Sims Ltd Sp/Adr

Thank you, and good morning, good afternoon, or good evening, depending on where you're dialling in from. Today we are here to present the full year results for FY24. Presenting with me today is Warwick Ransom, our CFO. Rob Thompson, our Global Chief Commercial Officer, is also here with me, and Warwick. The presentation has been lodged with the ASX, along with the results release. First up, I will run through an overview of the results, take a look at where the market is at, and then focus on the progress we have made in implementing our business strategy, particularly in North America. Warwick will then take us through the financials. At the end, I will return to talk about the outlook, after which we will have Q&A. I will turn straight to slide five, which covers an overview of the results. There is no doubt when you look at the year-on-year comparison of the results, it was a difficult year. Warwick is going to dissect the results in some detail in later slides, so let me just make three overall comments. Firstly, it is a better result than we thought when we updated the market in early May. If you recall at that time, we were seeing a weaker second half from ANZ and SAR, and a somewhat better second half from UK and North America. ANZ, in fact, delivered a very similar second half, which was great, and UK and NAM delivered their improvements. Accordingly, underlying EBIT came in around $43 million, whereas we were originally thinking more $20 million to $25 million. So overall, it was an encouraging second-half performance from the metal business. Secondly, sales volumes for the full year were down by 1.7%, despite being up a little at the half-year, and we also had the benefit of a full six months of volumes in the second half from Baltimore Scrap. This volume reduction was deliberate as we concentrated on improving margins and not just getting volume for volume's sake. And we are starting to see the benefits of this. Thirdly, we need to show even more diligence on our operating costs. Yes, a significant part of the increase was due to acquisitions, but inflationary pressures are proving to be stubborn. Turning to slide six. I'm very proud of what we've achieved here. It can be easy in tougher times for safety to slip as everyone focuses on financial improvements. We didn't let that happen. And despite integrating 17 new sites, our total recordable injury frequency rate is now below one. I genuinely believe we have achieved this through focusing on lead indicators. The next couple of slides look at the market. Firstly, on slide seven, we look at four trends contributing to the overall market dynamics. In the top left-hand box, you have Chinese steel exports, including 2024 annualized numbers. China is exporting a lot of steel, and this is depressing prices in Asia, which is directly impacting on our West Coast NAM and Australia regions that export scrap to Asia, and indirectly, East Coast NAM and UK, where we export to Turkey. Turkish producers are increasingly using imported slab and billets from China and Russia. reducing their reliance on U.S. scrap. Additionally, Turkey consumed more domestic scrap, which was made available after the earthquake, further subduing the demand for imported scrap. The U.S. scrap market has remained relatively strong, largely due to the significant share of electric arc furnace steel production. Continued growth is anticipated, supported by policy and regulatory protections. The top right-hand box highlights the ever-increasing demand for scrap in the USA, which underpins our strategic focus on this region. The two bottom charts help explain why scrap is currently in short supply. Durable goods sales are down, which reduces shredder feed, and people are holding onto their cars longer, resulting in further reductions. Turning to pricing dynamics in the market on slide eight. Ferrous prices have been reasonably stable over the last couple of years, and overall, the FY24 average is pretty similar to FY23 at a reasonably healthy $400 per tonne, historically a number that would have seen pretty good flows of scrap. However, inflationary pressures on the cost of collecting scrap and less scrap in the market for the reasons given on the previous slide means that the price is going to have to increase to stimulate further scrap arisings. Rate costs have risen over the year but are still below the FY23 average. Zorba prices were healthy in FY23 and have increased even further in FY24 due to the continued strong non-ferrous prices. Slide 9 expands on our disclosure at the half year. where we used pie charts to show our relative performance across the regions in three different areas. One, the sourcing of scrap from dealers compared to other sources. Two, domestic sales compared to export sales. And three, unprocessed intake compared to processed intake. This slide shows the movement by region in each of those areas, first half versus second half. The most pleasing aspect for me was the significant eight percentage point increase in unprocessed material that NAMM achieved. This assisted in improving the second half EBIT result in NAMM. Even more tellingly was the significant EBIT improvement in the fourth quarter as the benefits of buying unprocessed scrap started to materialize. All the pie charts we presented at the half year are available in the appendix. Moving on to a strategic update commencing on slide 11. This slide provides a nice summary of our updated business strategy. I will leave you to read the slide in detail, but let me summarize a few key points. Importantly, our purpose to create a world without waste to preserve our planet hasn't changed. However, following the sale of the UK and closed-loop businesses, we have definitely tightened our operational footprint to the United States, Australia, and New Zealand. Additionally, we have our high growth prospect in SLS to repurpose the cloud. Our redefined strategic priorities reflect where we want to take the business. Elevating supplier and customer centricity. Simplifying business structures and using data to improve our market responsiveness. A much bigger focus on margin from both sourcing and production perspectives. Global logistics are important to our success. particularly in ensuring we deliver product to the most valuable market. We must deliver all the operational and commercial priorities within a robust financial management framework. Finally, there needs to be a cultural shift. It's not a cultural revolution. Rather, it is emphasising the importance of being agile in a volatile market and taking accountability for making decisions closer to the coalface. Slide 12 provides a little more detail on how we have commenced simplifying structures to improve our market responsiveness. The executive team reporting to me has been simplified and reduced to six people. By following the simplification mantra down through our organization, we've removed 206 roles, saving an annualized 46 million. Turning to slide 13, from a commercial perspective, There were two major initiatives we worked on in the second half. The first was the UK Strategic Review, and this has now concluded with the sale of UK metal. The second was turning around the financial performance of North American metal. Various buy-side and sell-side improvements are listed on the left-hand side of the slide, but it is the tangible outcome of these initiatives I want to highlight. You can see in the top left-hand chart, we've improved our optionality to switch between domestic and export sales, depending on market conditions. This is further reinforced in the bottom left-hand chart, where the more domestic-oriented freight modes have increased year on year, and this has provided more optionality. Our shredder utilisation has improved in the second half, as we purchased more unprocessed scraps. It is also worth noting the chart on the bottom right showing a 32% increase in the ferrous buy-sell spread. Internally, we find this a very useful way of looking at how effectively we are buying from a margin perspective. It removes some of the noise in the accounting trading margin arising from things such as the weighted average cost of inventory, timing of historic sales, overhead costs imputed into inventory, revenue recognition rules, et cetera. It simply calculates how much did we pay for scrap in the month compared to the FOB selling price for that month. You can see the improvement in NAMM second half on first half. Slide 14 highlights some of the cultural changes that helped deliver the improvements highlighted on slide 13, particularly around being agile and accountable. We made significant organisational changes, streamlining or refreshing a total of 12 key roles. To strengthen our team, we brought in new talent from outside the organization. Additionally, we expanded the roles of two key talents acquired from Baltimore Scrap and NEMT, ensuring we have the right leadership in place to drive our strategy forward. We enhanced oversight by temporarily aligning NAM's commercial leadership under our global CCO, Rob Thompson, with a graduated succession plan in place to ensure smooth leadership and continuity in our strategic direction. Finally, we've also empowered our teams by providing them with critical data, enabling better decision-making and more strategic alignment. Slide 15 shows the four major acquisitions that we have made in NAM and looks at the rationale, execution, and future opportunities for each. I'm not going to read out all the boxes, but I do want to highlight a few things. Firstly, the consistent rationale for all the acquisitions is that they add to the strength of our existing portfolio. Therefore, from a strategic execution perspective, it was very important to ensure that they operated to the benefit of our whole portfolio, not the individual businesses that we acquired. Now that these acquisitions have been successfully integrated, our focus is on expanding and strengthening our footprint in fairers and non-fairers. We are at different stages with each acquisition, and while some are fully embedded, others like NEMT and Baltimore Scrap will require additional optimization work as we continue to improve the NAM portfolio. However, they present upside potential, and we are excited about the opportunities that brings. A change of pace on slide 16 as we look at the SLS business. Clearly, it has had a very good financial year, delivering well over a 100% EBIT increase on the prior year. It has proven its business model and is ready to continue its growth. We don't see any major changes to its strategy to deliver that growth. It will continue to expand its footprint through quality-led execution, improve productivity, and optimize its scale through the further use of robotic and digital technology. It remains a relatively capital-light business, which assists in delivering shareholder value. My final slide before handing over to Warwick is slide 17. Financial year 24 can be characterized as a very tough market. With the notable exception of SLS, all regions delivered lower EBIT than FY24 than FY23. ANZ and SA Recycling performed very well in the tough market. NAM and UK struggled, particularly in the first half. On this slide, we highlight the initiatives we have undertaken and in many cases will continue to undertake. None of them relied on assistance from the market and were therefore within the things that we can control. I believe they have laid the foundation to improve performance even in the event the current tough markets persist. I'll hand over to Warwick now for a more detailed look at the financials.

