Good morning, everybody. Welcome to Cleanaway's Strategy Session that is Focusing on Blueprint 2030 S trategy from Victorian Solid Waste Services perspective. There will be opportunities to ask questions on a number of occasions during the call. For those on the teleconference, if you wish to ask a question, please press star one. I will now hand you over to your host, Mark Schubert, to start the event.
All right, thank you and good morning. Just for the people in the room, just a couple of housekeeping items. The restrooms, if you need them, are directly behind me. If you need a hand, just grab one of the Cleanaway team to show you where they are. In the unexpected event of an emergency, we don't expect one today, please we'll just wait here. The wardens will come and get us, and we'll just slowly walk down the stairs and out into the car park area, and they'll show us where the assembly points are. It is great to have you all with us today, both in person here at Perry Road, and on the teleconference and webcast from wherever you're joining us around the world.
I'd like to begin by acknowledging the traditional owners, the Boonwurrung people of the Kulin Nation, of the lands and waters now named the City of Greater Dandenong, and pay my respects to elders, past, present, and emerging. We have got a lot to cover today. You'll get an opportunity to hear from a few of the executive team and general managers that many of you probably have not heard from before. I'm not going to introduce them now. I've asked them all to provide a brief introduction as they cover off their agenda items at the start.
In terms of the agenda, we're going to step through the HSE and people sections, then we're going to pause for some Q&A for about 10 minutes, then we're going to continue on and dig a bit deeper into the Victorian Solids business or how we're executing our blueprints across the Solids SBUs here, and that's the primary focus of today. Following that, I'll talk a bit more about group performance and financial ambition, then we can jump into the Q&A. Without further ado, I'm going to pass you over to Deborah Peach, who's our EGM for HSE, Fleet and Asset Integrity.
Good morning, everyone. It's great to be here with you today. I was very fortunate to join Cleanaway in September last year, and I'm responsible for HSE, Fleet and Asset Integrity. My two prior roles before joining Cleanaway were General Manager for HSEQ for Woodside's Australian Operations, and Vice President for Governance, Risk, and Compliance at Woodside. My dad was a tradesman and had a devastating workplace safety accident at the age of 25. The chronic pain from this injury meant that he was never able to return to work, which triggered other mental health issues, such as anxiety and severe depression, that still affect him to this day. For this reason, I have dedicated my career to helping people, particularly our frontline workers, and to protecting the sensitive environments in which we operate.
I feel so fortunate to now be in a role at Cleanaway, where I'm dedicated to keeping both our people and the environment safe. Today, I'm very excited to talk you through our new HSE strategy and five-year improvement roadmap. The strategy is the output of several months of immersion within the business to understand our opportunities and also the current landscape, and to reset our path to be an industry leader in health, safety, and environment. The program of work will deliver shareholder returns and enable our license to grow. To build the strategy, we started with a review of our performance. Whilst we have seen improvements over the past few months with a lower TRIFR rate of 3.7 after 11 months to the end of May, our lag in safety metrics are still not where we want them to be.
Similarly, the changing nature of waste, and in particular, lithium-ion batteries, is leading to increased fire incidents and risks across our industry. It's pleasing to see good progress on the deployment of our environmental compliance toolkits across our licensed branches, and a recent audit confirmed Cleanaway will be recommended for transition to the new international ISO 45001 for health and safety, but also to maintain certification to the existing ISO standards for environment and quality. We also asked our stakeholders, so those actually doing the work in the business, like the branch managers, frontline supervisors, drivers, operators, for their feedback. What was working well and opportunities to improve to make their workplace safer and more efficient.
Here's some of the things they told us: We need to simplify how we work at the branches, embed a more consistent approach to the management of Health, Safety, and Environment, improve clarity of critical risks and controls, have a stronger focus on HSE leadership and capability, and have a targeted approach to process safety and fire risk reduction, to name a few. The case for change is compelling. It's not only the right thing to do to keep our people and the environment safe, it will also benefit the bottom line and deliver shareholder returns through reduced insurance premiums, workers' compensation payments, and reduced repair costs, which, by way of example, have cost Cleanaway tens upon tens of millions of AUD over the past three years alone.
Successful delivery of the plan will enhance our reputation and our social license, create a competitive edge to enable our business to grow aligned to Blueprint 2030. I just want to explore this case of change with you in a little bit more detail. It was important for us to look back before we could. To give us that clarity on our path forward. In the past, safety and environment were seen as priorities alongside the financials, and these are now reset as our foundations, which make it simple for our frontline teams because the foundations always come first. We will shift from a reactive and short-term planning horizon to now having a fully resourced strategy and five-year improvement roadmap to drive progressive and, importantly, sustainable change.
Our siloed approach to risk reduction programs and a history of acquisitions, which has led to inconsistency, duplication, and additional costs, will now be replaced with simple, consistent, company-wide programs that are easy for our teams to understand and for leaders to assure. If we look now at performance, so as I mentioned earlier, our safety performance has plateaued, with past efforts primarily focused on incident response rather than risk reduction. We're now redefining our critical risks that will give us confidence that our risks and controls are well-defined, implemented, and verified. Our current HSE management system is quite complex. It makes it difficult for our frontline workers to conform, so we're simplifying our standards and tools, and we're going to make it easy for our workers to do their jobs every day.
A good recent example, we've revised the PPE standards, which used to be 18 pages, and it's now three pages, so a lot more digestible. Moving now to people. In the past, leadership training has focused on the financials, and we see variability in HSE leadership capability. In addition, our approach to training is resource intensive and not always effective. We've already started training our leaders in with a new HSE leadership program. Finally, our assets. Today we have a very robust fleet maintenance program, and as I know you've heard in previous sessions over the last 18 months, we've also been building our fixed asset register, defining safety-critical equipment, and planned maintenance routines around these. We're also building our computerized maintenance management system, or what we call our CMMS.
With that context, let's move on to the new HSE strategy, which provides clarity on the what, the why, and the how. Cleanaway's operations are very varied and complex. As such, the strategy is multifaceted, with a focus on risk prevention, capability build, and cultural transformation. Our new vision, which expands on our previous vision of zero harm, is to be an industry leader in health, safety, and environment, and this will be enabled by our people, safe, reliable assets, and an incredible learning culture. We've defined five strategic imperatives to deliver on that vision. We must first start with getting the basics right. Excellence in managing our risks and compliance obligations, so compliance as a non-negotiable. Secondly, we will grow our HSE leadership, capability, and culture.
This is an imperative focused on embedding strong line ownership of HSE, visible, authentic leadership, and a culture of care and speaking up. Third, we will deliver safe, reliable, and sustainable fleet and fixed assets through design, operation, maintenance, and decommissioning phases. Fourth is to drive business resilience and protection. This includes crisis and emergency planning and is to ensure quick response should we have an incident. Finally, but very importantly, embedding an incredible learning culture where we learn deeply when things go wrong, but also when things go right. The strategy is supported by a detailed five-year improvement roadmap, and some of the key focus areas are shown here on the slide. The program of work will simplify how we work to make it easy for our people to get it right every day.
We've applied a risk-based approach to ordering the plan, and the good news is that our plan is in execution with robust change management. I'll just touch on a few examples. The critical risk review program is in full swing with monthly engagements across the business, including simplified standards, tools, hazard hunts, and bowtie risk diagrams. Like I mentioned earlier, we also now have a HSE leadership development program. We've called this Stronger Together. It's being deployed nationally to all of our operational leaders. We started in February with positive feedback. Yesterday, I was just down at two of our solid sites down in Geelong, and the operational leaders brought it up with me that they've been to this program. The first of the 5 modules, which was focused on safety, leadership, culture, and mindsets, and they said it was extremely valuable.
Really great feedback. To manage the increasing risk of fire, we're progressively upgrading our facilities with rapid detection and response equipment. We're taking a risk-based approach to deploy our capital efficiently. In the interim, we've implemented capital light interim controls, including the provision of portable fire monitors, and trained our teams in their deployment. To wrap up, this is a transformational strategy for Cleanaway. It's core to our purpose and foundational to the successful delivery of Blueprint 2030 . We have a new vision. We've got the passion, a clear plan, and the right capability and resourcing to successfully execute. The shareholders is going to deliver a safer, more reliable, and significantly more profitable Cleanaway that's able to deliver today and grow tomorrow. Thank you for your time this morning. I'm now going to hand over to Michele, who's going to talk about reimagining Cleanaway's culture.
Good morning, everyone. My name is Michele Mauger, and I'm responsible for leading our people and culture strategy. I joined Cleanaway in March 2022, and prior to that, I worked in executive roles with Incitec Pivot and Chess Mining Services. I have quite a deep experience in working with workforces that are very similar composition to that of Cleanaway. I'd like to set the scene in terms of what our workforce looks like today. We are currently more than 7,500 employees, working out of more than 300 sites across our country. We represent 80 different nationalities and speak over 60 different languages. While we have a way to go in terms of our gender diversity, I think it's fair to say we are already quite a diverse group.
More than 4,500 of us are in frontline roles, directly servicing our customers on a daily basis. We are united by our purpose of making a sustainable future possible together. In February last year, after refreshing our strategy, we added the word 'together' to our purpose in realization that our people and their contributions and how we work together are absolutely the key to our success. At Cleanaway, we understand our work is essential. We are hardworking, committed, humble, and proud of the important work that we do. We care deeply about the contributions we make to our local communities and our role in developing bold, sustainable, circular, and low-carbon solutions for our future generations. We have been on a journey to reimagine the culture at Cleanaway.
We're doing this to empower local ownership through our 300+ branches, where we are building highly capable leaders who think beyond today, have a deep sense of care, and create strong connections both inside and outside of our organization. We recognize that care, inclusion, respect, and empathy hasn't always been ingrained in the ways that we work at Cleanaway. However, we are committed to evolving our culture and creating an environment where everyone feels safe, included, respected, and confident to bring their unique selves to work every day. We are doing this because we believe that while we are strong individually, by working together as 7,500 passionate employees, contractors, and partners, we become unstoppable. We are developing our new values that will shape who we are, how we work, how we show up, how we lead, and how we treat each other.
By truly living these, we know we will create an environment where our people can thrive, and we can achieve amazing things together. What we are doing is taking the very best of what we currently value and then introducing reinforcing behaviors and evolving that to align to where we are going. Naturally, however, and by design, we will leave behind some of the ways in which we have worked in the past that would fit for purpose at that stage of our company's evolution, but it's no longer in service of Blueprint 2030. To give you a sense of what that looks like, I'll spend a few minutes describing that journey that we will need to go on and highlight the existing strengths that we will take forward and build on.
Our hierarchical structure and approaches resulted in a belief that our leaders know best, and we expect them to forge the path ahead. This has led to leaders directing work with limited exploration of alternatives or challenge, challenging the status quo by those who are actually doing the work. We want to leverage the ideas and innovation of our people and have our leaders offering guidance and feedback to deliver the very best outcomes. We'll hear more about how we are going to do this and the success that we're currently having with our value drivers from both Chris and Tracey a little later on. We want our people to think and make decisions, like owners enabling decision-making actually right at the front line. We will act with urgency and consistently deliver great results for our customers with absolute care and pride.
