangements through a long-term strategic partnership with Viva. That has supported reliable access to competitively priced fuel during a period of elevated market volatility, and we have not experienced any fuel supply issues across our extensive operations to date. The conflict has resulted in four material impacts to the group. They are, firstly, higher direct fuel costs and higher supplier and third-party logistics costs.
Secondly, the lagged timing of cost recovery mechanisms and customer contracts, both rise and fall clauses and temporary fuel surcharges. Thirdly, the step-up in revenue from re-refined base oil sales produced by our Hydro business and the decreased activity in the Contract Resources business in the Middle East. The fuel prices we are charged are tied to market indices and adjusted weekly for carted fuel and monthly for bulk fuel. If you interrogated one of the slides earlier that I think Hugh put up, the majority of our spend is on bulk fuel, so the impact is lagged. On cost recovery, most customer contracts include a mechanism to recover fuel prices.
In larger customer and municipal contracts, this is typically a rise and fall clause, where the fuel-related portion of the cost is escalated based on a market index, that's usually the Terminal Gate Price, and those adjustments are generally quarterly or annual and often use a rolling average, which means the recovery is lagged. In most smaller customer contracts, the principal mechanism is a temporary fuel surcharge. This normally changes monthly based on market indices. These surcharges have been rapidly implemented with notices to the customer, but again, the recovery is lagged. A small number of contracts do not allow direct recovery of a rapid step-up in fuel price. These are often legacy contracts, and in those instances, we are actively engaging with customers in good faith to negotiate an outcome. Included in the recent FY 2026 earnings guidance is the lagged effect of those fuel price recoveries.
Importantly, this largely reflects timing differences rather than structural margin pressure. Most contracted prices will reflect recent fuel price increases by the 1st of July, with a minority of adjustments flowing later into FY 2027. This area, let me say, is moving quite quickly every day. Yesterday, the Fair Work Commission published a Road Transport Contractual Chain Order, or RTCCO. Simplistically, this is intended to allow road transport users, such as Cleanaway, to be made whole for fuel cost increases through the contractual chain. We are working through the application and the implementation of the order, but we expect it to be beneficial, particularly on those mostly legacy customer contracts, which have not, to this stage, allowed us to fully recover a rapid escalation in fuel costs.
Turning to hydrocarbons, where we collect used lubricating oil and re-refine it into re-refined base oil at our three refineries, we sell most of that output to lubricant blenders. The pricing mechanism is tied to the ICIS base oil price or base oil market index. Like our waste collection contracts, there is typically a quarterly lag. This means we will not enjoy the full benefit of the recent increase in pricing until the start of FY 2027. However, in FY 2027, it should materially offset the residual lag in the collections business. Those are important words. The final impact is Contract Resources in the Middle East. For context, the FY 2025 revenue of that business was approximately AUD 80 million. That's around 2% of group revenue. At the moment, as Mike alluded to, activity at customer sites is limited. However, the situation is dynamic.
With the recent ceasefire, discussions have commenced with customers about returning to sites. That will only occur when we're satisfied that our teams are not being placed at risk. However, once hostilities cease, we expect a rapid return to work and we think our services should be in high demand as customers seek to bring high-value sovereign assets back into operation. In summary, the current fuel and geopolitical impacts are manageable. The principal issue for the group is timing of cost recovery, not a structural change to the economics of the business. All right, we're now going to move to Q&A. For those who are joining us online, please use the Ask a Question function on the webcast. If you'd like to ask a question on the floor, please raise your hand. Richie's got the mic. The presenters of the case studies are going to come up and help.
If there's lots of questions, can we just limit it to one at a time to make sure everybody gets a chance? All right, there's hands up, Richie, so let's get into it.
Thanks for that, Lee Power from JP Morgan. Mark, there are a lot of levers outlined by the team, some on the top line and some around cost. Do you think we should think of Blueprint 2.0 more as a cost control exercise or more around pricing? What's the bigger driver in your view?
