Edited Transcript of BIN.AX earnings conference call or presentation 21-Feb-21 11:00pm GMT

Half Year 2021 Bingo Industries Ltd Earnings Call AUBURN Feb 22, 2021 (Thomson StreetEvents) — Edited Transcript of Bingo Industries Ltd earnings conference call or presentation Sunday, February 21, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Chris Jeffrey Bingo Industries Limited – CFO * Daniel Tartak Bingo Industries Limited – MD, CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Cameron McDonald Evans & Partners Pty. Ltd., Research Division – MD & Head of Research * Jakob Cakarnis Jarden Australia Pty Limited, Research Division – VP of Equity Research * Nathan Lead Morgans Financial Limited, Research Division – Senior Analyst * Paul Butler Crédit Suisse AG, Research Division – Director * Tim Plumbe UBS Investment Bank, Research Division – Research Analyst ================================================================================ Presentation ——————————————————————————– Operator [1] ——————————————————————————– Thank you for standing by, and welcome to the Bingo Industries Limited Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Daniel Tartak, Managing Director and Chief Executive Officer. Please go ahead. ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [2] ——————————————————————————– Good morning, and welcome to BINGO’s first half results presentation for financial year 2021. This morning, I will give you a quick overview of the highlights for the half before handing over to our CFO, Chris Jeffrey, who will provide some more detail on our financials. Chris and I will also give an update on how we’re tracking against our group strategy, market outlook and the progress we’ve made on our development program since June. I know many of you will be wanting further details on the status of the acquisition offer we have received from CPE Capital. We don’t have any further update regarding the nonbinding offer. However, I will provide a brief summary of the governance process around the offer towards the end of the presentation. Before we launch into the results, I would like to welcome back Tara Osborne from maternity leave and also thank James Nicholias for assuming the additional obligations associated with dealing with investors over the last 9 months. Both James and Tara are here today, along with our GM of Corporate Development, Chris Gordon. We are fortunate to have this caliber of individuals in our team. The last 6 months have not been without its challenges, and the effects of COVID-19 on the broader economy and market continue to present headwinds for our business. However, despite these immediate challenges, I am pleased to present a strong half year result that has the business well-placed as the broader economic recovery occurs. We have built a sustainable business with a low cost of operations. This has allowed us to continue to generate solid margins despite the challenging environment. We have continued to gain post-collections market share in a declining market and are well positioned to emerge from the COVID environment as a bigger, better and stronger business with supportive cyclical and structural tailwinds in FY ’22 and beyond. I’ll finish up with an overview of the outlook for our business for the remainder of FY ’21 and into FY ’22 and beyond. Turning to Slide 4 and our highlights for the first half. I’m pleased to report that we continued to improve our safety performance over the first 6 months for FY ’21, and our safety first approach served us well during the COVID period. We delivered a solid result for the first half, achieving underlying EBITDA of $65.2 million on revenue of $241.1 million. While revenue was slightly down on the prior corresponding period, this was a solid result given the impact of COVID on our business, particularly in C&I and our Victorian business, which experienced a lockdown as late as last week. The result was underpinned by a notable improvement in our network utilization in line with our strategy to drive growth in Post-Collections volume in advance of a recovery in the markets. And we maintained our industry-leading recovery rates. We continue to focus on our financial discipline and achieve strong cash conversion, achieving a 98.5% conversion rate for the 6 months. Most pleasingly, we generated positive organic free cash flow in calendar year ’20 despite the market headwinds and our CapEx requirements to complete the growth phase. We also refinanced our $500 million syndicated debt facility, which has provided us greater flexibility going forward. We’ve made a number of important appointments over the past few months, significantly increasing the bench strength and depth of our management team. These include John Hassett as our Chief Executive of New South Wales B&D, reassigning Rodney Johnson to the Head of Engineering and Construction and the appointment of Michelle Brewin as the GM of Recycling, New South Wales. Our directors have declared an interim dividend of $0.015 per share with a payout ratio at the higher end of the range. Pleasingly, we’re seeing market conditions holding up better than we originally anticipated back in August. Slide 5. Our continued focus on safety resulted in a strong safety performance for the period. Our safety lead and lag indicators continue to significantly outperform industry averages. After focusing on ensuring our communications and safety culture were understood across the business in FY ’20, we renewed our focus on lead indicators, and our lead indicators are tracking ahead of our annual targets. Our LTIFR of 0.4 at December 2020 was down from 1.7 reported in December 2019. We continued the rollout of our new incident management