We want our people to be empowered and accountable and know that it is safe to try new things and think differently about the way we work, knowing innovation will absolutely help us win. We have been changing our siloed way of working, where our inward focus on immediate teams and the outcomes has limited cross-collaboration and learning. While we have a strong outcome orientation and take accountability for commercial results, which we will retain, it can be reactive and short-term focus that can compromise long-term opportunities. As well as delivering results for today, we want our teams to build long-term value for our shareholders. Going forward, collaboration and inclusion will be a daily routine. We will share and learn together, ask for help and offer help. We will be curious learners, where feedback is seen as a gift.
We are all connected to our purpose, but we have a clear understanding of how what we do every day contributes to our strategy and creates a sustainable and profitable future. We will be inspired to think of and deploy innovative, cost-effective, and sustainable ways to achieve a low-carbon, high circularity world. To enable the successful execution of Blueprint 2030, we're designing and embedding a people-first culture that inspires to bring people to bring their best selves to work every day, where they are empowered and enabled, are curious learners and act as owners, and perform highly for our customers, which in turn will deliver great results for all of our shareholders. I'm sure you're all thinking: Well, that sounds wonderful, but how are you actually gonna do that?
The foundation with respect to delivering cultural change, which I know many of you will know, is to build trust and engage employees through the change process. Every employee has a distinct set of needs that follows a hierarchy, with basic needs at the foundation and growth at the top. Employees feel more or less engaged, depending on how well they believe their needs are being met in the workplace. You might also be asking: What are our new values? The answer to that is we actually wanted to share the answer to that question with our employees first. I'm sure that although I've danced around this question a little bit today, that there's been a lot of clues in what you have seen and certainly in what I have said.
More importantly, we do not want our values to just be words on a wall. We want to truly live our values, we have mapped a set of company-wide mechanics for the engagement hierarchy. As an example, as we set off around creating ownership, the first step is absolutely to create pride. One way that we currently do that is through open days or family days. Picture a day, normally on a weekend, where families and friends are invited to see where mom and dad or a special friend actually works. Imagine the pride that that creates in the teams and the platform that creates for ownership from our teams. That's exactly what you see here on the screens in Port Adelaide in these pictures.
As we launch our values, shortly, our focus will absolutely be more around the self-reinforcing mechanics that bring them to life every day, than it will be about simply words on a wall. I'll pause here, and perhaps we'll take some questions from the first two sessions. Thank you.
All right. We'll take questions from the floor firstly. Yeah, go for it. Just yell it out, because we've got, like, a microphone down the front, and they want to hear what you're saying.
Sorry, yeah. Just a question. You've got KPIs on health and safety. You've now bundled environment in there, but we don't, I guess, see KPIs environment. Should we be using EPA fines or enforcement activities as a KPI for the business? Will you, I guess, disclose that compared to, I guess, the industry going forward?
Go ahead, please. Go over, go.
Yeah. Yes, that's a good question. On the slide today, we obviously only showed TRIFR compliance toolkits. We've actually got a whole suite of lead and lag indicators that we've been growing in the background over the last couple of months. We, in fact, just spoke through with the sustainability committee on Monday, that whole suite of metrics that we'll start to measure. Certainly for environment, there's other metrics, such as lag metrics, such as fines and prohibition notices, things like that. Our focus is to really try and weave towards lead indicators because they're a much better way of identifying emerging themes to inform focus areas. Things around leadership capability for environment, cultural change. We're implementing a new safety culture framework, but it's focused on health, safety, and environment, so capability culture.
Really trying to bring in those lead metrics as well. The metrics will definitely mature further over time as a stronger focus on lead aspects. Yeah.
Yeah.
As an extension of that, you've mentioned, and you also mentioned in the presentation, you know, the fixed asset register, safety-critical equipment, a more defined maintenance program. When we think through the impact that that has on the margins going forward with a more structured program, as opposed to, you know, unplanned outages and, you know, and, you know, rubbish still coming in and you've got to deal with that, how do we think through, like, what sort of drag is that creating, and what benefit do you think that has on the medium to margin expansion by having a more structured maintenance program?
Yeah. I think I want to say, it's early days because, as Deb said, which is consistent with what I've said in the past, firstly, we build the asset register, then we define safety-critical equipment, then we start the proactive maintenance route teams, which makes sure things like the overhead crane that you'll see out here at Perry Road is safety critical, and we know it's being maintained. Yeah, and it's on a regular schedule. That's the first step. Once you have the register, of course, then you can do the reliability-centered maintenance, which is your point, because you can start to track centrally how that equipment is performing, and then you do bad actor programs over the top of it.
That's what you'll expect to see coming through in the next couple of years as we build out the sort of the pilot, fixed maintenance system into the computerized version, the final version, which is going on now into JDE, which we use across the company. I think, you know, do we have a number on that margin expansion? We don't at the moment, because we don't, we just simply don't track it like that yet. It will be part of as we prepare the margin expansion work, and in particular, as we put the midterm targets in place, it'll be part of the trajectory there.
Sorry, can I ask a question on the culture slide?
Yeah.
Just on that slide 13, appreciate where you want to get to.
Yep.
Where are you starting? Where, where do you think the culture is sitting on the hierarchy today, or it might when you started, so that we get some sense of how good the, you know, the change actually is?
Yeah, look, I think it's a great question. Thank you. I think, the thing with our current culture is it's actually very healthy. There's a big part of the work that we've done is to recognize the health of our existing culture and what's really important in terms of carrying forward to our future culture, but by design, what we need to leave behind that's no longer in service of Blueprint 2030 . We're coming off a really good base as we stand today. I guess the aspects that we're looking to switch on were both sort of somewhat covered in Deb's presentation as well as my own.
Really, it's probably more around that care and respect, and really driving from a behavioral perspective, a different set of aligned behaviors to values in a way that actually we can bring them to life through the mechanics that we're going to introduce to the organization. Care and respect, collaboration, cross-company collaboration, so that we can learn and grow together, will be a big part of the future state culture, as well as the thinking beyond today. Really building out a sustainable future not only for our people, but for all the shareholders, our investors more broadly, is gonna be important in terms of what we switch on in terms of our culture going forward.
There's lots of really good, great stuff around, and enormous sense of pride that exists today. A very good sense around keeping each other safe, that does exist in our existing culture. A very strong delivery culture today. Also just real care for customers in terms of the way that we're actually delivering our services. Very much coming off a really strong base. It's really about what do we need to add in service of Blueprint 2030 .
Just a question, just maybe, Michele, you mentioned moving to more, towards more of a branch-led mindset.
Yes.
Mark spoke in the past that we kind of want to change the thinking towards ROIC and EBIT.
Yes.
Obviously, the capital intensity is going to increase. How are you thinking about incentivizing those branch banks, thinking about the capital component maybe?
That's a good question.
Branches now all run on EBIT. That's the first thing. They're not running on EBITDA. Obviously, the DNA part is they have to think about that, and they have to live in the world of that their assets cost something, and there's a cost to that called the DNA. Obviously, when they bring investments, they have to think about ROIC. We're really talking about ROIC accretive investments. The next investment, we accept we're coming off a low base, but the next investment needs to pull that in the right direction, not drag it down. Then there's a lot of focus on the teams. You're going to see that in one second, of work with what you've got and make that a lot more efficient.
The entire focus of almost, you know, the bulk majority of the people in Cleanaway is OpEx excellence. It's about doing better with what you've got, and of course, that drops straight through to EBIT, because it's the existing assets, and there's an enormous program in place to drive that at the front line through their teams. That could be just simply things like, you know, ShiftLink. You're going to hear all about ShiftLink in a second, so I won't front run that. Maybe just have that lens as we go through the next section with Tracey and Preet and Alex around the vast majority of work is just driving purely at EBIT without the capital investment. Richie, you going to get on the line?
If the operator's there, is there any questions from the people on the call, please?
Thank you. If you wish to ask a question via the phone, you will need to press star one. Your first question comes from Rob Koh with Morgan Stanley. Please go ahead.
Good morning. Thank you very much. Can I maybe ask a question about branch manager incentives? You know, Mr. Schubert, thanks for the color on investment, but how are you thinking about incentivizing them for collaboration, which is something you've called out that you want more of? That's my first question. My second question is just if you could give a bit more color on some of your retention activities for your female workers.
I'm gonna get Tracey, who you haven't met yet, who's got 80% of the branches, so she might as well answer what we're doing on branches, and I'll get Michele here to pick up retention for Tracey.
Hi, good morning. I'll give you a couple of ways that we're incentivizing our branch managers to collaborate. The first is through their bonus. When we came in, each of the branch managers, their EBIT bonus, was for their branch. You can imagine the sort of activity that that drove, with someone really thinking in a silo. One of the first things we changed, which we changed for this year, was a bit of the branch, but actually your job is also to contribute to the region. We've done that all the way through the chain as well. General managers now, bonus on actually how is the performance of the entire company going, not just their SBU. The other way, which I'll talk about in a bit, so I won't talk about it too much right now, is through business teams.
We were getting the teams through the value drivers to collaborate nationally, find out who's doing the best against that metric, and drive their performance as well to meet that metric. More on that shortly.
Thank you.
In regards to retention of female employees, there's a few things that we are doing in FY24. The first is, we're doing a relaunch of the behavioral expectations at Cleanaway, which we've titled Respect at Cleanaway, and that's resetting behaviors of our workforce, right from Mark Schubert, right through to our frontline employees for all of us. They are behaviors that will line up behind our new values. That's the first piece of work that we're focusing on in the next financial year. Secondly, that will be quickly followed by the launch of the values program. We will launch the values, which then will hardwire into the behaviors that we have set.
The third piece is that we've started listening sessions. The executive team over the last few months have actually been out visiting our branches, spending time with small teams of people, understanding what's working, what's not working. A big part of that is really, it's sort of informed us that maybe not every site is set up for all genders. In the next financial year, we will be looking at doing sort of mini audits of our sites to make sure that we're set up for not only female participation, but also LGBTQ+. It's also very important to our business.
Beyond that, obviously, it's just the normal sort of hygiene factors that we need to make sure we've got in place for all genders of the organization, but really continuing to engage and listen to our people in terms of what they need to be successful.
I think the only other color I'd add is, you know, we talk about resignations as an exec team weekly. The executives are expected to know, the females, if any female has resigned, and a GM would be expected to have spoken to any female that's resigned. That's how important it is, and if necessary, trying to have a saving conversation. Okay. Any other-
One question on the webcast, leading on from the female retention and the minority retention. More broadly, how is Cleanaway seeking to retain talent in a tight workforce environment?
In a similar fashion, we believe that obviously, a lot of people in the business have heard about the values launch that we're about to bring to the organization, aligned to Blueprint 2030. It's actually been quite a long time coming, we're quite excited about this. Through that launch and using the employment hierarchy, making sure that the basic needs are met right through to that sort of growth mindset and everything in between, it will be absolutely around the mechanics of how do we connect our people to Blueprint 2030 and give them hope and obviously, you know, a future to actually work with the company?
I think historically, that they haven't always had insight to what our strategy is and what it means for them, and they haven't truly understood how the work that they do correlates actually to the end goal for the organization. This is very much about connecting our workforce to where we're going and actually bringing them on the journey with us.
All right, well, one more, and then we'll get going. Yep.