Oh, I think it's both. I think if you look at that, we are going to drive revenue through the customer value proposition, smarter pricing, smarter selling, the automation, the refined value proposition. Of course, we've already set up around that with the centralized customer service and sales teams, and we can see that starting to move. I think that'll become much more effective over time. I also think at the same time, and as we've spoken to investors about, there is a really long runway of margin expansion activity underway. You heard through the case studies today, you heard what our plans are there. Almost every part of the way we work will get touched, and it really is about making those assets work harder, rather than new assets. I think there's a large margin expansion piece there. That's the 260 basis points.
The important thing for investors there is we didn't say it equals 260, we said it's greater than 260. Why'd we pick 260? Because it was just a mirror of what we'd already done, so we thought that was a good place to start. Obviously, we'll aim to beat that number. I think it's both, Lee.
Okay. Just to confirm, that's an EBIT margin lift and it's a 26% baseline. Is that-
Yes. It'll be off where we land at 26%. You'll take 26% and then you'll add the 260 basis points over the strategy horizon. You'll then say, What's the strategy horizon I'll say, It's still Blueprint 2030, 2030 will be the strategy horizon. It's the next three or four years.
Okay. Just a final one. I get your comments around the GDP underpinnings of the business, but clearly there's not a lot of great data out there, and it feels like it's been a little bit less GDP-esque in the last few years. How do you see the market delivering growth over the Blueprint 2.0 period? Maybe what do you think it makes up of the 10%-15% EPS growth? How much of that do you think will be you, and how much do you think will be market?
We'll come back to how much of each in a second. Maybe we'll get Paul to jump in on how much of it is market versus the other. I think what you should be thinking about is, the language is quite precise, so do have a look at the transcript about how we talk about revenue. We're definitely flagging to you that in 2027, we're going to see there'll be some revenue that comes out. Ciara talked about it. I talked about it with C&D. We talked about IS Metro, those sorts of things. We're happy to lose that revenue because it's not strong revenue. That will then translate to improved margins, but lower revenue. I think 2027 will be an adjustment year, and then it will start to go back to that more GDP plus CPI type thing.
Do you want to comment, Paul, any more on?
I'm happy.
Happy with that? Did that answer your question, Lee? The last part?
Kind of, but yeah. No, I think that's useful.
Okay.
Good color. Thank you.
Hey, Mark. It's Jakob Cakarnis from Jarden. I'm sorry and respectful to the speakers on stage, but I did actually have one.
Yeah
for Paul, if I could.
Yeah. Of course.
Just on slide 10, just starting with the free cash flow outlook. I think for many in the room, it's an interesting omission is just talking about the one-offs and the shape of the one-offs. If I aggregate those from FY 2021 to the first half of 2026, the cash impacts of those collectively have almost been AUD 300 million. If I look at them from FY 2017 to FY 2020, they were AUD 80 million. Can you just give us a sense of where we're going now? Admittedly, this program's now to 2030. How do we think about those? How do you think about those as a management team? And then I guess the final question to that, with the free cash flow included now in the STIs, can you just demonstrate for this room that that's also going to be including or excluding the one-off adjustments, please?
Yeah. Let's kick off with the STI, because that's the easy one to respond to. Quite clear that the underlying adjustments will be included in that cash flow metric. It will not be an underlying measure, it'll be included within that metric. In terms of underlying adjustments for going forward, we called out specifically on that slide, Jake, I guess our expectations for underlying adjustments going into 2027. We're basically calling out our expectation that they will largely be completed over that timeframe. Certainly, again, a key theme that you'll have heard us talk about is how the foundations have driven stability into the business. The potential for events such as a Christie Street and others obviously are mitigated by the fact that we're rolling out and investing in measures, whether it be fire systems, whether it be other safety systems, to actually manage that risk.
The stability in that business, building that platform is a really critical part of Blueprint 1.0, and we will benefit from that through to 2.0.
Okay, to back onto the stage, if I could, for Mark and Tracey. On slide 11, you're talking about some of the market trends and key beliefs. I'm just interested, Tracey, in the commentary just around competitive pricing. It's interesting in light of you guys talking about the extensive network that you've got. You're probably now nationally one of two scale players. Why does price still feature in the conversation, and where do you extract your market advantage or your economic advantage for your size and scale?