system, implementing Phase 2 of the system, which includes a deeper focus on observations, audits and inspections. We remain relentless in our pursuit of zero harm. Slide 6. We continue to be a leader in the area of sustainability and have made further advancements in the first half of FY ’21. In October, we released our FY ’20 Sustainability Report, which outlines in detail our approach to sustainability and our significant achievements over the prior year. As part of our ongoing focus on responsible sourcing, we initiated alignment with the ISO 20400 standard for sustainable procurement, and we doubled the number of social enterprises in our supply chain. We have delivered 85% of the objectives in our Reconciliation Action Plan and last week launched our BINGO Reconciliation Artwork created by one of our very own indigenous employees. We made good progress in our TCFD scenario planning. We’ve also introduced a new flexibility policy across the business, including cultural and domestic violence leave. And we’re aiming to capture the flexibility benefits that can be taken from the COVID environment. I’m really proud of the progress we’ve made in this area, and it is vitally important to us. We are truly a business whereby our bottom line and sustainability goals are linked. On Slide 7, you can see how our network capacity currently stands at 4.6 million tonnes per annum, with a further increase of 1.5 million tonnes per annum of recycling capacity at Eastern Creek subject now to license approval. We have enhanced our network utilization rate to 70% to 75%, up from 60% to 65% of the full year and in line with BINGO’s strategy to maximize utilization of assets brought online during FY ’20 and in readiness for the opening of MPC 2. Looking ahead, we have significant additional capacity in our network, which will support our future growth plans without the need for any additional capital investment. We expect to see our ROCE improve once we have completed the investment phase with MPC 2 and as volumes recover in the markets. I’ll now hand over to Chris to talk to you about the financials. ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [3] ——————————————————————————– Thanks, Dan. Turning to Slide 9. You’ll see we’ve delivered a solid financial result for the half despite weaker market conditions as a result of the ongoing COVID-19 pandemic. Our underlying revenue was down 3.1% on the same period last year to $241.1 million, and underlying EBITDA was down 20.5% to $65.2 million. Our underlying EBITDA margin was 27%. The lower margin had been foreshadowed as we pursued a volume-led strategy in the COVID environment and was a result of a number of factors, including a near-term softening of our addressable market, lower pricing in most divisions and higher costs due to COVID-related labor expenses and the VIC lockdown disruptions on operations. Pleasingly, we maintained our focus on capital discipline, achieving cash conversions of 98.5%, up from 90% 12 months ago. As we had anticipated at the full year, our ROCE was down 380 basis points from last year’s 9.2% largely as a result of a lag in cash flow from recent CapEx and development activity, which includes the development of MPC 2. We have invested ahead of the curve in our assets and now have significant opportunity for growth from this asset base, which will see the ROCE improve incrementally in FY ’22 and beyond. Later, Daniel will talk to the level of upside in our existing asset base. This, combined with the market recovery, will significantly enhance financial returns. Turning to Slide 10. You can see how our result compares with the pcp of the 4 prior years. Given the challenges we experienced in the period, it’s a solid result. Our underlying revenue and operating free cash flow were down slightly on the pcp. And our underlying NPATA was down 38.5% to $19.2 million, noting that the pcp included the profit on the sale of Banksmeadow. We achieved a solid operational cash flow of $64.2 million. This supported a positive organic free cash flow across the 2020 calendar year and an annualized cash conversion rate for calendar year ’20 of circa 112%. Turning to Slide 11. Slide 11 provides more detail on the breakdown of our segmental performance. You can see that while our revenue from Collections has decreased by 19.3% to $98.5 million, our Post-Collections revenue has grown, increasing to $170.9 million off the back of improved Post-Collections market share and volumes in New South Wales, which were achieved in a falling market. Post-Collections underlying EBITDA was flat at $55.5 million. And the EBITDA margin continues to track well above the group average at 32.5%. Collections underlying EBITDA and margin were down 480 basis points to 15.5%. The contraction in margin was predominantly driven by low barriers to entry and higher competition in this vertical as well as the continued impact in activity to some of our end markets, including Victoria, and in our C&I Collections business more broadly. Sales of our Eco product range of recycled products continued to increase. During the period, recycled product sales represented approximately 5% of Post-Collections revenue. This is expected to grow as governments move to mandate the use of recycled content. The performance of our other segment, which includes TORO and unallocated corporate costs, was impacted by higher corporate and insurance costs and reduced net interest income. If you turn to Slide 12, you can see how we’ve continued to become more heavily weighted to our defensive Post-Collections business with 85% of our underlying EBITDA for the period now coming from this area. Our proportion of Post-Collections external