Is there maybe a way for us to think about the sort of churn rates in terms of sort of baseline, where you were and how this sort of new culture will sort of change or influence that?
Absolutely.
Yeah. We do talk about voluntary turnover with you. Yeah, we do walk through those numbers. I think what we've said is, you know, we've drifted up from the previous pre-COVID, back in the day, [crosstalk] .
During COVID, it got down to 15%, sort of number, when, you know, everybody was just not leaving anywhere. Prior to that, total turnover was up towards almost 30%. If you combined it all, so it's pretty high. It's one in three per year. After COVID, it came back up to sort of 21% to 22% [inaudible] percent, and now it's drifting back down. We would expect now, given the work that we're about to kick off around, you know, values and that sort of thing, and really getting into it as the rubber hits the road, that we should try and drive that down. Our target is to bring that back down to sort of, you know, that 15% landing point, and then we'll see what a healthy number is around there.
It's an SDI measure as well.
It's an SDI measure as well, voluntary turnover. We won't hit it for this year. It was worth what, 10%? Because if we set the target, we said we thought we'd hit the peak, and then we hit the peak in September. It's the right metric. It's a very difficult one to control. All right, what we're gonna do. Thank you for the questions. I'm gonna hand over to Tracey now, and we can always come back to further questions for Deb or Michele.
Good morning, everyone. My name is Tracey Boyes. I am responsible for the Solid Waste Services segment at Cleanaway, which, as you know, represents a pretty substantial portion of the business. I have been with Cleanaway now for close to 18 months, and I honestly feel fortunate every day to turn up and work with such a large cohort of people who are really hardworking and really dedicated to Cleanaway and what we do for our customers. I have had a pretty varied career in several roles, several senior executive roles, including most recently, the 13 years at Origin Energy here in Australia and Contact Energy in New Zealand. My passion is reimagining ways of working and also business models to achieve sustained results, and that will make some more sense shortly once I run you through what I have been up to since I have been here.
I'd like to start by setting the scene for you in terms of our operations here in Victoria and how we think about that within the frame of Blueprint 2030. Victoria is a great case study for us to bring Blueprint 2030 to life for you because the core solids business here represents our second biggest SBU, just behind New South Wales. As you can see from the slide, solids in Victoria here has an expansive footprint. We currently operate out of 54 sites, and we've given you an insight into our operations along the top of the slide here. Our daily operations look something like 1,200 team members delivering services to our customers, and that includes more than 31,000 C&I customers and around one million residential homes across the waste value chain.
Think about that as from collections through resource recovery, recycling, disposal, energy recovery, and electricity generation as well. We also have well over 1,000 third-party trucks coming to our transfer stations and tipping at MRL every single day. Every one of those pieces of activity need to be done well across every single customer and every one of those 54 sites for Solids Vic to really perform. That means that we need three key things. One, we have to have great leaders at all levels of the business, and this is where the work that Michele and Deb really comes into play. Two, we have to focus the team on the work that they personally do that turns the dial.
Three, we have to have an Operational Excellence cadence to make sure that all hangs together and the wheels keep spinning, and the right conversations are happening between the right people at the right time. This, in a nutshell, is Operational Excellence, and I'll bring that to life for you in a bit more detail shortly. If we look at our strategic infrastructure assets here in Vic, our footprint, as you can see on the map, it represents an efficient network of facilities that have been carefully selected and created over time. It was designed to allow us to take part in that waste-to-resources value chain in a vertically integrated way. Why is that important?
Our ability to internalize the waste and the resources all the way along that value chain means we capture more margin along the way, means we reduce the risk of impacts from third-party disposal cost increases, and we also drive network-level operational efficiencies. When I think about strategic infrastructure growth more generally, our focus is to grow the core business, to drive further network efficiency and margin growth, but also to continue to extend and integrate our infrastructure as we seek to deliver on our customer value proposition of service, value for money, and sustainability, which is defined as high circularity and low carbon. Again, we'll come back to that shortly. Let's go to operational excellence. We can make a few great decisions about which assets to invest in, when to invest, and where to invest.
The thing is that with so many sites and with such expansive operations like these, most of our earnings and certainly our margin growth, is driven and delivered by thousands of great decisions that are taken every single day by those who are closest to the customer. The Operational Excellence pillar of Blueprint 2030 is the one that every single person in our team plays a part in. For that reason, we needed to find a way to funnel all of the great work that's coming through Operational Excellence and focus everyone's attention on improving the important drivers of value that they control. When we get this right, we do harness the power of 7,500 people who are focused on improving either the specific value driver or set of value drivers that they control. Sorry, I've just lost my place. Sorry.
In doing so, we deliver great HSE performance, which supports the strategy, we grow the business, and we improve our margins. Let me bring this to life for you. Solids is a diverse and a really dynamic business. Naturally then, each of our lines of business have a different set of value drivers, as you can see in the middle of the slide. In the collections business, for example, where a driver might be targeting the number of lifts they can achieve every hour on a specific run, their branch manager will be balancing the activity of the day across multiple value drivers, such as fleet availability, labor availability, and overtime and service delivery.
At a landfill, in contrast, an operator who's on the tip face driving a compactor might be targeting the number of passes that they perform over newly placed waste, where achieving a target waste density is their value driver. Whereas the site manager will be balancing that same waste density target against the fuel and the labor cost associated with that additional pass that that driver's doing. Identifying the right value driver in the first place and getting that balance right across each of them, which will sometimes be in competition, is absolutely critical. Where the magic is really happening is how we're making those value drivers visible to the team with targets, and this allows them to see what we need them to achieve and how they're going. When we do this well, those team members come to work every day thinking like owners.
They're contributing to identifying solutions, they're thinking about how they can shift their value driver that they're responsible for. This is where the operational cadences come into play that we've described along the top of the slide there. When I started at Cleanaway, the focus was on a monthly P&L, and I had no idea how Solids was going until the end of the month. My GMs were in the same position. It's only 12 opportunities every year to top down and retrospectively intervene and support the business to improve. If we fast-forward to today, we have visual management boards installed across all of our key sites in Solids, and there are daily conversations between the team at that site on the value drivers that matter to their line of business at their site.
You'll see that here at Perry Road this morning, and Pete will take you through that in a bit more detail. Much of the data on those visual management boards is fed from Power BI and the work that Alex and team have been doing, and Alex will take you through that in some more detail later. Now, the neat thing is that the visual management boards at sites won't drop off and be forgotten or unused, and the operational disciplines won't stop if there's a change in leadership, because we have hardwired this cadence through every level of the organization. The cadence, when we lock it together, is self-reinforcing, and it creates ownership and accountability. Every single day, those sites call in their key numbers to their regional manager, and they ask for help when they need it.
Each week, the leadership team for Solids VIC, and actually each of the other states and SBUs separately, work through their visual management board, where they see how their set of assets and their network is performing through those value drivers. I have a Solid Waste Services visual management board weekly with all of the general managers together. The executive team also has a weekly visual management board with Mark. The neat thing is that in May, we knew our result before we saw the P&Ls, because when we're across the value drivers, the P&L just looks after itself. Across solids, we now have our hands on the steering wheel in a way that we just didn't have before. The next logical extension of this, which we've initially installed for our landfills, is then driving performance across the comparable solids lines of business.
By installing virtual business teams, for example, one for landfills, one for MRF, one for C&I collections, we get to make the most of that state-based org structure that looks to optimize performance across the network that they hold, while at the same time, we get to drive best practice and performance across solids nationally. On landfills, for example, every solids team has aligned on the key drivers of value. They've agreed how often they're measured, where the data comes from, and also how it's reported. From the end of this month, we'll start to see how they're all performing against those value drivers. You can imagine the conversation and the friendly competition that this will now drive. Why is the density at MRL so much better than Inkerman?
If we set the target at the best of the best, then we support the teams to learn and take best practice from each other and then implement and monitor that implementation through the visual management boards and the outcomes, you can see just how quickly we can lift performance right across the group, leveraging the knowledge that already exists in the team. Okay, let's jump on to strategic infrastructure growth. You've seen we already have a significant footprint as prized assets. Now, at least every quarter, we refresh our view of where we want to grow that footprint. That could be to grow the footprint to align to Blueprint 2030. It could be to meet an emerging customer need, or it could be to respond to competitor activity. Broadly and aligned to Blueprint 2030, we consider strategic infrastructure growth with a dual focus.
Firstly, on the left of the slide, we consider existing assets and how we expand, preserve, or sweat them, and here are some examples. Firstly, growth through expansion of existing facilities. The South East Organics repackaging facility will double in capacity early next year from 30 tons per day to 60 tons per day, to support growth in our national customer base. Secondly, growth through increasing our ability to accept new waste types. At MRL in FY23, we added 11 new waste codes, meaning we can now accept waste like asbestos and shredded block. Finally, by sweating the assets we already have, such as increasing our landfill gas capture collection at MRL from 5.3 to 6.3 million cubic meters so far in FY23, through installation of 158 new gas cells.
This enables us to reduce our greenhouse gas footprint by destroying the methane that we've captured. It also underpins the business case for an additional two gas-fired electricity generators at MRL. The second way we think about strategic infrastructure on the right-hand side of the slide, is growing our footprint of revenue-generating assets through step-out expansion. Importantly, as we do this, we make a conscious decision on where we have the competitive advantage and we go it alone, or where we're stronger as part of a partnership. For example, we're comfortable taking the lead on new organics facilities in regional and metro locations and on Energy from Waste. Whereas we've partnered with others for plastic palletization and container deposit schemes.
These partnerships are a recognition of what we can bring to the table, but also an acknowledgement that there are others out there who can bring expertise in other parts of the value chain and where we can be stronger together. I'm going to hand you over to Preet now, who's going to describe in a bit more detail some of the operational excellence tools that are helping us to deliver for today and improve tomorrow.
Thank you, Tracey. Good morning, everyone. My name is Preet Brar. I'm responsible for the Core Solid Service, Fleet Services business in Victoria. I've been with Cleanaway for about six months now, but I've been in the waste and recycling sector for over 20 years, with most recent roles as the Veolia CEO for India and CFO for Australia and New Zealand for Veolia as well. For those of you who have joined the strategy session in November last year, Alex described some of the work we were undertaking in terms of digitizing the workshop. Perry Road branch, where we are today, is one of the first branches to start that digitizing process. Currently, our workshops use a lot of paper. Across Cleanaway, we complete over 400,000 work orders for fleet maintenance every year.
Each annual work order has multiple pages attached to it, resulting in over four million pieces of paper that we generate to complete maintenance for our fleet. Each work order is manually completed as well, so mechanics are writing the details of the work performed by hand and then passing it on to our admin team, who then input it into our operational system. Often, these work orders have information missing, and that requires further clarification before they can input. All of this results in an increase in non-productive time. We've embarked on a program to digitize our work orders, which means deploying tablets into each of our workshops to replace the current paper and clipboard. We will see significant productivity gains from the workshop and our admin team. The time saved, especially for our team of mechanics, means that we can internalize more fleet maintenance.
