Cleanaway Waste Management Ltd

ASX:CWY

Earnings Call Transcript 2022-Q2

[Operator]

Thank you for standing by, and welcome to the Cleanaway FY '22 Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Schubert, Managing Director and CEO. Please go ahead.

[Mark John Schubert, CEO, MD & Director]

Thank you, operator, and good morning, everyone. I'm Mark Schubert, and joining me on the call today is our CFO, Paul Binfield; and our Head of Investor Relations, Richie Farrell. We do appreciate you joining us this morning.Before I begin, I would like to acknowledge the traditional owners on the many lands on which we meet virtually this morning and pay my respects to their elders past, present and emerging. Before I run through the presentation, I will draw your attention to the disclaimer on Slide 2 of the pack and I will take that as read. I'll now ask you to move on to Slide 3. And it is my sincere privilege this morning to present the financial results for the first half of FY '22 on behalf of the more than 6,600 hard-working, humble and willing employees that together make Cleanaway the great business that it is. Today, we will talk about how we are going and where we are going. I want to say right up front that it is our people and what it is like to work at Cleanaway that will determine the success of our business and for that reason, ensuring our culture develops in a way that creates deep personal and team alignment and ownership is a key pillar of our strategy. In terms of agenda today, I will take you through our foundation and the highlights for the half. Paul will discuss the statutory to underlying NPAT reconciliation and the financial performance from a group perspective, including some of the COVID-19 challenges. He will also walk you through our cash flows, CapEx, financial position, liquidity and associated key metrics. I'll then come back and take you through our -- through the performance of our key operating segments. And this will be followed by an introduction to our refreshed strategy, Blueprint 2030. I'll finish the presentation with our priorities and outlook for the remainder of the year. And following that, we'll open the line for questions. So we move on now to our foundation. I want to start today by talking to you about safety and the environment. Firstly, we have redefined managing our safety and environmental risks as our 2 foundations. Importantly, they are foundations rather than priorities. The reason that we do this is so that, if our teams need to choose, then our foundations now always come first. Clearly, our foundations are central to our purpose of making a sustainable future possible together. Over the last 6 months, we have intensified our focus with all our branches now regularly discussing their risks, associated controls, assurance, compliance, license conditions and performance. We have and will continue to support our leaders to cease operations at any site rather than continue with noncompliances. In order to further improve our performance, we are developing a small set of core processes to manage risk consistently. Furthermore, with our growing fixed asset footprint, we are improving our preventative maintenance system, which will improve our fixed asset reliability. In addition to our intense focus on our foundations, we have now placed sustainability, including circularity and carbon, at the center of our customer proposition. And as part of this employed specialist resources to drive this, and I will discuss that a bit later in the presentation. If we now move on to our highlights. The underlying financial performance for the half year was pleasing with around 15% top line growth compared to the prior corresponding period. This flows through to around 4% higher EBITDA at $273.7 million, and into -- and translated into 10.5% higher net operating cash flow of $223.6 million. There were a few temporary headwinds impacting margins that we will unpack in detail for you this morning. But as Paul will outline, we do see these as temporary with margin recovery expected in all segments in the second half. Our statutory NPAT, which included the Sydney Resource Network acquisition and integration costs was 33.9% lower at $52.5 million. Paul will provide a reconciliation of statutory to underlying NPAT. The strong financial performance, together with our cash flow and strong balance sheet, allow directors to increase the interim dividend to shareholders. We completed the significant Sydney Resource Network transaction on the 18th of December last year, and the assets have been contributing to earnings from that day. And following an efficient integration, operational control has now been passed through the Solids New South Wales business unit. We undertook a deep review of our strategy and refreshed it, and we will spend a bit of time on that later in today's presentation. We've also welcomed onboard 2 new executive general managers, Tracey Boyes and Michele Mauger, who will have responsibilities for our Solid Waste Services segment and our people, respectively. And I very much look forward to working with them, and they will bring increased capability and experience aligned to our refreshed strategy. I'll now hand you over to Paul to discuss the group financial results in more detail.

[Paul Andrew Binfield, Chief Financial Officer]