You want to go for it? Just checking this works good. Price, it depends on which market we're in and on which set of assets that we are talking about. I'll give you two examples. One example would be the restricted solid waste cell that we have in New South Wales. Now there, because we have the only one, competitive pricing obviously isn't so much of an issue for us to deal with. We might get into a market, say, in Perth with our MRF over there. There's plenty of MRF capacity in Perth, and actually we have to be very careful about how we price that and aware of what customers or what our competitors might be doing as well. It depends very much market by market. You got a follow-up? Yeah.
Is the fear from the management team in solid waste, the elasticity? Thanks, Richie. Sorry, Tracey, just to clarify, when you're talking about the market dynamics, is the fear the elasticities on volume? I guess as a management team, do you think about the dollars of EBITDA or do you think about a margin?
We think about margin quite a lot. Volume also matters, though. Across all of our facilities, it is a real fine balance between volume and price. It's something we think about a lot every single day. We're not going to give away, for example, air space for very little margins, because that just doesn't make sense for us.
Thanks for the presentations. Amit Kanwatia from Jefferies. Just a question on the free cash flow. Good to see free cash flow focus, and you've given kind of breadcrumbs around the EPS growth, the margins, without giving us the revenue growth, which looks to be CPI pricing should be more than CPI. If I think about the free cash flow without giving specific targets, in terms of the context of, would that be enough to be able to fund the growth CapEx through the cycle for the business, as well as dividends and lease liabilities, given your definition of free cash flow is a bit different?
Answer is yes. Paul, do you want to have a go?
Yeah. Amit, I think one of the key things that we've given pretty strong guidance, obviously, in terms of margin around EPS growth. Even in terms of cash flow, we provided guidance around remediation spend, which is something we haven't done in the past. We've also been clear, too, that we believe that we can continue those financial metrics in terms of payout ratios, levels of CapEx, including growth CapEx, and also have a deleveraging profile. Again, we feel very comfortable that the cash generative nature of this business is that we can hit those targets and pay down debt over time as well.
Just to confirm, so that should be able to fund growth CapEx and distributions through the cycle?
Yeah, absolutely. Growth CapEx is within that envelope that we provided.
All right. Maybe just a question for Alex, just on the pricing and I think around the real-time pricing, smarter pricing. Very interesting. I think you mentioned a couple of regions you've rolled out those kind of pricing mechanisms. Maybe if you can provide a bit more color on what percentage of sales is driven by those kind of smarter pricing at the moment, and then if you can provide a timeframe in terms of how you are planning to roll out those kind of pricing mechanisms across the business.
Yeah. Thanks for that. In terms of where we're targeting, I guess probably I'll step back. As part of the reorg, we looked at bringing and centralizing our collection sales team. That collection sales team looks after Tracey's Solid Waste Services business. It also looks after various different service lines within Scott's business, which is Ciara's and Mike's. Of the total C&I portion or our total revenue, probably, I'd say, I don't know, percentage-wise, C&I revenue is probably
40%, let's say, of total revenue, and that central sales and marketing team is responsible for that. The sales pricing engine and smarter selling is relevant to all of that 40%. I think, as I said, it'll probably be 18 months until we'll have it fully embedded in each of those service lines.
Yeah. I guess 40% at this point across the C&I. What about the other verticals, the municipal and the other verticals, I think, across the industrial businesses as well? If you can touch on that.
Yeah. Our pricing on municipal is very different to how we would price on our C&I. If you think about a municipal contract, it's generally a 10-year contract that we'd have. It's much more similar to some of Mike's contracts as well. They're much larger contracts. We go through a very competitive tender process for them, and we undertake sort of extensive modeling. We'll use some of the same insights that are coming through from some of our pricing engines and our smarter selling to feed into those models. It's typically a much longer process and one that we wouldn't look to do something as transactional on.
Good day, Mark.
Good day.