revenue continues to increase as a result of the increased network capacity and uplift from Modification 6 at Eastern Creek. Our internal-external split is now 22-78, up from approximately 30-70 in the prior half. As MPC 2 comes online, you can expect to see the weighting towards our Post-Collections earnings continue to increase over time. We want to maintain our leading market position in a competitive environment, and the integrated nature of our assets is a competitive advantage we intend to leverage. Turning to Slide 13. In October, we refinanced our $500 million syndicated banking facility agreement, which now matures in October 2024. The refinancing provided us with increased tenor and covenant headroom at similar costs as our prior agreement. Positive free cash flow over the past 12 months for our net bank debt decreased from $320 million in the pcp to $317 million. We’ve made a significant investment in a network capacity over the last 3 years. We now have approximately $800 million of owned property, plant and equipment on balance sheet, providing us with flexibility in the current operating environment. Our leverage ratio increased year-on-year from 2x to 2.4x, above our group target leverage ratio, but it is in line with internal forecasts for the period. We expect to reduce this to within our target range through a reduction in CapEx in FY ’22 to deliver BAU growth and maintenance CapEx in the range of $35 million to $45 million and an uplift in EBITDA as the market continues to recover. We remain comfortable with the headroom we now have, and we have no near-term funding requirements for debt or equity. Turning to Slide 14. We continue to generate solid free cash flow, delivering underlying operating free cash flow of $64.2 million for the half. Our continued focus on cash collection in the first 6 months resulted in cash conversion of 98.5%. Our growth CapEx for the period was $44.1 million, more than half of which was associated with the development of MPC 2. We expect net CapEx in FY ’21 to be around $85 million, approximately 40% below the previous year. Our CapEx have helped us establish a valuable asset base that will deliver enhanced returns in the years ahead. Once we complete MPC 2 later this year, we will be through the initial phase of our growth, and we would expect CapEx to be well below D&A in a steady state. For the first time since IPO, we are well positioned to be cash flow positive in FY ’21 as we move from our investment phase to cash generation phase. Turning to Slide 15. You can see that despite COVID-19 impact from the market and the business performance, BINGO generated positive organic free cash flow over the past 12 months in a year with elevated CapEx and no acquisitions. This is an important post-IPO milestone and one we expect to see replicated in FY ’21 and future periods as earnings recover and our CapEx requirements diminish. I’ll now hand back to Daniel to talk through our pipeline and strategy. ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [4] ——————————————————————————– Thanks, Chris, and on to Slide 16. We’ve maintained a healthy level of work in hand, and we’re seeing a strong pipeline of new work prospects across both B&D and C&I as activity begins to ramp up again. Our combined B&D pipeline of $970 million is up around 8% from June 2020, with New South Wales up 9% and VIC up 4%. More than 40% of our B&D pipeline is made up of transport and social infrastructure, which is well supported by committed funding at both state and federal level. Many of these infrastructure projects have been fast-tracked as a result of the COVID economic response and provides strong 3- to 5-year revenue visibility. BINGO has historically been very successful in securing these projects and has continued its momentum in this area. About 1/3 of our B&D pipeline represents residential construction. Early signs indicate the single-dwelling housing market will remain buoyant driven by pent-up demand as well as physical stimulus (sic) [fiscal stimulus] measures, such as HomeBuilder program, which has also resulted in an uptick in alterations and additions. We are also starting to see green shoots for multi-dwelling activity in Western Sydney. That said, we continue to broaden our focus on single-dwelling residential activity. Our C&I pipeline remained somewhat flat over the half. Many customers extended existing contracts rather than going to tender during COVID. Our customer-centric approach has resulted in a strong retention rate of over 95% over the past 6 months. We’re still a growing player in the C&I sector, and regardless of economic conditions, we can increase our existing market share. Turning to Slide 18. Our 5-year strategy established in FY ’18 remains firmly in place and on track. Our focus for the remainder of FY ’21 is on protecting and optimizing the core and on enhancing our vertical integration in Victoria. In the near term, we are focusing on leveraging operational efficiencies and attracting volumes to support our expanded asset base in New South Wales. And while COVID temporarily slowed our expansion into Queensland, this remains an integral part of our future growth plans. On Slide 19, you can see that by proactively taking the steps we did during the COVID period, we’re in a position to be able to leverage the benefits of being a low-cost operator and continue to generate strong margins. These included adopting a volume-led strategy, increasing our focus on cash, protecting our employees’ welfare, improving our customer experience and protecting capital. As a result, we have notched up some great achievements in the past 6 months, and we will ultimately come out of this period as a