Sims Limited

Today's presentation has been lodged with the ASX along with the results released. It 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.simsltd.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 conference over to Stephen Mikkelsen, Group CEO and Managing Director of Sims Limited. Please go ahead.

Thank you and good morning from Sydney. Presenting with me today is Warrick Ranson, our CFO. Rob Thompson, our global president for the metal business, is also in the room, and I'm sure we will hear from Rob during the Q&A session. We will follow our normal run-through with me providing an initial overview of the results and market conditions. Warrick will take us through the numbers in more detail, and then I will return to talk about our strategic position and outlook. That should leave us plenty of time for questions. I will turn straight to slide five, which looks at our strategy and strategic priorities. The fundamentals of our strategy have not changed to repurpose and recycle. We have, however, updated the left-hand part of the slide to reflect the significant growth in importance of SLS to our overall business. A couple of examples. Under customers, we now specifically call out deepened hyperscale partnerships. and under the heading of innovative and agile, we now include the importance of R&D for SLS to capitalize on opportunities from the next generation of technologies. Consistently delivering on the strategy over the last three years has underpinned the EBITDA performance shown on the slide. All divisions with the exception of ANZ which has been impacted by factors external to its control are up significantly on last year and I'm very pleased to report a return on investor capital above our cost of capital. Turning to slide six. Another very good year of safety performance with our total recordable injury frequency rate at 1.09. These results could not be achieved without the buy-in from our employees, and you can see this in the excellent completion rates of our lead indicator safety metrics. A couple of other points to note on this slide. Firstly, it can be easy to forget the significant contribution we make to reducing greenhouse gases. As the global economy transitions toward net zero, circular solutions such as recycling are becoming increasingly important. By recycling 5.9 million tonnes of ferrous, we helped avoid more than 9.5 million tonnes of greenhouse gas emissions, measured in CO2 equivalent. That is approximately 1.6 times our combined scope 1, 2 and 3 emissions. The final point I'll highlight is that our pay equity gap percentage has fallen to under 2%. Five years ago, we had a pay equity gap of over 9%, so it's very pleasing to see the progress. Moving briefly onto slide 7, as the detail behind this slide is covered later on. In our metal business, we grew unprocessed scrap by 2 percentage points, which helped lift our shredder utilization by 5 percentage points. SLS had significant growth across the entire business, including a 91% growth in repurposed units. Warrick is going to cover financial performance in detail, so I am only going to make a couple of overall comments on slide 8. It has been a very good year for SIMS. Underlying EBIT is up nearly 170% to $468 million, and this has fed through to our return on invested capital reaching 11.7%, which is comfortably above our cost of capital. I know return on capital has been a focus for our shareholders for a number of years, so it is pleasing to see our strategy delivering. This significant lift in performance has been delivered through positioning SLS as a world leader in data centre refresh and decommissioning services, focusing on buying unprocessed scrap and upgrading it to more valuable products through excellent operating capabilities, Selling into the best available markets and managing costs. The next four slides look at the state of the markets in which we operate, starting with the memory market on slide nine. These two very simple charts tell the story. Firstly, on the left, you can see the decline in new production of DDR4s. At the same time, you can see the rapid rise in DDR5 production as manufacturers have switched from DDR4 to higher margin DDR5 chips in an effort to meet the insatiable appetite for memory driven by AI. This has resulted in two very positive implications for SLS. Firstly, as DDR4 production has declined, the price of new DDR4s has increased significantly, which is clearly shown in the chart on the right. The demand for DDR4s hasn't gone away, so the requirement for used DDR4s has also increased dramatically, driving those prices up as well. Secondly, the enormous amount of installed DDR5s will need to be refreshed over the coming years and also repurposed. either back into data centres or sold into the used market. This provides many years of repurposing opportunities for us and we are well positioned to capture those opportunities. While the medium and long-term implications of massive data centre expansions are clearly positive for SLS, we are seeing a short-term variability in the refresh cycles and this is presented on slide 10. Firstly, on the right hand side, there is a bar chart showing the annual investment in data centres. Importantly, around 60% of total spend is on compute infrastructure, including servers, chips, networking equipment and related technology. Right now, the infrastructure capacity to build these data centres is under significant pressure. There are a few bottlenecks causing delays, with a significant one being the availability of both the electrical connection and then the electricity itself. This in turn has caused variability in when existing data centres are ready to be refreshed, particularly when they also need electrical capacity upgrades. It is important to note that this impacts timing of refresh cycles, not whether the refresh will actually happen. Moving on to the metal markets and firstly non-ferrous on slide 11. The structural drivers have been strong for two years now and our view is that these drivers will remain. Just to highlight two or three of those drivers. AI infrastructure requires copper and aluminium driving those commodity prices up which also benefits sorber prices. The electrification of the world continues at pace requiring conductive materials such as copper and aluminium. Looking at the chart on the right, you can see the growing gap between US aluminium prices and the LME, largely driven by US tariffs. We are nicely exposed to these higher prices through our US metal businesses. And it is also worth noting that on a number of occasions, due to our market expertise, we have sold non-Ferris from ANZ into the US and have been able to absorb the tariff. Turning now to Ferris on slide 12. The headline captures the market dynamics. In the US, we have tariffs protecting the steel industry and encouraging the reshoring of manufacturing. This has lifted margins in steel manufacturing and is driving investment in EAFs. Data center construction is also boosting demand for steel. Both NAM and SAR are well positioned for this market structure and the increased demand for ferrous material. ANZ continues to be impacted by Chinese exports, although there has been an overall modest improvement. At a very local level, the shuttering of Wayala has increased domestic demand for Ferris scrap. I'll hand over to Warrick now to take us through the financials.