Thanks for the presentation. Yeah. Matt Ryan from Barrenjoey. I think you made some comments at the start that you were going to be using data and technology to unlock growth and maybe that you were lagging some of your U.S. peers. Just hoping if you could sort of talk a bit more about where you see the biggest gaps and I guess where we might be able to see you closing those gaps.
Yeah. I mean, if you think about what the U.S. peers have done, they've done their version of Customer Connect journey five years ago. That's what it looks like. That sort of digitized everything from the customer through to collect the money and the fleet at one hand and the Salesforce as well. In many ways, sort of like, while you can say that's good and bad, the good part is there's a known pathway as to how you do it. The same software that we're using is the same software that Waste Management, Inc. has used. There's a clear pathway, there's a well-trodden pathway.
What we can see when we look at their business is we can see how they've then used that digitization to then actually then go and drive their business and get the scale advantage, which is everything that we've talked about today. In many ways, it's sort of follow the leader type pathway, and they're clearly at least five years ahead. The key piece that you've got to remember with the U.S. is obviously they've done that already. They've done that digitization, and they're now using sort of advanced analytics and into AI. We talk about regional monopolies. It does look a lot more regional monopoly from the outside in. It's hard to understand in that sense.
They just have a net greater exposure to landfills, and so their EBIT margins are just going to be higher than ours by, if we were to take our margins and equate them and overlay their concentration of landfills, so remember we've got 7, they've got 700. If we had that same proportion of landfills in Cleanaway, our margins would be up by 1.5% or 2% just like that. Okay? That piece is probably less available for us, and there's a piece around, obviously the sort of market dynamics, but everything else should be on the table. If you do that math and you look at what that looks like, that says we've got a significant margin journey to go. That's what you see us talking about around the 260 basis points as the phase inside the strategy horizon.
Thank you. Just a question on the cost to serve, pricing engine. I don't know whether you want to answer it, Alex or Mark, but.
I'm enjoying Alex answering, actually.
I'm just wondering how dynamic that's going to be. Presumably, you're going to know whether your pricing is right by customer wins and losses, just how quickly you'll be able to adapt to that information and whether you're sort of expecting to be rolling out, I guess, slowly while you sort of decide whether it's working or not.
Yeah. I think in terms of the pricing engine, that last slide I put up probably covers a big portion of it, which is all the different signals that Dean mentioned in his presentation. We'll be taking those signals into the pricing engine and updating those prices really frequently. For acquisition pricing, we want to be at a point where we're able to give personalized pricing at the start of a contract to a SME customer, based on the existing network. Almost very frequently, if not weekly, twice weekly.
But Alex, the ability of the tool to learn from-
Yeah
where we don't win will come eventually?
Yeah, exactly. I mean, the work we've been doing as part of Blueprint 1.0 has been building these foundations so that the engines can start learning, and we can start seeing the improvements in pricing based on changes in our network, based on new big national customers that get added in, based on large national customers we might lose. The engines will learn, we'll be in a position to be offering or refreshing those weekly, if not biweekly.
Mark, Cameron McDonald from E&P. Just on the capital intensity piece that you highlighted. You previously highlighted the AUD 50 million fleet efficiency benefit that you were targeting in the first time this was rolled out. Where are we with the AUD 50 million? How much have you achieved in the fleet strategy?
Are you talking about the buckets?
Yeah
Operational excellence buckets? I think those are basically delivered. We delivered. If you remember back to we were bridging from AUD 300 million to AUD 450 million at the time. We had the three AUD 50 million buckets. One was super sized. Operational excellence was the super sized one. I think we feel like that's been by and large delivered, the AUD 50 million, and that's well on track. I think we should quickly try and drop from that and refocus around sort of the value creation staircase from FY 2026 through to 2030.
Okay. On that staircase, 2026-2030.
Yep
The comment was made before. Some of these collections contracts potentially go out 10 years.
Yep.
How much of this 260 basis points margin expansion is the roll-off of contracts that are either sub-performing or underwater in terms of their profitability and you get the ability to reprice rather than anything structural?