bigger, better and stronger business. Turning to Slide 20, the construction of our state-of-the-art recycling facility, MPC 2, is on track to be operational by the end of FY ’21 with commissioning starting in May this year. MPC 2 has now an operational capacity of over 1.5 million tonnes per annum. Activities to be completed on-site include finalization of the recycling plant, the installation of rooftop solar panels, the construction of amenity buildings and installation of waste-handling cranes. We are also building broader site infrastructure to support both MPC 2 and the Recycling Ecology Park. You can see on Slide ’21, MPC 2 represents the first and most important stage of our unique one-stop-shop Recycling Ecology Park at our facility at Eastern Creek. We’re planning to make a significant investment in the park in a few years’ time, and we expect to create up to 400 much needed jobs during the construction phase and 200 jobs once completed. It will continue to transform recycling in this country. The park will enable us to recover and reuse volumes that are currently going to landfill. This has a double benefit of extending the useful life of our landfill whilst driving the sector more and more towards the circular economy. The park will include facilities to process plastic, paper, cardboard and glass. And we expect to be able to access the federal government’s $190 million Recycling Modernization Fund. It will also include an RDF manufacturing facility, an Innovation Hub and the manufacturing and maintenance workshops. It will consolidate most of our New South Wales operations and free up other non-waste assets for disposal. Over to Slide 23. We’ve seen the general market environment hold up better than first anticipated when we were here in August. Most of the lead and lag indicators that we monitor had been revised up in the near term, and we’ve seen the outlook for our business improve as a result of government-led COVID stimulus initiatives, which should begin to be shovel-ready towards the end of this financial year. While we expect residential and nonresidential construction to soften over the medium term, infrastructure work is forecast to continue to remain at elevated levels and, as previously noted, benefit from additional stimulus with total commitments of approximately $185 billion over 4 years. On to Slide 24. This slide shows our view on waste generation over the next 5 years. Whilst FY ’21 remains soft, we anticipate the backlog of projects will cause a surge of activity as we enter FY ’22 and beyond. We still enjoy a very healthy-sized addressable market, and we will be going hard at ensuring we capture our fair share of these volumes. New South Wales B&D volumes are forecast to increase by 21% between FY ’21 and FY ’24, and Victorian B&D volumes are expected to increase by 15%. Infrastructure is expected to remain strong for the foreseeable future. And for BINGO, this will partially offset the softness in other areas. Opportunities in C&I are expected to increase as we enter post-COVID environment, with hospitality venues, retail outlets and office buildings seeing an increase in activity. Over to Slide 25. More than 50% of our revenue now comes from infrastructure projects. And we stand to benefit from the ongoing strength of the infrastructure market. Existing government commitments to a range of transport and social projects will be bolstered by additional investment in COVID recovery stimulus projects. We are currently working on a number of significant infrastructure projects in Sydney and Melbourne, including the Sydney Metro, Western Sydney Airport, WestConnex 3B, Monash Freeway and the North East Link. Chris will now provide some further detail on price and volume impacts before I conclude on the outlook for BINGO. ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [5] ——————————————————————————– Turning to Slide 26. Over the past 6 months, we have seen our volumes increase and pricing has generally stabilized versus the preceding 6-month period. As you can see in the waterfall, the bulk of the COVID price and volume impacts were felt in the second half of FY ’20 in line with the restrictions that were put in place during that time. Since then, we’ve managed to retain and grow volume and price in Post-Collections. And in Collections, with lower barriers to entry, volumes have stabilized and price declines moderated. The 2021 calendar year-to-date continues to show promising signs of a further recovery in pricing across both Post-Collections and Collections as volumes recover in the market. Turning to Slide 27. Slide 27 provides an outline of some of the headwinds and tailwinds facing our business, most of which are unchanged. We remain excited by both the structural and cyclical tailwinds that will support the business in future years. We have a number of tailwinds in our favor. The underlying Australian economy is robust, having emerged from the technical recession, and the outlook for growth is encouraging. Australia is very well-placed to recover from the economic impact of COVID-19. And continued population growth in the medium term, along with growing waste generation, are favorable to our business. COVID stimulus initiatives have helped spur a recovery in residential investment. And these will stimulate economic activity in the aftermath of COVID-19 through essential infrastructure and small to medium construction activity. Federal and state governments continue to provide a supportive regulatory environment for recycling and for our business model. Government policy continues to pivot towards BINGO’s recycling-led business model. A range of factors have combined to further incentivize recycling