Good morning, everyone. So as Stephen mentioned, global scrap markets for the 2026 financial year reflected a number of dynamics. While the ongoing shift toward electric arc furnaces fueled steady buying in a number of regions, broader commercial construction activity remained soft outside of data center development. Regional restrictions and stricter trade controls tightened cross-border supply chains, however elevated Chinese steel exports, despite some production rationalization, continue to dampen Asian and Middle East buying, with demand from Turquia remaining soft as buyers switched to cheap Chinese and Russian billet late in the year. At the same time, we saw copper prices surge, driven by a relentless demand for AI-related activities, green energy grids and EV infrastructure, and hit record highs in the year. Type primary ore supplies and tariff expectations further amplified bidding for secondary copper. Similarly, geopolitical conflict in the Middle East created primary aluminium supply crunches, pushing global buyers towards aluminium scrap substitution and boosting values despite regional trade friction. Sober pricing peaked across May and June as a result, adding significantly to our overall financial performance for the year. As we noted at the half, with both export and domestic markets exposed to global scrap dynamics, we continued to leverage the arbitrage in our key domestic and international markets and sold volume proactively between the two to maximise margins, again reflecting the significant agility and flexibility embedded within both our inbound and outbound logistic chains. Concurrently, our total repurposed units handled this year was nearly double the prior year's volume. Prices for new DDR4 memory continued to increase exponentially, with our market reference price finishing the year over 1,000% above the prior year, as demand continued to increase against diminished supply, with manufacturing shortfalls and a focus on new generation cards continuing to uplift repurposing and resale activities. Across the business we continue to deliver disciplined cost efficiency initiatives. Current activities such as moving to a global shared services platform and the operational changes now implemented for our Houston operations will continue to provide cost and performance improvements in the business. Our average metal fixed cost per intake tonne fell as we capitalised further on existing infrastructure and improved material flows. I'll come back and talk further about our cost performance shortly. Our statutory result reflects those targeted restructuring initiatives and a slightly lower number than what we had at the half for the write-down of the UK Metro Receivable. We've continued to pursue partial recovery options there where they exist, recouping around $17 million over the last six months. Pleasingly, I think we've just about stabilised our statutory to underlying position now and expect to see some consistency in this going forward. Speaking of underlying and moving to slide 15. I've touched on the principal drivers of most of these already. June was a particularly strong month, surprising us on the upside, and we were able to move additional volume at attractive spreads. Importantly, that outcome reflected not only favourable market conditions, but also the capability we have built to respond quickly, manage logistics effectively and place material into the highest value channel available at the time. While market conditions clearly provided support in a number of areas, the more important point for us is that the business is demonstrating a stronger structural earnings base. Lower unit costs, better network utilisation, greater market optionality and more disciplined capital allocation leave us better positioned to capture upside in favourable markets while maintaining resilience through commodity cycles. Focusing in on the individual businesses then and strong performances by both the NAM and SAR businesses absorbed the impact of the continuing market pressures on ANZ. Global trade reverted to its previous levels as broker tonnage reduced following the winding up of Unimetals in the UK. This year's result effectively represents the cost base of our trading activities to the business. June itself was an exceptional month for the metal business, surpassing initial expectations from early in the month as Ferris margins strengthened from favourable market dynamics and non-Ferris volumes and Zorba pricing maintained their highs. Similarly, second-hand memory pricing achieved its highest level in the year on a gigabyte basis, albeit on a lower ratio to new prices given the mix. As Stephen has mentioned, we see some variability in inbound volumes as data center construction and decommissioning pipelines are consistently challenged by a range of external factors. However, we have deliberately built a flexible operating model allowing us to adjust cost and activity levels with e-inbound volumes. I'll expand on some of the other factors driving these various movements in subsequent slides. Moving to the metal business more specifically and in North America, Total intake volumes increased by 240,000 tonnes over the prior year as we again prioritised unprocessed material, increased shredder utilisation and improved margins. Intake volumes were also supported by stronger domestic steel demand and higher domestic ferrous prices. Even though we increased the level of domestic shipments in the