Thanks, Mark. So turning now to a summary of our financial performance. As Mark mentioned, net revenue growth of 15% was very pleasing. .The drivers of the revenue growth can be grouped into 4 key areas. Firstly and encouragingly, we saw some general recovery in activity across all of our segments, which was coupled with the surge volumes being managed by our Health business. On a group basis, this more than offset the negative revenue impact caused by the COVID-related lockdowns in the first quarter. Secondly, almost $60 million of incremental revenue came from council contract wins last year that either had partial or no contribution in the first half of FY '21. These included the Melbourne Waste & Recovery Resource Group disposal contract and several large council collection contracts. Thirdly, the Grasshopper acquisition, which had minimal contribution in the first half of last year, the reopening of the Perth MRF at the start of this year and assisting Resource Network acquisition further contributed to revenue growth in the half. Finally, about 1/4 of the incremental revenue came from increased commodity prices and in particular, carbon. This resulted in higher revenue from commodities but also a very significant increase in customer rebates and shipping costs for us, which I'll speak to later. So in summary, roughly half the increase in net revenue was due to the new contracts and the contribution from new assets and the other half relates to general recovery and commodities. Now looking forward to our second half revenue, most of the new contracts and the assets that are referred to were in place in the second half of FY '21, so we don't expect material incremental revenue from them. Of course, this excludes the Sydney Resource Network assets, where we expect a full half of revenue in line with our previous disclosure. And in terms of general economic recovery, subject to any continuing disruption from COVID, we're hopeful of further improvement. So focusing now on the EBITDA margin. At a group level, there were 4 key reasons why we didn't see the full benefit of increased revenue drop through to EBITDA and hence contributed to the margin erosion. Firstly, we previously guided the market to lower volumes from higher-margin businesses at New Chum and Erskine Park and also the significant impact of the Delta lockdown in New South Wales in Q1. Secondly, we've incurred approximately an additional $10 million in higher fuel and Adblue prices. These costs will ultimately flow through to higher prices to customers and contractual rate adjustments, but there is a timing impact in the meantime. Thirdly, our Health business has been working tirelessly to meet the needs of major customers that are in the front line of managing the pandemic, such as public hospitals, COVID testing centers and quarantine hotels. These businesses and public services are keeping the community safe, and it is our duty to ensure we prioritize servicing them. This comes with significant inefficiencies in our business leading to temporary but higher operating costs and often at the expense of deferring our regular service to higher margin customers. And then finally, commodity price increases have resulted in higher rebates to customers, but we have also had to absorb the higher freight costs due to global shipping constraints and hence margin has been eroded in that segment of our business. Consequently, our group EBITDA and EBIT margins have compressed. I'll now focus on how these margin impacts are reflected within each of the segments. As already mentioned, high fuel costs led to lower EBITDA, and this was a consistent theme across all of the segments. In IWS, our labor cost recovery was adversely impacted where higher margin work such as shutdown work was postponed due to COVID. In Liquids & Health, the margin compression was largely related to the Health Services segment, where we had very high revenue but higher cost in relation to labor, treatment and disposal options to meet the surge demand. In the Solids segment, the reduced contribution from the New Chum and Erskine Park landfills and the impact of the New South Wales Q1 lockdown compressed margins. And furthermore, the new council collection contracts were on average, delivering EBITDA margins lower than the segment average. And finally, again, higher commodity prices and higher revenue came with high customer rebates and much higher shipping costs, thereby compressing margins. That said, we're expecting a recovery in EBITDA margins across all of our segments in the second half. Clearly, some of this will be attributable to a full 6-month contribution from the Sydney Resource Network assets, but a good proportion is related to some of the headwinds that I discussed earlier subsiding. This, together with some of the productivity initiatives that Mark will talk to shortly, will ensure that we stay on track towards our stated medium-term margin targets for the Solids business. The Solids segment is always going to be a bit of a mix between higher-margin post collections activity and the lower margin collections business. Both are really valuable activities with different capital intensity. And as the mix changes from time to time, so will our ultimate segment margin. For the other segment, the lower EBITDA margin in the first half is mostly a case of disruption caused by COVID and high fuel prices. However, we do expect that on a business as usual basis, those segments will reach our stated medium-term margin objectives. So moving now to the reconciliation of statutory to underlying NPAT. Statutory profit after tax attributable to ordinary shareholders of $51.5 million was 34% lower than the prior corresponding period. The underlying adjustments to EBIT totaled $29.4 million and a net $23.8 million at NPAT. $25 million related to acquisition and integration costs predominantly the Sydney Resource Network acquisition. CEO transition and restructuring project costs comprised CEO sign-on and performance rights, costs associated with executive committee changes and the costs associated with consultants commissioned to assist with the strategy refresh. A loan to the Sydney Energy-from-Waste project for costs related to the environmental impact study was written down following a change in policy by the New South Wales government that made the project unviable at the Eastern Creek site in Sydney. The sale and leaseback of a depot at Erskine Park in New South Wales resulted in an $8.2 million gain. So now moving on to how COVID has impacted Cleanaway. Like many businesses, COVID continued to create challenges for us, which have impacted our financial performance during the half. We had foreshadowed the impact of the Delta lockdowns in New South Wales at our full year results in August, and those impacts came to pass in Q1. The Q1 COVID impact was characterized by lower business activity. Some customer sites were closed and projects were deferred. This resulted in lower revenue and the Cleanaway team seeking to actively manage the associated cost impact. There was a high degree of fixed costs that could not be recovered. However, some of this adverse COVID impact was recovered in Q2 as businesses reopened and economic activity resumed, and in particular, volumes in the New South Wales CDS rebounded. Now that we're learning to live with the virus, this type of lockdown event, touch wood, will not recur. The Health Services business has and continues to be uniquely impacted by the pandemic. The high volumes of light bulky waste from testing locations, hospitals and hotel quarantine sites have put significant strain on collections and post-collections infrastructure. To meet customer need, the Health Services business has had to increase the number of services. So revenue is up significantly, but costs have escalated much more rapidly as we have suffered significant inefficiencies. These increased costs can be grouped into 4 categories: in collections, the additional labor and high vehicles required to perform the extra services; in processing, the additional operational labor for increased receptacle management and treatment; in disposal, the additional waste disposal cost that we're incurring from having to use third-party infrastructure; and for waste movement, the intra business subcontracted freight costs to move waste interstate to ensure that we remain within site license limits. Our Health Services team was also impacted by rising community infections through late December and into the new year, which impacted our staff availability. This has meant that we have prioritized public health needs resulting in the deferral of higher-margin services. The Omicron COVID impact in December and into the start of 2022 has been characterized by lack of labor availability as community infections increased. This is true of both the Cleanaway team, and importantly, our suppliers' staff as well. This has resulted in us paying pandemic leave, utilizing higher-cost temporary labor and paying more overtime. We also incurred higher logistics costs and higher disposal costs. While those factors are affecting us on the cost side, we are also experiencing impacts on the revenue side. We had to defer on this on collection services, for example, profitable hard waste collections, and we had to change the frequency of collections for others. Furthermore, in certain segments, customers are also deferring projects while the Omicron wave persists. Whilst the impact has moderated in February, it is uncertain how long we will continue to experience these impacts. Cleanaway has made a decision to require employees, labor hire workers and contractors to be fully vaccinated before entering a Cleanaway workplace. This is a risk-based decision to ensure that we can protect our employees and members of our community whilst continuing to deliver essential services to our customers. There has been a material uptake for employees to be vaccinated with only a small proportion of the unvaccinated workforce still considering their employment options. Now turning to cash flow. Cleanaway continues to generate strong and consistent operating cash flow. So in the first half, operating cash flow increased by $21 million to $223.6 million due to higher profitability and lower tax payments. The cash conversion ratio of 97% was largely in line with the prior corresponding period. Our ongoing strong credit management has resulted in overdue debtors continuing to fall, and we've seen no material increase in credit defaults caused by COVID. Our consistent earnings growth and cash flows have provided directors with the confidence to increase the interim dividend to $0.0245 per share while remaining comfortably within our target payout ratio of 50% to 75% of underlying NPAT. For the well-capitalized balance sheet, we have ample capacity to support further accretive growth. So now focusing on CapEx. In the half, CapEx was slightly higher than the prior corresponding period, and this reflects the $15 million acquisition of land in Melbourne for our potential Energy-from-Waste development. Our continued success in winning government-related contracts has resulted in utilizing an additional $29.3 million of leasing to finance related asset purchases. This will continue should we win further contracts. We're taking a more disciplined approach to making our investment decisions. The split between stay in business and growth CapEx helps us to make more focused allocations of capital. We now have greater visibility over our pipeline of potential projects and hence, our ability to invest to maximize returns. Total growth CapEx includes new municipal contracts, the acquisition of the site in Wollert for the Melbourne Energy-from-Waste development and assets to service the new C&I customers and other contractual wins across our IWS and Liquids businesses. With the Victorian Energy-from-Waste land acquisition and the CapEx required for the Sydney Resource Network side, we now expect total CapEx for FY '22 to be marginally higher than FY '21. We also expect that FY '22 D&A will be approximately $295 million, excluding the Sydney Resource Network assets. We're still completing the acquisition accounting and purchase price allocation in relation to the transaction as detailed in the half year financial statements. However, our high-level expectation is that FY '22 D&A for SRN is anticipated to be in the range of $20 million to $30 million. So moving now to focus on the balance sheet. From a debt capital perspective, at the end of December, the group had $492 million of headroom under existing banking facilities. As we previously advised, we fully debt funded the acquisition of the Sydney Resource Network assets, but we still have ample spare capacity to support further investments in growth. Funding for the SRN acquisition was a $500 million 3-year committed debt facility. While our pro forma leverage increased to 2.25x, we remain well within our covenants and have a strong deleveraging profile. We have significant headroom within our banking covenants and our next refinancing is not due until July 2023.I'll hand you back to Mark now to discuss the segment performances.

[Mark John Schubert, CEO, MD & Director]