Many thanks, Stephen, and good morning, everyone. Before I move on to the numbers, just to point out that with the sale of the UK operations, we've moved that asset to one health to sale in the financial statements. That requires we reclassify it and the comparative numbers as a discontinued operation. However, for the purposes of this presentation, we've included the UK in most of our analysis. It really has been a year of two halves for us, with a better than expected result reported for the second half of the year. As expected, we did have a softer result for SAR, but managed to deliver a stronger result in ANZ, despite the predicted headwinds from Chinese steel exports, with improved non-ferrous pricing providing some relief, particularly during the latter part of the year. We subsequently recorded an improved second half EBIT of $29.5 million. The statutory loss was principally influenced by higher financing charges and a review of the carrying value of a number of operating assets as we continue to work towards getting our network composition right. We also had some significant closure and dilapidation costs in the UK. These items were offset, of course, by the net after-tax gain from the sale of the LMS asset, as reflected in our first half results. I'll come back and talk about some of the influences on our cost base in subsequent slides, and of course the team is available to respond to any specific items you may wish to delve into post the call. Stephen has already touched on the improved margin performance in the second half, so I won't dwell too long on this slide. But just to point out that while year on year we've broadly managed to maintain our margin position against revenue, It was primarily due to a significant improvement in our trading performance in the latter part of the year after a disappointing first half, where the business's focus was clearly on gaining volume in an increasingly competitive market. The results from a significant restructuring of the commercial team and their more disciplined approach to buying activity came through in particular in the fourth quarter as they embedded new systems and processes contributing significantly to the second half of earnings uplift. Moving to the specific segment of performance now and beginning with slide 21. In the U.S., the Baltimore and Northeast metal acquisitions added around 350,000 tonnes on average to our intake and sales volumes, and FAR's volumes were influenced by the addition of a ship-breaking business and smaller additional acquisitions throughout the year. We were able to maintain volumes in ANZ with solid industrial scrap sourcing, although total group volumes reflected the challenging market dynamics and our strategic refocus in the second half on value over volume. Despite a gradual increase in the Baltic Dry Index during the year, we saw a reduction in total freight charges as shipping costs returned to their pre-COVID levels and container rates in particular reduced. Of course, we also had more tons staying domestically in North America. Our total revenue base this year was split around two-thirds ferrous and one-third non-ferrous, with non-ferrous sales increasing by over 30% compared to the prior year, with the average selling price increasing by some 11%. Just on this point, as Stephen mentioned, I think there's an interesting disconnect in regional markets at the moment on the price of scrap, where intake volumes in both the industrial and retail markets are being constrained from lower economic activity, and yet the supply of scrap can't keep up with end customer demand. Our view is that these market dynamics are overdue for a correction. I'll touch on each of our operating segments in the subsequent slides, but before I do, I think it's worth just comparing our half-and-half results where we were able to improve our performance across all our directly managed areas. Improved margin performance in NAMM, The closure of non-productive sites in the UK and a reduced cost base have all worked to achieve a better than expected outcome, while the market itself has continued to tighten. Our expectation of a weaker second half for ANZ was countered by an improved non-ferrous position towards the end of the year, as I mentioned. Clearly, we have more work to do across all these areas, but some green shoots are starting to emerge here. We're also working on taking a stronger risk-based approach as to how we think about the business and the areas we need to be focused on and creating competitive advantage as a result. Importantly, it's not just about the megatrends, but how we ensure the delivery of returns throughout a cycle and create value that is somewhat independent of commodity prices. We need to continue to work on getting our supply chain right, make the organisation more innovative and agile, and using our significant infrastructure network to maximise market optionality. Moving to each segment now, and in North America, in-feed volumes contracted in line with market conditions, despite the addition of Baltimore scrap from November. As Stephen mentioned, we pursued our strategy of increasing the level of unprocessed tons and improving our shredder utilisation. Underlying costs actually improved year on year, pre-acquisition, despite continuing inflationary pressures across a number of areas. A weaker Aussie dollar through the year added around $19 million to the US cost base when restated to Australian dollars. We received a lower contribution from SAR, reflective of the market conditions and the trading shift required following that significant fall-off in steel prices which we saw in the third quarter. Operating costs for the joint venture increased as the business continued to acquire small tuck-in acquisitions through the year. In ANZ, we continue to maintain a well-balanced market portfolio, providing us with a level of flexibility to respond to market movements. We've got a strong purchasing program in regional and mining volumes, which has helped margin levels. Significant cost pressures remain evident through the year, particularly for labour and waste disposal charges, though. We were able to fill a number of long-standing operational vacancies this year, but also experienced higher fuel and electricity costs. Just to note that $13 million of the cost increase relates to reclassifications on the prior year, with $8 million in NFSR processing costs, which had previously been allocated to trading margin, and around $5 million in rental income on our Pinkenbar site, which was not renewed. The tightness in supply which was talked about was particularly evident in the UK results. The lack of available material reduced intake volumes with a number of major dealer suppliers switching to direct container shipping in response to available pricing before reverting to deep sea volumes in the latter part of the year, which then helped uplift margins. Overall margin performance was, however, also assisted by a favourable currency exchange although we did produce premium product low copper shred, which similarly added to costs. Site rationalisation kept second half costs stable. Moving to slide 27 now, and excluding the internal realignment of the precious metals business, which is now part of the broader metals segment, we experienced a 20% uplift in revenue at SLS. And with the delivery of an additional 2.3 million repurposed units in FY24, We exceeded our May guidance while broadening our customer base and increasing our service offering. Major hyperscale activities supporting the growth in AI continue to make this business an exciting component of the SINs portfolio. I'll cover the primary cost drivers in the next slide, but just to note that the divested operation covers the LMS business and has previously advised a number of the costs for SINs resource renewals are for the Rockley pilot plant, which are one-off in nature. I'll move to the next slide to provide some colour on the operating costs for the year and then cover the central function and corporate costs thereafter. Firstly, FX has been a significant influence on our cost base when we consider this in $8 terms. Only about 20% of our operating costs are actually $8 denominated. We saw the Aussie lose ground from its high at the beginning of the calendar year, and any sustained strengthening of the Australian dollar is unlikely in the near term. We added $74 million to our cost base in the period through acquisitions, principally from a full period of North East metals, as well as the addition of Baltimore scrap in Q2. On people costs, we've experienced around a 3% to 5% uplift in our wage levels, given inflationary pressures. which is about half the overall increase. We employed an additional 70 people into the Australian operations as we moved to fill critical operational roles that have been left vacant through the recent bout of labour and skills shortages and added additional roles into the SLS business in line with its growth activities. In Australia, we experienced an upwards of 30% uplift in state and regulatory levels on waste disposals. And we picked up $8 million in additional system and restructuring implementation costs centrally as we work to improve our information and data capabilities. Employee incentive costs reflect the improved full-year performance outcome from both ANZ and SLS and the retirement of certain senior executives. The majority of the cost savings related to the management delaying, which Stephen has talked about. At SIMS, we carry a number of costs centrally as part of our functional model to achieve scale efficiencies and consistency of process. Only about 40% of the amount we show within corporate costs are directly attributable to running the portfolio. And this year, these include a number of costs related to the restructuring, as well as the progression of the UK strategic review. The closeout of our ERP upgrade project added to system project costs, and we committed commence the replacement of our primary weighbridge operating system, which will maintain these costs in FY25 as we target a 2026 deployment. Just to come back to the cost reductions, if you recall at the half, we set ourselves a target to reduce our overall cost base on an annualized basis of some $70 million to $90 million over the next 24 months, with about 60% of that to be executed in the year. Pleasingly, we have achieved around 80% of our intended labour savings, which has offset some of the additional costs we are now incurring with additional wage and superannuation adjustments. However, as reflected on the previous cost waterfall slide, we've seen additional costs come into the business in areas such as additional system support, insurance, leasing charges and a range of general inflationary impacts across the board. Fair to say we have much more work to do in this area and we're working through these opportunities, particularly given the recent announcement on the UK. Moving briefly now to cash and capital. Operating cash, inclusive of interest costs, at just on $202 million, reflected the lower earnings result, a lower distribution from SA recycling, higher interest payments and lower tax remittances. In line with our existing capital management strategy, we recycled funds from the LMS sale into the Baltimore acquisition. And as previously noted, we had a residual contingent liability on the IllumiSource transaction. General and sustaining capital remained sensibly constrained given the operating performance, and we kept our previous guidance levels for sustaining capital. We paid a full year dividend of just under $41 million for the 2023 financial year. And the board determined not to pay an interim dividend for the half year, given the company's operating performance. We ended the year with a net debt of just on $400 million. Just before I hand back to Stephen, I wanted to touch on capital management and how we're thinking about that. Of course, both the sale of UK metal and our residual interest in circular services are welcome contributions to cash given the difficult market environment that the industry is experiencing. Our priority is certainly to pay down debt and strengthen the balance sheet. Both management and the board remain cognizant, though, of the need to balance maintaining financial flexibility, being able to advance appropriate business growth opportunities, and ensuring we provide shareholders with returns along the journey. We've actually got a broader capital management strategy review happening at the moment, and I'll be able to talk to this in the coming months. However, based on our improved operating performance and expected cash inflows over the coming months, the Board approved the determination of a fully franked final dividend for the 2024 financial year. Back to you, Stephen.