Starting our work orders also reduces the number of errors that are made and improves compliance through real-time updates to our operational systems. The program commenced in April this year. We now have 86 tablets deployed across 21 workshops, including here at Perry Road. You'll be able to get a first-hand look at the digital process when we go for a tour later this morning. We expect this rollout, which starts here, but which will change how we work at all our workshops across the country, and we are utilizing off-the-shelf solutions that will cost around AUD 400,000. To ensure a successful uptake and limit reversion to current processes, we are undertaking a hands-on change management process.
One of the most immediate benefits is our medium-term target of 5% increased mechanic productivity, which leads to more tool time and reduces the amount of work we need to divert to external mechanics at 3x the cost. The current focus of the digitalization program is limited to corrective maintenance work orders. However, there is scope to include additional functionalities such as preventative maintenance, parts inventory automation, and timesheet automation as well. As we capture more accurate information across our national fleet, we will be able to mine that data to find common failure points and timelines for each of our makes and models and build that into our preventative maintenance routines and purchasing decisions. This will, in time, improve fleet uptime, which has a direct benefit to the number of services performed, which means more revenue, lower costs, higher service levels for customers, and less churn.
Since the start of April, over 3,300 tablets, tablet work orders have been completed, versus 42,000 pieces of paper over the same period. In the next 18 to 24 months, tablet work orders are expected to make a majority of our work orders. I think that's on the digitalization program, and we'll move on to the visual management boards and how we are implementing and utilizing our VMB. The concept of visual management boards is not new. They're a commonly used tool in lean management and continuous improvement practices. They are typically physical work boards or displays that provide real-time information on the status of the project, process, or team performance. They're designed to make important information easy to access, understand, and act upon, so that as a team, we see together, know together, and act together.
That's exactly what we're using them for. As Tracey mentioned earlier, value drivers are a critical way of driving performance in our business. It is through these VMBs that we track those value drivers. As you see in this picture on the slide, we use a combination of text, charts, graphs, and other visual aids. By providing a visual representation of key metrics and data, visual management boards help our teams to quickly identify issues, prioritize their actions, and make data-driven decisions. Through them, we discuss performance in real time and take actions today that will impact tomorrow. Importantly, they also help us to increase transparency and accountability and improve communication and collaboration among team members. The transparency also creates ownership, just like Michele mentioned earlier.
When we go downstairs later today for a site tour, you will see that visual management boards that our teams here use to drive performance. They come together every day to ensure their delivery plan for the day is aligned with achieving key metrics. They take real-time decisions. At Perry Road, we service nine municipal contracts and around 4,700 commercial and industrial customers with the support of our 180 drivers and operators, 80 mechanics, sorry, and 24 customer service and admin team members. All those teams need to be working in unison to deliver 2.5 million collection services from this site. Some of the key metrics you'll see on the visual management boards include safety and environmental compliance, team availability, fleet availability, missed services, and route productivity. Let's take a deeper look at route productivity as an example.
The underlying drivers for route productivity are route density and the time taken to complete a route. Our operational teams have the ability to control both these metrics. A branch manager can impact density by moving jobs across routes or to another day, and thus rebalancing the load for optimum density. A regional manager working closely with sales can target specific routes for an infill campaign to improve density. Time to complete a route can vary depending on driver efficiency and the route load. Our operations team leaders know that the sweet spot for route duration is around 10 hours. This is because the costs associated with the additional two hours at double time outweigh any productivity benefits. As the driver needs to be...
The driver needs to take a mandatory 30-minute break once they hit the 10-hour mark, she also needs to be back at the depot under 12 hours to meet fatigue regulations. That equates to anywhere between 30 to 45 minutes of productive time, while costing us the equivalent of 240 minutes. Shifts greater than 10 hours is a metric that we monitor closely on a daily basis. The proof is in the outcomes this approach delivers. Over the last 6 months, our C&I team here at Perry Road has reduced overtime as a percentage of normal time from 33.6% in January this year, down to 28.4% in June. Improved our lifts per hour metric as well from 5.4 in January to 6 in June...
Improved our SIFOT, which is our service in full and on time, from 98.4% to 98.9% in June. The next slide here is a digital illustration of a VMB, the typical metrics or value drivers that we track. As you will note, there is no revenue or EBIT targets. It's purely the metrics that each team member has a direct and tangible impact on. If you went to our other sites across Victoria, you'll see something similar. The drumbeat around our VMBs means that as a management team, we have line of sight of our key leading indicators. What that really means is that we can jump in immediately to help support our teams when we notice a problem. As an example, the Vic Solids leadership team has a weekly VMB, where resignations by branch is measured and reported on weekly.
At a recent VMB, we noticed that three drivers had resigned at a particular branch within one week. This line of sight allowed us an opportunity to immediately address the situation and help that branch get back on track. That's all I have for now. Alex is going to provide you an update on some of the data and analytics programs, progress that we've been making, which has been feeding the visual management board.
Thanks, Preet. Nice to be with everyone again. For those of you that I haven't met before, my name is Alex Smith. I'm the General Manager of Commercial. I've been with Cleanaway now for about six and a half years and look after a number of functions, data analytics being one of them. When we last caught up in November, I introduced data analytics and the fleet optimization blueprint. Data analytics blueprint fits underneath our operational excellence pillar and is focused on three key things. The first is enabling our teams to make better decisions in near real time by improving our data quality, utilizing the wealth of data points we collect on our customers, and delivering actionable insights. The second is improving productivity and engagement by working smarter. With less manual manipulation, it allows our teams to focus on the value add.
Thirdly, utilizing the insights to drive efficiency gains and operational improvements, which lead to margin expansion. Importantly, this blueprint is well planned and established. It's been delivering tangible financial benefits, and it requires minimal capital. Data analytics blueprint has 4 key programs of work. First is the data infrastructure and governance. That's the blue box at the bottom of the slide. Since we spoke last in November, we've continued work on ingesting our source systems, and given some of the challenges in the labor market, we've been particularly focused on payroll, human resources, and our time and attendance system. Second, reporting and business intelligence. We've continued working on creating dashboards for our operational teams. These dashboards are the data and calculations sitting behind the value drivers and visual management boards that Preet and Tracey have spoken about. Third is our insight delivery.
We've developed two delivery models for our management creative analytics program. National initiatives that can be implemented at scale, such as our customer profitability tool, which has now been rolled into our price adjustments, and our targeted branch performance program, which brings together data analytics, visual management boards, and our value drivers. We'll take you through an example later in the presentation. Lastly, is the advanced analytics. We've made really good progress since November, investing in our data science team and exploring our first machine learning models. As we previously advised, this is the focus for FY24 and FY25. As you've just heard, we've rolled out a set of value drivers and visual management boards to all of our Solid Waste Services branches.
The data analytics function has played a critical role supporting this program by providing our teams with the information they need in near real time. 12 months ago, getting the information to display a value driver, like lifts per hour or shift length, would have taken hours. It would have required multiple people, access to multiple systems, let alone all of the emails and phone calls needed to pull the data together. Today, it's available, it's available to our operational teams on their laptops, their phones, or their tablets, and it's updated daily. Let's take a look at one of our labor management tools, which is up on the screen at the moment. The picture to the right is a screenshot of our shift effectiveness dashboard for one of our Victorian collections branches.
It provides our teams with a daily view of the total shift length for their branch. The dashboard particularly highlights shifts that are greater than 10 hours. It also gives the branch manager the ability to click on one of those blue bars that are there, which gives them the detail of all the shifts and all of the employees that make up that particular day's hours. This Victorian branch is focused on improving their Monday shifts over May and June. The value driver shifts greater than 10 hours is put up on their visual management board, so it's visible to the entire team and daily targets are set.
The value driver is discussed with each driver at the driver debrief and the team as a whole in their daily huddle, with a focus on what the team could do tomorrow to improve that driver. On the 22nd of May 2023, so you can see the dots we've put around that particular date. The average shift length was 11.6 hours, and there were 44 shifts over 10 hours. With a focus on this value driver, you can see that the average shift length reduces to 10.21 hours, with 21 shifts greater than 10 hours. The reduction in average shift length of 1.39 hours is all overtime, which is paid at double time.
Our teams are able to reduce the overtime without compromising the service to our customers, and they do this by problem-solving for excessive overtime at their daily huddle. The daily huddle brings together the scheduling teams, drivers, customer service, the workshop, and sales. The interaction and communication between the frontline and support teams results in really quick decision-making, feedback, and immediate solutions to service our customers. The branch performance program was started in back end of FY22, with the purpose of bringing together subject matter experts from pricing, logistics, sales, and finance together to help branch managers lift the performance of their branch. The program uses a data analytics tool to complete a diagnosis of the branch, identify opportunities, and then implement them.
We support the team by implementing a cadence, which ties in really neatly into their visual management boards and their daily huddles. This type of program is targeted at some of our branches who've had a change in leadership, material changes in their operations, such as a new customer, large national coming in, or a churn customer going out, or branches that have had a sustained period of underperformance. It runs parallel to our national rollout of data analytics initiatives. The types of initiatives that we tend to focus on in these programs are customer profitability and revenue leakage through our bin and customer profitability tools, route opt-optimization via scheduling changes, resequencing, and targeted business development, reviews of our labor mix through subcontractors, owner-drivers, and company drivers, and renegotiation of disposal rates in our regional locations.
A playbook's been developed, and it's part of our national rollout initiatives rollout, that provides operational teams with the tools and instructions to implement these initiatives without needing a central team on site. We've had some really great wins in New South Wales, and we're looking to come to Victoria in FY24. I thought I'd just touch on an example to bring this to life. The branch performance team worked with the branch manager and operations team in one of our New South Wales branches to firstly understand the competitive landscape and some of the challenges that the team were facing on the ground. We ran our diagnostic tools over the profit and loss and identified some of the key initiatives to then implement. Firstly, this was a renegotiation of their disposal rates at one of the regional landfills.
Secondly, a reroute of their front list services, which resulted in two assets being freed up. Thirdly, we flew in sales reps for a targeted business development campaign focused on improving the density on three of our runs. The financial result was an EBIT margin, four and a half times greater than when the team went in. Not only was it a great financial outcome, but the engagement at the branch improved dramatically. The team were able to see the improvement in the branch daily through the value drivers and visual management boards. There was a huge sense of pride about the turnaround. When I last presented data and analytics, we discussed some of the successes in our routing and targeted business development programs.
Since then, we've scaled our routing tools and deployed dedicated network performance managers within our Solids SBUs, tasked with completing large customer implementations, managing our routes to targeted lifts per hour metrics, which is what Preet touched on before, and supporting our branch and regional managers with network and logistics reviews. As Preet mentioned, ensuring we have the right density on our routes is critical for collections businesses. It helps with managing labor costs, SIFOT, and it drives operational leverage. The example on the slide really highlights this. The top map shows the before, and the bottom map shows the after impacts of optimizing our network in one of the Melbourne collection businesses. The top map shows three re-lift recycling runs, with each colored dot representing a particular customer or a pickup. In this example, our runs are actually over capacity.
What that really means is that our drivers are unable to complete their run because the truck's full and they need to go back to the disposal location. As a result, customers were being missed. Customers were being missed, and they were being rescheduled onto other days, or other drivers were being diverted to service these customers. This meant a poor customer experience and additional labor costs, which were likely at overtime rates. Using our route visualization tools and working with the Melbourne Metro team, we recut the area to get a fourth run. That's that run in there with the green, servicing the customers in the green dots.
