Sims Limited (SGM) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Sims Limited FY '22 Results Webcast. [Operator Instructions] Today's presentation may contain forward-looking statements, including statements about financial conditions, results of operations, earnings outlook and prospects for Sims Limited. These forward-looking statements are subject to assumptions and uncertainties. Actual results may differ materially from those experienced or implied by these forward-looking statements. Those risk factors can also be found on the company's website, www.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 call over to Alistair Field, Group CEO and Managing Director of Sims Limited. Please go ahead.

Good morning. It's a pleasure to be delivering the FY '22 full year results for Sims. Joining me on today's call is the Group Chief Financial Officer, Stephen Mikkelsen. The slide presentation that we will run through has been lodged with the ASX along with the results release. The agenda for today is that I will run through a general overview of performance and the highlights. I'll then hand over to Stephen, who will take us through our financial results before I discuss some of the company's strategic priorities, short-term outlook and medium- to long-term drivers. Following that, there will be time for Q&A. I'll turn straight to Slide 5, which covers the key takeaways from the results. By any measure, FY '22 was a very strong year. From a safety perspective, we achieved a record low in our total recordable injury frequency rate. We produced a record EBIT, which was consistent with our updated guidance and reflected excellent margin per tonne across all metal businesses, including SA Recycling. Operating cash flow for the year was over 4x higher than FY '21. Total intake volumes also returned to pre-COVID levels driven by North America. These excellent results lifted our return on productive assets to 39%. Finally, we have lifted our cash flow distribution to shareholders by 74% in the form of dividends and share buybacks. Turning to Slide 6. There is a lot of good information on this slide about the progress we have made on our strategic initiatives. I'm not going to go through them one by one, but I will highlight a couple. Firstly, we purchased a large strategic site at Pinkenba in Queensland. This provides us with the opportunity to build a world-class recycling facility including the potential for processing of shredder residue through Sims Resource Renewal. I will talk about this in more detail later in the presentation. Secondly, both Sims and SA Recycling secured a number of well-priced and well-located acquisitions and they're performing to expectations. This continues the theme of market consolidation, particularly in the U.S. Moving to Slide 7. The overriding theme for FY '22 is that we produced a record year while having to manage some of the most volatile markets we have witnessed. Underlying EBIT was nearly double the prior year. This was driven by a 57% increase in sales revenues on the back of exceptional ferrous and nonferrous prices and sales volumes, which improved by 12% for Sims and 33% for SA Recycling. Inflationary pressure on costs continued in FY '22 and are almost certain to continue through FY '23. We are currently looking hard at opportunities to reduce costs through productivity gains and other cost improvements to at least partially offset the impact of inflation. Additionally, the business delivered strong operational cash of $548 million, and this enabled the funding of a $0.50 per share final dividend, a 66.7% increase on last. Most critically, all of this was achieved with a strong safety performance. Slide 8 provides a summary of the financial outcomes in a convenient table. I've already spoken about the profit and cash flow measures on the previous slide. However, it is worth highlighting the improvement in return on productive assets. This capital efficiency metric, which we have used for several years now, grew from 23% last year to 39% this year, a 16% point improvement. I'll spend the next few slides talking about nonfinancial measures, starting with health and safety on Slide 9. The priority for me and all Sims' employees is safety. It is, therefore, very pleasing to report that we had the lowest ever total recordable injury frequency rate, and this continued the improving trend across all our lagging safety indicators. Lagging indicators do not improve without proactive safety initiatives. We had over 12,000 corrective action improvements identified in FY '22 with a particular risk focus on traffic management and ergonomics. Moving now to Slide 10 on sustainability. Sustainability is at the core of our business, and it is pleasing to see some recognition for the effort that our employees put into ensuring that Sims is a leader in sustainability. This year, we achieved significant progress on our climate strategy. We brought forward our carbon neutrality target by 12 years and completed the value chain emissions assessment. There are many measures, initiatives and cultural behaviors that drive outcomes, which leads to these awards. Slide 11 presents the progress on our FY '25 sustainability goals as an example of these measures, initiatives and cultural behaviors. We're making good progress towards achieving our FY '25 sustainability goals which are to operate responsibly, close the loop and be a partner for change, highlighting just a few of these. Our commitment here at Sims is to achieve gender diversity across all layers of the organization. We have just had the first cohort completing the program, Women Leading @ Sims. This is a great initiative to connect our global emerging female leaders, and the feedback from participants has been overwhelmingly positive. This program continues, and I'm meeting the second cohort in September. We also achieved our target set out in the sustainability goals for Board gender diversity ahead of schedule. We are pleased that today, 4 out of our 7 nonexecutive directors of the Sims Board are women. On the operational front, we also transitioned Claremont, our largest global site, to renewable electricity. And from a partner for change perspective, we became a signatory to the UN Global Compact. Before I hand over to Stephen, I'll turn to Slide 12, which sums up FY '22 and the start of FY '23. The charts highlight several important points. Firstly, volatility in FY '22 has been very high. Secondly, price for our main commodities began rapidly rising in late calendar year 2020. They peaked between March and April 2022, depending on the commodity and have subsequently fallen closer to the FY '21 average. Thirdly, the average FY '22 price is significantly higher than FY '21. Finally, freight prices have also come off the FY '22 highs, but display even more volatility than commodity prices. I will hand over to Stephen now to take us through the results in more detail.