Yeah. I don't think we're going to break it out, but I think what we have said is, I think there's six to eight contracts, legacy muni contracts, that are EBIT negative but not cash negative, that were done in that 2017-2019 period. There's the clues for your question. That then obviously then roll off 10 years from 2017 to 2019, so they sort of start in 2027 rolling off and then go to 2019. There's two cases there. Well, I guess there's a few cases. There's one, they roll off and we don't renew them, in which case they just go to zero. We're not losing, we're not EBIT negative either or we win them back, in which case there's incremental margin as well. That is in that period, 2017, 2018, 2019, progressively that they roll off. It's not lumpy either. All right.
Yeah. Sorry. Nathan Lead from Morgans.
Uh-huh.
Mark and team, thanks for your presentations. First question from me is, your landfills, I think are probably your highest margin assets. The two in Sydney are very significant earnings contributors. Could you give us an update about where the remaining effective life of those is? Because my understanding was, as they're operating at the moment, they kind of get fully utilized early 2030, so just beyond the plan period. Are we at risk of seeing improved margins and then everything sort of just falls away just beyond that period? Or how are we going with the life extensions there? That's my first question.
Yeah. I think what we've been saying there is that there's active life extension projects actually in place for all three landfills. That's Lucas Heights, Kemps Creek and Erskine Park. We're working through each of those. That's kind of fine that we're working through them because there's plenty of time still to run to get those projects up and running in the right timeframe. I think the most public version of that is Lucas Heights, just because it's the one that the government has named as the number one sort of project in waste in the Sydney Basin, and so there's very strong state government support for that. We're just working through the EIS chapters, the 29 chapters of the EIS, and the thousands of pages, and then eventually that'll go on public submission, and away we go.
We're still very confident about all three of those projects and them coming online for that period. Kemps Creek is sort of late 2020s. Lucas Heights is sort of very early 2030s type timeframe. Again, plenty of time to do a cost-driven project on both.
Great. Then second question is actually for Paul, and sorry again for going back onto free cash flow. The definition there excludes the principal repayment component of lease payments. I know we exclude it, but they are mandatory cash flows that are actually going out the door. My understanding is with some of the fleet replacement that you're doing, you're going to be drawing down a lot more leases that'll have more principal payments coming with it. Can you give us an idea about what free cash flow after those mandatory principal repayments on the leases actually looks like going forward? Or at least just the general profile?
I'm not going to get into that level of detail. In terms of our use of leases, we typically do for muni style contracts. We do put them in place for some C&I contracts when it makes sense from a treasury perspective. It's very much a funding decision in terms of how best to use the leases. Muni makes sense simply because of the back-to-back nature. I think you will see us use a little bit more in the way of leases, but it's not going to be a material step up. You shouldn't be factoring that as being a significant driver in terms of a change of free cash flow coming out the bottom.
Thanks, Paul. One for Paul. Slide nine, you've given us the incremental ROCE that you're seeing across the group.
Close to 21%. Obviously, it's done the heavy lifting to get you from the early sixes closer to your cost of capital. I'm just wondering how sustainable is that rate? Are we looking at improvement from that level, or are we normalizing from there, and what does normal look like? I think the criticism from most in this room that are on the sidelines is that this business hasn't been able to return its cost of capital. Where are we in that path, do you think, as a management team?
Again, I think we sort of recognize the weakness in that figure in the sense it clearly represents partly the returns on growth CapEx, but also reflects the fact that we're working the current network hard and driving margins accordingly. I think the basis of Blueprint 2.0 is around asset utilization, driving those assets harder. There's a relatively small component there in terms of growth CapEx. Expectations are it may not be 20% incremental ROCE, but it is still going to be strong double-digit ROCE growth going forward.
Yeah. Thanks very much, guys. Just at the start, there was a comment about new investments and growth investments, and making sure that they're sizable enough, but also offering sufficient returns. I guess, just trying to marry up that narrative alongside the free cash flow inflection point, just trying to understand what sizable means in that context.