Thanks, Paul. As Paul has provided a detailed discussion of the key drivers of EBITDA, EBIT and associated margins from a group perspective, my plan is just to hit the highlights from a segment perspective. In Solid Waste Services, we reported increased net revenue of $834.4 million, which was 17% higher than the prior corresponding period due to higher MRL volumes, new municipal and C&I contracts, higher commodity volumes and prices, commencement of the Perth MRF, and an initial contribution from the acquired Sydney Resource Network. This was partially offset by lower post-collections volumes at New Chum and Erskine Park and the impact of COVID-19 lockdowns, particularly in New South Wales. Underlying EBITDA of $209.1 million was 5.4% higher than the prior corresponding period due to higher revenue, partially offset by higher fuel costs, higher commodity rebates and the fixed cost impact of the COVID-19 related lockdowns. Underlying EBIT of $107 million was 1.2% lower than the prior corresponding period, reflecting higher D&A expenses associated with the new municipal and C&I contracts and a higher contribution from recent acquisitions and the Perth MRF. Some of the contributors to the segment were the additional Metropolitan Waste and Resource Recovery Group volumes into MRL, the municipal contracts that Paul referred to earlier, higher contributions from Grasshopper and as I just mentioned, the Perth MRF and the Sydney Resource Network acquired from Suez on the 18th of December 2021. We continue to await the outcome of the height extension court appeal at New Chum and Stage 1 of the Erskine Park stabilized wall was completed during the period. Each resulted in a lower contribution from those assets. I'm pleased to be able to report that Cleanaway was recently awarded a Supplier Service Champion of the Year by Coles, for supporting their landfill diversion goal. We have also been successful in our tender for the Eurobodalla municipal contracts. As I mentioned in the group highlights, we completed the acquisition of the Sydney Resource Network from Suez and our integration team quickly onboarded 100 new employees. There has been some fantastic knowledge sharing amongst the team, and we are already benefiting from some of those ideas. The integration team worked tirelessly over the first few days post acquisition to ensure a seamless transition for customers and Cleanaway. This has been completed with a full operational handover to the New South Wales business unit. And while it is early days, I am pleased to report that we are trading in line with our expectations. Moving on now to the Liquid Waste & Health Services segment, where net revenue was $278.1 million, which was 10.1% higher than the prior corresponding period due to significant project work and increased activity in the Liquid and Technical Services business and higher COVID-19 related activities in the Health Services business. This was partially offset by lower LTS activity in New South Wales during the lockdown. The Hydrocarbons business was steady. Volume and price increases were offset by the recurrence (sic) [ non-recurrence ] of the PSO supplement, implemented during the first COVID-19 lockdown in 2020. Underlying EBITDA of $53.4 million was 3.1% or $1.7 million lower. The LTS business benefited from the Tottenham and Kaniva cleanup projects, general recovery in Queensland and Victoria relative to the prior corresponding period and growth in the Western Australian market. This was offset by the impact of the New South Wales Delta wave lockdowns and higher disposal costs due to interstate consignment authorization challenges. Paul discussed earlier the financial impact of COVID-19 on our Health Services business, and I want to reiterate that we will continue to prioritize those Health Services customers that are in the front line of dealing with the pandemic. We'll do this because it's the right thing to do. I also want to acknowledge the support and express my appreciation to certain customers who have had, as a consequence, had to accept a temporary lower level of service from us. Moving to the Industrial & Waste Services business. Net revenue was $163.3 million or 7.6% higher than the prior corresponding period. This was driven by strong performances in Western Australia and South Australia, predominantly from the Olympic Dam project and increased industrial services volumes from newly mobilized contracts for Southern Ports in Esperance and Australia Shipbuilding Corporation in Kwinana. This was partially offset by COVID impacting infrastructure activity in New South Wales and Victoria, where key customers have postponed work and ongoing restrictions have reduced labor availability. EBITDA was marginally lower at $23.6 million compared to $23.8 million in the prior corresponding period. EBITDA margin was 120 basis points lower, and this variance was largely attributable to a change in mix with lower -- with higher low-margin BAU activity compared to one-off project work and higher short-term direct labor costs. During the period, the segment has re-signed and/or secured all material contract extensions available while also securing new business. There is strong activity in the mining and mineral processing and the oil and gas sectors and the business has a pipeline of large contracts and project opportunities that it is competing for. We have covered how we are going. And now I would like to discuss where we are going and introduce our refreshed strategy. As part of commencing the strategy refresh, we reviewed in detail our existing business created under Footprint 2025 and the external waste landscape, both now and looking forward. It is evident that there is significant change happening. In a relatively short period, the industry has moved from a collect and dispose one to a much more complex one with a far greater focus on resource recovery through the value chain. We are seeing tailwinds for our business under 4 headings or what we call the 4 Cs, which, when coupled with a supportive regulatory environment and our existing footprint, creates an exciting array of opportunities for Cleanaway. If we start where we always should, which is with customers, what we know is that customers are demanding more. They no longer want just bins collected and sent to landfill. They want exceptional service, value for money and increasingly across our commercial, industrial and municipal customers, they want us to help them to achieve their sustainability goals.Communities, regulators and customers expect reduced volumes going to landfill and increased recycling and reuse of materials. To incentivize this, landfill levies will continue to increase, which increases the value in the waste management chain. The energy transition and economy-wide decarbonization efforts are creating new and emerging waste streams and hence and need for new solutions. There are also new technologies available to reduce the carbon footprint resulting from waste. There are many lessons to be learned from the pandemic, but a clear one is the need to be self-sufficient. And this is now an emerging and observable trend. We are seeing increasing demand for recycled content, both from manufacturers looking to be more sustainable and through societal demand. The fifth C, which is not on the page, is competitors. But let me just say we are cognizant of the evolving competitive landscape and the emergence of stronger competitors. And so standing still is not an option, and we need to ensure we stay ahead of the pack. So with sustainability here to stay in -- sorry, with sustainability here to stay in the form of lower carbon and higher circularity driven by customers and communities, our landscape review showed a long and exciting runway of domestic opportunities in our core markets, which we are well positioned to capture. As part of our Footprint 2025 strategy, we have assembled a hard-to-replicate, vertically integrated post-collections network, including prized landfills, transfer stations, recovery and treatment facilities. This gives us the pure economics and resource recovery outcomes across the value chain. And it is combining our footprint today with the 4 Cs that led us to our refresh strategy, Blueprint 2030, our customer-led evolution of Footprint 2025. You might ask why Blueprint. Blue represents Cleanaway. It represents sustainability, and it represents the blue sky ambition and mindset that we will bring to the strategy. While print acknowledges this is an extension of our Footprint 2025 strategy, which underpins the strategy evolution. In Blueprint 2030, we will create superior shareholder value by integrating and extending our leading network of infrastructure assets to provide high circularity, low-carbon solutions, seamless customer service and value for money for our customers. Our goal is to be recognized by our customers as the most innovative and sustainable waste company. We will do this with the foundations of 0 harm to people and the environment. And we have a secret sauce in execution and delivery capability, which has underpinned our multiyear track record in performance, and we've set up exactly this to execute our strategy effectively. Under our Blueprint 2030 strategy, we will create a competitive advantage and generate significant value by extending and integrating our assets and capabilities to meet Australia's increasingly complex waste needs, doing this in the most sustainable way possible with an exceptional customer experience and powered by the passion of our workforce. Building upon the platform created by Footprint 2025, Blueprint 2030 will be supported by 3 strategic pillars, namely strategic infrastructure growth, sustainable customer solutions and productivity and culture. If we take the pillars one by one and starting with our strategic infrastructure growth pillar, here, we will continue to invest to extend our recycling and landfill diversion, infrastructure and services platform. We will be more innovative while remaining selective and disciplined in how we spend our capital. We will ensure we are well positioned to capture opportunities in emerging at-scale waste streams. These will come from the waste industry transition and decarbonization and through meeting the country's future recycling needs. Moving to our sustainable customer solutions pillar. Here, we will integrate our prized assets for circularity, for carbon and seamless customer service. We will create products and services to provide our customers to access that part of our integrated platforms that best meets their needs and the shape of their waste. In doing so, we will grow our market share through delivery of value for money and tailored customer solutions. For us to deliver value for money, we need to work smarter, not harder. I don't think our people can work much harder. What Cleanaway has achieved over the last number of years is a testament to that. Under our productivity and culture pillar, we will align our culture with our strategy and extend our performance culture to the front line to both deliver for today and improve for tomorrow. We will connect our frontline teams to the key value drivers and work together to improve them. We'll be able to work smarter through data and analytics and digitalization programs that we are rolling out. It's through these programs and how we use them that we will achieve a step change in operational productivity. And in so doing, we will unleash the energy and ideas of our 6,600 plus employees and make Cleanaway the best place to work in the industry. Many of the themes within the strategy have been spoken about before and should be familiar to you. Today, we have laid them out in a cohesive and refreshed