Thanks, Alistair. I will turn straight to Slide 14, which summarizes the group results and some key metrics. The substantial increase in revenue of 56.6% was driven by higher prices and volumes. This, in turn, led to a 43.6% increase in the trading margin of the metal segments as we nicely managed the metal buy/sell spread through the period. Operating costs increased by 24.4%. Internally stronger volumes, some catch up in maintenance and new businesses were part of the reason for the increase, together with higher incentives related to stronger financial results. Externally, the impacts of inflation increased throughout and placed significant pressure on costs. As Alistair mentioned in a previous slide, we are investigating sensible measures to keep costs under control. EBIT grew by 95.6% to $756.1 million, which was a record result. Slide 15 provides a further breakdown of the $369.5 million improvement in FY '22 EBIT. There are 2 points worth highlighting: firstly, the strong contribution from SA Recycling which forms the bulk of the $144.8 million improvement in JV contribution; secondly, nonacquired growth in volumes contributed over $100 million in EBIT. When this is added to the sizable $307.8 million in margin growth, you get a $412.7 million increase in margin from the preexisting metal businesses, partially offset by $170.9 million increase in costs to produce an additional $241.8 million in EBIT. On Slide 16, for convenience, we've summarized EBIT and volumes by division and provided trading margins for the metal businesses. In this slide, I would like to highlight that our trading margin in percentage terms remained strong at 19.9%. It is slightly below the previous year because of high metal prices seen in FY '22 and a higher mix of lower percent in margin on nonferrous retail. The product mix is presented in the appendix slides for your convenience. Looking at our North America Metals result on Slide 17. NAM sales revenue was up 66.8%, driven by higher sales prices and volumes. Sales were up 17.7%, while intake also improved, in fact, higher than pre-COVID levels. Trading margin increased by 55% as a significant proportion of the trading margin spread in percentage terms was retained due to higher commodity prices. Operating expenses increased by a sizable 42%, largely driven by increased volumes, some catch up in maintenance, capital growth projects and acquisitions. Inflationary pressures also continued to mount during FY '22, driving costs higher. The end result was a 114% increase in EBIT to $293.4 million. Turning to Slide 18. Like NAM, ANZ also delivered a strong result. Revenue increased by 54% on the back of a 55% increase in sales prices. Sales volumes were flat. Trading margin increased by nearly 35%. Costs were up 16.5%, a significantly lower increase than NAM's due to flat volumes and immaterial costs from acquired businesses. Increased inflationary pressure was, however, a common theme shared with NAM. In total, underlying EBIT increased by 80% to $186.9 million. Moving to the U.K. on Slide 19. Sales volumes increased by 9% and prices rose by 47%, resulting in a 60% increase in sales revenue. Due to market structure and competitive dynamics, U.K. was not able to hold on to as much of the sale of price increase as NAM or ANZ, but it still improved trading margin by 23.9%. And this resulted in a very respectable 53% increase in EBIT to $69.8 million. Costs were up 18%, some of which related to a stronger pound against the Australian dollar. The timing of workforce mobilization and inflationary pressures were the other main contributors. Intake volumes were up 14% in FY '22 compared to FY '21, but still below pre-COVID levels due to a combination of closure of nonprofitable sites and COVID-19 impacts. On to Slide 20. SLS experienced a disrupted and somewhat disjointed year. Repurposed unit volume grew by 29%, which was approximately 3x the growth of the overall market. This increase was still less than expected as supply chain constraints meant that data centers were not receiving new material, and therefore, they held on to existing infrastructure. We remain confident that this material must eventually be repurposed and is only a timing issue. SLS EBIT fell by 25% to $16 