All I was trying to do there was make sure that when you think about us investing in new assets or new waste vectors, that we're not just going to muck around with some small, little attractive thing. We're looking for scale, where there's a meaningful investment to be made. We can play at scale, and it's got strong returns. It's scale for our scale, and really importantly, it connects through to the rest of the network. We don't just want to be doing an activity in the corner for the sake of it, we want to flow it all the way through the network and then accumulate margin along the way. That's what the scale piece picked up. Frank, do you want to have a crack at that and bring that to life? Frank's head of strategy and M&A, so this will be a gold answer.
Yeah. It's interesting. In the broader industry, there's a whole lot of great initiatives that target a specific waste stream and try and find a better outcome for that, and you often hear things like blister packs and things like that. Solar panels is one that often comes up. What we're trying to look at, as Mark said, is things that are large and connect to that network. Taking solar panels as an example, we're not naturally in a place where we collect that. We're getting out of C&D. We're not currently have any benefits around the processing of it, so that's not an area we're proposing to put capital behind. As opposed to soft plastics, which, subject to regulation, we can see ourselves leveraging our existing relationship with councils where a lot of the collection will happen.
We can leverage the MRFs by sorting it at the first stage of the drop-off point, and then we build new infrastructure in partnership with Viva to then process that into high-value outputs and turning it back into plastic. That's an example of what we want to do.
I know we addressed fuel up on the slide earlier, and there was the release last week. There's just one question, and also to Mike on the Contract Resources, maybe just a view on, obviously, with the Viva fire, there's lower supply and potentially there's a small spike in prices. Do you get hurt by that at all? On the flip side, maybe there's some Contract Resources work to be done, potentially. Just on balance, is one bigger than the other?
Yeah. I'll have a go at the Viva one, having worked there for five years and run that site. For me, when I look at that fire, that is a gasoline issue, it's not a diesel issue. It's a back end gasoline issue. It's a unit that takes LPG and turns it into gasoline, runs at, like, 300 tons a day. The site produces, like, 3,500 tons a day of gasoline, so it's like 10% of the gasoline capacity. It's small in the scheme of things, and it doesn't impact diesel. The other insight there is, Mike's team was planning to do a shutdown on that particular facility later in the year. I don't think that'll be a shutdown anymore. That'll turn into a project. Obviously, we'll be there to help in any way we can, as asked to by the Viva team.
Anything to add, Mike?
I think maybe just the relationships we have, we will have a part in that. At the moment, we're allowing Viva the time to sort of understand exactly what's happened and then bring in that scope. Yeah, we're connected with the management teams at the refinery, and not just that, we have other activities happening, and not as high regardless of what's happened there, but across the country right now, where you see an emergency breakdown and the outreach is there immediately, understanding what that mobilization and timing needs to look like, and that's really where that trusted relationship comes back to, that we will be there. It's just when and how and what capacity that they need us in.
Hi, guys. Thank you for today. Hamish Murray from Drummond Knight. Just a couple of questions. There's a good segue from fuel. Just last week, when you provided the guidance update, it's not a clear delineation between what's Contract Resources, which
I think we can make assumptions, AUD 3 million-AUD 4 million, and then what is diesel?
Yep.
Since then, we've actually seen diesel Terminal Gate Price come down about AUD 0.60. I don't think we can capitalize that. We've seen some analysts write a rough rule of thumb that it's AUD 1 million a month per every AUD 0.15. Is that the right way we should be thinking about that guide? In our own heads, if it was to stay here, we add AUD 8 million to it. If it goes back to AUD 3.18/L, the levels you saw, we'd take the midpoint. Can you break down how we should think about those ranges?
Yeah. I think about it like this. Paul's going to love this. When we said the AUD 20 million last week, you should think the majority of that is fuel. Yeah? Then there's low single-digit millions associated with CRs in the Middle East activity, and low single-digit millions associated with just uncertainty as to what's going on. That's how you think about the 20. I think the other thing you should think about is, I think about in my mind like a wedge. When fuel prices went up rapidly, and then all our clauses are then kicking in, yeah, and the team's doing an amazing job on getting fuel surcharges into our SME and mid-market contracts, that wedge opens up where we under-recover for a period of time.