Thanks, Warwick. The final slide before we open up for Q&A is slide 36, which looks at the outlook. As we move forward, we expect our more agile sales approach and data-driven strategies to support NAM's ongoing recovery, despite intense competition for scrap supply. We remain optimistic about the sustained strength in Zorba prices, driven by the energy transition and decarbonisation. The hyperscaler data centre market is expected to maintain its strong momentum, providing positive opportunities for SLS. Our balance sheet will be strengthened as we redeploy transaction proceeds, positioning us well for future opportunities. Global steel demand is expected to remain muted, with economic indicators showing little improvement and Chinese steel exports continuing to affect the market. Persistent inflationary pressures call for further cost reduction efforts. The macro trends haven't changed. There is incontrovertible evidence that the demand for scrap is increasing as the steel copper and aluminium industries decarbonise. From a data centre and cloud perspective, if anything, the growth has just got stronger with the commercial arrival of artificial intelligence. Before we move to Q&A, I want to take a moment to thank all CIMS employees. It's been a year of big transitions, but through it all, you've shown incredible resilience, your commitment to safety and your adaptability are deeply appreciated. Back to you, operator.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Paul Young with Goldman Sachs. Please go ahead.

Yeah, morning, Stephen Warwick and Rob. Stephen Warwick, I hope you're well. You've Fresh set of eyes on the business. Great to see the progress you're making on asset sales and also the cost reduction. And with the UK sale, a good outcome there. And I think that sale shows that you're undervalued on a replacement value basis. So I know you're doing a capital management review, but how do you look at the potential for a buyback versus further bolt-on acquisitions, considering that it does appear you're well undervalued?

G'day, Paul. It's Warwick here. Look, I think the first thing is to think about our debt levels. We need to make sure that we're resilient through the cycle. And I think strengthening the balance sheet is part of that. As I said in the slides, also having a think about how we make sure that there's returns to shareholders. But I think that will ultimately come down to the sort of levels that we're at at the time. So we obviously have to bank that cash first, and that's our focus at the moment.

Okay, so I'm reading that a buyback is an option you'll consider.

Yes, we would always put that on the table. It'll just depend on where we're at at the time.

Okay, thanks. Then moving to the business, I'm just trying to square away SAR, which actually did quite well on a margin basis in the period and year on year, and as did ANZ, but trying to square away the intake volumes, which were up sharply, but sales volumes weren't. Understanding that, you know, you mentioned the ship breaking business and the 11 small acquisitions, but why didn't SAR volumes, sales volumes improve? Just trying to square that away.

Yeah, let me, I know Rob has a good appreciation of SAR recycling. So let me, Rob, maybe you could provide some thoughts on that.

I think generally speaking, the market size year over year has shrunk. The U.S. market, where a lot of the scrap that SA produces and gathers was down around 2% year over year. We're still seeing that happen this year as well in the 24 calendar year. So I think that's where you're seeing some of that volume come off, and there's definitely a sharp competition for a shrinking market.

I mean, the other thing I would add is, you know, the year end, you know, there can always be issues around ship slipping, revenue recognition, all of those things. So I wouldn't be reading overly too much into it. I think your overriding comment that ESA recycling had a good year is the correct comment. I wouldn't be reading too much into it. how particular year-end movements happen on volumes purchased versus volumes sold, given that it is quite easy to move stuff in from one month to the next.

Okay, thanks, Stephen. And then last question on the ANZ business, which, again, did really well, really resilient. I see that your export volumes actually came down a little bit, looking at the pie charts on slide 41, so thanks for showing that again, but Just curious about that, because we've heard from some of the local steel producers that, you know, they might be paring back on their scrap consumption. Was that related to potentially, you know, build of imagery related to, you know, Blue Scopes expansion in New Zealand?

Let me let Rob deal with that one. As the Chief Commercial Officer, he's been fully across, obviously, the ANZ second half result in particular, which was better than we expected.

Yeah, what we did see in the first half was a pretty resilient export market. The second half was a bit of a different chapter. We did see some of the volumes come down a little bit. Export market was fairly flat, whereas the domestic market in our fourth quarter started to slow down a little bit domestically.

And that's Australia and New Zealand? Yes, it was. Okay, great. All right, well, thanks for that. I'll pass it on. Thanks, Paul.

Your next question comes from Lee Powell with UBS. Please go ahead.

Morning. Thanks for your time. David, just on slide 13 of your PREZO pack, you have Ferris Bright by Where do you think, given the dynamics of the industry nowadays, obviously changed significantly, where do you think a trading margin should probably sit for your business? There's obviously been some recovery in that chart you've given us, and then it seems to have just flatlined. I'm just trying to work out what you think is actually an achievable margin.

A couple of points on that. This chart here is the first time we've shown this particular way of looking at the business. It's one we've always used internally. I do want to highlight that it's all about being directionally correct. As I said at the beginning, it simply takes what do we buy for versus what was the market, not necessarily the price that we sold for, but what was the market price at that same time to look for what is the spread at that particular time in the market. Clearly, we view that it can continue to increase because it eventually does reflect itself in trading margin percentage, and NAM's trading margin percentage in particular did fall over the last couple of years as we maybe focused too much on volume over margin. We've picked that up in the second half, and you've already seen off the top of my head, I think it was about a 1% or 1.1% percentage increase in the trading margin for NAM second half on first half NAM has previously had trading margins percentages, you know, up in the early 20s, maybe in the mid-20s at times, probably more early 20s, and recently it's been below 20% on the trading margin percentage. We are getting it back up to that. I mean, my view is, you know, at the end of the day, in the long term, scrap is what's required by the market. You know, we should be seeing increases in prices for scrap in order to get more scrap out of the market and we'll see an increase in our trading margin percentage as well. So I don't, you know, and for me personally, we should be getting back to those type of trading margin percentages we experienced a few years ago in the, certainly in the early 20% for NAM.

Okay, perfect. Thanks for that. And then your comments just around, you know, price and, and, that driving volumes. I guess we've seen prices kind of above the point where we would have historically seen volumes being driven and yet it kind of hasn't happened. Do you have a view around what type of price, scrap price we need to actually get that volume number moving again?