strategy, building on the successful strategy of the past. While we have a lot of work ahead of us, we've also been quite busy over the last 6 months on activities that are fundamental to our strategy. Therefore, I'd like to walk you through each of our 3 value-creating pillars with the objective being to introduce the pillar and talk to progress. Starting with our strategic infrastructure growth pillar. We have invested a lot of resources into creating an East Coast Energy-from-Waste platform. This will set us up to capitalize on the gradual transition away from putrescible landfills and help turn residual waste into energy to reduce the carbon footprint. In New South Wales, the Energy-from-Waste policy has changed from when we started our project with developments expected to be limited to certain defined zones outside the Sydney basin. We are considering our options in light of these proposed changes as details of the policy are released. Macquarie will continue to be a 49% equity partner alongside us in our New South Wales development. As Energy-from-Waste will be a core part of our business into the future, we are now pursuing our proposed Melbourne and Queensland projects on a 100% equity ownership basis. In Melbourne, we have purchased a site in Wollert, which is about 30 kilometers northeast of Melbourne and surrounded by other industrial activities. In Queensland, we have an agreement in place for the purchase of the site and are finalizing detailed documentation. We have a dedicated Energy-from-Waste platform team in place to support the 3 projects and supported by specialists from Macquarie capital. This structure will ensure we can leverage the knowledge and learning and synergies across the platform. To provide a comprehensive suite of solutions to our customers, we need to ensure we have the right infrastructure in place across the value chain. We have a strong network of material recovery facilities, or MRF, across the country, and we are continuing to grow this network with our Sydney MRF currently under construction. This network, together with the high-quality commodities we collect through our container deposit scheme with Tomra, allowed us to develop cross-value chain partnerships for plastics. Now we have a leading plastics reprocessing platform. As illustrated on the right-hand side of the slide, we have commissioned a brand-new, food grade pelletizing facility in Albury. We also have several other planned investments in the pipeline to ensure we can meet the demand for different types of polymers and that we can do it on a national basis. As recovery rates improved through both future container deposit schemes and through better source separation, we can continue to build out this platform. We are developing further our cross-value chain partnerships as we look for opportunities to recycle mixed plastics, which are not suitable for our mechanical processing facilities. As an example, we are currently working with Qenos, Australia's only manufacturer of polyethylene and supplier of diverse range of specialty polymers, on a feasibility study to chemically recycle these mixed plastics and turn them into raw materials that are used to make new plastic polymers for a circular solution. Beyond plastics, we see clear opportunities to invest in the growing food and garden organics or FOGO segment. More and more councils are seeking FOGO processing solutions to reduce the amount of waste they send to landfill. The acquisition of the Sydney Resource Network included a significant organics business with further opportunity at Lucas Heights. We acquired council contracts under which we are currently processing 80,000 tonnes of garden organics per annum at the facility. This is being done utilizing the traditional windrow methods. As FOGO becomes more prevalent, we see the opportunity to transition to an in-vessel solution. Furthermore, many municipal contract opportunities that we are currently pursuing have FOGO processing requirements attached to them. In addition to our FOGO strategy, we are also scaling up a bioconversion facility with Hatch biosystems to process food waste into protein-rich livestock feed and organic fertilizer using Black Soldier Fly larvae.Traditionally, Cleanaway has had a relatively low exposure to the construction and demolition sector. As landfill levies increased, so too does the opportunity to recover resources from the waste created by the sector. We see an opportunity to grow our market share of this segment over time. We recently acquired Vins Bins, a C&D collections and resource recovery business operating in the Mornington Peninsula region of Victoria. This further complements our recent Grasshopper acquisition in Sydney and our C&D resource recovery investment at Clayton and Brooklyn in Melbourne and at New Chum in Brisbane. And we continue to assess other resource recovery infrastructure options to complement our network. Over time, we expect to expand our resource recovery platform as new at-scale waste streams emerge. And through this platform, we will turn more waste into high-quality recycled products. Moving to our second pillar being sustainable customer solutions. Our future customer platform is a 3-part customer proposition covering service and value and sustainability. We are creating a scalable, seamless and digitized service experience through the customer journey through Customer Connect. This is a business-led multiyear program. At its core, Customer Connect is about helping our people to better serve our customers and making it easy for our customers to work with Cleanaway. It will not have a big bang delivery, meaning customers, employees and shareholders will realize the benefits of the program through its delivery schedule. We recognize that our customers have differing needs and priorities. As such, it's important that we can deliver value for money solutions by providing customers tailored access to our prized and scale infrastructure. For some, that might be an end-to-end recycling and comprehensive reporting and tracking solution, for others, they might simply want a responsive service provider that they can rely on to responsibly and reliably manage their waste. As I said earlier, sustainability is here to stay. It's no longer a buzzword. It's a mainstream requirement that is well understood. And while it's a broad topic, it is well defined by our customers. Our customers know and communicate the sustainability outcomes that they are seeking. It's our job to ensure we can integrate our infrastructure, our capabilities and systems to deliver the sustainable solutions that meet those needs. If we move on to productivity and culture, let me start by saying that only through creating best-in-class productivity and culture can we drive sustainable margin expansion. We will do this by aligning our strategy and our culture. This means recommitting to our purpose of making a sustainable future possible together. Now you might notice we have added the word together, emphasizing that we will bring about this change by working together with our more than 6,600 employees, by integrating our assets together and working together with our partners and customers. As discussed earlier, we have shifted from safety as a priority, the safety and environment as our 2 foundations, our tickets to playing and the core of everything we do. We will build on one of our competitive edges being our top-down execution focus and culture and extend it and complement it with bottom-up involvement and innovation. We will have all employees behaving like owners and unlock their passion and ideas to improve our business, doing it together. We'll bring this to life by piloting these changes in a number of first mover Lighthouse Branches. This will include continuous improvement of branch-level value drivers. What I mean by that is each of our employees will have a clear understanding of the daily activities they can control and that move the needle in terms of value. You cannot take a P&L to the front line to improve performance, but you can take the value driver and its parts. Then we will look to rapidly take the learnings from the Lighthouse pilots and replicate this across our entire business following the value. And as I said earlier, we are installing a small set of core processes that will ensure consistent, repeatable and efficient operations across Cleanaway as well as providing a stable platform for further improvement and growth. We will work smarter by using data and analytics to achieve best-in-class customer profitability, route optimization, sales effectiveness, procurement savings and fleet cost efficiency and use these data and analytics to bring the value drivers to life at the front line. And we will realize these benefits progressively with many activities already underway and being rolled out enterprise-wide. So we've covered quite a bit this morning. I'm sure you all have many questions. But before I move on to the outlook, I'll try and bring it all back together. The first part of our Footprint 2025 strategy, we assembled a hard-to-replicate, vertically integrated post-collections network, including prized landfills, transfer stations, recovery and treatment facilities that give us superior economics and resource recovery outcomes across the value chain. In Blueprint 2030, we will create shareholder value by integrating and extending our leading network of infrastructure assets, which provide high circularity, low-carbon solutions, seamless customer service and value for money for our customers. We have a secret sauce in execution and delivery capability, which has underpinned our multiyear track record in performance, and we've set up exactly this to execute our strategy effectively. And most importantly, with me, I have a team of leaders that fully believe in the strategy and are 100% committed to successfully executing it together. We have seen this today as an ongoing dialogue following the introduction today with investors. Therefore, over the coming year, we are planning a series of deep dives for investors across our 3 strategic pillars. The first of these will be on strategic infrastructure growth later in quarter 2 2022. Further detail will be provided closer to the date. If we move now to the priorities and the outlook. Firstly, we are delivering improvements in our 2 foundations of safety and the environment. Then we have 2 clear priorities: making material progress on Blueprint 2030 pillars in the near term, and we will come back to investors over the course of the year on that, and delivering growth in earnings and profitability. If we turn now to the outlook. When comparing the second half 2022 to the first half 2022, it is necessary to point out 6 less working days to earn revenue in the second half versus the first half. Excluding the Sydney Resource Network contribution, we expect second half EBITDA to be similar to the first half. Then you need to add in the contribution of the Sydney Resource Network from the 18th of December, which is trading in line with expectations to get a full year number. Total impacts are difficult to forecast as evidenced by the recovery we saw following the New South Wales lockdown, partially offsetting the initial $4 million per month Delta impact.The Omicron COVID impact in December and into the start of 2022 has resulted in higher labor and logistics costs, both of which we expect to be temporary. We are seeing that the impact has moderated in February, but it remains uncertain and therefore, may impact the outlook. So thank you. That concludes the formal presentation, and we'll move to questions. [Operator Instructions] So operator, could you now open the line for any questions, please.