and raise standards across the industry, including COAG’s ban on waste exports, increasing state waste levies, governments mandating recycled products in projects and increased regulatory and compliance requirements. All these factors work in BINGO’s favor. Our operating environment is not without headwinds, however. The prospect of another COVID outbreak is ever present and is likely to be that way for some time. As a result, Australia’s recovery is likely to be uneven and drawn out, with unemployment and immigration likely to be impacted in the near term. The uneven recovery has the potential to impact construction activity, which may in turn lead to further pressure on pricing. Our C&I business will need to adapt to a new normal as many of our customers, shopping centers, hospitality venues and commercial offices change the way they operate. The waste industry itself is under increasing regulation and scrutiny, and the ACCC investigation into the New South Wales B&D waste sector is ongoing. The outcome of the ACCC investigation, which is investigating potential competition law contravention surrounding price rises implemented on 1 July 2019 and allegations of customer allocations, is yet to be determined. That said, in our view, the potential tailwinds heavily outweigh the potential headwinds and create a favorable operating environment for BINGO going forward. I’ll now hand back to Daniel. ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [6] ——————————————————————————– Now moving on to Slide 28 and the outlook for the business. Whilst we are forecasting a continued softening in our addressable market in the remainder of FY ’21 as a result of COVID-related economic impact, the near-term market outlook is better than previously anticipated. Market conditions have generally held up better than we initially thought, and we have greater confidence in the outlook for our business. As previously disclosed, to maintain and grow volumes under our volume-led strategy, we anticipate our group EBITDA margin to decline in FY ’21 by approximately 200 to 300 basis points before rebounding to its longer-term target of 30% in FY ’22. Half-on-half, volumes increased and pricing stabilized but still below pre-COVID levels. Second half FY ’21 to date has shown continued improvement in pricing. And if this trend continues, BINGO remains confident that it will achieve an EBITDA margin close to the 200 to 300 basis points target range reduction announced in August. We are a very strong through-the-cycle business. Our vertically integrated network, scale, available capacity and low cost base makes the company very resilient to the cyclical nature of our key markets and much — but much better placed than many other market participants. Acquisition negotiations continue with the bidding consortium, and we expect this process to conclude one way or another over the coming months. The consortium is well progressed in due diligence, and commercial negotiations are well advanced. Our team remains focused on the ongoing success of the business. And we will be — we will ensure that this process does not become a distraction. An Independent Board Committee was appointed, which is chaired by Elizabeth Crouch and includes Maria Atkinson and Barry Buffier. If and when a binding offer is put forward, the IBC will consider the merits of the offer. We expect to resume our strong growth trajectory in FY ’22 as our key markets rebound. We continue to benefit from regulatory and market tailwinds and as we take advantage of the additional capacity within our network. Slide 29. This slide shows how we believe we can potentially deliver EBITDA in excess of $250 million without any additional capital expenditure and before a number of elements you see on the right-hand side of the slide occur. The completion of MPC 2 will increase our recovery rate and lower our operating cost per tonne. Regulatory changes, particularly increasing waste levies in New South Wales and Victoria, will lead to increased volumes at our facilities, and our key markets are expected to continue to grow from FY ’22. These factors, along with our license uplift at Eastern Creek, the development of our Recycling Ecology Park, the vertical integration of our Victorian business and our entry into Queensland, will support ongoing growth of our business for years to come and substantially improve our group ROCE. Thank you. That marks end of the slide presentation. We provided additional slides in the appendices for your information. I’ll now hand back to the operator for questions. Thank you. ================================================================================ Questions and Answers ——————————————————————————– Operator [1] ——————————————————————————– (Operator Instructions) Your first question comes from Tim Plumbe with UBS. ——————————————————————————– Tim Plumbe, UBS Investment Bank, Research Division – Research Analyst [2] ——————————————————————————– Just a couple of questions from me if possible then I’ll jump back in the queue. Daniel, just thinking about the pricing environment, I mean it’s good that it looks like it stabilized half-on-half. Given the healthier outlook, what needs to happen before we see that pricing more in line with the first half of ’20? Is the market not willing to improve pricing until those better volumes actually hit the market? