Release Date: February 18, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cleanaway Waste Management Ltd (TSPCF) reported a 12.2% increase in underlying EBIT, driven by growth in solid waste services and liquid waste and health services.
• The company achieved a net revenue growth of 4.6%, reflecting resilience and effective pricing discipline.
• Cleanaway Waste Management Ltd (TSPCF) expanded its EBIT margin by 80 basis points to 11.8%, showcasing operational excellence.
• The company is on track to meet its FY25 EBIT guidance range of $395 million to $425 million, excluding the impact of the Saint Mary's fire.
• Cleanaway Waste Management Ltd (TSPCF) has made significant progress in its sustainability initiatives, including resource recovery and reducing emissions.

Negative Points

• Net operating cash flow was down 28.4% due to the resumption of tax payments.
• The Industrial and Waste Services (IWS) segment continued to face challenging market conditions, impacting overall growth.
• The recent fire at Saint Mary's is expected to incur net costs between $20 to $40 million, with insurance recoveries uncertain.
• The Customer Connect project faced a 6-month delay, increasing costs by approximately $30 million and deferring expected benefits.
• The company experienced an increase in serious injuries in the first half of FY25, highlighting ongoing safety challenges.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with TSPCF.

Q: The first half EBIT of $195 million was below market expectations. Can you explain what didn't go well relative to your internal expectations? A: We believe we are on track, aiming for the midpoint of our guidance. The second half will see contributions from the LMS joint venture, recovery in IWS, the defense contract win, and accelerated operational efficiency benefits.

Q: Can you provide a sensitivity analysis on the impact of lower interest rates on your finance costs? A: Every 25 basis point reduction in interest rates equates to approximately $3 million in cash interest savings. The unwind of the discount on long-term provisions is fixed semiannually and will likely decrease in a lower interest rate environment.

Q: Regarding the defense contract, can you provide details on its scale and duration? A: We won the contract for Queensland and WA, which are key states. The contract is mid-term, around five years, and starts in March. We will invest approximately $10 million in CapEx to support it.

Q: How does the restructuring of the IWS business impact your ability to win future DDR work? A: The restructuring allows us to free up resources and focus on tier one contracts, positioning IWS as a spearhead for DDR opportunities. This strategic shift enhances our capability to pursue long-term growth in the DDR space.

Q: Can you elaborate on the impact of the Saint Mary's fire and the expected timeline for recovery? A: The financial impact is estimated between $20 to $40 million, primarily due to insurance deductibles and potential gaps in coverage. We expect to redeploy work to other sites and return to full capacity within 3 to 6 months.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.