Look, it's an interesting question. I wish I could give you the exact answer. So let me try and give you an answer around it. I mean, firstly, you're dead right at a $350, $400 Ferris price three or four years ago, that would have been really sufficient to have a nice liquid market, scrap market coming out. But as I said, the things that are impacting it is the inflationary costs. It definitely costs more to collect that scrap and there's less scrap coming out because durable goods are down and examples of vehicles being held for longer. Having said all of that, those conditions can't continue because the demand for scrap increases incontrovertible. There is an absolute increase for the demand for scrap, which will drive prices up. Now, I don't know, are we saying it's a... I mean, I'm looking at Rob across the desk here. It's a little bit hard to know, but is 450 the new 350? And it's that type of number which will get us back to where we were because that will cover off inflation increases certainly it will do that. And then somewhat independently, somewhat independently will be when people start, you know, putting their refrigerators, their washing machines, their dishwashers, whatever, going to landfill as they are buying new ones. There's no doubt there was a glut of that happened over COVID as people bought things rather than did things. So that is somewhat independently of price. But I don't know, Rob, if you want to add, I would have thought maybe $450 is the new $350.

Yep. I think, you know, to sum it up, we're definitely experiencing higher lows than in the past. And what Stephen said is very true. If you think through the supply chain, from wage inflation to energy and gas prices, the lower we go through the dealer level to the peddler level, it's more difficult, more costly for those individuals to go and pick up scraps. So, We're definitely going to have to motivate that, and the supply elasticity or price supply elasticity is all a part of that.

Okay, thank you. And then maybe just a final one, if I can, for Warwick. Can you just, like, if I look at the NTI of the business, I think it was 1240 at the last result, now 1170. It looks like you've written up the UK assets though. Obviously, there's a sale ongoing. I'm assuming there's some sort of tax liability sitting in there as well. Just maybe step through what's actually changed and the mechanics of that because it's a step back, obviously.

There's a few factors. Obviously, when we think about the operating performance increase in some of our lease costs, lease liabilities and debt positions. So we can do a breakdown for you though, Lee, and sort of come back. Yeah.

I just meant more divisionally, like is there something... Like, I wasn't sure what you do, whether you book the tax for the UK sale, and then I was probably surprised that it all gets written up now. I just thought it would be counted differently, and I noticed there would seem to be some other changes divisionally. But, yeah, if there's no simple answer, then I'm happy to kind of take it offline.

Okay. I think that's a good idea so that we can give you the fully-fledged answer to that question. It's always complicated when assets are sold and discontinued. We'll do that.

Yep. Excellent. Thank you. Appreciate the call.

The next question comes from Daniel Kang with CLSA. Please go ahead.

Good morning, Stephen. Good morning, Warwick. Stephen, I just had a quick question in terms of strategy. I guess your portfolio has changed quite meaningfully in recent years. more recently exiting the UK and LMS and purchasing Baltimore. I guess my question is, are you comfortable with where the portfolio sits at this point in time?

I am comfortable where the portfolio sits. I think refocusing on Australia, New Zealand and U.S. and particularly, obviously, in the metal, and then having SLS as, I think, a very innovative growth engine on the side is the portfolio that we want. So I'm happy with that. Clearly, I'm not happy yet with the performance across the portfolio. So ANZ performance, very resilient, very strong. NAMS performance, particularly... in the first half of this year and the second half of FY23, not happy with that performance, and that's why we've put in place the changes that we have put in place. I believe it's the right strategy for us. I think the focus that that will provide, that we no longer have the UK business, is going to be extraordinarily beneficial, and it's now time for us to firstly continue to deliver the changes that we've put in place, and they are yielding results. as you can see that, you know, in the second half improvement and particularly the fourth quarter of that second half. Yeah, so I think it's the right portfolio for us and now time to make the improvement, now time to continue to deliver on the improvements that we've already put in place.

And secondly, Stephen, I guess part of the issue in terms of has been China's, I guess, peak steel, if you like. How do you think about that going forward if we do sit in a position where it's a prolonged, I guess, oversupplied situation and they continue to export low-value steel?

Yeah, so let me make an overriding comment and I'll get Rob to comment in more detail given he's in that market every day. I mean, I guess the overarching comment is in terms of the market itself, if China continues to export steel, there is nothing we can do about that in and of itself. What it's about is how we make ourselves more resilient to that. So maybe with that, I'll get Rob to talk about his view on China and where we see them going. But, well, it's a view. China will do what China does. And then maybe the type of things that we're putting in place to make ourselves resilient more resilient around continued China depressing the global steel prices.

Right. No doubt with China's increase year over year, it's putting a lot of pressure both on a semi-finished and a finished product supply base. What we're experiencing right now is there are countries, in particular the North American continent, is pretty much a no-go zone for China at this moment. The rest of the world is slowly but surely coming to the table with either countervailing duties or anti-dumping. At least some thoughts. India has definitely moved in that direction. Other countries are looking at doing that. As you know and probably are asking for this reason, they're a very iron ore-based steel-producing industry in China. The countries that we continue to support our scrap-based industry, and they are dealing with those problems. Our way of dealing with that is really in our sales diversity and optionality. We're not only selling more scrap in domestic markets, but we're also looking at new markets for us to be able to diversify and pivot when we need to in circumstances like today.

Thank you, Gus.

The next question comes from Owen Beryl with RBC. Please go ahead.

Yeah, thanks, guys. Just a couple from me. Firstly, I just want to understand what happened in end of May into June that saw you beat your guidance so materially. Now, back in May, you mentioned that the second half EBIT would be slightly lower than first half EBIT, but... in the space of, call it what, six weeks afterwards, there's been a material beat there. I'm just wondering what you've seen in the market, I guess, as an exit run rate that has meant that you've beaten so much at this result.

Yeah, I think if I go back to those early May days and you look at the component parts, we were seeing in the second half, SA Recycling and ANZ, we're going to have a weaker second half. We saw the UK and NAM having a better second half, off a very low base, so let's not forget that. Really, the major difference that happened was that the performance of ANZ in that last two to three months. Now, bear in mind, in May, we still, even in early May, we still haven't seen the full result of ANZ. There's still whole things around revenue recognition, particularly when it comes to non-ferrous, and I need to stress that, that, you know, Non-ferrous, when you've got hundreds and hundreds of containers on the water, all with different legal obligations as to when ownership passes and therefore when you can recognise revenue, you are having to make guesses as to when that will or will not happen as you get into the year end. As it turned out, ANZ did very well in non-ferrous in that last quarter and we weren't anticipating that level. Rob, if you want to add any more colour, but I don't think it's... My view is it's not... In a simple understanding, not a simplistic understanding, but in a simple understanding, it was ANZ and particularly around how it's last quarter non-fair. But, Rob, any other colour, just please add.

I think you covered it, Stephen. I think there was just a better result than anticipated at the time we made the announcement. Yeah.

I mean, the other thing I would add to that, Owen, is we were anticipating some green shoots, particularly out of NAM, and delivering a better second half and, in particular... in a particular bit of fourth quarter and that came to fruition. So that was pleasing.

I think the other thing is like the price change that we saw in the non-ferrous was really that sort of May, June period in terms of that uplift. It definitely helped.

Okay. I guess the reason I asked that question is because looking into the, I guess, some of the building blocks as we move into the first half of 25. So the underlying environment looks like it's slightly improved as an exit run rate for this. Can I just ask, in terms of the 60 million of, roughly 60 million of annualised improvements that you've achieved so far, can you give us a sense of what the impact was during the half? Like when, I guess, how much of the 30 million in EBIT was contributed by the improvements? And then just secondly, the 15 to 20 million of additional improvements still to come. Should we assume that they will come in the second half, or in the first half of 25?

Yeah, so we picked up, so most of the changes that we put into the organisation happened from around about February. So obviously we've annualised those in terms of that total savings projection. And on the cost waterfall, you'll see that, you know, net of some exit costs, we've sort of, we've banked about $17 odd million in the half. And then, yes, definitely the 20 is a minimum for us in terms of what we need to do going forward. We're definitely not comfortable with where we're currently sitting.