US, we continue to maintain full optionality over material placement for best value. While intake levels also added to comparative costs, the team were able to generate a number of offsets through further restructuring and productivity initiatives. Having TCT in Houston is also now giving us the opportunity to better manage spreads in that region and lower the run rate cost base further. In ANZ, ferrous margins were again impacted by the subdued international market which also flowed on to domestic pricing although we did see some demand benefit from that prolonged outage at YLR. Favorable non-ferrous prices provided overall revenue support and helped offset shredded down time at our St Mary's operation in the first quarter. Notwithstanding elevated consumable input costs particularly in the areas of fuel and waste disposal which we felt right across the business, net operating costs continue to be well controlled here with most of the increase over the prior year related to trading currency losses which for accounting purposes are classified into operating costs. Non-ferrous and particularly Zorba pricing provided our SAR joint venture with a significantly elevated financial performance versus early June expectations. While Ferris Intake reflected a record year following further small-scale acquisitions, the US tariff wall and a surging Zorba price ran through to the bottom line, enabling that business to close out the year extremely well. Our global trading platform was also able to keep its costs relatively flat. They saw reduced broker revenue following the cessation of trading activities for Unimedals in the UK early in the year, as I mentioned. Moving to SLS now, and Stephen's covered several of the drivers here already. As we've noted, the business has experienced significant growth in the number of repurposed units, demonstrating the broader strength of the market, as well as specifically benefiting from the dynamics of memory chip prices, with memory averaging around 30% of hyperscaler spend. We saw that pick up even further in the second half as the impact of uplifted prices filtered through and repurposed volumes increased despite the industry's growing pains and planning volatility. Total memory sold on a gigabyte basis fell from prior year levels as DDR3 volumes reduced and we repurposed more 16 gigabyte cards in the second half. Improve unit costs were reflected by volume gains and expansion activities and the team continues to look at additional opportunities around automation and robotics to support its cost management program. On slide 18, I want to quickly touch on the ongoing strength of the SLS business for us. While memory pricing has certainly been a primary contributor this year, the business is evolving into much more than that. The structural shift in demand that we are seeing with both hyperscale and enterprise clients in response to this phase of what is effectively the fourth industrial revolution is being matched by both their current need to source an array of components for growth, but also their recognition of the associated circular and economic benefits. Our deep relationships and proven scalability to respond to this demand in a secure, trusted and certified manner provides us with confidence about the role that SLS can play in our earnings base going forward. Touching briefly on central and functional costs now, we continue to look for cost out efforts in this area. This year we relocated our corporate office to further reduce costs as well as beginning the transition to a new global shared services hub as part of a more extensive shared services model being progressed over the next few years. Following stabilization of the company's SAP platform implementation, project costs fell by nearly $5 million, noting that we continue to incur costs in developing our new yard management software for metal, which we are aiming to commence the rollout of in Q2 this year. All of these initiatives are expected to contribute to lowering the ongoing cost base and improve consistency of execution. As previously advised, we elected to cease work on the development and commercialization of the plasma-assisted gasification technology that was being undertaken by CIMS Resource Renewal during last year. This further reduced the central cost pool by some 10 to 12 million dollars per year on a full year basis. Just a heads up that in this area commencing in the current financial year we intend to allocate costs for centrally provided services that are currently unallocated out to the business in order to provide a more comprehensive and focused approach to their management. This will of course result in changes in the comparative performance for the business segments and will provide additional colour across this area as we approach the results for the half in the new year. At a group level, once again, able to keep total costs relatively flat over the period, limiting the increase to around 5% before variable costs and off that rebased comparative prior year. Waste management costs continue to be a major contributor to our cost uplift each year, and we are progressing a number of targeted initiatives at extracting the residual metal in this waste and how we reduce volumes to landfill into the future. Variable operating costs increased in line with the increased volume of unprocessed material and higher repurposed units at SLS. We also experienced higher fuel costs as a result of those Middle