[Operator]

[Operator Instructions] Your first question comes from Peter Steyn with Macquarie.

[Peter Steyn, Analyst]

Just -- you can hear me there?

[Mark John Schubert, CEO, MD & Director]

We can.

[Peter Steyn, Analyst]

Sorry. Given that I've got one question, just curious on Energy-from-Waste, want to [ shine ] or just ask you 2 key things. One is on any particular update on Sydney given that policy does sort of seem to suggest that you could do something if it's fully integrated with an industrial facility nearby that can use your power. So just curious what you're thinking about there. And then probably a broader question in light of your plans, you've been in Queensland and Victoria around the funding. Are you comfortable that you can effectively project finance and ring-fence a lot of these facilities within the confines of your current balance sheet? Admittedly, it's going to take a number of years, but just trying to understand the funding piece and how you're thinking about that.

[Mark John Schubert, CEO, MD & Director]

All right. Two-part question. I've got 2 minutes. Very well done -- but on the same topic. On Sydney, I mean, you're right. The government has set out a policy that seems to define certain zones in which Energy-from-Waste can progress. We obviously have the Western Sydney project that was in the Sydney Basin that therefore didn't fall within those zones. And obviously, we've put that project on the shelf for now. We do have a different plan, which we're working through. We're not able to say a lot about it today because we're working through the details with that as well as really sort engaging with stakeholders around the shape or form of the policy as it comes out. So that's probably the Sydney update. And maybe I'll pass it, Paul, to you for the funding one.

[Paul Andrew Binfield, Chief Financial Officer]

Sure. Peter, you're right. Clearly, capital required for 2 plants in Melbourne and Brisbane. We've started that process, and it's still a long way off. One of the options clearly is to carry that on our balance sheet. There are other options there in terms of essentially taking, of course, off balance sheet and keeping it remote from the business. And we're currently sort of exploring how we might want to tackle that. So it's still a long way off, but I can assure you, it's a topic that is front of our mind. We are really conscious though, too, that this is absolutely top quality piece of -- infrastructure that's going to be backed by strong supply contracts and offtake contracts. So in terms of attractiveness, as far as the banking community is concerned, it would rank extremely high in that regard.

[Operator]

Your next question comes from Jakob Cakarnis from Jarden.

[Jakob Cakarnis, Research Analyst]

Paul, I'm just focusing still on the Blueprint 2030 strategy. I'm just interested whether or not the company is indicating that it will move away from giving explicit margin guidance. And then this might be semantics, but I just wanted to pick up on some of the commentary talking about sustainable margin expansion. Is there anything that you've seen in the past margin guidance or the way that the business is operating that would suggest that margin levels are unsustainable?

[Paul Andrew Binfield, Chief Financial Officer]

Thanks, Jakob. I guess, key message really, if you look at our commentary, we're pretty clear in terms of giving you guidance margin for the second half in terms of our view that we would expect to see EBITDA margins across all of our segments increased in H2 over H1. We've also come back too and said that whilst we've seen margin comp a little bit in this half, we do see that the ability to hit those medium-term margin targets in a normal BAU setting is absolutely achievable. So we'll remain focused on that, Jakob. We're not stepping back from those medium-term margin targets that have been out there for a number of years. So if you were to focus, clearly, mix can always be an issue. But essentially, we're not stepping back from those medium-term margin targets. .

[Mark John Schubert, CEO, MD & Director]

And then overall sustainable margin expansion.

[Paul Andrew Binfield, Chief Financial Officer]

So again, expectation that over that time frame, we will expect to see -- to hit those medium-term targets. We're going to be having to expand those margins.

[Operator]

Your next question comes from Russell Gill with JPMorgan.

[Russell J. Gill]

Just continuing with the Blueprint 2030 theme, I mean there's clear indications from this and also regulatory dynamics of this, I guess, a value chain shift towards downstream assets, I guess. Historically, the company talked about 10% of net revenue kind of a CapEx number that the business should -- at least we should be thinking about. As you progress towards 2030, is that still the kind of thinking that you've got and there's just a reallocation of that CapEx across your asset base? You might develop a sell at MRL slower for instance. Or should we be thinking about CapEx differently going forward?

[Paul Andrew Binfield, Chief Financial Officer]

I think as I said we're thinking about CapEx differently in this business. I mean, clearly, it's important that we put tight controls and boundaries around CapEx and how we assess it, and we're absolutely doing that. One of the really important first steps that we've done is actually separate out same business capital from growth CapEx. So we then have a clearer view around what projects we've got -- what growth projects we've got in the pipeline and what their capital needs are going forward. So if you look at what we said today in terms of Blueprint 2030 and the potential to add Energy-from-Waste plants, it would be simply impossible to consider continuing the CapEx with that 10% range for those particular plants. I guess the key message here, Russell, is that we remain very focused on our capital discipline in the business. And whilst there is less focus on that 10%, which is a fairly arbitrary sort of figure, I can assure you that the businesses are being able to account for the CapEx that's allocated to them.

[Operator]

Your next question comes from Xindi Shao with Morgan Stanley.

[Xindi Shao, Equity Analyst]

Just wonder if you can give us a bit update on the new trends in the market, especially in the plastic reprocessing market and biofuel markets, which is kind of growing significantly and we see a lot of like competitors entering these areas as well.

[Mark John Schubert, CEO, MD & Director]

Yes. So I mean I think what we're saying when we talk about strategic infrastructure growth under Blueprint is we typically see the same thing. So we're seeing customers. It is customer led, the strategy, customers demanding access to circular assets for their waste. And we're also seeing customers demand actually the products from those circular assets. And so we're seeing a demand for recycled products being returned back to like almost the original customer and also circularity and low carbon. So we think about sort of the plastics who we've done a lot of work as Cleanaway over the years on mechanically recycled plastics. And obviously, the examples of that are the PET sorting in Albury that start up that is actually bottle to bottle type technology alongside Pact, Asahi and Coca-Cola. And what we're seeing now is extending our footprint, both geographically but also into different plastics. And so yesterday, we announced the feasibility study with Qenos. Really, that's looking at soft plastics that are hard -- that are hard to recycle mechanically. And we see a real trend there. We see a real need from customers to fill. And also we're talking to our customers about other solutions for them in the plastic space and really to ensure that we've got the portfolio of assets that our customers want. And of course, that then leads to the upstream contracts with those customers.

[Operator]

Your next question comes from Paul Butler with Credit Suisse.

[Paul Butler, Director]

I just wanted to ask about the investment approach going forward. Because my observation has been that with a lot of the investment that's gone into post collections into the recycling space where it's things like CDS or Energy-from-Waste, Cleanaway has previously brought in technical JV partners where Cleanaway has sort of done more of the logistics side of things. And from what you're saying, Mark, about taking 100% stake in Energy-from-Waste in Victoria and Queensland. I'm just wondering if you're thinking that Cleanaway is going to take a bigger involvement in these types of projects. Just if you could clarify if that's your view. And then if you could talk about how you develop the internal capability to manage that sort of risk?

[Mark John Schubert, CEO, MD & Director]

Yes. Cool. Good question. So you're correct in the sense that we're saying we're going to have a 51-49 joint venture in New South Wales with Macquarie. And then in Queensland and Victoria, we're going for 100% equity. What is also written on the slide is that Macquarie Capital is still in there helping us develop the 100% projects. And that means technical expertise. Just remember, Macquarie has sort of 30-plus energy-from-waste facilities around the world and deep experience with this technology. So we're not walking away from that support. And the other thing is I'd say there are -- this is not new or novel technology. There are service providers who can provide turnkey start-up and operating solutions for Energy-from-Waste plants and do so all around the world. And so we'll look to leverage those where we need to as well. That said, we deeply believe in Energy-from-Waste strategically in terms of its position in the waste hierarchy and also its role in extending existing landfills. And so that's why for us, strategically, we wanted to move and did move the Queensland and Victorian facility to 100%.