We used our targeted business development tool to identify all the businesses in the area that Cleanaway isn't currently servicing and create opportunities in Salesforce for our sales team to go and then target. The result is improved SIFOT, lower labor and truck running costs, which has resulted in a lower cost per lift for all of our customers in the area and an expansion of margin for the branch. What we talked about today is what we are already doing. Let's talk about where we can take this. We're building the platform, we are building capability, and with the implementation of Customer Connect, we're starting to explore working with AI and machine learning in two key areas. Firstly, extending the customer lifetime value through models such as our propensity to churn, and one that I'm really excited about, which is our machine learning recommendations engine.
Let's look at an example of where this could go in the future for our, for our drivers. Sam is a driver and completed his scheduled general waste run after eight hours. Sam's had about half an hour of overtime. Sam's truck is 85% full, and Sam is three km away from a competitor's landfill and 17 km away from Cleanaway's landfill. If Sam goes to Cleanaway's landfill, Sam can pick up another seven jobs on the way. What should Sam do? Does the answer change if Sam works six hours instead of eight hours? If it's 2:00 P.M. or 5:00 P.M.? What about if it's raining? Here's what happens next. Sam's in the truck, and it's pulled over, and the rain starts to get quite heavy.
The data analytics framework processes data from a live Bureau of Meteorology weather API, which identifies the expected length of the rain event. It runs statistical analysis over historical run data of Sam's route, predicting the additional volume from the seven extra jobs and the likely time it would take. It then overlays the labor and truck running costs and uses AI and machine learning to predict the route profitability under the different scenarios. The data analytics framework then messages the in-cab technology in Sam's truck with the conclusion that it's best to get back to the depot. The result is improved profitability for Cleanaway and a safer journey home for Sam. This is where we'll take the data analytics program in the future. However, we need to build the foundation progressively, which has been where we've been focused.
I'll now hand over to Paul to give an update on Energy from Waste in Victoria. Thank you.
Thanks, Alex. Good morning, everyone. The first slide is really the high-level summary of the case for energy from waste and where we're up to in that journey. We know energy from waste is critical when it comes to achieving landfill diversion. We also know the technology that we're proposing to use is well established. In fact, it's been used in multiple facilities around the world. What is less certain is the timing of the transition to energy from waste across different states in Australia. The current Melbourne merchant waste market is quite challenging for energy from waste project economics. When I say merchant, I mean those C&I volumes seeking the lowest cost disposal solution. There are several factors, however, that I'll discuss shortly, that will progressively drive transition from putrescible landfills to energy from waste facilities.
During our current planning phase, we're continuing to undertake the long lead time and capitalize activities on a 100% equity basis, thereby creating option value for Cleanaway shareholders. Our final equity position will seek to maximize shareholder value, will be dependent on an array of factors that I'll discuss in the next few slides. Competition for volume in Melbourne means the landfill market is really quite sensitive at the moment. At the same time, we're also seeing significant inflation for materials, for labor, and evolving environmental protection requirements, all of which driving up landfill and cell construction costs and remediation costs as well. Furthermore, given the Victorian State Government's diversion policy, it's likely that the landfill levy will increase further over time.
As a consequence, we're expecting gate rates in Victoria to trend up over the medium term as the market transitions to energy from waste. We expect the first wave of energy from waste investments to be driven by customers seeking landfill diversion and sustainable outcomes, and those that have a longer-term perspective. By way of example, we're already responding to Muni tenders that request a response in relation to energy from waste, albeit highly conditional. Given the length of the typical Muni contract, between seven to 12 years, councils recognize that energy from waste is likely to be an important part of the post-collection landscape during the term of the contract and are responding accordingly.
As the drivers of the transition have an increasing impact on landfill disposal costs, we expect the customer mix to change. This will vary by region and change over time, reflecting the rate of change of key transition drivers such as levy, government policy, and attitudes towards sustainability. Hence, progressing planning approvals now will position Cleanaway to be at the forefront of the transition and maximize its optionality for shareholders. As Australia's leading and largest waste management company, Cleanaway is well positioned to capitalize on the opportunity energy from waste brings to meet Australia's landfill diversion targets. We've spent considerable time and effort on assessing the strategic fit of these projects as part of our broader portfolio. The capital investment to date has been relatively modest and focused on creating the option value to execute on these projects when the returns are attractive.
We have been, and we continue to be, very disciplined in our approach to capital allocation and will only deploy capital with a clear path to an appropriate rate of return. Our excitement for the energy from waste opportunity stems from Cleanaway's competitive edge in this delivery by leveraging the vertical integration that Tracey described and our strong municipal customer relationships. This, coupled with our supporting infrastructure and logistics and the ambition to provide sustainable waste solutions to our customers. Hence, in Victoria, we're progressing the long lead time development approvals with two key applications lodged recently, these being the development license and the planning permit. The next step in the process is to secure an allocation under the cap, and we're preparing our submission in anticipation of the request closing shortly. However, we're also aware that the economic conditions have also changed in recent times.
We have higher capital costs, interest rates on one side, and on the other side, higher energy prices, also prevailing in the market. This obviously influences our near-term thinking, but it doesn't change our belief in the long-term strategic opportunity that energy from waste can ultimately deliver, the returns that we can generate from these projects, and the material infrastructure, like earnings contribution, once they come online. During the planning phase, the benefit of being 100% equity owner of the project today is that we can build the option value with each of the projects by advancing their development and getting them to a point where there is the potential to make a value-led, returns-led, final investment decision timed to market conditions. At every stage, we look to how best to maximize value for our shareholders across the projects.
There are a number of levers available that we're considering around project financing. That includes sequencing and timing of the projects to smooth the impact on leverage during the development and construction phase. The nature of the debt, so corporate debt or project finance, we may consider bringing in an equity partner at final investment decision or practical completion, and potentially using that equity release to fund equity in the next project as well. Each scenario permutation may result in a different capital structure for the project, in that regard, we've been sharpening our focus on our preferred and optimal capital structures with a commitment to maintain an investment-grade credit profile. As you can see, there are a number of variables that we're working through, and we'll share more details as we progress each project. Thank you, Tracey.
Thank you again. Thanks, Paul. As Mark shared at a recent Macquarie conference, the TOMRA Cleanaway joint venture, of which Cleanaway is a 50% owner, was appointed network operator for zones one and four of the CDS, which is the orange region that you can see here on the map. The scheme commences on one November this year. We're responsible for a network of return points, including reverse vending machines. There's one just outside this meeting room that you can have a look at. We also operate over-the-counter drop-offs and automated depots. Zones one and four represent a population of around two million Victorians. We expect to collect 500,000 containers per annum through our network.
We're investing up to AUD 40 million to get this off the ground, this is a project with a really attractive returns profile based on a progressive ramp-up, it achieves high circularity outcomes. We're leveraging our extensive New South Wales CDS experience to build a network of over 170 collection points designed for consumer convenience, we fully expect to see material volumes of CDS Vic resources processed through the Circular Plastics Australia facilities. In terms of project delivery, the key milestones include the following six factors: winning the tender, tick. Two, procuring the fleet. There are 31 wheel lifts and six hook lifts required. Our orders have been placed with staggered delivery by October. Three, establish our bulk up and sorting facilities. We've identified our site at Ballarat, we're finalizing lease arrangements.
In Tottenham, which is our metro site, we've secured pre-announcement to de-risk our schedule. Number four, set up over 170 collection points. 80% of those are due by 1 November 2023 and 100% by April 2024. Five, establish the team, including through our Women's Driver Academy. Six, develop a digital platform for continuous improvement of our network, and that's underway. As network operator, one of our priorities is to build redemption rates. That's the proportion of containers sold being redeemed through the scheme, this is where our partnership with technology-led and internationally experienced TOMRA is a significant advantage. TOMRA technology emphasizes consumer experience through ease of return, being able to donate the proceeds, it also supports optimized network locations. We are always focused on improvements and opportunities to minimize capital and improve our return on investment.
One example here is that we're going to be using our existing Laverton facility to sort and process eligible plastic containers, drink cartons, and juice boxes for at least the first 12 months. If we look outside of VIC, in addition to VIC, we have a strong national footprint when it comes to container deposit schemes. As you can see on the slide, we have a presence across most of Australia. In aggregate, when we include the VIC scheme, the schemes contribute about AUD 120 million in revenues to Cleanaway, so it is a substantial part of our business.
We've recently secured a five-year contract renewal for Metro Queensland processing, which represents close to 40% of the scheme in Queensland, and we expect glass volumes by weight to increase by 15% to 25% with the introduction of wine and spirits bottles in Queensland from 1 November this year. We're also currently participating in the Tasmanian scheme tender as part of our joint venture with TOMRA Cleanaway, although volumes, our volumes there are relatively small compared to Victoria and New South Wales, it's a great opportunity to bring our platforms and expertise to enhance the Tasmanian consumers' container deposit scheme experience. As you've already heard, strategic infrastructure, growth, and innovation are really core to our Blueprint 2030 b y working collaboratively with scheme regulators, scheme coordinators, and our partners, the CDS team brings quality resources through their value chain.
Our aspiration is to position Cleanaway as the partner of choice for current and emerging solid product stewardship schemes. Before I hand back to Mark, I'd like you to invite you to test the reverse vending machine during the lunch break, to get a feel for how easy it would be to return your eligible containers at a TOMRA Cleanaway automated collection point.
All right, thank you, Trace. We're on the home run, in case you're wondering. I'll be the last speaker, and then we'll get into the questions. The next slide is largely the same as the one we used back in May at the Macquarie conference. On the left-hand side are the drivers of recent margin evolution, and that's the same stuff I covered in detail back then. In terms of the margin recovery story, we are continuing to make really pleasing progress in resolving our key headwinds. As I said back in early May, those plans should deliver our business as usual, EBIT margins to around 12% on a group basis. Labor, from a vacancy and productivity perspective, is continuing to trend in the right direction. The health services business recovery is underway.
Literally, just down the road or just across the road behind me, are the new autoclaves being put through their paces as the team ramps up to full capacity. Once we are comfortable that we can operate at that capacity consistently, we'll unwind the contingencies that we have in place for any unplanned outages or downtime. It really will be game on in terms of restoring that business to its pre-COVID profitability. Finally, I'm pleased to say the Queensland Solids business recovery is progressing well. Unfortunately, as you're probably aware, the decision of the Planning and Environment Court in relation to the height extension did not go our way yesterday. We'll review that decision in detail and determine the best course of action. We have been setting the Queensland business up to operate effectively without New Chum, so effectively, it's business as usual for now.
The full recovery on labor, on health, and on Queensland is anticipated to occur over the coming 24 months, with some immediate contributions in FY 2024. Like I said at Macquarie, with good progress being made in stabilizing the business and with the capability in place to deliver the blueprints and the associated blueprint progress to date, we do intend to provide investors with a FY 2026 financial ambition and scorecard aligned to Blueprint 2030, and we will do that at our full year results in August. You might say, "Why that timing?" The answer is, we think it's a logical time to do it, as the starting point for all the key metrics will be known.