I would underline that, Owen. Yep, I think we've done a... good job in simplifying the business and removing some costs as a result of that. But it's, you know, I'm still worried inflation isn't under control in the economy generally, certainly in our expense categories, you know, energy, waste disposal costs, they're all increasing more than inflation. So we will have an ongoing continuous improvement focus on addressing all costs and continuing to get costs out of the business. I don't think it will be effectively the big bang thing that we had to do to jolt costs down, but we have to keep on a continuous improvement and making sure that we at least try and combat the inflation that's coming into the business.

Just one sneaky final one, if I may. SEMS Resource Renewal, can you give us an update on any commercial progress you've had with the pilot and is there an option to roll this out commercially at any site in the next 12 to 18 months?

Yes, so I can. So SRR has now successfully run a pilot, a test run. So we have used our strata residue up there and in a batch, not in a continuous process, but in a batch have run it through and produced syngas and that syngas is of sufficient quality that it could then in a further process be used to produce methanol and ultimately olefins and therefore back into plastic, and that would completely close the loop. If you think a car, right now a car is about 70% recycled and that's all metal, this has the potential for the final 30%. That is very much for the future. There is no prospect of a commercial rollout of that in the next 18 months. The next stage of that project will be running it for a period of about one month, and then that will show that not only does it produce the sim gas, which we've proven, but it's capable of producing it reliably. The ultimate commercialization of that is not something for sims. Frankly, we don't have the manufacturing in Australia that would require either methanol or olefins it will be commercially rolled out into the US. And that has, I think I've said this before, that type of funding commitment is not a SIMS funding commitment. We would be just moving that, we would be moving that project into the type of companies that have the chemical processing capacities, et cetera, et cetera, to do that. So SRR will come to a natural conclusion at SIMS following the proof of a one-month continuing running of the plant.

Just on that, I know you're not going to commercialise it yourself, but can you give us an update of what your landfill costs are at the moment?

Yeah, they vary by state. I'm looking around the table. Does anyone... Obviously, they're not that significant in the US. It was the UK and Australia where they were much more significant. We're no longer exposed to the UK. Depending on my state, I think it's in the $120 to $180 mark, depending on what state you're in. But let me come back. I can come back because that's publicly available numbers. I can come back and provide you the actual landfill costs by state.

Okay, thank you.

The next question comes from Lyndon Fagan with JP Morgan. Please go ahead.

Good morning, guys. Look, just turning to your recent acquisitions on slide 15, obviously that introduces a bit more complexity, but I'm just wondering whether you can comment on what you expect the sustainable EBITDA uplift through the cycle is from all of that.

Yeah, okay, let me start on that because that is a much more complicated, that is a very complicated question. The first thing I would say is that we are fully integrating these businesses into ours. So in some ways, we only really talk on these calls now around Baltimore, Scrap, North East Metal and ARG. They're just part of the SIMS portfolio now and the benefits of those acquisitions are coming through, you know, operating cost reductions across the assets that we acquired, plus operating cost reductions in our existing assets. We're optimising the shredders that we've got. We're optimising the shares that we got on those acquisitions. So it's getting more and more difficult to say that that is the EBITDA attributed to those set of assets in Baltimore Scrap or those set of assets in ARG, because a lot of the benefits are sitting in the whole portfolio now. What I would say is that in the long run, our minimum hurdle rate is a 15% IRR, and we still have to achieve that 15% IRR. So if you take the purchase price of those assets and get a 15% IRR, add back DAR, that is the type of returns that we are targeting. on those assets that were purchased. It just might not all sit with that asset, and some of it will sit in the rest of the business. But if you compare it before and after over the medium term, that is a sort of improvement we're expecting to see.

Okay, thanks for that. And just a follow-up, given how much the portfolio has changed in recent years, I'm wondering, can you comment on what the sustaining capex is now for SIMS? in a sort of equilibrium environment?

Today, Lyndon, it's around about sort of 180 to 200.

So I guess what I'm getting at is we're in a depressed market at the moment. Is the sustaining capex today reflecting that or is it fully loaded in terms of what you would expect going forward? It's

Fairly well fully loaded. I mean, you know, there's always requests for more from the operations, but I think around that 200 level is pretty right.

That includes maybe a bit of environmental capex that is going to be required in the next couple of years, which will taper off after that. And clearly, too, every year when we look at CapEx budgets, we look at it in the context of where the year is at. And you'll see, I think we've had a reasonably good history of keeping CapEx appropriately timed to how well is the business doing.

Thanks. And just a related follow-up, once you get the UK sale proceeds, Can you maybe just drill down a bit further in how you expect to use that? So what's the growth capex for 25? Where would you like the balance sheet to be? And then I guess what is then left is perhaps what you'd call excess capital that you can think about returns with.

I think, well, as I said before, you know, the priority will be to pay down... the debt levels and give us some flexibility there. Our growth in 25 is currently very much focused on incremental activity, so more around product quality and improving our overall productivity output. So we don't have any sort of major sort of expectations in relation to that. And then, yes, as I said, when I went through the slides, you know, we are cognizant of the need to also think about returns to shareholders.

Okay, thanks, guys.

This question comes from Paul McTaggart with Citigroup. Please go ahead.

Good morning, all. So I just want to circle back to the US. Because remember, last half we talked about the NAM business. We talked about the need to reorient that business to, you know, because the problem was export prices outside of the US lower than domestic. And of course, things have swung around the other way a little bit now. And you did talk about, you know, wanting to kind of redirect those tons to the domestic market. And I can see there's been some shift. You talked about, you know, spending money, not big blicks of capital, but spending money around developing yards, et cetera. Can you give us a sense, you know, now that things have switched in terms of the pricing, is that still an impact? You know, you're still looking to do that, or has that strategy shifted a little bit? Or as you were saying, you're just looking to have optionality around it?

Yeah, it's a good question, Paul. So let me make it clear. Our strategy hasn't shifted one iota. We need to have more domestic optionality. We need to have the ability to direct stuff domestically. And we got caught out previously, and we didn't when there was those quite large price separations. So that strategy hasn't changed, but tactics will always change. And I think what we've shown is that you're dead right. As we went into the year end, the half year, sorry, our full year in June, there was more value in the export market and therefore we did export more. So I think tactically, you will always see us look to optimize under an overall framework of we believe that in the medium to long term, the domestic market in the US, particularly fishery, the domestic market is going to be the main market, just given the amount of EAS that they are building. So we need to continue to have that domestic optionality, including good relationships with the domestic players. And those good relationships will be around looking through the cycle, and I'm now talking export domestic cycle, so that we provide a in a sense, an agreed volume at a fair market price so that we have that nice base load in the domestic market. And then on top of that, if the export market is better, then it will flip to export. If the domestic market is better, we'll flip to domestic. So that strategy hasn't changed. It's around having a solid base load exposed to what we believe is the market where the large part of that scrap's going to end up, but maintaining the optionality to use our export facilities. We've got great docks that can either export or can be used to send domestically via barges or rail or truck, whatever it happens to be. I guess what I'll say in summary, strategy hasn't changed one iota. You should expect our tactics in any given month or quarter to change reflecting market conditions.

Have you spent the money you need to spend in putting in that domestic.

I'll get Rob to, how do you feel in terms of rolling out that domestic optionality? Rob, how far down that process do you think we are?

I like to use the word optimization. So we're keenly looking at the data points on a daily basis. We've made a lot of progress in really the supply chain. Again, the drayage costs, we've renegotiated all of our freight to ports with containers. We've identified certain locations in certain parts of the country that we operate in where we'd be better off not consolidating at our docks using containers now. We have that flexibility. We've developed that over the last six months and then some. And as Stephen said, it's a constant ongoing question of, you know, the best use of the equipment that we have and what Warwick answered earlier is where should we be investing money, whether it's on extending our rail sidings and rail car equipment and those sorts of things.