[Operator]

Your next question comes from Amit Kanwatia with Jefferies.

[Amit Kanwatia, Equity Analyst]

Just continuing on this Energy-from-Waste. So you've called out the project in Melbourne as well as in Queensland on a 100% equity basis. Is it still too early, or can you talk to the size of projects? I mean Western Sydney was 500,000 tonnes per annum, firstly. And secondly, on this 100% investment on an equity basis, does this mean you see less opportunities on the bolt-on acquisitions as clearly you'd be committing to higher equity into these projects, please?

[Mark John Schubert, CEO, MD & Director]

Yes. In terms of size, I think I think what we're thinking is that the Queensland and the Victorian projects would be slightly smaller. And there's logical sizes for these plants but based on what they look like sort of inside the four walls where there's logical groupings and sizes, we think that would be slightly small one. The reasons, for example, in Melbourne that we think it would be smaller is just to work with inside, the way the government has sort of like a cap running on, on sort of the amount of millions of tonnes of Energy-from-Waste facilities that they want built over time. I think in terms of does energy-from-waste limit other acquisition opportunities, Paul, do you want to cover that?

[Paul Andrew Binfield, Chief Financial Officer]

Yes. I guess just the point there is that we actually see energy price being a really attractive opportunity for us as a business. So we don't see us investing 100% in this because there's nowhere else to deploy capital, quite the reverse. We actually see this as being a really exciting opportunity and hence, the desire to take all the equity upside in it.I still expect that we will continue to look at doing what we've done within the last number of years very successfully in terms of bolting on a number of small, little acquisitions along the way. There's still plenty out there, and it's a very attractive way for us to grow.

[Operator]

Your next question comes from Scott Ryall with Rimor Equity Research.

[Scott Ryall, Principal]

I'm just, Mark and Paul, hoping to talk about the CapEx theme a little bit more. Is it right to assume from what you're saying that you're seeing more opportunities to invest, I guess, alongside your current business, call it organic, call it, greenfield opportunities, as opposed to acquisitions going forward? And just on that same thing, Mark, you mentioned when you were talking just about plastics, I acknowledge you were looking at geographic expansion, which I took as looking at different states inside Australia. You were reported to be looking at the New Zealand business that was up for sale recently. Can you just talk about geographies for expansion outside of Australia as well and whether that's on the radar?

[Mark John Schubert, CEO, MD & Director]

Yes, sure. So I mean, firstly, to seal the New Zealand thing first, I mean, obviously, wasn't around when the New Zealand assets were sold, but all the work I've seen that we've done -- so they were great assets and -- but a necessary sale at the time. That said, when we did the strategy work, what we saw was a really long runway of domestic opportunities in Australia, right in our core markets and which we can sort of really efficiently bolt on or build out over time against the existing Cleanaway business.If you look at -- I mean we put the slides and you sort of study Slides 22 or 23, the platform slides, I mean you do see us sort of talking about a mixture of organic and acquisitions in there. We actually call out a few of those opportunities and we give you -- we laid some breadcrumbs out for you around the areas in which we're looking where we're saying in different ways, but obviously, we follow with -- we've got more work to do on plastics. We've got a lot more work to do on organics. And we say that we want to have our fair share of the C&D market.

[Operator]

Your next question comes from Nathan Lead with Morgans.

[Nathan Lead, Senior Analyst]

Look, just wanted to get your comments on just how the business performs under a rising cost, rising interest rate environment, particularly, obviously, since you've taken on big chunk of debt to finance the Suez Sydney assets. Just how the business performs on that front?

[Paul Andrew Binfield, Chief Financial Officer]

Yes, sure. I guess we started to see some inflation coming through our financials when we called out specifically higher fuel and higher Adblue. I think we're not the only one who will be calling out, too. We're seeing the labor market also being tight at the moment. Whilst we've not seen that flow through to higher wage inflation, again, I think there is a good chance that, that will follow for us.One of the good things that we've got to make is that we've got nice contractual protection and sensing ability to pass through to customers typically on contractual anniversaries. So municipal contracts could be often as every quarter, there can be a rise and fall, close the contract allowing us to adjust prices, to reflect inflationary pressures coming through. Even things like national accounts and mid-market, we have the ability to do an up rate as well. Typically, that occurs for us on 1 July. In the smaller segment of the market, we have a little bit more flexibility around timing. In fact, we put through a price increase 1 January, which again typically we don't do. But again, it was reflective of the fact that we saw there being more pricing pressure in the market. And that -- I say that price increase early days yet, but that price increase has been understood and accepted by our customer base, and we've had limited pushback. So I mean, clearly, we are heading into a more inflationary environment, and I think we are well protected in that regard. In terms of interest rates, again, we have a fairly good split between both fixed and variable rates. So again, don't have particular concerns in that regard either.

[Operator]

Your next question comes from Raju Ahmed with CCZ.

[Raju Ahmed, Equities Analyst]

Mark and Paul, my question relates to Slide 24, where you talk about the sustainable customer solutions. The last point there to grow market share, can you just give us some parameters, if possible, on this -- what this word market share means for Cleanaway? I mean there are a lot of things to a lot of clients, and you've got quite a big spread on your value chain. So when you talk about market share, what are you referring to? Which channels? Which markets? Where -- what's your market share currently now? What are you looking to get to? And any areas of focus and so on?

[Mark John Schubert, CEO, MD & Director]

Yes, I think -- thanks for the question. And when we say grow market share, we mean in the broadest possible sense. I'll give you an example. If we create this sustainable customer solution, which is really supported by having the right infrastructure and the right [ pricing ] culture, but also the right system and stitching it all together and integrating it and we get the service right, we get the value right and we get the sustainability right, what we're saying is that comes together with less churn, better service and also customers -- and stickier customers effectively and more customers who want to sign up to those assets because more and more, what we're seeing is we're seeing a shift to customers shifting across sort of the sustainability spectrum and wanting access to infrastructure that looks like ours but actually matches exactly the shape of their waste. So they don't want the infrastructure. They just want access to infrastructure that matches exactly the shape that they have. And they also want to be able to walk that infrastructure with us. They don't want to go to someone else's necessarily. They want to show a picture of what they're doing with their waste to their customers. And so we see that as -- we see that whether that's a muni contract or whether it's a national account, that's what's -- or even down into the mid-market or the SMEs progressively over time. And we show -- we see that as sort of growing the holistic market share that we have. And then also, I'd just say similar to that, then we see other -- I guess, other markets as well opening up as we had on -- and bolt-on and extend our infrastructure platform, whether that's the C&D market as an example. And we expect to take an increased market share in the C&D market where today, we have a relatively small one. And what we plan to do is talk to investors about that over time and what our plans are.

[Operator]

Your next question comes from Harry Saunders with E&P.

[Harry Saunders, Associate Director of Transport and Services]

Just one question around the outlook comment. So I'm just trying to reconcile, you're saying the second half EBITDA to be in line with the first half. But then you're also talking about margins recovering. I appreciate you've got lower working days in the second half, but then we've also got some of the headwinds in the first half falling away. So can you just give a comment on that, please? Because it sort of implies revenues falling quite significantly in the second half. And then just also on that, what does trading in line with expectations mean for the Suez assets?

