Sims Limited (SGM) Earnings Call Transcript & Summary

Well, thank you very much for coming to my house this time. I've come twice, spoken to you in Australia, so it was very nice for you to come here. It's a ways away, isn't it? First time to Nashville. Everybody pretty much? Yes, middle of the country. Not very easy to get to from L.A., sorry about that, but we're very pleased to have you here. So thank you for coming, especially in light of travel restrictions and budget constraints. So we know it's a big deal, so thank you for coming. So yes, you know me. So I want to talk a little bit about -- this is our newest site in Nashville. We have 3 other -- we have 3 sites here in total in Tennessee, and this is our newest. Its our -- 1 that is the most manufacturing light facility, and we're very, very proud of it. So looking forward to showing it and showcasing it to you later on this afternoon -- this morning on a tour. But just to give you an idea of our global footprint in the U.S. in the addition to the 3 we have in Tennessee. We have a site in California, in Arizona, Illinois, Florida, Mexico, Brazil, Germany, Netherlands, Singapore, U.K., Ireland, India [indiscernible]. So global. We're global -- we're a global business for a reason. Our clients are global so we have to service them globally. So global plant, global sites, global business, global management team. So I have an Australian, a Brit, Canadian and a few Americans [indiscernible] into the pod. So we're very self-sustained. We have varied educational backgrounds and work experience. We all bring something to the table. Self-sufficient. So in addition to operations and commercial, we have our own in-house teams for finance, sustainability, technology, engineering and HR. So we're very functionally aligned so we can be agile and move quickly to our clients' needs, because we are in a business where our customers expect us to move quickly. We've added more technology and engineering to our team, just in light of the advances we're making in automation, which you'll see later from Chris. So core expertise in-house. Sean Magann is our Chief Commercial Officer, has global responsibility for all sales and marketing. Angela Catt, who you know very well, our CFO and also has technology and sustainability. Then Chris Fox, Man City, not Manchester United. If it ever comes up, if it ever comes up, okay, he has all operations. So global operations reports to Chris. Then Marie Burke is our Director of HR, Global HR for SLS; and Lee Ann Scott, sorry, I'm moving around too much. And Lee Ann Scott, in charge of EH&S globally for SLS. Global team. So yes, we are very self-sufficient, but being linked to the larger Sims Group also brings us benefits. We deal with large corporate entities, who are publicly traded for -- so for us to be publicly traded, it's an asset. They like dealing with like, right? Publicly traded, secure, compliant, fully-audited and sustainable. But in addition to that, our linkage with the group is very beneficial. We supply which -- Marie was talking to Siri. We supply steel to metals, and that's a huge benefit for us and our clients, seeing that recyclability go all the way through. And in addition to that, there are synergies with the other -- with the group where we share technology, and especially around automation as that's becoming a bigger part of our business as we go forward. So being linked to the larger Sims Group means we're a trusted provider. So our growth strategy, it remains the same, so the same that I presented to you last time in Sydney, to be a global leader in circular cloud solutions. And how do we do that? Global. I already spoke to you about the importance of being global because our clients are global. They expect the service to be the same all around the world. Invoicing to be same, reporting to be the same, the operation to be the same. So global, very important to be consistent, compliant, comprehensive and sustainable. And the market we play in is circular. We're all about circularity with the reuse, reengineering, redeploying and recycling at the very last, if that's the last thing we can do. We would prefer to do all the others upfront and recycling at the end. Our target market, again, remains the data centers. So we're very excited to show you out there what we mean, because I've been trying to explain it through pictures and stuff over the last few years, right? But to actually see it in person is going to make a big difference, I hope, right? So yes, we know we had some headwinds with the market, challenging market, inflation. A lot of our clients, this industry, the tech industry, layoffs, pullbacks, reduction of capital spends or delaying of capital spend, so that's been headwinds for us. It changed refresh rate. So rather than 3 years average, it's really stretched to 5. So just -- it's still going to happen, it's just that the time line has extended. And also, the lockdowns in the COVID and China, in particular, impacted our resale market and the slow recovery of China has impacted us, so. But there is light, there's light at the end of the tunnel, the medium-term