million. The largest contribution to this fall was the 30% reduction in prices for units resold, driven by reduced manufacturing activity in China due to COVID lockdowns. As the Chinese government imposed intermittent lockdowns in many parts of the country, the demand for units that will package for resale declined lowering the price of those items. Moving to Slide 21. As promised, we are disclosing significantly more information over the next 2 slides on SA Recycling given its significance to the group result. As with NAM, SA Recycling had a very strong year with EBIT up 89% on FY '21. Sales volumes were up 33%, which included the benefit of recent acquisitions, particularly PSC. Conversely, operating costs were up 58.5%, driven by new acquisitions and inflation. Underlying EBIT was up 89%. Slide 22 provides some historic context to the results. SA Recycling's trading margin percentage is relatively stable but is higher than NAM's. This is the result of [ a buy ] much more at source, similar to ANZ. Consequently, its EBIT per tonne in FY '22 of $125.50 is more similar to ANZ's $122. Turning briefly to Slide 23. Increases in operating expenses and global trading and corporate were largely driven by internal reorganizations, where people were transferred into corporate and global trading as well as increased incentives, reflecting our improved financial performance. Sims Municipal Recycling returned to profit in FY '22, benefiting from better paper and plastic prices. It is also worth noting that for the last 5 months of the year, we only consolidated 49.5% of EBIT due to the sale of the other 50.5% to Closed Loop on 1st February. Moving to our operating cash flow on Slide 24. This chart bridges our EBITDA for operating cash flow. We invested a further $58.8 million in working capital, mainly due to higher inventory levels as we confronted shipping challenges in an unprocessed material stockpile in Queensland due to flooding. It is important to note that this is not a price risk on unsold inventory. It is a slower inventory movement due to supply chain constraints. SA Recycling's policy is to pay approximately 60% of EBIT as a dividend, quarterly in arrears and retain the balance for growth. In FY '22, that means that the cash flow distribution was $138.7 million lower than our recorded share of profit. The last point I will make on this slide before moving to Slide 25 is that the conversion of NPAT to operating cash in FY '22 was 94.5% compared to 45.5% in FY '21. The first point I will make on Slide 25 is the benefit from selling nonproductive and/or noncore assets and recycling that capital back into the business. We will continue to show discipline around ensuring all assets on the balance sheet are earning their keep. Our strong operating cash flow allowed us to maintain a solid balance sheet as well as complete acquisitions totaling $74.4 million, purchase the strategic Pinkenba site for $93.5 million, maintain and invest in core growth assets totaling $182.7 million, while also distributing $264 million in the form of dividends and buybacks. My final slide is CapEx on Slide 26. At the March Investor Day, we anticipated sustaining CapEx to be approximately $130 million for FY '22. It has come in a bit higher at $148 million. The main reasons for the increase were, firstly, rolling some right of lease assets into outright purchases; secondly, needing to pay for long lead items much earlier than expected due to supply constraints; and finally, higher costs than anticipated due to inflation and competition for equipment. At the March Investor Day, we also estimated that FY '23 sustaining and environmental CapEx would be approximately $175 million. I'm seeing this closer to $220 million now, largely due to increased spending on environmental CapEx, together with increased costs from inflation. Regulations are correctly getting tighter around the world relating to the environmental sustainability of metal recycling operations. Overall, this is a positive for us as it both reduces unsustainable participants from entering the market and participants with poor environmental practices from remaining in the market, which supports the trend of consolidation in the industry. I'll now hand back to Alistair.