[Mark John Schubert, CEO, MD & Director]

Yes, good question. So in other words, what's revenue doing in the first -- in the second half. So what we are saying is that revenue will be higher than the previous corresponding period. And that would be the first thing I'd say, so higher than second half '21, but lower than the first half, as you say. And the reason for that is 6 fewer working days. 6 is not insignificant when you actually work out how many working days there are in a half. It will also be lower because there's some second half COVID impacts. We saw those in January. We are expecting slightly lower commodity prices, softening of commodity prices. And then obviously, all of that though, in terms of EBITDA, is bolstered by recovering margins in every segment.

[Paul Andrew Binfield, Chief Financial Officer]

And then just to give you a commentary in terms of the Sydney Resource Network assets trading in line, we do give previous guidance in terms of our expectations. And at this stage, we're absolutely seeing that business is trading along those expectations. So we're very pleased with how the assets are integrated into the broader Cleanaway family.

[Operator]

Your next question comes from Ed McKinnon with Citi.

[Edward Mckinnon, Associate]

Just a quick one on the C&D side of things. You spoke of the sort of the acquisition opportunities in the pipeline. Can you just talk about the competitive landscape for C&D? And then if you can maybe talk to the sort of the mix shift if you look out to 2025 or even further to 2030 for C&D? .

[Mark John Schubert, CEO, MD & Director]

In terms of the competitors in C&D, I think they're reasonably well understood. Obviously, we see Bingo is a very strong competitor in -- particularly in New South Wales but not -- obviously not solely in New South Wales. And obviously, Macquarie saw the same thing when they took Bingo out. We also see -- we see some other competitors in and around particularly the East Coast, but we also see that we don't have -- it's not an area that we've played strongly in, but we see it as an area where we see sort of a growing opportunity, particularly as we think the market will continue to evolve, but we also think the commodities that come out at the back end will continue to be highly valued. And we've seen that when we look at our Grasshopper business, we've seen that in the work that we've done on Vins Bins. And so we see a range of opportunities in the C&D space to become a significant player. And as outlined in the Blueprint 2030 strategy, C&D is one of the segments where we see an opportunity to get our fair share of the market.

[Operator]

Your next question comes from Shaurya Visen with Goldman Sachs.

[Shaurya P. Visen, Associate]

I had a question on the labor market, especially on the workforce that was isolating due to COVID. Can you just give us a sense of how that number, like, say, what percentage of your workforce or the frontline workforce was under isolation, say, in the peak around December? And how does that number look right now? I'm just trying to get a sense of what is the kind of improvement you've seen.

[Mark John Schubert, CEO, MD & Director]

Yes. Thank you for the question. The -- I guess we see -- there's 2 current sort of Omicron impacts. There's members of our team who have who have COVID. And that number today is sort of somewhere between 200 and 250 employees who have COVID, who we obviously check in and monitor every day. Then -- and of course, you take the 200, 250 and divide it by sort of 6,600, that's the proportion. And then we have a small fraction of our workforce that are currently sort of in that sort of vaccine mandate category where we've introduced the vaccine mandate and we're still working through their future employment options. So those are the 2 impacts. And that's about sort of 2% of the workforce sort of thing, that's for the number.

[Paul Andrew Binfield, Chief Financial Officer]

I think importantly, too, we've seen a trend. If we look at the numbers of staff that have been impacted by COVID, we peaked second week, third week in Jan, and we've seen a gradual improvement since then. So as Mark said, we were sort of up around the 250, even got close to 300 at 1 point. We're probably now down around sort of sub 200, and we can see a distinct trend of fewer people sort of leaving the workforce versus people returning. So we certainly believe on this current wave that January was the worst month and things are moderating for us in February.

[Operator]

Your next question comes from Peter Steyn with Macquarie.

[Peter Steyn, Analyst]

Sorry, just a brief follow-up, which has subsequently been asked. So I'll leave it there.

[Operator]

Your next question is from Jakob Cakarnis with Jarden.

[Jakob Cakarnis, Research Analyst]

Yes. Just a quick one for Paul. In the second half, how are you expecting the margin for Liquid and Health business? Just noting obviously, COVID testing rates are probably going to reduce and you should see elective surgeries coming back. I know the commentary is that margins across all the divisions will firm, but it seems as though that's an obvious one where it will increase quite substantially in the second half.

[Paul Andrew Binfield, Chief Financial Officer]

Yes. Look, I think it will absolutely increase. And certainly, our view is though that we won't see sort of significant elective surgeries coming back online until perhaps April, late March, that sort of timing. So certainly, we are still seeing very significant margin pressure -- expectation of significant margin pressure through Q3. So yes, we'll see it bounce back. Yes, we'll start to see a new normal coming through, but it probably won't be until the start of Q4 that we actually see that starting to happen. So yes, we'll bounce back, perhaps not as much as you might want or expect there as well.

[Operator]

Your next question comes from Russell Gill with JPMorgan.

[Russell J. Gill]

I just want to focus on the last couple of months as you've had the only con and managing your labor force. You did have a pretty good job of actually managing it when New South Wales went to lockdown. But how is the competitive environment been in these last couple of months? And have you had the ability, particularly against smaller competitors, to steal some market share, particularly if they've got significant absentees and don't have ability to flex their labor force? Can you also just talk around contract churn, particularly over the last 3 months?

[Mark John Schubert, CEO, MD & Director]

Well, I mean in terms of the Omicron, it's very different to Delta right. The Delta -- in Delta, what we saw was we were available and our assets were available, but kind of in New South Wales, which -- you move to Omicron and it's kind of like we've seen businesses recover and the business being there, but we are seeing some impacts from our team not being available. And occasionally, that has knocked on to we needed to shut an asset because -- for a temporary period, a couple of days or something because we're not prepared to run it with few smaller workforce. So that's what we saw at the extreme in sort of late December, early January. As Paul said on the earlier one, we are seeing more people now return than sort of go off. That ratio is definitely the right way around. In terms of sort of the competitive dynamics, it's kind of -- it's a pretty short period. January is a little bit sleepy as well in terms of sort of you don't see necessarily customers churning and that sort of thing in the middle of the pandemic. Our focus has really been on serving the customers rather than sort of trying to steal customers of others. So I wouldn't say it's been a great huge opportunity to grab labor or other people's contracts. That said, we continue to be very focused on the contracts that we were looking for, and we've seen real success in those ones that we've been bidding.

[Operator]

Your next question comes from Xindi Shao with Morgan Stanley.

[Xindi Shao, Equity Analyst]

Just a quick one. Could you give us an update on the data analytics rollout in Victoria? And what have you seen in terms of the margin and what's your next step?

[Paul Andrew Binfield, Chief Financial Officer]

Yes, sure. Thanks, Xindi. Again, it's progressed really well. It's been a really enjoyable project, actually in the center of fantastic engagement between, I guess, the head office team and the business. Between them, they have got some fantastic initiatives in terms of just ways in which that we can operate the business more productively. Not really fair to give specific margin improvement here. It's still too much early days. I guess what I would say, though, is what we're seeing is the breadth of the opportunity available to us. So some of it is looking at pure customer profitability, how can we improve that. Others are looking at things and projects such as asset turn, so looking at situations where we're simply not seeing things being utilized as quickly as we would expect, and therefore, being able to target that sort of activity. So again, more benefits us in terms of less CapEx. We've built some really nice tools, again, with the support of the guys in the region, looking at route profitability and our ability to optimize that as well. We're now moving into the labor space. So that's, again, going to provide us with some more opportunities. So I think a clear message, Xindi, we went into nonmetro South with a clear view that we could make some productivity improvements. Business has been fantastic in terms of how responsive they've been and the opportunity set that we've come across has probably exceeded our expectations. So plans now to pick that model up. And as Mark discussed and talked about, referenced the Lighthouse Branches. So we'll simply be leveraging that framework to basically drive that [ relentless platform ] through the rest of the business. That's really exciting stuff. So it's going to take a while, but -- and we're certainly finding that taking a consultative approach with the business is taking a little bit more time, is actually really beneficial in terms of having a very clear view as to what the problem is and how we can address that through better use of data.