I think in summary, Rob, we wouldn't view this as an overly capital intensive. Most of the capital we've spent, we've needed to spend, we've spent. And there may be some marginal bits of capital if we have to improve rail sidings or whatever.

If any at all, but no, there's been progress made there and... Yeah, as Stephen says, it's about optimization now.

So, Paul, I think, I mean, it's a good question. I think the specific answer is that we believe we've spent most of the large, any large capex to do it, and it's kind of incremental now on. Thanks, guys.

Next question comes from Jen Trunk with Bank of America. Please go ahead.

Oh, hi. Good morning, Stephen and Warwick. Congrats on a strong second half of FY24 EBIT bid on your own guidance provided in May. A few follow-up from me, please. So firstly, from your answers given to some questions earlier, is it fair to say you bid your own guidance given in May because you didn't expect the non-fair scrap prices to increase in the fourth quarter, which which helped your trading margin. And then the strength in the non-ferrous prices, is that something structural, sustainable, or it's just linked to the primary metals prices, such as linked to aluminum and copper prices? Thank you. I'll have a look after this.

I'll let Rob answer the second question. I'll answer around increasing non-ferrous prices and do we think it's sustainable. Specifically to your first question, again, it was ANZ driven and with a bias particularly towards ANZ did very well in the non-ferrous as we went into the year and better than we expected. So that's at a very high level, that's what drove the beat versus what we were thinking back in early May. And Rob, maybe your thoughts on non-ferrous prices generally because they are strong. I mean, I don't see them getting weaker, but your...

Likewise. You know, without giving our crystal ball away, our view on demand for copper and aluminum remains very, very strong into the future with data centers and the need for copper, aluminum products, UBCs. So, yeah, China's economy right now has caused a little bit of a ripple, but at the end of the day – Non-ferrous prices are at multi-decade highs. So, yeah, we're still bullish on the non-ferrous side.

Sure. Thanks for that. So it's still primary metals prices driven, I guess, from your answer? Yeah. Okay, cool. Thanks. If we can go back to your business in U.S., The shortage scrap supply, which will increase your competition, as you mentioned, especially to source the scrap, will become more competitive. I'm just wondering, in your presentation, you mentioned advanced data, analytics, AI, et cetera. I'm wondering how much purchasing transparency you have in U.S., And also by looking at the second half NAM, North America metals, the U.S. trading margin improved half over half, which is great, but your operating cost actually increased half over half. I'm just wondering how can we think of the operating cost into FY25, given you have achieved some savings through your cost reduction program? Thank you.

Yeah, three parts to that question. Let me make a comment on the first, and I'll hand over to Rob to talk about those market dynamics you mentioned, and then Warwick maybe looking at second half costs. I guess our overall view is, you know, you're right, this scrap shortfall has driven intensity around the prices. In the medium term, the sale price has to rise, because if the sale price doesn't rise, the risings aren't going to come out. So and I guess we base that assumption on the significant increase, massive increase that's happening in EAF. So that's an overall comment. Maybe, Rob, if you want to talk around the market dynamics in NAM and supply and how you're seeing it, and then, Warwick, come back and talk about those second-half costs.

Competitive at source, no doubt. I think we've mentioned already there's a with the aging of vehicles and durable goods, manufacturing is somewhat coming off for various reasons. That supply drought is causing a little bit of concern. That said, our strategy remains the same. At source, value added on processed material. Our ability to process material at scale with the technology to separate and liberate non-ferrous metals It's a good platform to continue to grow in a competitive nature. The differentiated value proposition in some of the products that we are now making, very specific metallurgical products for end users, both in the aluminum space and the steel space, also give us an advantage. So that's where we're headed right now.

Yeah, and I think... In terms of the cost base, you've got to remember that we've picked up Baltimore primarily in there, and that's been a constant cost, if you like, through the balance of the year, whereas the uplift that we've been able to develop in our margin performance has really only came to fruition through the last quarter. There's a little bit of a disconnect there between the sort of uplifting costs versus the change in margin. So we'd certainly expect to see an improvement of that, particularly as we continue to integrate, as Stephen has already talked about, the Baltimore operations into the broader network around that area.

Sure. Thanks, Warwick. Just a follow-up. So you mentioned the operating cost increased half over half this you know, driven from multiple transactions. I'm just wondering, in your second half FR24 results, how much integrated from the Baltimore transaction? I'm just trying to assess how much upside, you know, you have from that acquisition from volume and margin perspective. Thank you.

Well, I think that... And Rob, happy to comment as well, but I think that upside is happening, and it's part of the upside we're experiencing generally around our focus on margins, not volume. So I think Baltimore scrap is part of being optimised within the whole SIMS portfolio. We absolutely expect to see better margins as we go into this first half of this year and then ultimately the full year. But as Warwick said... I'm not expecting to see a cost increase. We're going to be, you know, we're going to be very diligent on making sure that those costs remain flat or we can get them, you know, can we even get some costs out of the business so that the margin increase follows, you know, sort of flows through to the bottom line. Rob, happy for any other, Carly, you want to add on to that?

Very simply, I think, summarizing, we've reallocated a lot of the assets and the volume. We've analyzed the flows of scrap, optimized the New York, Pennsylvania region from Baltimore scrap, and extended those into the NAM existing footprint. The Baltimore, D.C., Maryland marketplace were quite happy, as Stephen said, with the market margin improvements that we expected.

Sure. Thanks for the color, but maybe a follow-up on your comments. It's the margin, not volume. Why not volume? You know, you just you acquired asset, there should be volume from a memory mentioned like 600,000 tonne per annum of fairy scrap. You have more scrap yards and processing facilities. Why no volume?

Well, it's that classic volume margin trade-off, which is exactly what we've been trying to do. I'm not saying we've lost all the Baltimore scrap volume, but by no means. We've kept a substantial amount of it, but it's making sure within the whole portfolio that what's our margin, what's our volume to contribute to the highest EBIT? I'll be frank, if we just concentrated on that volume, I think we'd be back where we were. And to increase your volume simply by paying more for the scrap, the market will have a reaction to that, and suddenly everyone's paying more for their scrap, and it's making sure that margins are in the business.

And Shane, just remember that we've only picked up seven months of Baltimore this year, so.

Yeah, sure, sure. All right, okay, cool. Thank you, Stephen Warwick and Rob for your colour. Thank you very much. I'll pass it on. Thanks.

The next question comes from Simon Marwini with Alan Gray. Please go ahead.

Hi, good morning, all. I'll ask two questions. Morning. Two questions at once. and I promise to spare listeners with endless follow-ups. On NAM, the trading margin has improved, and some of those outcomes on page 13 of the presentation are very promising. The acquisitions that you've mentioned, the Illumis of Baltimore and Northeast Metals are contributing, and at least one of them seems to be contributing to plan or better, given the contingent consideration of $55 million in the cash flow statement. And then Warwick's presentation on page 24 noted that the net operating costs were flat. x these acquisitions and so all of those things are good but north american metals ebit performance has fallen 70 million underlying for the year and i'm just trying to work out where the leakage is that's my first question and then the second question is on corporate costs it would be nice to know what the run rate is into 2025 whether you have considered allocating those to you know your other operating segments and remunerating people based on those to get an understanding of whether they value the corporate cost functions or at least acknowledge their importance. And then also on the waterfall, I see incentive costs are up 23.8, 22.8, I can't recall, million dollars at a time when underlying profit after taxes fallen 200 million. If you could comment on all of that, please.