We also want this to be an ambition that is owned by our SBU leaders, with each leader and business crystal clear on the must-achieves that will be delivered. To recap, this will be presented as a three-year EBIT CAGR, with incremental improvement in return on invested capital as a key performance marker of success. Growth will be adjusted for any material non-productive capital, and we intend to roll forward the ambition each year as we deliver on the strategy and have better line of sight to significant new investments. You'll also notice on the slide that our guidance for FY 2023, with nine days to run, is reaffirmed. All right, on this slide, the next slide, I've outlined some of the initiatives that during FY 2024, will contribute to delivering this midterm ambition.
Hopefully, as you're reading that list behind me, you should note that we've been talking, taking you on the journey, on these items through these strategy sessions. The initiatives will be further expanded and form part of our midterm ambition scorecard, which we'll present in August at the results. As Tracey said earlier, with respect to the Victorian Solids SBU, driving the performance of this business and delivering the financial outcomes that we're seeking is about making thousands of great decisions every day. Many of the initiatives, therefore, naturally contribute incrementally over time as we make better and better decisions and continuously improve our value drivers. Like you would expect, how I'm going to end, I'm going to end by recapping the 5 key messages from today. You're going to get the last hour and 24 minutes in 30 seconds.
Okay, firstly, from an HSE perspective, Deb and the team have developed a transformational strategy for Cleanaway. One that's core to our purpose and foundational to the successful delivery of Blueprint 2030. We have a new vision, the passion, a clear plan, and the right capability and resourcing to successfully execute it. Importantly, for shareholders, what this means is a safer, a more reliable, a more focused, and a significantly more profitable Cleanaway that's able to deliver today and grow for tomorrow. On people and culture, the key message from Michele was that to maximize the opportunity that is Blueprint 2030, we're designing and embedding a culture that inspires our 7,500 strong team to bring their best every day, where they're empowered and enabled to improve, are curious learners, act as owners, and perform highly for our customers.
Our shared values will be launched soon, and more importantly, the corresponding self-reinforcing behaviors will be the key to our success. Third item is while we use the Victorian Solids business to showcase how the blueprint hit the ground from a business unit perspective, you have no doubt taken away from today how we're thinking about this across each of our SBUs. As Tracey and Preet illustrated, the scale and span of our operations gives rise to hundreds and thousands of actions each and every day. It's the hundreds of small, great decisions that we make each day, and they contribute incrementally over time, that will move the performance needle. We know things don't go to plan every day, so by openly connecting our teams with our value drivers and key information, we know in close to real time if things are going wrong.
We're there to support one another in the problem-solving. I'm excited about the momentum we have now and the massive opportunity ahead of us as Team Cleanaway systematically goes after the performance of our existing business using value drivers like we've never done before. On energy from waste, what Paul said is we see a real opportunity to create value from a future transition to energy from waste. We're doing what you would expect us to do. The long lead time, capital light, pre-FID work to ensure we're well ready to capture the opportunity when the investment conditions are right and customers want to make that transition with us. Finally, on CDS, what Tracey said, this is...
She said, This is a great example of the strategic infrastructure growth as we leverage our capabilities from the New South Wales CDS into the Western zones and the Victorian CDS. In conclusion, today was about demonstrating both the opportunity and the progress we've made in Blueprint 2030 from a big solids perspective, with similar activity happening across our other SBUs nationally. I hope you are as excited as I am about the road ahead in the base business and also some of the new opportunities ahead of us, I'm really looking forward to bringing that trajectory to you in August as we share our midterm financial ambitions. That's all I have. What are we gonna do, Richie?
We're gonna go to questions on the floor first.
Yes.
Can I ask people to speak up please? It's just a bit quiet on the microphone there as well. The question is a bit quiet.
All right. Peter Scott, Macquarie.
Just in relation to the timing on the Energy from Waste, it does get the sense that moving a little bit further out. In the context of the new term decision yesterday, can you give us a sense of where VIC and Queensland are now lining up from a timing point of view?
Yeah.
Perhaps as a follow on to that, what regulatory interventions could you potentially see that change that timeline?
I think I'll go this one, Paul's gonna jump in after. I think what we're saying is that the earliest that CDS Vic would be ready, in the sense of all the approvals and stuff, would be, you know, sort of September 2024. That would be the earliest. In fact, that's what Paul said in his voice over. We think that Queensland, the earliest CDS Vic could be ready, would be six to 12 months behind that. Okay? That's the earliest date. That is not me saying or Paul saying we're doing it on those dates. Then your question goes to, you know, what are some of the regulatory stuff that could move things around? Well, two things. One, I mean, the government has a diversion policy in place.
The diversion policy says basically, by 2030, this is Victoria, it needs to be at 80% diversion. Currently, it's sitting at sort of 69% or 70% diversion. You know, the handle, the tools which they have in the toolkit, albeit might be slightly unpopular, given the economic conditions, would be to start to increase levies to try and drive that diversion across, would be one way. Then the other way, of course, is customers saying, you know, so taking a view that over the next 10 years of my muni contract, I want to have the option to move or I firmly want to move across to energy from waste in that timeframe.
We have seen that in Victoria, with certain councils coming out, as Paul said, "You know, I'd like a price for landfill, and I'd like a price for a conditional price for energy from waste." Starting to think through that. Of course, the problem is they only get one price. It's not very competitive, they're tempted to then go back to landfill. Anything to add?
I think that's a pretty good summary. I think other key things to focus on, clearly, Mark touched on the landfill levy regime. In Queensland, we have a clear trajectory as to where that will land in the next three to four years, so we have a high degree of certainty in terms of where that will probably take gateway for the best now. I think the other consideration that we will sort of factor into the economics behind this, as I say, if we can't get Vic to crank just yet, you can see a situation where in Queensland, we currently don't have a landfill. That clearly, again, changes those economics a little bit as well.
I think there's a number of areas that we're not trying to be evasive. We're trying to literally put out there the view that there are a number of variables out there, that basically have the potential to change our thinking. It's our job as a management team to basically make sure that those projects are progressed in a capital-like manner. We can respond when those conditions arrive.
Yeah. I suppose my question really was around this commercial environment looks like it's got a little bit worse. Maybe that's an overemphasis, but whether or not that's going to influence timing?
You mean like capital costs and that, and those sorts of things?
Not so much the capital costs, because I think that's probably dealt with by landfill leasing bases.
Yeah.
The competitiveness in the landfill environment, and whether or not that pushes you a little bit further away from making a Milton decision.
Yeah. Well, and can do. I think, just remember, it probably won't be the marginal customer into a landfill that'll drive it. It'll be, you know, a group of councils who want to go and have decided they're going because they want to leave it out. I'd agree with you. I mean, what you see in other places is, as this walks towards, you know, some landfill operators will sit there and start dropping their price because they'll be trying to make sure they get their airspace full before Energy from Waste comes on. It actually almost prolongs that period as well. Like Paul said, what we want to do is have a situation where we've got these projects, we've got them on the shelf, yeah?
We're waiting for the economics to work. When the economics work, we can execute them in the most appropriate way for shareholders. We're not trying to do three years' work in five minutes, yeah? Which is, you know, all the work that we're doing at the moment, because it's just simply not possible.
Thank you.
I'll do one more, Pete, then we'll go across here.
Sorry, I'm being a real pain. Just a really quick question on this, around investment-grade credit profile. Well, what would be your expectations around how rating agencies will view the debt associated with Energy from Waste time space as well for any business? Do you think there's any differentiation, or will it be, you know, part of your balance sheet is?
Look, I, suffice to say, we don't have a rating, as you know, Pete, we have engaged with the agencies and a number of our lenders in terms of putting some hypotheticals out there. I think there is a clear view and a very consistent view that it would not be effective for us to use off-balance sheet finance in terms of trying to sort of get leverage down, because I think, quite rightly, the agencies and lenders are saying that these projects are intrinsically linked to your core business, and you wouldn't walk away from it under any circumstances, which would be absolutely true. The most likely sort of model that you would expect if we continue to own 100%, would be that it would be on-balance sheet corporate debt.
The extent to which we then, you know, progress through our thinking, it could well be at some point we do sell down. That would naturally then take you into a project finance and off-balance sheet type of treatment.
Yeah, sure. Another Energy from Waste question, apologies. Can you give us a ballpark estimate for what the remaining life is on your current landfill assets, and what it would look like if you put two EFW facilities at, you know, 350, 500, how much extension would you get on your landfill?
Yeah, I mean, the lifetime MRL is decades and decades and decades. Then, you know, would it reduce it? Would it extend the life? Yes, it would, by doing Energy from Waste. I mean, the obvious next question is: Well, does doing Energy from Waste steal volume from MRL? The way you need to think about that is customers who are going to Energy from Waste are going regardless. Either Cleanaway participates, or we lose that volume in any case, if you know what I mean? That transition will occur, and we want to be ready to go when it's necessary, because we want to have that solution to offer a customer. We've got the suite, just like we've got today.
Just the capital light approach that you're talking about, selling down some of the equity. I understand that obviously you've got a near-term cash flow benefit, but I mean, realistically, how many EFW facilities can each state really handle?
Oh, a number.
Three or four?
Yeah, yeah, a number. Yep.
You know, very long term, you probably want to remain vertical, right?
I Can you just clarify? When we talk capital light, we aren't talking about selling down.
Yeah.
We're talking about the development work that we have to do to get these projects through approval, requires very minimal capital, but long lead time. Let's get cracking on that now. We don't spend much money, and we keep ahead of the pack, and that gives us and our shareholders the option in the event that if market economics work, we push the trigger and go.
Okay. As far as selling down some of the equity in one of these facilities goes, I mean, wouldn't you be sacrificing maybe some vertical integration then?
you might be sacrificing some earnings, but obviously you'd need to look at that versus the returns.
It comes down to the timing of when you sell down. If you sell down right up front, like before you actually lock in those projects, then you're in, you're sort of in a situation whereby you're negotiating with a potential JV partner as to how key contracts are divided up. Our intention, this is why we're taking this approach, is to remain 100% owned, and therefore, we can actually determine what's best for Cleanaway. If we end up with a sell down at some later point, we're giving them a completely documented package that we can say, "Okay, if you're going to buy into this, you buy on this basis.
It also gives you complete control of the timing. That's very important. You know, being dragged into something you don't want to do, which is the classic once you're in a JV.... Yep, okay.
If I can ask a question on operational excellence, and obviously various areas you've highlighted, visual management boards, digitization, data analytics. I think in the last quarter presentation, you qualified AUD 30 million of benefits in the business. I haven't seen that number in this presentation. Has that thinking changed or considering negatively?
No, it absolutely hasn't changed. It's probably in the mission in the sense that it probably should have been there. From our perspective, nothing's changed on that front. I think as we march our way through this journey, we find more and more opportunities. I don't think we have any concerns.
Yeah, I think you'll see us, you know, once we've put the midterm ambition out there, sort of, you know, that target will supersede those previous ones because we've, you know, paint quite a glide path trajectory for you to think through, and all that will be wrapped into that. I think what you should have heard today from, you know, the theme was, you know, yes, there's data and analytics and operational excellence, but the way that that comes together, you know, as one where the visual management boards becomes the delivery pathway for the data analytics for the team to engage with, that's where the magic happens, and I think it'll far exceed those numbers.
That benefits will be on top of the 30% business as usual?