Thank you, Stephen. The next few slides provide an update on our strategic initiatives. Beginning on Slide 28, which shows the progress towards achieving our FY '25 targets first published in April 2019, our strategy is enduring, and despite the last 2 years of COVID interruptions, we've continued to advance towards realizing the targets. The next 3 slides look at our growth initiatives, including acquisitions. Turning first to Slide 29. The metals business undertook 3 acquisitions in FY '22 and all are performing well. From a nonferrous perspective, Alumisource was the most significant, delivering an annualized 77,000 tonnes in the second half of FY '22. Importantly, Alumisource produces a high-quality aluminum product using advanced technology in which Sims did not have the relevant expertise. Atlantic Recycling Group delivered an annualized 224,000 tonnes using FY '22 sales. It provides more outsourced material, which is an ongoing strategy for Sims, allowing us to enter a complementary market and strengthen our already solid East Coast footprint in North America. Recyclers Australia is a much smaller acquisition and great example of a tuck-in consolidation that further enhances our Queensland operations. Turning to Slide 30. I'm very excited about the opportunities provided by the Pinkenba purchase. It is a 14-hectare site, ideally located with a private deep-sea port. The plan is to build an integrated facility that receives and processes scrap using best-in-class shredder technology. Potentially, the residue from the shredding process will be supplied on site to Sims Resource Renewal to further process into other products, including hydrogen. This will virtually eliminate the need to send anything to landfill, and there are other carbon reduction benefits as well. The port facility will allow us access to vessels up to 50,000 tonnes, providing scale advantages and also optimized logistics within Australian waters and between Australia and New Zealand. It is also worth mentioning that Pinkenba eliminates the risk associated with flooding at Rocklea which happened again this year. Moving to Slide 31. SA Recycling's recent acquisitions will add meaningful volume through the addition of 36 facilities and 8 shredders. SA Recycling's major locations are deliberately complementary to Sims. It also has export optionality with access to 3 deepwater ports. The most important being in Southern California where it exports through the deep- sea port at the Port of Los Angeles. Turning to Slide 32, which provides an update on SLS. It has been a difficult FY '22 for SLS, as Stephen described on a previous slide. Supply chain disruptions have meant new cloud material was sporadic, and cloud providers held on to equipment initially slated for replacement. Furthermore, the lockdowns in China severely hampered the reselling of components. None of these difficulties detract from the very strong medium-term opportunities for SLS, and it has continued to position itself well as a global leader in providing end-of-life cloud services. It has signed new contracts with large-scale cloud providers, enabled by its strengths in customer service, newly designed circular centers and global footprint. As a result, it has more than doubled its market share in 3 years. Moving to Slide 33. The Rocklea pilot facility is progressing well and is expected to be operational in February 2023. Due to flooding at Rocklea, this is about 8 weeks later than originally planned, proving the pilot plant is the next critical step in releasing funding for the full-scale operation. As I've always said, we'll be very disciplined around committing capital. Simultaneous with the pilot plant process, we have accelerated the development of Pinkenba as the preferred location, and we are engaging with government, stakeholders and key partners. None of these activities require committed capital. The final slide in this strategic update is Slide 34. On this slide, I summarize progress over the last year to deliver strategy by: embedding a safety culture throughout the organization; a disciplined execution of our strategy to deliver FY '25 targets; rowing volumes organically and also by acquiring good businesses at reasonable valuations in NAM, Australia and SA Recycling; effectively recycling capital to fund growth; enhancing the necessary building blocks in SLS in readiness for the inevitable increase in activity; making substantial progress towards realizing the Rocklea pilot plant; strengthening our sustainability credentials. And I'll move on to now Slide 35. FY '22 was, by any measure, a very strong year. We did, however, see a sudden softening commence in the latter part of June and thus has continued into July. The main driver of the softening is reduced demand for metal driven by higher interest rates and slowing economies. As we begin FY '23, ferrous prices have been as low as $320 per tonne, but are currently closer to the $400 per tonne. My sense is that we'll continue to see this volatility, but the lows will be higher than previous years. Nonferrous prices have also come off but not to the same extent as ferrous. For example, zorba is still trading above $1,500 per tonne. The rest of FY '23 will be a function of how quickly and to what magnitude global markets recover. This will drive the demand for steel and therefore, scrap. Inflation will also play an important role. We are seeing significant cost pressures throughout the business. And while we are taking sensible measures to manage costs, we will only be able to partially mitigate the impact. I believe the impact on our markets due to higher interest rates and inflation will remain for much of FY '23. This does not change the positive macro trends over the medium to long term. Infrastructure spending is required globally, and it is metal intensive. Decarbonization is a global multi-decade issue for the metal industry. EAFs and recycled metal will play a vital role in achieving this. And cloud repurposing and recycling is an ever-growing opportunity that perfectly suits Sims' capabilities and sustainability credentials. Before I move to Q&A, I'd like to thank all Sims' employees for the last 12 months. You have delivered a great result not only financially, but importantly also from a safety, sustainability and strategy implementation perspective. Congratulations. Operator, back to you.