Sure, Simon. Let me start with the margin performance, and I'll let Warwick talk about corporate costs, including those incentive costs which you highlighted there, which were actually not part of corporate costs, but we'll go through that. The leakage on margin over the whole year is all around the shortage of scrap and us out in the market. paying more for scrap to keep the volumes up, and they ended up being profitless volumes. I've already talked about it. We did not pivot fast enough to that. We have now pivoted away. You're seeing we're not as obsessed by volumes, though volumes as a result have fallen and EBIT has improved. It took a while for that to come through. I remember when we discussed it, the half-year period we had the view that to fully get that margin back into the business, whether that was from buying unprocessed scrap from small dealers or peddlers, or then outright buying more from peddlers, that was going to take us a while to get through. I actually think we're ahead of our plan on that because we absolutely saw that starting to come through in the fourth quarter, and that's what delivered our stronger second half. So it really is around The leakage really happened because, frankly, we spent too much time on volume and not enough time on margin, but we've turned that round in the second half. It's nowhere near finished, Simon. It's not like we're sitting back and thinking, yep, we've done that because it's green shoots, it's not completed, and there's many more things we will continue to implement to make sure that we drive more unprocessed scrap through the business because that's where we make our margin by processing. We've been shredding it. sharing it, it doesn't matter. Just passing volume through the business has been profitable in the past for us. In fact, it's been highly profitable in prior years, but that's not the market we find ourselves in now. Maybe Warwick, I'll get you to touch on corporate costs and whether or not the business units find them valuable.

Yeah, just to thank and acknowledge, thank you for the answer. I mean, offline, I will I mean, I thought all of this impact would be in the trading margin, which improved, funnily enough, but we can take that offline. But okay, thank you, Rick.

Okay, yeah. In terms of corporate costs and centralised functional costs, I think a couple of things, Simon. One is that, yes, we will continue to have the same sort of level of systems development costs because we're putting in a new weighbridge system and it's something that, because it's software as a service, we need to pick that up as an expense. In relation to the balance of the centralised cost base, it's something that we're really cognisant of, particularly now that we're moving to the disposal of the UK. So there's a parcel of work that we've got, we're kicking off now around what is actually that more reasonable run rate because with part of that business, part of our business no longer there, we need to rationalise on a number of areas. So that's actually work in progress in terms of what we would actually expect to see in FY25. In terms of the incentives, look, our incentive scheme is segment based. It's obviously a comparison to last year and that varied in terms of you know, where we paid incentives. It reflects ultimately a partial achievement of targets by ANZ given their strong performance in the last quarter and the performance of SLS. And we also had some limited executive inclusion from retirements. So that's all gathered in that.

Sorry, just to be specific, I said no follow-up questions, but I just want to make sure my questions are answered. What is the run rate for corporate costs leading into 2025?

Well, we need to... It was $50 million in the second half. Corporate and consolidated costs at the moment, it would be exactly the same in terms of the second half, but we need to rationalise that, as I said.

OK. And then, I mean, the incentives, it's not clear that any of your segments improved on an underlying basis, yet incentives were up. I understand they happen at the segment level.

Yeah, so at a financial incentive, SLS got all of its incentives, and then some because it was up significantly more. And then ANZ did not achieve. I mean, bear in mind, everything was, From financial, everything was zero in FY23. No one got a financial short-term incentive. ANZ definitely got a partial achievement in FY24, given their performance. So those are the two areas that it works in, but it comes off zero for FY23. Thank you. Thanks, Simon.

The next question comes from Megan Kirby-Lewis with Bear and Joey. Please go ahead.

Morning. Just the first question. On the strategy to continue increasing the volume of unprocessed scrap, particularly into North America, I assume, I guess, that you are cutting out the middleman or the peddlers. So just keen to know if you are seeing any response, whether that be positive or negative, from your previous suppliers.

Let me get Rob to answer that one.

Yeah, it's a delicate question to answer. It's definitely a supply chain pulverization or an optimization that we are going through. So it ranges from peddlers to demolition companies to auto wrecking portfolio adjustments. It's not an abandonment of any part of our portfolio, but probably a readjustment. And markets do change. And but it is looking for the processed profitability rather than a wholesale margin that we've somewhat been more keen to have in the past.

Okay, that's great. Thank you. And then just a question on tax, and apologies if I've missed something obvious in the materials, but just that underlying tax expense came in much higher than expectations. So just if you could talk through the drivers there.

Primarily the sale of LMS. We're taxed on the original cost base rather than the accounting base.

I think it's fair to say, I'm going to wander into territory, but I think it's fair to say that once you, on an ongoing basis, when you get rid of all of the noise, our underlying tax represents the proportion of the rates in each country. So with a few permanent differences. So 30% in Australia, 23 and a half in the U.S. And I've forgotten what it is in my native of New Zealand now. But those proportions and the profits in those countries should be our underlying ongoing tax rate. There's some very funny accounting things happen this year whenever you sell assets.

Yeah, fair enough. Thanks for the call.

Your next question comes from Simon Thackeray with Jefferies. Please go ahead.

Thanks very much. Thanks, Stephen Warwick and Rob. I just want to basically explore one of Paul McTaggart's questions earlier, really looking at the details of the drivers of the sequential improvement in the trading margins of the US. Now, I take your commentary, which is helpful around sourcing more unprocessed scrap and buying less from dealers, but Can you explain probably in a little bit more operational detail perhaps for you, Rob, exactly what you did differently in the second half to access that pool of scrap and whether tuck-in acquisitions were included acquiring any dealers or others in the supply chain in North America in the half?

Yeah, so as you say, I'll let Rob answer that one in detail, but I would make the overall comment that when you buy a new business like Baltimore Scrap and you pull apart the trading margin and the cost, absolutely part of that trading margin in absolute terms is because Baltimore scrap had a positive trading margin, but it also increased our costs. So some of that trading margin improvement is simply because we've acquired Baltimore scrap. What I really focus on is things like what's our trading margin percentage improvement and therefore things like what's our dollar per ton improvement, which normalizes because it's per ton or percentage for those acquisitions. And we still saw that improve. So maybe, and we actually saw that improve quite nicely, so maybe, Rob, to answer Simon's question, for those things outside just the straight, we've got more margin in absolute terms because of Baltimore scrap, what are the type of things that we've been doing to drive whether it's more unprocessed or higher margins generally?

It's been a wholesale operational effort, commercial and operational effort on just being a little more customer-centric, supplier-centric, if you will. The magic is really in taking the unprocessed material through our already invested asset base and liberating non-ferrous metals from commingled, obsolescent scrap. And as you very well know, there's been enough uplift in the motivation to do that from a decarbonization point of view, but also from the value point of view. We furthermore kind of are trying to separate ourselves from a product in use for certain clients, and that's on the sales side optimization, getting a premium for certain products, listening to the customer voice and understanding what their needs are, and then providing a metallurgically suitable product for clients. And some of those acquisitions that are already mentioned have taught us how to do that at scale in a much greater way.

So if I was to separate it, Rob, though, I'm trying to get clear in my head, it feels like quite a big delta in performance. How much of that then is Baltimore Scrap versus the initiatives you're talking about in this half, the sequential half on the half and including the volumes? change that you've called out? Very little from Baltimore Scrap.

Other than Baltimore Scrap as an acquisition, we're very much at source through their shredders already when we acquired them with four shredders and eight feeder yards already.

Right. And you mentioned delicate issues. I can understand that. So somebody clearly in this process loses out in the supply chain. I presume or I'm Assuming that is the dealer in the traditional supply chain, you talked about peddlers and auto wreckers and construction demolition and sourcing more unprocessed scat. So is it the dealer network? And on that front, how much therefore now is actually coming from the dealer network versus other sources?

It's delicate. It's breaking eggs, no doubt. And the delicacy is that it isn't. As I said earlier, it's not an abandonment of any portion of our portfolio, but as you say, it really is a re-optimization. Dealers are in different magnitudes, and we can classify them as A, Bs, and Cs, and however low you want to go, down to a peddler, et cetera. So it is buying scrap at source, at scales, very similar to our JV partners at SA, and from peddlers all the way up to larger dealers. But that mix in our portfolio has dramatically changed, and that's how you're seeing these margin improvements.

Thanks, Rob. And then, you know, giving a comment about the access to the non-ferrous feed and the pricing, and I think, Stephen, you called out the performance of ANZ on non-ferrous in May and June. Just to simplify for everybody on the call, so in terms of where the guidance was in May versus June, where you've delivered the numbers, just what's the contribution of the higher non-ferrous pricing in the second half towards overall profitability of the business?