Well, well, well, the point being, we're putting out targets for the group in terms of the midterm ambition. That will be the figures for the group, we're not going to be sort of ticked off in terms of the individual bits.
Just remember, so that slide that we had up there is an EBIT, a group EBIT BAU number. What we're going to give you in August is an EBIT CAGR. An absolute EBIT CAGR, not an EBIT margin CAGR. Yeah. Okay, cool. Yep.
Can we go back to the interest slide? You've got some. You're going to have these plans sitting there, ready to go, capital structure, environmental, all that stuff. What are you doing about your actual capability to operate these things? There are no ones operating in Australia. The first, like, and I know there's plenty around the world, but each one's different. The rubbish source is different, the operational performance of each one is different. Where are you going to get the staff to run these things? The last thing that we want to see is you come out and go, "Yeah, we've done this. We've built it. Sorry, 12 months in, it's not performing the way we thought it was going to perform relative to the specs, and, you know, we've got a problem.
Probably, yeah, two answers to that. One, the way the contracts will be structured, it'll generally be the way you start up a lot of plant, either energy from waste or in oil and gas, is you bring in a contract start-up team that then works with your team for, like, a year or more as you develop the expertise to be able to run it. That's the first comment I'll make. Second, you know, we're in the process of hiring individuals that look like my day job over in the U.K. British, you know, sort of type people who have started up 50 or 60 of these. That's their day job, they would come in as, you know, the operations manager, as part of the team in the next couple of months.
That's the sort of people that are available and who want to come to Australia and work with Cleanaway and make this happen. You bring in some really serious owners, team expertise, and that'll help refine and remove all the crap out of the designs that doesn't work, but, you know, people put in the stuff that does work, and then be part of starting it up as well. Those people exist, and we've had them out in the last couple of months, you know, visiting and looking around Melbourne, places to live and that sort of thing.
We get a better cricket team as well, so.
Yep.
Another question on waste. two questions. Firstly, just on new CapEx, it's pretty interesting waste. On new CapEx, what the, I guess, internal capital hurdle is you guys invest in growth CapEx? Second question, Tracey, I'll get you, are new to the SWF business model. In the past, Cleanaway has around about how the landfill team is integrated or outside of the separate team. Just how you're managing that with regards to growing the business going forward, you know, third party volume to internalization and cross-subsidization and transfer pricing models.
Yeah.
Yeah. Paul?
On the CapEx side, our CapEx process is unchanged. I think one of the big differences that we've seen over the last 12 months is simply opportunity. The amount of opportunities coming through the pipeline, whether it be something like a big CDS, whether it be some uni contracts, whatever, there is a lot of opportunity coming our way right now, and that's allowing us to basically lift the bar. We'll take a very thoughtful approach to it. For example, if it's like an existing uni contract, and a bit of a C&I business is being built around that, then we'll often say to, you know, to Fred and the team, we are willing to accept a lower rate of return.
If it's a new contract, often we'll be pushing the teams to really put in prices that if we win it, we're going to be extremely pleased because it's a great return. If we lose it's kind of a no regret, because frankly, we've got plenty of other ways to deploy our CapEx.
What is that number?
Yeah, well, I was going to say, basically, I have a benchmark number, and we work around that benchmark depending on the attractiveness of the, of the opportunity.
No insights on that benchmark number?
No, I'm not going to give you that insight right now.
The other thing is, we don't want to give it because I'm sure that all the other teams sitting on the phone or Pingo going, "Let's back solve that." That's not where we're at.
Okay, I'll answer your second question. I think the logical question, and I have thought about this a bit since I joined, is, are we organized in the best way to really make this business sing? The obvious choice, we have the state-based model at the moment where we have the networks that hang together. The other choice would be to go like some of our competitors, which is fully national vertical. I think the thing there is that actually neither business model is perfect, because when you go fully national vertical, you start creating different sorts of silos, and you can create a network that doesn't work in the States. Whereas if you look at our business, you could think, well, you don't get to share best practice.
What I've chosen to do, and my preferred way, instead of completely uprooting the entire business, which would honestly make us stand still for a good six to 12 months, is to leave the business as it is, just add that layer across through the business teams to let the best practice drive that through the visual management boards and just get the same benefits anyway. I think part of your question was also on transfer pricing. We have a very clear transfer pricing in place, policy in place between our different assets. They're not cross-subsidizing, but they are good rates, as it were, because there is no point in having a network if you can't get good rates off an internal company. Each part of our business essentially has to stand alone, and we'll continue to drive that.
All right. We've sort of got to repeat the question, so keep them short so I can remember them. All right, do you want the line? We'll go to the line. Good. From a chance. Operator, could we have any of the questions on the line, please?
Thank you. Once again, if you wish to ask a question, please press star one. Your first question comes from Rob Koh with Morgan Stanley. Please go ahead.
Thank you. Good morning. May I ask two questions? Just firstly, in relation to the optimization of EBIT margins at different branches through digital, and you put up the two case studies there. Could you maybe give us a sense how many branches look like that? And, you know, how many branches do you need to get performance like that to get to your 12%?
Yep, sure. Obviously we have sort of over 300 branches and depots out there, so it's a portfolio of businesses, and naturally, any portfolio you've got overperforming and underperforming ones. As I said in the presentation, underperforming branches tend to be underperforming for a couple of reasons, and it's either we've had turnover in staff or we've had a major operational change that's happened. We do have some underperforming branches out there. The work around the data analytics side of things is flowing through into our FY 2023 results, which we released in August, and then flowing into our midterm ambitions as well, which we'll be releasing in the August results.
I'm not going to give a number of the number of branches that are underperforming, but I guess take away from this comment that we are working on them, and those benefits will be flowing into our midterm ambitions.
May I add something there?
Yeah, sure.
I'd also add that Alex and team have built these fantastic tools and these great visualizations. They've also built us the playbook that he was talking about before. What that allows us to do is to get scale with the work that they've done. If we have an underperforming branch anywhere in the network, we now have the playbook that we'll be able to install at that branch. It tells them what sort of tracks to go and look for, which reports to use. Then we can get that branch to create a set of initiatives. Queensland, as a state, for example, had, I think, at their peak, 277 initiatives that they were driving every single day, and we track and drive that through visual management boards. We have the tools now.
We've got the infrastructure to really drive performance, and so we can get in there and just start hitting each of these branches now.
Yeah, second one.
Thank you. Yeah, thank you. Thanks for those answers. That sounds very, very encouraging, and wish you all the best with it. Second question is just around energy from waste. I guess, you've highlighted a cost escalation. I think the escalated total CapEx per project, you're looking at, like, AUD 800 million to AUD 1 billion is the new-ish numbers or new range we should be thinking about. Have you considered in your concept select maybe building a smaller plant, like instead of 300,000-500,000 tons a year, maybe start with 100? Because I understand that there are modular solutions out there. Just if any thoughts on that, please.
We have. The way we look at it, though, we find there is a sweet spot at around that sort of high 300,000 tons per day. That provides, you know, efficiency of the design, but also allows us to scale to 500, if that's what we decide to do, just by simply knocking a wall down. The way the site will be designed, is it'll be designed for sort of that, you know, 380 type level, but the layout will clearly show that you've got sort of a laydown area, which could easily then be converted into the extra train, which gives you the 500.
We don't think 100 really works economically. We think that given also the supply of waste, we think starting at a number like at 350, 380 type number works well. I think what we've also said to you in the past is, you know, you might say, "Well, why don't you just go straight to 500?" Given your scale, you know, that'd be quite logical. The issue is in Victoria with the cap, that's 1 million tons. We didn't want to hog the cap, we thought it'd be easier to get an approval when you're taking, like, a third of it, than it would be if you're saying, "I want half." Okay, any other questions on the line, operator?
Thank you. Your next question comes from Nathan Lead with Morgans Financial. Please go ahead.
Yeah. Good day, guys. Just wanted to throw three questions at you, if you don't mind. The first one is, I suppose a look at slide 34, you're saying you're targeting post-tax equity IRRs of high single to low double digit. Obviously, we've got a interest rate environment, which has really seen the cost of capital push up. Just interested in, like, whether you see that really as being quite a value-creating return for shareholders at that level, or how you came to that sort of decision?
Paul?
Yeah. In terms of work in that space, we certainly have had again a good look at our WACC in the context of increasing interest rates, and yes, it has moved up by, you know, sort of probably about 300 basis points on where it has been in the past. I think we've In terms of looking at what is an appropriate return, we have to recognize, too, that to be a success, we need to be competitive. We know there are gonna be others in this space who are gonna have potentially lower cost of capital, and therefore, we've got to basically pitch this at a level where we believe that we can get an acceptable return for our shareholders, which is absolutely above our WACC.
Where, too, we have a project which is viable and makes sense, and we can get decent economic returns out of. It is very much a balancing act. As we've said, you know, said today, right now, we don't think those economics work quite yet. Although, we see there is a pathway for that to change over time, potentially quite rapidly, but we're gonna be patient.
Second question is, you've obviously talked today about how the focus is very much on sweating the existing assets. We're also in a high inflation environment. I'm just wondering whether you can make a comment on the outlook for your D&A charge, depreciation amortization charge, over coming years. Is there anything that's gonna materially move that upwards or downwards?
I think, if you look at this year, I think D&A went up, stretching my memory here, probably in the region of about AUD 30 million or so. I would expect that to, you know, to continue of that sort of ilk. You've got to recognize a significant component of our D&A charge obviously is, A, which is related to landfill volumes that we bring in and also landfill construction costs. That isn't just your straight sort of, you know, fixed plant asset as well. It's a combination of those two.
Yeah. Just a final one for me. I know we haven't talked about capital management today, but, you know, if you've got this looming potential investment in Energy from Waste, where do you want to bring your net debt to EBITDA down to before that occurs?
I think we've sort of given a few, you know, hints that we're currently working obviously with, a broad group of both credit providers and agencies. The key guardrails that we are considering in terms of all of these discussions around the economics and around capital structure, is optimizing shareholder value and maintaining investment-grade credit profile. Those are the two key guardrails that every decision we make, we keep coming back to those to basically make sure are we making the right call or not.
All right. Any other questions, operator?
Your next question comes from Paul Butler with Credit Suisse. Please go ahead.
Hi, thanks for taking my question. I just wanted to ask if you could give a bit more color about the opportunity with higher female retention within the business. What's the voluntary turnover running at? I mean, we've particularly flagged it's high during the first 12 months. Can you give us a sort of sense of how much avoidable costs there is related to retention in general? I mean, both female and other genders.
All right, Scott?
We're sitting at around about 21.8% turnover year to date for the organization. We do have a turnover figure, which is probably our biggest area of focus, is actually within the first 12 months of employment. We're sitting at total turnover there of around about 47%. About 17% of that is involuntary. It cuts that back to around about 30% voluntary turnover. I think in terms of the activities that we're doing to slow our turnover down, it plays back to a little bit to what we were talking about earlier on today, really around the launch of the Respect at Cleanaway.
Getting our behaviors right to create an environment which is all about respect and care, and then very quickly followed by the values and the introduction of the values, and the reinforcing mechanics that are gonna be important to bring those to life. I think we're not where we want to be in terms of turnover, and it's certainly something that we perhaps haven't given as much focus to as we have with the vacancies. FY 2024 will be very much about turning our mindset to retention and how do we actually achieve that across all of our employee groups, not just females.