[Operator Instructions] Your first question comes from Matthew Abraham with Credit Suisse.

My query just relates to trading margins, which I know you've spoken about a bit throughout the results. Historically, trading margins have been quite consistent, and that's something that you spoke about a bit at the Investor Day. There's been this decline in trading margin at this result. Do we expect the reversion of the trading margins back to around that 22% of the group's level? Or can we expect this to be the go-forward trading margin for the group now?

Abraham, you can very much expect it to return. And the point I would make is that at extremes, the trading margin percentage we're talking about, not the trading because the trading margin in absolute terms are very much improved. And on a per tonne, very much improved as well. If you look at North America, it was up 30% per tonne. Australia was up 41% per tonne. The U.K. was up around 14% per tonne. But if you've got prices at $650 versus prices at $200, your trading margin percentage will obviously vary. And we had, over FY '21, very high prices. And so just by definition, your trading margin percentage will fall a little bit. I would still contain though that if you look back through history, there's still surprisingly more stable than dollar per tonne. So the prices we're back down to now, we're sort of -- we're seeing around $400 per tonne now. You would absolutely expect our trading margin percentage to return back to those sort of those early 20%, 22% type level.

Okay. Great. That's helpful. And yeah, just to clarify, just talking about the percentage trading margin, you acknowledge that there has been an increase in other margin metrics. And just one point of clarification on that. So you're saying that there is a reversion. And do you see that being the next half year result? Or what sort of period of time do you anticipate that reversion to take place?

Yes, I would expect that by the half year result. We manage margin -- we've managed margin very carefully. And I'd just restate my point that those really, really high prices, you would always expect to see the margin percentage be a little bit lower. Conversely, really low prices, like we experienced a couple of years ago, down in the early 200%, you'd expect to see -- sorry, in the early $200, you would expect to see the margin percentage higher. I mean it's just mathematically, that's the way it would work.

Great. That's helpful. And one more, if I may. So this query just relates to operating expenses. Again, something you've covered off on quite well. So thank you for providing that detail. At the last half year, we expect about operating expenses as well and one of the comments was that there was a 40% increase in activity that was driving like attributable to that OpEx increase. You called out a couple of factors that are also contributing to a bit of this OpEx growth. Over what period can we expect or if we can expect a reversion of operating costs to a level that was prior to some of these steeper increases that we're observing?

