Sims Limited

Thank you for standing by and welcome to the SIMS Limited FY23 results release. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you would like to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. Today's presentation may contain forward-looking statements including statements about financial conditions, results of operations, earnings outlook and prospects for Sims Limited. These forward-looking statements are subject to assumptions and uncertainties. Actual results may differ materially from those experienced or implied by these forward-looking statements. Those risk factors can also be found on the company's website, www.simslimited.com. As a reminder, Sims Limited is domiciled in Australia, and all references to currency are in Australian dollars unless otherwise noted. I would now like to hand the call over to Alistair Field, Group CEO and Managing Director of SIMS Limited. Please go ahead.

Thank you and good morning. Welcome to the FY23 Full Year Results for SIMS. Presenting with me on today's call is the Group Chief Financial Officer, Stephen Mickelson, John Glyde, our Global Chief Operating Officer for Metal, and Rob Thompson, our Global Chief Commercial Officer for metal are also in the room with me. The slide presentation that we will run through has been lodged with the ASX along with the results release. The agenda for today is that I will run through a general overview of performance and the highlights. Natural results before I discuss some of the company's strategic priorities, short-term outlooks and medium to long-term drivers. Following that, there will be time for Q&A. I will turn straight to slide 5 which covers the key takeaways from the results. The FY23 results are coming off the back of our all-time record, FY22. The markets have been much more subdued but our performance has been resilient and it shows the benefits of having market and geographical diversity. Cash flow has been solid and we have released cash from working capital as you would expect when markets fall. We are keeping a watchful eye on expenses, and as evidence of this, we have managed to hold our metal costs in the second half compared to the first half. Most pleasingly for me is we have further improved our safety metrics, following on from an already excellent safety outcome in FY22. Finally, we have declared a fully frank dividend of 21 cents per share. Turning to slide six. Clearly, the market environment has impacted the results compared to last year. All profit indicators are substantially lower. As we go through the presentation, however, you will note that our diversity of operations across the globe and within North America has provided us with a fair degree of resilience to the subdued markets. I will be going through the Baltimore scrap acquisition we announced this morning later on in the presentation. Suffice to say that this acquisition will provide us with further resilience as it has great access to the US domestic market and export markets. Looking at those markets, steel prices have been lower, which in turn dropped the price for scrap. Our intake was down 6.7% and there was strong competition for the scrap that was available. This meant that we were unable to pass through all the sales price falls without dropping intake volumes further. I've already mentioned the solid cash flow and dividends. I will turn briefly to slide seven. Slide seven provides a summary of the financial outcomes in a convenient table. I've already spoken about most of these measures on the previous slide. However, it is worth highlighting operating cash flow, largely due to the release of working capital, This is down 18%, much lower than the 72.9% fall in profit after tax. I will spend the next few slides talking about non-financial measures, starting with health and safety on slide eight. The priority for me and all SIMS employees is safety. It is therefore very pleasing to report that we have again produced a record low lost time injury frequency rate and total recordable injury frequency rate. Lagging indicators are interesting, but they do not improve without proactive safety initiatives. You will observe on the right-hand side of the slide a few examples of what we are doing to ensure safety culture is core to CIMS values. Moving now to slide nine on sustainability. Sustainability is at the core of our business, and it is again pleasing to see some recognition for the effort that our employees put into ensuring that SIMS is a leader in sustainability. I want to highlight our excellent progress on closing the gender pay equity gap, which falls under our Operate Responsibly framework. We've spent a considerable amount of time on gathering the data to measure this gap. Last year, it was 8.2%, and we have dropped that to 2.9%, at the end of FY23. Our internal view is that plus or minus 2% represents no statistically significant gap, and so we are nearly there. Before I hand over to Stephen, I will turn to slide 10, which highlights the weaker prices in FY23 compared to FY22. Ferrous and non-ferrous prices have significantly retreated from both the FY22 highs and the FY22 average. Volatility has also somewhat reduced, but we still had some difficult periods to manage. The global PMI, which is a good indicator of steel demand, has shown universal weakness over the year, with the possible exception of India. I will hand over to Stephen now to take us through the results in more detail.