I think what I'd add is just remember this, we've talked about this in the past, that if you've got high vacancies and then the lived experience of the next person who comes in isn't as good as it would be if there was a few vacancies. That's leading to that excitement effect where you then get more people leaving, which is exactly what Michele's talked about. Of course, we go for vacancies first. Now with vacancies kind of, you know, declining, and I think Preet could talk to numbers in Victoria are, like, quite low.
Yeah. They've come down from 222 to 78 now.
Yes. 200 and something to 78 vacancies, which is massive. Of course, then you can start to talk about, you know, the lived experience, and that's when turnover starts to drop because people enjoy being here more because there's someone to welcome them, that sort of thing. I think on the cost question, like, it's significant, right? Because a new person who comes in, is unproductive at the start, of course, they need to be trained. They often need to come up to speed, and we need to hire them. We think that number is many tens of thousands of AUD per employee, and you think about the fact that this year we've hired more than 2,000 people. You start to do those math, and this is a big price.
Mm-hmm.
Hence the reason why, you know, it's on the scorecard and, you know, we're talking about it with you openly because we see it as a big game to get on with.
Mm-hmm.
It's just kind of like hidden in the numbers, so it washes across everywhere.
I think just to build on that, too, Mark, I think that the other area that we're looking at is in terms of our actual recruitment practices. I think with, you know, the reality of having very low unemployment in Australia, in many cases, we're actually having to take what we can get, and so that doesn't always equal a good cultural fit. As a consequence, we're getting turnover in that space. There's huge opportunity to actually really relook at our employee value proposition, align to our new values, and make sure that we actually use that as a foundation in terms of the conversations we have with potential employees. We're actually bringing in people that have a far, far greater cultural fit as a starting position, and then building on that from there.
There is a great opportunity in this space. I think, Mark, to play to your comment earlier, the cost of turnover, many people will know that in this room, that research would suggest that 7 times the CFR. It's a very costly, expensive exercise for organizations if we can't get our retention right. There's an absolute focus for FY23. It's foundational for us, and by FY24, and by FY25, we hope to be in a far, far better position.
All right.
Could I ask a follow-on?
Yeah, sure. Go ahead.
When you're targeting staff and hiring, what are the other types of businesses that you're competing against for the sort of staff that you're looking for?
Yeah, it's a great question. I think it depends on where you're talking in Australia. If you talk about Australia West at the moment, with mining picking up again, we've got huge competition in that space around competing with some of the big mining houses, which effectively, as many people will know, are paying far, far bigger salaries today than perhaps what the waste sector is. We're looking to leverage flexibility in those areas. As Steve well knows, coming from Western Australia and coming out of Woodside, one of the things that's really important today is making sure that people can go home at the end of every day rather than be in a sort of FIFO type environment. It really depends on the demographic and where we're talking in Australia as to where we generally search.
In saying that, two things: One, we use a whole range of different mechanisms through things like SEEK, LinkedIn, to actually target our workforce. We also have a partnership in place with Hays, who actually are professionals, and this is their day job. This is what they do, and they know very, very well how to target different organizations in terms of attraction to Cleanaway. I think it would be fair to say, again, with low unemployment, we haven't been able to necessarily be too specific about where we pull our people from. Rather, we're quite open in terms of where we bring people from to our organization. Even looking at through criminal justice systems, and people that may have served time in sort of low security prison environments.
We are very wide-ranging in terms of where we attract our people from at this point in time.
Great. Thank you.
Two questions on the webcast. The first is: Are lagging performance drivers in the visual management dashboards elevated to management level? When are they elevated, and can you give examples of how, when, severity for when they may be elevated?
Do you want me to go? I trust that.
Yeah, sure
They are lagging indicators. Excuse me. They are lagging indicators, a lot of them. They report through, site look at them every day. Regional managers, those key stats are looked at every day. The state-based leadership team will look at it. Preet, with her leadership team, will look at those metrics. Weekly, I will, too. By the time it comes to me, I'll let Preet talk about her. By the time it comes to me, they're fairly aggregated, if that makes sense. For example, if I look at overtime as a percent of direct labor, I'm looking at how each of the states are doing against their best month ever in the last six months. They all beat it, by the way, in May.
Or I'm looking at some of our key facilities, so I'll know every week how much volume has gone into MRL, SMPS, all of our major landfills across the country. So it kind of depends. It's either by key facility or at an aggregated level so that I can see where the hotspots are and where we need to flow support.
Yeah, thanks, Tracey. I think I'll just build on that a little bit. To give an example, like, you know, overtime is a great one. It flows through to the VMBs. When we sit together as a big leadership team every Monday, it's generally virtual. You'll have the drivers there for each regional manager. Each PNL owner will have their overtime as a percent of, you know, their labor, and you can see how everyone's tracking. And that's, it is a lagging indicator, but you've also got that ability to jump in that straight in that week to say, "What's, what's happened? Why have you gone above? How are we tracking?
How do we support whether it needs, yeah, a crossover from another area?" I guess a couple of other really good indicators for us as well, we've been able to jump... I gave the example of that resignation piece. We've started to really track quite closely. That's how we brought the 222 now down to 78, is to go around the retention piece, but as well as the vacancies, is to ensure we are tracking that and then jumping it really quickly to, you know, work with HR, put something in place for that specific branch, if it requires, or if it's a broader metric, then we just have to raise the example. Sounds like there's a, you know, probably an initiative we need to take statewide or even SWS wide across the country.
It really helps to drive, you know, and target initiatives, to the driver that we're tracking.
I think the only other thing I'd add is just at the exec team VMB on a Tuesday afternoon, the segment leaders bring their SBU EBIT forecast for the month. You know, basically they've got they know a number they've got to hit, and they're telling us whether they're going to hit that number, and if they're not, why? If, and what we need to do to get it back up, or if we're over, great, lock it in, bank it, on the next bit. It is... There is that lag look, but there is also that leading thing, because the whole theory being, we need to be able to forecast this number accurately, and if we can't, we need to learn why.
If we go into at the end of a month, we find we didn't hit a number at a certain SBU, like in April in, say, South Australia, Tasmania, we didn't do a good job forecasting Easter. We didn't approach Easter labor management in the way that we should have. We shouldn't treat it like December, like it's Christmas holidays and roster everybody off. We didn't, we took that learning and we built it back into next April. It was very important to get that lesson. Yes, it's not great that we hit that, but that's okay. Now, it won't happen again. Anything else?
Second question, ask and answer. To what extent is EBIT margin improvement to 12% dependent on retention of EBIT plus Veolia volumes within SRN are expected to move out of the network at the time of the SRN acquisition? The answer is, basically, when we did that bridge view, the EBIT margin that we showed today includes those volumes, the 12% EBIT margin is basically resolution of the headwinds that we call that, so labor, health, business. In both scenarios, they're included, but they're assumed to be in there, but the dependent is a different thing, because it was a 24-month, up to 24 months to resolve each of those things. I think we'll move in that direction. They're assumed to be in there in the margin calculation.
Yep. Cool. Okay. Is that it on the call?
I have one more on there.
There's one more on the speaker.
Yes.
Operator, is there another one on the call?
Thank you. Your next question comes from Rob Koh with Morgan Stanley. Please go ahead.
Hello again. Thanks for indulging me. It's really a shame I couldn't be there. Your presenters sounded really engaging with a really different set of backgrounds. Maybe a question directed to the waste management veterans in the team. You've got a whole bunch of oil and gas people coming to the company. So maybe pointing to some of the learnings or benefits of that mixed environment?
There you go, Preet.
Yeah.
I was coming to you.
Can feel that coming to me. Look, absolutely. Again, I've been here six months now, I think the first thing that jumps to mind is that. You'd think it's a rehearsed answer, but it's not really. What's really brought to life is the Operational Excellence piece that we talked about. I think that really is driven from that culture, and it's very much needed in this sector and this industry. I think we can really drive so much better performance to our business if we can get this right, and we're certainly on the right trajectory. I believe that's excellent.
I think the other thing I'd point out is the disciplines that we now, you know, that I observe, I guess, in my six months across decisions, whether they're at a regional basis or a state level or investment decisions that we're taking are, you know, I suppose that's the discipline framework around those, whether it comes to in terms of where you land, you know, what the forward outlooks would be from those decisions and also the governance around it is pretty strong. I think, like from my perspective, I'd say, you know, change is always good. I think it's definitely brought a new lens to the sector that was required.
Thanks, Preet.
Great, many thanks.
All right. Any other lines? Any other final questions in the room? It's obviously your last opportunity, because we're going to break into two groups. Some are going to have lunch, some are going to go down and have chats with the workshop team.
One more quick question?
Yeah, sure.
Can you give a status update on New South Wales Energy from Waste, and what you're thinking about potential projects in that market?
New South Wales status update is, firstly, the economics in New South Wales is quite strong because of just where landfill levies are and what customers are prepared to pay. Which is one of the reasons why, you think back to what was going on certainly before my time, those projects were alive and well. That made sense because Cleanaway didn't have a landfill, and landfill levies were increasing. Those two things really work. Remember, we had the project in Western Sydney. The government came out and said, "No energy from waste projects in the Sydney Basin." It's not an environmental decision, it's a political decision, and that was because the election was coming, and they didn't want to have an incinerator...
quote-unquote, as a litmus test item in Western Sydney, given differential markets. That's all. We accept it, and that's fine. Government came out with 4 locations that you could do it. They were Casino, which is sort of think Byron Bay. Obviously there's Goulburn, which is the oldest facility. There was Lithgow, West Lithgow, and there was Parkes, which is a long way west. We think the economics don't work in Parkes or in Casino, which is might as well be in Brisbane, that's how far away it is. The government also drew maps. They drew maps around physical facilities. For example, in Goulburn, it's okay at the oldest facility, but it's not okay in the paddock next door.
The problem with that is, you know, what's the environmental difference between the two? We don't understand that. It still can't be explained. We pivoted, and we had a look at Lithgow. We like the Lithgow location, 'cause you've got the train, the rail across the Blue Mountains, and we've been looking at Lithgow. The issue is Mount Piper Power Station is out. EnergyAustralia said it won't happen there. The other opportunity there is the Greenspot facility, which is the old Wallerawang Power Station, and I think investors know we've had conversations with Greenspot, and if you certainly Google us and Greenspot, you'll see lots of articles there about some of the work that we've done in the past around that location. That's the latest.
For Wallerawang Power Station to work, the government would need to update the map. At the moment, what the reg says, it says West Lithgow, but there is no map. The West Lithgow has no location because they took Mount Piper out in the latest version of the regs, with EnergyAustralia wrote a letter saying, "We're not doing it." Now there's West Lithgow, but there's no location to do it. They'd have to get that reinstated by the current state government and EPA. Okay, cool. We might call it there, Richie?
Yeah.
Thanks to anybody who's listening on the call. Really appreciate your support. Obviously, we're gonna go into the close period for June through into, Sorry, July into August, and then we'll chat to you at the results. Thanks for your support.
Thanks.
That does conclude our conference for today. Thank you for participating. You may now disconnect.