I don't have that number off the top of my head, but what I, you know, like, here's the number, but clearly with high non-ferrous prices, you know, really good solid sorber prices, the amount that we liberate material, we've got, you know, good quality shredders, we have good quality downstream separation processes as well. It's significant. It's all about copper, ferrous. It's always a good contributor. But it's not solely that. I mean, we absolutely, and going back to Rob's comments around dealers, I think it's large dealers in particular that are the most impacted because they tend to just have processed material. So not buying that. Or, and I think it's worth us stressing this, Simon, We're happy to buy it at a right margin, but we've got fantastic facilities to export this, whatever needs to be done with it, and we need the right compensation for that. If we don't get the right compensation, then we won't buy it. So that is also contributed. But it's not all the eggs in one basket. This is not just a non-ferrous driven thing. Non-ferrous absolutely helps, but we're good at that, particularly when we process it.

I think at the margin level, we picked up around about 20%, half on half on the non-ferrous increase in terms of... Yeah.

No, that's helpful, Warwick. And then just finally, noting the SLS improvement and your comments earlier, Stephen, that the business is still considered core. Just a question. Is there greater value extracted elsewhere in the portfolio by realising value for SLS? I mean... Will it be core given the work that still needs to be done in the US and why wouldn't you consider deploying capital to that region by recycling it out of SLS? Excuse the pun.

Yeah, look, there's always, you would never say never. I mean, there's always a price for everything, isn't it? I mean, everything's for sale at some point. My point is that it's not a distraction. It's not a distraction for management. Ingrid Sinclair, who runs that business, is an excellent vice president of that business and has got that team humming. We see further growth. I don't think it's miles away from our core business in the sense that it's taking equipment, it's taking material that's come to an end of its life and either repurposing it or recycling it. I just think it's too early, Simon, if I was to be blunt. If it was consuming all of our time and it was a massive capital investment, I would be much more hesitant. But it feels like it's an opportunity where clearly SLS does very well at it. Is it going to be a core business in five or ten years' time? That's too long for me to be saying.

No, fair enough. Okay, thank you, gentlemen, for your time. Thanks.

The next question comes from Scott Ryle with Rymor Equity Research. Please go ahead.

Hi, thank you very much. I just want to continue on the US for a second. And I appreciate the first half, the second half improvements that you've presented in the pack. That's really helpful to see some of that. But I guess the first half was really poor. Fiscal 23 was not a great year. And so I'm just trying to get a sense around how far down the path we are to improvement. So if I look at, you referenced the appendix, so slide 41 is what I'm going to talk to. Your dealer sourcing in NAMM doesn't look too much different between the first half and fiscal year 24. Unprocessed has picked up, as you said. But still, you know, the SAR and ANZ businesses show that, you know, where the prize is, I guess, for that. So when, I guess, If you're talking about improvements to collection and potentially the network you need to have, the incentives which you've put in place and they take a while to drive behaviour change, I would have thought you haven't talked a huge amount on this call about low copper shred a little bit, but obviously improving the quality of product and getting close to your customers takes a little while as well due to testing and things like that. So how long do you think it takes you to turn around How long before the NAMM business is really humming, I guess? And leaving aside, obviously, the macro headwinds, I'm just wondering, when is it that your business is as good as it can be from your perspective?

Yeah, okay. A couple of comments from me, and at the end, anyone around the table, feel free to jump in. The pie charts, I think, are useful, but they don't show in granularity improvements. I mean, they're just high-level improvements. which is why we pushed them to appendix and went back and showed some more granularity on the slide. I forget the number of the slide where we showed the second half, first half improvements. But what the pie charts were very useful at doing when we presented them back in March and in February, now I'll answer your question, was that they were very good at showing the stark differences between ANZ and SA recycling as a clump versus NAM. I said at the time that I felt Our path to solving our domestic export optimisation was six months to 12 months. I'm going to say I think we're ahead of schedule on that. It's still not complete. We're sort of maybe seven or eight months into it, but I don't think it's going to be 12 months. I think we really have improved our relationships. We've improved our ability... to get product to either domestic or export in a significant way. We've always been fantastic at export. We've now got ourselves pretty good at domestic, so we just need maybe a little bit of improvement there. I also said at the time that the whole issue around margin was more of a, you know, that's what's going to take some time, and I said I felt that that was a two-year program. We're now seven or eight months into that two-year program, and I'm feeling I'm feeling that we've made significant progress. No one is satisfied. No one is. And we know we've got to continue to make more improvements. But it is improvements that's further embedding what we have put into place, the use of data analytics, the clear understanding of our customers' needs and our customers' customers' needs, making sure that we can get people in and out of our yards in a safe and efficient way. Right now we do it in a safe way, but I don't think we necessarily do it in the most efficient way. So those types of improvements. It'll be, you know, putting more margin into large dealers. All of those types of things, we are still, are ongoing. I'm still feeling confident around the two-year timeframe, but I think you, so another, you know, 18 months or so to go, maybe a little less, but I think you made the very valid comment. It'll be in context of whatever the market is at that time, And what I think we should be looking to see is there's not the big difference between, let's look at the two businesses we control with the same people. There's not big differences between ANZ and NAM that we're currently seeing. ANZ's got a great position in the market. It's established that position over many, many years. And we now need to get NAM more along those types of characteristics. We've The team that delivered ANZ is also part of, you know, the team that can deliver NAM. I think it's in that, you know, 18 months from now timeframe.

Okay. And then unless anyone's going to jump in with the extra, my second question is having sold the UK business or, you know, going towards selling the UK business, could you just explain to me what you feel like the, strategic merit of having Australia and the US under the same umbrella is, please?

Yeah, so we sell into the same global markets, whether that be ferrous or non-ferrous. So I think there's absolutely strategic merits and understanding where the global markets are at, so therefore where our pricing is at. I mean, we also sell SARs into the global market. So there's obviously some strategic merits there as well. So I think while the markets are going to become more regionalised, there will absolutely still be scrap that is traded on the seaborne market and to have, whether that be into Asia, into Turkey, into South America, into the Middle East generally, to have that global focus, I think there's absolutely strategic merits in that.

All right. And then my last one, if it's not too cheeky, in the half year in New Zealand, you signed a contract with Blue Scope to enable them to move towards an EAS for part of their production at the New Zealand Steel operations. Could you just talk to, you know, the way you had to think differently about that in terms of term, pricing mechanisms, those sorts of things, please?

Yeah, I'll let Rob answer that question. I mean, my overall comment is we're very happy with that transaction. We've always worked well with BlueScope. For many, many years, we've had a great relationship. And I mean, overall, it's obviously going to change the way scrap moves. I mean, it's going to be less exported from New Zealand. But maybe, Rob, to the extent you can, because I'm very conscious that it's an agreement between with a customer and we need to honor the confidentiality of that, but to the extent you can, broadly speaking, how's it working?

Yeah, I would say on a 10,000 foot level, it's not a big change from our relationship. It's obviously broadened somewhat with the expansion of their steel production to an EAF. We're quite happy. without saying too much with the fact that it's quite self-hedged in the local market with the buy-sell, and we're looking forward to the expansion.

Okay. Thank you. It's all I had.

Your next question comes from Rohan Gallagher with Jarden Group. Please go ahead.

Conscious of time and most questions being asked, I'm happy to defer, gentlemen. Thank you. Thanks, Rohan. I appreciate it.

The next question is a follow-up question from Simon Marwini with Alan Gray. Please go ahead.

Thank you. Rowan's made me feel very guilty. But in ANZ, Stephen, most of the metrics that you flagged on slide nine are going in the opposite direction to the ones you want and to where NAM is hopefully coming from. So more process scrap, more non-dealer sources, and more exports. Is there something to be concerned about?

No, it's not, Simon, because I think it's coming off a very high base, so I would view those movements, and again, if you look, compare them to the pie charts on 41 in ANZ.

Yeah, you can't see it.

No, but they already start off at a very high position of unprocessed and a very high position of non-dealer. It's market noise. It's the swings and roundabouts of the ANZ. I wouldn't be concerned about it. That chart there was more to show that NAM and really coming off a low base is making the improvements that we need. Thanks.

Thanks. I think the other thing, Simon, is we were down a shredder in Victoria. For a while. For a while.