[Operator]

Your next question is from Paul Butler with Credit Suisse.

[Paul Butler, Director]

Just a question about your comments about fuel. I mean you've flagged higher costs from fuel than Adblue. But at the same time, you're saying that the contribution from hydrocarbons was steady. Normally, we sort of think about the business having a natural hedge there. Did you not see a benefit in pricing in the hydrocarbons business?

[Paul Andrew Binfield, Chief Financial Officer]

That's actually been quite an interesting little conundrum there, Paul. What we've actually seen is a bit of a separation between base oil price and the external oil price so that we have just started to see the base oil price starting to lift now. But certainly, in the first half, that wasn't the case that we were seeing. So we actually saw that sort of correlation come apart somewhat in the first half. But certainly, your commentary is fair. We have made those comments in the past. That was not what we experienced in the first half.

[Operator]

Your next question comes from Amit Kanwatia with Jefferies.

[Amit Kanwatia, Equity Analyst]

I just got another question on the outlook. Now you're calling out second half EBITDA to be similar to first half EBITDA and then you're saying margins would recover. So how should we be thinking about margins excluding the contribution from Suez Sydney assets? And secondly, on the Suez assets, I mean you provided revenue and EBITDA for calendar year 2020. And now since this is under your ownership, can you talk to expectations for second half of fiscal '22 for Suez Sydney in particular?

[Paul Andrew Binfield, Chief Financial Officer]

Yes. So taking Suez Sydney one first. And we gave guidance for expectations to use those -- that calendar '20 figures. I think those figures are still fairly much more we would expect. So I think, Amit, you can take that -- those figures we gave you see of the prior guidance is something sensible for the second half of this year. Just in terms of the second half revenue and margins, I guess just picking up the comments that Mark made earlier in terms of the Q&A, our expectation is that we will still see revenue growth in the second half to be greater than the prior corresponding period. So the second half of last year, it simply won't be as strong as the first half of this year. And the primary driver for that is 6 working days difference first half to second half. So 128 days first half, 122 in the second half, got a 5% impact in terms of working days is quite typical for us in terms of what we see around the seasonality of our results. We're also expecting to see an element, too, of commodity prices softening in the second half. That will have an impact in terms of our top line. And whilst we saw obviously COVID impact in the first half, we're still seeing, albeit in a different form, COVID impact in the second half as well.

[Operator]

Your next question comes from Nathan Lead with Morgans.

[Nathan Lead, Senior Analyst]

Have another question. I suppose my question is, obviously, you've called out about deploying capital into much of Sydney, Perth, Melbourne and Brisbane in terms of the waste to energy. But obviously, there's differences in landfill levies there. So could you maybe just talk through the differences in potential returns you'll get from those investments in each of those different regions because of that driver?

[Mark John Schubert, CEO, MD & Director]

Sure. Well, I mean -- it's an introductory comment. So we are seeing landfill levies increasing in both -- basically all over the country but calling out Victoria and Queensland, we are seeing significant increases. All those regions, we expect will be in excess of sort of $120 per tonne at the time. The assets will be sort of expected to come online. In terms of sort of what you think about returns, I think it's too early to sort of -- to comment too heavily on that. But we -- based on what we can see now and sort of the amount of work that we've done, we've done a lot of work, right? Because you think about how close we were on the Sydney assets, I mean, we'll be well into the Eastern Sydney -- sorry, the Western Sydney project if we -- if the rules haven't changed there. And so you can literally let them shift the project economics from that into Queensland and Victoria and really model it out. But I think it's too early to say, but that's -- we do see the returns are exciting. And as Paul said before, these projects in our mind really stack up as really strong infrastructure like projects, long-term contracts on both the offtake but also the input and lots of exciting ideas that we've got for those plants to create precinct around, green precincts with exciting activities that can use both the electricity, the heat and also the carbon oxide.

[Paul Andrew Binfield, Chief Financial Officer]

I guess in terms of pure returns as well, important to realize we've got 2 plants coming on, on stream in Western Australia in terms of our competitors, where you've got a levy rate of about $70 a tonne, so half the Sydney rate and pretty much half the rate we're expecting for Vic and Queensland so those guys are making that stack up. You can see there's significant headroom for East Coast Energy-from-Waste.

[Operator]

Your next question comes from Harry Saunders with E&P.

[Harry Saunders, Associate Director of Transport and Services]

Just on margins again. You made some comments earlier about quarterly margins, and it sounds as if margins should improve in the fourth quarter versus the third quarter as COVID impacts lessen. So should we take that to mean a higher sort of margin run rate going into FY '23 versus second half average?

[Paul Andrew Binfield, Chief Financial Officer]

I think that reference specifically was in relation to the Health Services business in terms of us seeing that business returning to a more normal situation in terms of dealing with COVID through Q3. So yes, we would expect to see higher margins in Q4, certainly for that business. And I think it's important to recognize, too, in terms of the second half the significant contribution that we're going to be getting from a high-margin business, that's Sydney Resource Network asset. And clearly, that's going to absolutely flow through in terms of our full year contribution to FY '23.

[Operator]

Your next question comes from Scott Ryall with Rimor Equity Research.

[Scott Ryall, Principal]

Mark, I was hoping to follow up on your foundation slide. That's something we haven't touched on, on Slide 5. And you made a comment that these are now, I guess, the kind of baseline targets for you guys and activity can stop if something is happening that you see in breach of it. You said it far more eloquently. I'm wondering, is that you with your Shell hat on? And I guess the reason I ask that is, I've seen people come from big global organizations that have very strong global safety cultures in particular, and it doesn't always -- I'm not meaning to deemphasize safety, but it doesn't always mean it's appropriate in the Australian market and can cause dislocation of operations where it might not have happened otherwise. How do you ensure that -- clearly, you're very passionate about safety and it's critically important, but how do you also make sure that your customers need the net on an ongoing basis very regularly? I guess how do you serve that evolution happening at Cleanaway?

[Mark John Schubert, CEO, MD & Director]

Yes. I mean the way we talk about it as a team is that the work that we do and our waste management business has risks in it. It has safety and environmental risk. It's got transport risk and all sorts of things like that. And what we say is the core business is to manage those risks well. And when we manage those risks well, then we get to the margins that we do. That's how we talk to the team about it. That really resonates for the team. And then basically, Scott, to keep it really simple for the teams at the front line because that's where the rubber hits the road. We just have elevated safety and the environment as foundations so that they're not priorities anymore. They're always priorities in Cleanaway, but we're saying they're now foundations, which if we ever have to choose, then we'll choose to stop the work that we think it could be done in a safer way. And that might be stopped for 2 minutes and just have a chat about it, figure out a different way, document it and let's go forward. But also in terms of the environment, if we've got a license condition, we're not going to push that license condition. We will get the stock back down. We'll segregate the waste, we'll even have to shut the gate if we need to for a short period of time just get back into control if that's where things are at, particularly during sort of pandemic type times and then we'll go again. We don't see this as getting in the way of serving the customer. What we actually see this doing is helping us plan better as well. So it will be safer, we'll be better planned and then ultimately, we'll serve the customer better as well. And it's actually what our customers want. The customers that we deal with want us to be safe and compliant. And if you imagine driving heavy vehicles down residential streets, there's not many companies or industries that, that is the day job. And they want us to do that well. They want us to do it safely, and they want to do it with the best available technology. So I'll probably just stop there.

[Operator]

We are showing no further questions on the phone at this time.

[Mark John Schubert, CEO, MD & Director]

Cool. All right. Thank you, operator. Thank you, everyone. And obviously, we look forward to chatting with investors on and off during the course of the next few weeks.

[Paul Andrew Binfield, Chief Financial Officer]

Thank you.

[Mark John Schubert, CEO, MD & Director]

Thank you.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.