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [3] ——————————————————————————– So pricing in the first few months of this calendar year has started to increase, which is a positive sign. What really needs to happen is the market continues to improve. So as more volume comes to market, then we believe pricing will gradually increase over the next 12 to 18 months. ——————————————————————————– Tim Plumbe, UBS Investment Bank, Research Division – Research Analyst [4] ——————————————————————————– Got it. Second question, just in terms of the arbitrage situation of shifting waste to Queensland. Can you give us an update in terms of where you think we are for volume still going up there? And how is the pricing to move it up there now compared to 6 or 12 months ago? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [5] ——————————————————————————– So pricing is very much on par with Sydney landfills or Sydney facilities and Queensland facilities. So as pricing has come back due to COVID, it’s obviously made the Sydney environment a lot more competitive. So pricing is on par. I believe there’s still probably a little bit of waste going up there, maybe up to a couple of hundred thousand tonnes. ——————————————————————————– Operator [6] ——————————————————————————– Your next question comes from Jakob Cakarnis with Jarden Australia. ——————————————————————————– Jakob Cakarnis, Jarden Australia Pty Limited, Research Division – VP of Equity Research [7] ——————————————————————————– Just quickly on the cost performance. I noticed that the transport and tipping costs increased, but the commentary suggests weaker volumes. Can you just reconcile some of this for me? Obviously, fuel price, I imagine, was a little bit weaker during the half as well. ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [8] ——————————————————————————– Yes. It’s primarily driven by the increased volume in Post-Collections and moving volume around our network. So other than that, prices were pretty stable, but it’s just the volume-driven Post-Collections element. And in fact, more broadly, in the business, our operational cost per tonne actually decreased in the period. ——————————————————————————– Jakob Cakarnis, Jarden Australia Pty Limited, Research Division – VP of Equity Research [9] ——————————————————————————– When you say relocated around the network, can you just add a little bit more color to that, please? ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [10] ——————————————————————————– Yes. Basically, we’ve got obviously the transfer stations that then move material to the recycling facilities and landfills. So it’s about where that volume comes into our network and then the costs associated with moving the higher volumes of material that are in the Post-Collections business around our own network. ——————————————————————————– Jakob Cakarnis, Jarden Australia Pty Limited, Research Division – VP of Equity Research [11] ——————————————————————————– Sure. And then just on the Post-Collections pricing dynamic, to pick up on Tim’s question there. Can you just talk through the momentum of those improvements? It seems as though they did start, as you mentioned, in the start of calendar ’21. Can you just let us know some of the pricing that you’re seeing from competitors, particularly around Eastern Creek, and how that may change if M&A across the industry accelerates? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [12] ——————————————————————————– So the pricing increase is quite marginal in the last couple of months. So it is — as we look at the year and as we look and see volumes increase in the pipeline, I guess, get larger, we will be slowly increasing price through the course of the year. But at the moment, it’s marginal. So it bottomed out months ago, and at the moment, it’s increasing slightly. ——————————————————————————– Jakob Cakarnis, Jarden Australia Pty Limited, Research Division – VP of Equity Research [13] ——————————————————————————– I might ask it just a little bit of a different way, Daniel. How would it compare by the time you get to the fourth quarter? Obviously, that was a weak comp for you guys. Can you just add a little bit of color maybe then how the second half plays out? ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [14] ——————————————————————————– Yes. Obviously, at the full year, we’ve said that we expect our margins to be down 200 to 300 basis points year-on-year. We’re obviously expecting some recovery in the second half, Jakob. But without a crystal ball, we can’t sit here and give you exact numbers on it. So we’re seeing, as Dan said, stabilization and improvement. And then how much prices recover in this half versus in FY ’22 really do depend on what that volume recovery looks like. Hopefully, that helps. ——————————————————————————– Operator [15] ——————————————————————————– Your next question comes from Paul Butler with Crédit Suisse. ——————————————————————————– Paul Butler, Crédit Suisse AG, Research Division – Director [16] ——————————————————————————– I just wonder if you could comment on why you’ve called out the — some of the internal management changes that you’ve highlighted at the result today. Is that because of any issues that you felt you had in the business? Just wondering if you could give some color on that. ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [17] ——————————————————————————– No, definitely not. It’s definitely positive. Every 6 months, we try to highlight some key appointments that we’ve made. So every 6 months, we keep bolstering the team with more capabilities and good people in good positions. So that all it is. It’s just to show the bench strength in the organization continues to improve. ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [18] ——————————————————————————– And yes, one of those is a gentlemen by the name of John Hassett, that used to be the COO for SUEZ in Australia. He’s come on, which has enabled us to redirect Rodney Johnson to look at our engineering and construction activity not just for MPC 2 but as we deliver on the Ecology Park. And then we brought on another lady by the name of Michelle Brewin, who had — adds a bit of depth to what is a very large New South Wales business. So these are all positives in terms of a better team as the business grows and enabling people to have more focus to deliver. ——————————————————————————– Paul Butler, Crédit Suisse AG, Research Division – Director [19] ——————————————————————————– Okay. And just one more if I may. Given you’re highlighting that in Post-Collections, you had roughly a 15% price decline in second half last year, what exactly is the ACCC looking at? Is there concern that pricing was higher than it should have been or lower? ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [20] ——————————————————————————– No. They’re looking at the sector in the July 2019 price rises to make sure that no one acted in concert and/or there wasn’t a market allocation around it. So that investigation is probably now 14 or 15 months old and continuing. ——————————————————————————– Operator [21] ——————————————————————————– (Operator Instructions) Your next question comes from Cameron McDonald with Evans & Partners. ——————————————————————————– Cameron McDonald, Evans & Partners Pty. Ltd., Research Division – MD & Head of Research [22] ——————————————————————————– Can I just ask — Chris, you made a comment about the CapEx with the roll-off, and you said that in ’22, CapEx is sort of $35 million to $45 million. The maintenance only in the total CapEx will be below D&A. So given you’re guiding to $85 million this year, are we looking at another halving in total like given that you’ve highlighted that there’s no need for further CapEx to support the $250 million EBITDA target? ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [23] ——————————————————————————– Yes. So basically, what Dan was saying is once we’ve finished MPC 2, the CapEx requirements and that growth phase we’ve been through over the last probably 3 or so years are done, and the installed asset base can deliver that 250-plus without any additional uplift. And then you’ve just got what we see as BAU and growth CapEx of $40 million to $45 million. ——————————————————————————– Cameron McDonald, Evans & Partners Pty. Ltd., Research Division – MD & Head of Research [24] ——————————————————————————– Okay. Great. In terms of MPC 2, with the sort of implementation of that in — or commissioning in May, what’s the new sort of ramp-up profile we should be expecting for that? And is the $15 million EBITDA expectation on a fully utilized basis still the sort of the benchmark we should be looking at given the increased CapEx profile that it’s had? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [25] ——————————————————————————– So Cameron, we’ll start commissioning parts of the plant in May. Commissioning will take a 2- to 3-month process. And during that period, we’ll have obviously more of the plant come on. So we expect next financial year, we’ll get a good 12 months’ worth of operation of the plant. The $15 million EBITDA is on the — probably the very low side of what we expect to come out of this plant. So we expect a lot further upside in earnings in the next 12 months as a result of MPC 2 coming online. This is a combination of some cost synergies that we will save from the closure of the Auburn and MPC 1 plant and also from increased recovery rates, which means less going to landfill and a lower operating cost per tonne due to the fact that plant is being designed to operate at 3x its — the current capacity of MPC 1. ——————————————————————————– Cameron McDonald, Evans & Partners Pty. Ltd., Research Division – MD & Head of Research [26] ——————————————————————————– Yes. So just delving into that, Daniel, the original guidance of 450,000 tonnes has now been upgraded sort of 3x — to 3x that amount. Is that sort of the upside that you see in the EBITDA given there shouldn’t be a hell of a lot more of operating costs associated with that uptick? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [27] ——————————————————————————– Yes. Operating the plant at 1.5 million tonnes will mean we need a license variation, which we stated today that we’ve lodged an application with the Department of Planning to increase the 2 million tonne limit at Eastern Creek to 3.5 million tonnes. So we won’t be able to run MPC 2 to 1.5 million until that comes. We’ll be able to close MPC 1 and Auburn, pull those volumes out and run it through MPC 2. And by doing that, obviously, our operating cost goes down, so we’ll make more margin on the same waste in our business. We’ll be able to redirect some volume that currently goes to landfill that can get recycled. So there’s a near-term gain of doing that. And then a further upside will be when this license variation comes in, we’ll be able to run the plant at 1.5 million tonnes. And obviously, that comes with further EBITDA growth with no more CapEx. The CapEx to operate at 1.5 million tonnes has been spent upfront. So it’s a matter of a license variation. ——————————————————————————– Cameron McDonald, Evans & Partners Pty. Ltd., Research Division – MD & Head of Research [28] ——————————————————————————– Final question for you, Chris. There’s a comment in the notes saying that you’ve had approval to defer the landfill levy by up to 1.5 months. It looks as though you’ve made sort of $1 million or $2.1 million in — or you’ve got $2.1 million in deferred payments. Like clearly, 1.5 months is a lot more than $2.1 million in landfill levy. Do you anticipate that number sort of changing to support your cash flow outlook? ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [29] ——————————————————————————– No, not at all. The reason the number is so low is we actually — even though we had the benefit of the extension at the half year, we paid a little bit more than we needed to. And then now the EPA levies are just back on normal rotation. So we actually didn’t use that to our full advantage, and we felt it was appropriate to pay it at that point. ——————————————————————————– Operator [30] ——————————————————————————– Your next question comes from Nathan Lead with Morgans Financial. ——————————————————————————– Nathan Lead, Morgans Financial Limited, Research Division – Senior Analyst [31] ——————————————————————————– First one for me is I just noticed the deferred settlement liability has gone to $103 million current and then the notes that you’ve actually paid that. So $100-odd million with your net debt to EBITDA being a bit above target, how do you plan to fund that? Is that just purely just cash flows and debt? ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [32] ——————————————————————————– No, we’ve got a lot of options. So to be clear, we’ve exercised, pardon my — the language, the option just before New Year’s on that. I think the earliest that we can see paying that would be by the end of this calendar year because there’s a subdivision required, and it’s probably just as likely that, that drips into calendar year ’22. So we’ve got options, whether it’s debt, free cash flow. And then we would consider whether we even need to bring that piece of land on balance sheet. So we’ve got a — probably all of this year to work through that, and then the actual funding that sits behind that is to be determined. But there are a number of options at our disposal. ——————————————————————————– Nathan Lead, Morgans Financial Limited, Research Division – Senior Analyst [33] ——————————————————————————– Yes, all right. Second question for me is, can you put some numbers around just the EBITDA uptick above the $250 million EBITDA, you say, from the — you get from the existing capacity with that if you do actually get that approval through for the additional 1.5 million tonnes for Eastern Creek? I mean you spent the CapEx already, so it’d be kind of nice to know what that number could go up to. ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [34] ——————————————————————————– Sorry, the $250 million? ——————————————————————————– Nathan Lead, Morgans Financial Limited, Research Division – Senior Analyst [35] ——————————————————————————– The $250 million. What could it look like once you get the 1.5 million tonnes additional through? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [36] ——————————————————————————– So Nathan, the — it will definitely be way above the $250 million. If we’re running at 1.5 million tonnes through MPC 2, it will be significantly higher than the $250 million. We haven’t given numbers on that. And at this stage, we don’t want to give numbers until we firm up our view on what those numbers could be. ——————————————————————————– Nathan Lead, Morgans Financial Limited, Research Division – Senior Analyst [37] ——————————————————————————– Yes. I suppose for people considering the takeover bid, that’s a pretty important number to know, though. ——————————————————————————– Chris Jeffrey, Bingo Industries Limited – CFO [38] ——————————————————————————– Yes. Obviously, within that $250 million, there’s a number of elements, right? So there’s MPC 2 is broader volume recoveries, there’s pricing, all of which come into play. So the way we look at the $250 million, there’s some swings and roundabouts how we get there. And as Dan said, if everything goes your way, then the number could be somewhat north of $250 million, but a balanced view at the moment is around that $250 million. And then obviously, on top of that, I think it was Slide 28 or 29, the last one in the pack, that excludes the elements on the right-hand side of the page, like vertical integration in Victoria, entry to Queensland and the Ecology Park. So those elements require additional CapEx, and the ones on the left-hand side of the page do not. ——————————————————————————– Nathan Lead, Morgans Financial Limited, Research Division – Senior Analyst [39] ——————————————————————————– Yes, okay. And just last one for me. Just interested just in the strategy, the pricing strategy. So the void space in the landfill is obviously a finite asset. Pricing is low at the moment. Just interested just in the strategy of chasing volume to put into that landfill in a low price environment. Does that not use up the finite resource during a low price period? ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [40] ——————————————————————————– Yes. So Nathan, that was a short-term strategy, which we adopted during COVID. So it’s purely COVID-related to get volume and cash into the business in an uncertain time. Obviously, our pricing strategy for that has changed and will change over the next 12 months. We don’t plan to accept a lot of volume at low margin for a long period of time. So you’re right, it’s a finite infrastructure asset. We look at it that way. The COVID strategy for the landfill is purely short term, and that has changed and will continue to change through the course of this year. ——————————————————————————– Operator [41] ——————————————————————————– Thank you. There are no further questions at this time. I’ll now hand back to Mr. Tartak for closing remarks. ——————————————————————————– Daniel Tartak, Bingo Industries Limited – MD, CEO & Executive Director [42] ——————————————————————————– Thank you all for listening. Have a good day. ——————————————————————————– Operator [43] ——————————————————————————– Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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