For example, we give a month's notice to an SME customer that your price is going up. Yeah? That's just how it works under what you think around consumer law and fair trading. That creates that wedge. What happens is the fuel surcharges kick in, the lagged rise and falls kick in, and then basically you get very close to recovering your fuel costs over time. It's only when there's savage movements up and down that you'll see either an over-recovery on the way down and an under-recovery when that sharp movement goes up. I think just think about the clues that I gave you in that last section where we had the slide up where I said that we think it's not a structural margin issue for Cleanaway in 2027.
We think that the re-refined base oil price lifting through ICIS, we'll start to see because of the quarterly lag and with the three-monthly price update, that'll really start to flow through on the 1st of July, and that will close easily any remaining gap in the collections business. Of course, that new news from literally over the last two weeks with the Fair Work Order, the good news there for us is we think we're in that transport contractual chain, and we think we can use that to go and deal with some of those customers or contracts, which are longstanding ones, where we don't have an ability to move with the fuel price. We think that will open it up, and we think it'll open up rapidly, and it'll have to be reset every two weeks to comply with the order.
Huge amount of work going on. I think when you listen to that, plus what sort of the Middle East piece, that if we do see a ceasefire or a sort of an end, then we should see a whole lot of work coming through that then we can try and be part of and help our teams.
That transport order was only implemented yesterday or the day before.
Yeah.
that wouldn't have been in your original.
It's literally like yesterday.
Yeah.
I've read it, and I actually don't even understand it. It needs a proper interpretation because you've got to understand whether you're the primary or secondary party in all these chains. The initial interpretation is that we are in that chain and that we can use it.
Just another one, just the segue here is, but you're guiding to a medium-term EPS growth of 10%-15%.
Yep
saying next year should be higher.
Yep
because of the indirect cost review and
Synergies. Yeah.
The acquisition synergies. Can you just remind us any quantum of those two pieces as we look into next year? Just because they're sort of the free kicks, I guess, we get.
Yeah
if we put aside the market. Then should we add on top, assuming Bass Strait's normalized over the next month, should we be adding on top some sort of tailwind from diesel that comes back into next year, the loss that we recover back, assuming everything normalizes?
I don't know. I'd like to think that, but who knows? Because I don't think we really understand even if it reopens, what the damage to the supply chain's going to be and how long that effect's going to last for. We're not planning for that as a tailwind. I think if you read the detailed, again, the detailed language in the note last Tuesday, we said, you'll get that wedge back that we've lost when fuel prices normalize. Normalize means return back to the pre-war price. That's what it will take to recover that wedge. I think it's anybody's guess how long that takes. To answer your question around what's driving the EPS step up, so Paul, you're going to help with the second part of this.
The first part is, obviously you'll see the AUD 15 million of cost out this year in the second half becoming AUD 35 million next year. The difference there is AUD 20 million. That starts to open up the EPS piece. The synergies next year, I'm just going to try to remember.
The synergies are about incremental AUD 3 million. The other components, Hamish, are the synergies in terms of IS and CRs. We estimated those to be about AUD 3 million in terms of incremental over the prior period. There's a non-labor element of the indirect cost out.
Sure.
That I'm not sure if we actually defined, did we?
No, we didn't quantify that. We're saying, the way I would think about that practically is, I think that'll build through 2027, or be mainly a 2028 impact. Let me give you the color as to why. The work that we want to do in procurement, we're clear on what we want to do. Almost the entire procurement team is working on fuel. Yeah, so we can't do both, and we'll work on fuel until fuel is dealt with, and then we'll switch back to procurement savings.
Yeah. Just one real strategy question while we've got access to Alex and Dean.
Awesome.
Mark, in the past, you've spoken about how monumental a task it was taking the processes at Cleanaway and digitizing that and re-platforming it, so then you could build applications on top of that.
Mm-hmm.
I guess the first question is, where are we on digitizing all those processes and all the data you do have from the past? Is that done now? Then thinking forward, how much of these roadmaps that you guys are working on have been accelerated by AI and Claude, and how much, I guess, when you build these pricing mechanisms, can you accelerate those processes at a pretty good time just after you've digitized, given that your teams can now achieve more in terms of code and building those engines and applications on top?