Yes. I mean volume will always -- so there's 2 very distinct aspects to it; one I don't worry about and one I do worry about. Increases associated with volume, perfectly fine as what you would expect to see, same with acquisitions, that activity-driven stuff. The inflation one is obviously more concerning and something that we're going to focus on and are already focusing on quite significantly. I think it's probably fair to say that we will -- from a cost point of view, we will never -- as we're seeing these inflation really level for the last 6 months, 12 months, whatever, around 7% to 9%, we will never be able to completely mitigate that from a cost point of view. But I would also make the point that, generally speaking, there's a correlation between high inflation and high commodity prices. So we do have some natural hedge going on as well. But I can assure you, from a cost point of view, we are working diligently to combat as much of the inflationary increases as we can.

Okay. So just to clarify, can we expect an operating cost decline in that period, whether it be the next half year or thereafter? Or as you're saying, we're going to have to sort of mitigate the inflationary pressures and this could be a bit of a resetting of the cost base?

I think there is some -- definitely some resetting of the cost base as a result of inflation. I mean I just think it would be too hard for us to sensibly, without damaging the business, pull out a compounding back-to-back 7%, 9% increases. I think that's just too difficult. But just to reiterate my point, I think from an overall EBIT perspective, we do have a bit of a natural hedge going on with the correlation between inflation and prices.

Your next question comes from Megan Kirby-Lewis with Barrenjoey.

Just firstly, just on the SA Recycling business, and you called out the higher EBIT per tonne there, can you just remind me of, I guess, sort of the differences between that business and yours? And then should we be thinking about sort of a trend towards SA Recycling margin? Or is there sort of a structural difference that would prevent that from happening?

Megan, it's Alistair. There's a few issues. SAR, in particular, has a large supplier base, which is really what we call at source. In other words, there's no merchants really in between George's business and the suppliers. So that is a structural difference, in particular, in the regions that he operates in. The second point I'd make is, obviously, George's business, in terms of size, has grown quite a bit over the past year or so and has a very strong presence of shredders and as a factor to that, also zorba. So slightly structurally different and obviously, a slightly different supplier base as well.

Perfect. And then just on Alumisource, what are the plans for the rollout there for the next couple of years and the type of CapEx needed to increase volumes?

Obviously, the Alumisource business is a key part of our nonferrous growth strategy, and we've got set targets for that. Obviously, from a quality point of view, Alumisource is something that we're wanting to strive and spread that further in our business in terms of higher levels of quality, and there's definitely growth trajectories for that business. That is currently underway. As you've seen, the growth has outperformed what we expected initially. So it's a really well-structured division with a very strong growth potential in it as well. The capital is not massive in terms of M&A. The capital literally to grow the Alumisource division itself is more sustainability CapEx, a bit of quality improvements to some of the equipment. But it's any M&A come along, that would be a separate bolt-on.

[Operator Instructions] Your next question comes from Scott Ryall with Rimor Equity Research.

I have 2 questions. The first one, Alistair, I guess, is more strategic. You've certainly made hay while the sun was shining in fiscal '22. I was wondering if you could just talk to some of the more strategic things that you might have done to protect yourself as the market inevitably was going to come off at some stage, and you've been pretty clear that you're seeing a softer market heading into fiscal '23. But just give us a sense of what you've done in the last couple of years to, I guess, make your business a little bit more resilient to the downside, please.