Thanks, Alastair. I will turn straight to slide 12, which summarizes the group results and some key metrics. I will be going through the regional results and subsequent slides, and many of the themes are summarized here. Underlying EBIT is down 66.6%, a considerable fall, but it's been compared to a record FY22, which was driven by very high prices and a commensurate high availability of scrap. We have managed costs reasonably well. up 4.9% in what has been a tough inflationary environment. Before moving on to slide 13, I will draw your attention to footnote 4. We have moved some costs that were previously netted off against trading margin in FY22, but really belong as operating costs. There is no impact at all to FY22's EBITDA, EBIT, or profit after tax, as it is simply a reclassification within the P&L. You will find a reconciliation in the appendix. On slide 13 for convenience, we've summarized EBIT and volumes by division. Before moving on to the regional breakdowns, it is worth highlighting here the concerted effort in releasing working capital. Metal sales volumes were down 1.7%, while intake volumes were down 6.7%. The difference represents the clearing of inventory and release to working capital. Looking at our North America results on slide 14. The fall in NAM's sales revenue was almost entirely a result of falling prices. Overall, prices were down 18.2% on a constant currency basis. NAM was impacted by competition for domestic scrap, particularly in the second half, where for some periods export sales prices fell significantly relative to domestic prices, which enabled domestic players to compete more heavily for scrap inflows. As a result, NAM could not pass through the full price decreases and this squeezed the trading margin. On a constant currency basis, NAM held costs reasonably flat, assisted by the introduction of a shredder feed levy, which is a good result. Turning to slide 15. SA recycling is a good example of our resilience provided through diversity of markets and geography that Alistair mentioned earlier. Partly as a result of its growth strategy over the last several years, SA Recycling sells more domestically than through export, and therefore it wasn't as impacted as NAM when the domestic price rose significantly above the export price. As a consequence, its trading margin on a constant currency basis was only down 13.5% compared to NAM's 24.5%. This is shown perfectly on the following slide 16. The left-hand chart compares the export price to the US domestic price. It began separating in January-February and then significantly separated from March through to June. When you look at the right-hand chart, which shows the domestic export split for NAM and SA Recycling, it is clear why NAM was impacted more. Turning to ANZ on slide 17. ANZ is also a very good example of our geographic and market diversity. Of our metal businesses, it was least impacted by the challenging market conditions by a considerable margin. While revenue, trading margin and EBIT were all lower for similar reasons to the other metal businesses, its 7.7% fall in trading margin was the same as the percentage fall in revenues, indicating that it was able to better manage the buy price. Ainsley also managed costs well in a tough inflation environment. The overall result was a 24% reduction in EBIT, considerably less than the other businesses. Moving to the UK on slide 18. UK was impacted by both lower sales volumes and falling sales prices. Aggressive competition for available scrap, particularly shred feed, kept buy prices relatively high compared to sell prices, and this reduced the trading margin. Inflation in the UK has been the worst of the regions in which we operate and this resulted in an 11.8% increase in net operating costs. The UK had a stronger second half performance returning to positive full year EBIT of 7.3 million compared to a loss of 3.6 million for the first half. On to slide 19. I see that the first half result that I did not expect a recovery in SLS for the rest of the calendar year. This has proven to be correct so far, with EBIT down 49.7% to 8.2 million. This is despite a very promising 40.7% increase in repurposed units. The reality is that the Chinese recovery is slow, and China is currently the main driver of the price SLS receives for resold units. A recovery is not likely to occur until the end of this calendar year or early calendar 2024. Turning briefly to slide 20, which rounds out the income statement. Global trading earned less revenue due to lower exports by SA recycling and also higher costs associated with some strategic initiatives. Corporate costs were lower, largely due to lower employee incentives. We no longer consolidate Sims municipal recycling, so its full year loss is the same as the half year, and we are in the process of selling it. LMS produced EBIT of $14.5 million for the year, and I believe everyone is aware that that asset is also currently under an active sales process. CIMS resource renewal incurred additional expenditure to run the pilot plant, and it has also incurred expenses on further strategy development. Moving to our operating cash flow on slide 21. We had a strong conversion of profit to cash flow. largely as a result of a positive working capital movement. Just a reminder that SA Recycling does not distribute its entire earnings in cash and therefore there is a difference between reported EBITDA and cash. This year it was $57.6 million. I believe the other movements on the chart are self-explanatory. The last point I will make on this slide before moving to slide 22 is that the conversion of NPAD to operating cash in FY23 was 286.3% compared to 94.5% in FY22. Slide 22 bridges our opening net debt of 102.7 to our closing position of 135.5 million, a 32.8 million increase in net debt. The two largest consumers of the operating cash were capex of 232.5 million and dividends of 123.6 million. My final slide is CapEx on slide 23. Total CapEx for FY23 was $232.5 million. Of this, $62 million related to growth and $171.5 million was for sustaining CapEx. I'm currently expecting FY20 CapEx to be similar to FY23, up around 5% to $180 million. I'll now hand back to Alastair.