East tensions. Labor, of course, remains our largest cost element at around 50% of operating costs and ongoing labor cost efficiency initiatives continue to provide significant benefits in this area and in line with our previous cost-out commitments. While we remain focused on all cost opportunities, we maintain the view that our best way to drive further efficiencies in the business is through volume productivity gains and infilling our existing network. We progressed some initial opportunities in this area over the last six months in both ANZ and NAM and expect to progress additional opportunities in this area during FY27, further improving returns from assets already in the portfolio. Capital expenditure was significantly higher in the second half as we completed a number of planned initiatives across the business. Redevelopment of the Pinkenbar site in Queensland continued with activities focused on site infrastructure and an extension of the wharf. We also progressed new finds and metal recovery plants across ANZ including at Pinkenbar and in Auckland and expect to see the benefits of this flow through to the ANZ result in the current year following commissioning. We also completed our dredging program at Claremont at the beginning of the year as well as several other productivity initiatives at that site. Other growth and productivity projects include extensions to rail capacity and network efficiency, together with small yard infill opportunities in both the East and West United States, as well as in Australia, to ensure we get more out of the network we already own. And in February this year, outside of those smaller organic growth opportunities, we acquired the operations of Tri-Coastal Trading in Houston to better position ourselves in that market. Total group depreciation and amortisation, inclusive of leased assets, is currently forecast to be around $260 million in FY27, consistent with the current year. The group completed the year with net book assets of $2.7 billion at balance date, reflecting a stronger comparative Australian dollar at period end, dividend payments and removing the uni medals receivable. We recorded some $130 million in foreign currency translation differences this year from the stronger dollar, reducing our reported net asset backing in Australian dollar terms. Of note, this includes a $200 million uplift from non-ferrous prices, impacting both our inventory and receivable values. Despite this increase, we were able to retain overall trade working capital at a comparative level to the prior year. and following stabilisation of copper pricing at its higher levels, reduced broker deposits related to our derivative trading activities over what we had reported at the half. Intangibles uplifted by $64 million, principally because of the favourable infrastructure services contract associated with the TCT acquisition and this will be amortised over the life of that contract. Post the sale of our Houston properties, we expect gearing levels to revert to be more in line with our target range and we remain deliberate in focusing our growth activities to where we see efficient through the cycle returns while protecting balance sheet flexibility. Pleasingly, our strong earnings and capital discipline uplifted the group's ROIC to 11.7% and together with our positive free cash flow performance, the board has determined a final dividend of 20 cents per share, fully franked and payable in October. This brings the total full year dividend for 2026 to 34 cents per share. but noting that the availability of future franking credits will become limited going forward as our earnings base becomes more US centric. So a little bit more on our working capital movement and the group's focus. Here we've again isolated some of the movements to show the impact of those higher non-ferrous prices on the business which continue to be quite significant. Following a relative stabilisation in the copper price since the September run-up, we've been able to reduce the amount of restricted cash sitting in margin deposits at June, which, if you recall, was some $95 million at the half. While our total physical year-end metal inventory increased over prior year levels, we continue to align inventory holdings with scheduled sales and are focused on our conversion of receivables and the management of payables to match cash movements, keeping our overall working capital levels steady. All that summarises into our overall cash movement for the last 12 months. I've talked about most of these already. We converted over 70% of our EBITDA performance to operating cash and invested some $488 million back into the business through capital and acquisitions. Funding for the purchase of Tri-Coastal is still expected to be covered by the sale of our Houston properties. The Mayo Shale property remains under contract as the preferred purchaser completes its due diligence and concludes legal requirements. This is now likely to be a Q2 transaction for us. In addition, we have recently signed a letter of intent to sell our two other Houston properties subject to due diligence. They are targeted to close early in Q3. In October, we made our final FY25 dividend payment of $25 million and a further $27 million for the FY26 interim in March. As previously noted, the board has also determined a final dividend of 20 cents per share fully franked for 2026 in line with our capital management framework. And with that, it's back to you, Stephen.