Certainly. One of the key aspects for us was the structure of our organization. And we've had a large focus on systems in our business, the drive to 1 ERP systems where we're really trying to centralize a number of our regions and structures across the group. So this centralization, obviously, has a focus on efficiency, but also has a reduced cost about it as well. It also gives us a much focus on our live data. So that, for us, centralization, has been obviously a very key centralization process for us. I think the other aspect, as Stephen has alluded to, in terms of capital, we've been very careful to spend capital. Any M&A, we've really looked at trying to do that without going into any debt, and hence, some of the resale of assets we've had as well. I think the choice of the acquisitions we've made, be it the Alumisource or ARG in Baltimore, all have good synergies. They have all outperformed. So I think that capital discipline always allows us to work between the highs and lows of the commodity cycles. The third part I would say is we've always had a focus on cost management across the business. We do know that we're going to hit highs and lows. And I think the structure of the organization is key for that, but also the cost focus and the discipline of management around continuous improvement sort of culture, that prepares us for the highs and lows of business cycles. So I think overall, strategically, we've made the right choices. We haven't gone out and spent fortunes of capital, and then we've just been very disciplined around how we manage the whole business. We've had to put structures in place and some infrastructure, which is normal for a business our size. But overall, I think we're well prepared.

Okay. Great. And then my second one is just on Pinkenba, please. Could you just give us a sense, you're starting shipments anticipated in 2023, which you've said in the presentation. But in terms of, I guess, the more ambitious potential development in Pinkenba, what's the time frame for thinking about that, please?

We're still going through the pre-feasibility on that. And as you know, I would like to have an in-situ facility. In other words, that's got intake shredders, off-line recovery plants and Sims Resource Renewal all in 1 facility. That allows us, obviously, to export metal straight out of the port and also import or do dual loads. In other words, get a load from another state and pick up the Brisbane load and take it out. In other words, higher volumes in 1 ship. So a cost-effective measure. From a timing point of view, we will obviously have to go through quite a lengthy process in terms of permitting and the like, which I would think take another 18 months. In terms of shipping, this is allowing us to use that site because it has a currently operating wharf, we can actually bring a ship in and export our shredded metal in '22 -- sorry, in '23. So that is really what we're talking about there. That's not actually the actual build that we're talking about that'll probably be around '24, '25.

'24, '25. Perfect. That's what I was after.

Your next question comes from Megan Kirby-Lewis with Barrenjoey.

Just in terms of the outlook commentary and the comments around the soft market condition. Should we be in touch within that as having been impact on volumes? Or is it more just in relation to the price move?

Megan, look, it's obviously early start of the year, but very clearly, the price decline, you do see an associated drop in volumes. So as it went down to $320, volumes obviously slowed. And as it goes back up to $400, we expect some of those volumes to start coming back. There is a bit of a lag between this. That elasticity between lower prices and higher prices definitely takes 2, 3 months to flow back into the market. So I think the focus for us is really understanding what the sort of medium outlook is and then managing our business accordingly, particularly in relation to costs.

Next question comes from Lyndon Fagan with JPMorgan.

I was just interested in the FY '25 outlook slide on Page 28. Obviously, there's a lot going on there. I've got a bunch of questions on it. So in order to process 120 kilotonnes of ASR per year, can you maybe provide a bit of the sense of the capital requirements for that? And what sort of returns you believe that sort of project will generate?

120,000 tonnes is probably 2 shredders, ASR volumes that typically would come out of that. In terms of the target, that is obviously aspirational, and we're obviously in the pre-feasibility study, as I mentioned, around Pinkenba because part of Pinkenba's volume is -- Brisbane shred is around 65,000 tonnes. If we can bring another shredder's ASR into Brisbane, which is obviously what we're working through in the pre-feasibility, that would set the target of 120,000. We haven't set out any details on the actual cost of capital or the actual cost of that overall capital spend at this stage. We will like to finish the pre-feasibility first.

And I guess I've got similar questions around the desire to sort of acquire or build 50 megawatts. Is there anything you can talk about in relation to that and the capital requirements?

We did an acquisition in Florida, what, 18 months ago?

18 months ago, yes.

Yes. That wasn't very happy on capital. I think we sent out a note on the actual acquisition at the time. I don't have that on the top of my head. But we're very cautious with acquisitions in that part of the world as well. We went through a number of process steps before we purchased that facility. It's a very well-run facility and has the potential to almost double the actual megawatt in that facility itself without spending too much capital. So we're probably going to do that first before we actually acquire anything else.