Yeah. I think probably, if we refer to Dean's slides, the way that we're cutting this and the way that we're looking at digitization is by each of our lines of business, and each of those lines of business is at a various different level of maturity. If we take something like the collections business, it's really dependent on something like Customer Connect, right? Our Customer Connect program is obviously going to change how we look to digitize that particular business and the data that we have available. We've been working on our existing systems in collections on VIP. We've been taking in data there, but the Customer Connect program will completely change that. If we think about our other lines of business, Dean spoke about the landfills and how we're tackling landfills.
We're also in the middle of doing work in Ciara's business, which you mentioned as well from an OTS perspective. Each of the lines of business is sort of moving up that staircase. In terms of some of our ways of working or workforce augmentation, we mentioned procurement as a really good example. I think in terms of AI and either ChatGPT or Claude, we are using quite a lot of that already in terms of development. A really good case study for that is the development that happens on most of our advanced analytics models at the moment. Most of that coding gets done all through AI at the moment. We don't have developers doing it. They do checks of it. We are already using it and augmenting it into parts of the business where it makes sense.
Obviously, as Customer Connect looks to roll out, we'll be looking to augment that through the collections business.
All right. I think there's one question over here, and then Richie is giving me the time signal. Yep. Oh, yeah. Hi.
Yeah. Hi, everybody. Thanks for taking the last question there. Ben Lee from Macquarie. Just one for Alex, just regarding sort of the sales piece. Where do you think you are in terms of the journey, in terms of the training, sort of the cultural change that comes from shifting to that new sales model, that you've sort of outlined there?
Yeah. I think in terms of the sales function, I sort of started answering on the other question, before. We have various different sales teams across the organization. The one that we've centralized is our collections sales function, and that works across all of our business unit or lines of business. We did that on the 1st of January, so that's when the new structure went live. Our focus in terms of that sales transformation has been working on the foundations to begin with, and I think you could see some of that trickling through those slides around the smarter selling and ways of working. Probably very tangibly, we had all of our central sales team was trained. They went through training, I think it was the 17th of February.
We trained over 250 sales professionals, and the training was two days, and it was focused firstly on sales excellence, so how do you sell, and how do you be really good at it. The second was around, how do you specifically sell total waste management services. Think about that as being a very different mindset for our sales team now. As I said in the presentation before, they're no longer just selling a line of business. They have to be able to sell grease trap, used cooking oils, Health Services, and so on, so on. In terms of the maturity, the team is rolling out total waste management selling now. We had the training on the 17th. They're rolling out the selling now.
We still have quite a lot of foundational work to do, both in, A, culture, B, training through the sales academy, and C, through systems as well. It's certainly not stopping the team from selling total waste management solutions today. They're out there doing it.
Maybe just say something about leaderboard then, and leaderboards now, and games.
Yep. I think probably a really good example is the leaderboards. Every Monday now, so Monday mornings, sales leaderboards come out. They come out for our entire sales collections team. They list it by top wins for the prior week, and we break it into three different segments, our SME, our key account, and then our platinum team as well. We really look to try and gamify as much as we can to accelerate some of those early enablers.
I was quite impressed. There was a fantasy table that I saw. I don't know if your kids do AFL fantasy team. We've got now the Cleanaway fantasy team. I'll be asking Alex some questions about that later. Richie, over to you.
Yeah. We're on a pretty tight schedule, so the process from here is everyone's going to go outside. We've got lunchboxes out there. Grab your lunchbox, have a break. Restroom's on the left-hand side. Back into this room in 20 minutes. We're going to do an overview of the MRL side, so Claire is going to come up and present that to us, do a bit of an induction on this side. We're going to go to our allocated buses. That's an important thing. Make sure you go to the bus that you've been allocated. Otherwise, you're going to end up at the airport where you want to go to the CBD or end up in back here if you wanted to go to the airport. See you all in 20 minutes. Thank you.