tailwinds. AI, I'm sure you're hearing a lot about artificial intelligence. It's all over the news, artificial intelligence. In fact, we just got a new TV. We traded in 10-year-old TV because it wasn't smart. We needed a smart TV. Well, part of the TV, when you set it up, it gives you all these options at the beginning to switch pictures you like. You choose out of 6. We have -- go through 4 iterations of it. And with that, it gives you -- AI customizes your picture, and that's amazing. So if you like crys clear, it does it crys clear. You like your colors dull -- anyways. Amazing. So that's driving this market. So we see new technology coming out, more demand for processing power, especially in the data center, to support AI. And this is also allowing for a rebalancing of the market refresh timings. It's also helping the component supply balancing. We see that coming in. So that's very positive for us in the future. So over the last 4 years, we have demonstrated sustainable growth. We are using repurposed units now as a measure because we felt that was the best as opposed to weight. We started off with pounds, and that didn't make sense for this business, so it's about repurposed units. And our target for fiscal year '25 remains 8.5 million repurposed units, and we estimate that to be about 10% of the market. So that's our target we're moving to, and we're setting up our sites to get to that. So positioned for growth. How do we do this? We have a diverse client portfolio mainly around hyperscalers, your big hyperscalers. You think all those guys out there that supports the Internet. Co-locators, enterprise companies, so your Global 100 or Fortune 100, we would say in the U.S. With that, there's organic growth continuing with our clients, being -- adding on more services, especially in light of AI, and the drive to modularity, which Chris will speak about, or Sean will speak about later. Modularity in this business is starting to be a big deal. And there's emerging locations. So as the geographic locations go on for data centers, it means extra business for us globally. We're also adding new services. So being vertically integrated, be it fulfillment, be it a box program, that we're verily integrating to this business. And optimizing product value with increased knowledge in our tech, so repurposing, reengineering to a higher tech standard. And then, of course, sustainability is really an important topic for our clients and for us. So we have a clear path to deliver growth going forward. And to remind you what it is, what is our big product at this site in particular, it's all about racks, data center racks. So 1,000 pounds of steel. We have up here 2 server blades, as an example for you, 20 to 30 server blades. Each server blade will contain 6 to 24 memory modules or DIMMs. It'll have a hard drive, and it will have either a CPU or a GPU. So essential processing your processor, your brain, it will have a CPU or GPU, all bringing value on the resale market. So I know you've been through a lot of scrap yards, [indiscernible] yards. Just try to equate because you're going to come into our place and you'll say, wow, everything is small, right? We're inside. It's all small. Well, this -- these are 5 DIMMs, 5 memory modules, and that equates in market value to 1 tonne of recycled ferrous. So when we go out on the floor, try to estimate how many tonnes of ferrous market. So just to put it in terms, because I know you are very, very familiar with tonnes of metal. Yes?

[indiscernible] that lead to again, question again that. What is the unit -- the unit of reck with unit in?

Yes. So no, it could be. So depending on the unit, if we're selling a full server, it could be the full server. It could be selling these, it's a unit as well. So anything that gets repurposed is the unit. Okay. And with that, I'll pass it over to Sean, who will talk about the markets that we play in.

Thank you, Ingrid. So thank you, Ingrid, thank you for the great introduction. And for those of you out here in the room, thank you guys for coming out. It's a pleasure to meet all of you. Met some of you in the past, and so it's good to see again. And for those of you who can't be here, thanks for joining us remotely. We're going to talk a little bit about markets and the revenue streams that we have. Two quick caveats before we move forward is, don't read too much into the relative size of these different buckets. This is just for illustration purposes only. And the second thing is we have NDAs, nondisclosure agreements, with most of our clients, so we're not going to be able to disclose client names. Now we've talked about clients with some of you folks here in this room, so you could probably figure out who the clients are, but in general, we can't disclose when you see material, who owns the material. You may be able to guess, but we cannot, as they say in the military, confirm or deny the identity of our clients. So here's how we see the different revenue streams. At the bottom, we have commodity. We are still in the commodity business. You'll see commodity items as you tour the facility, but it's really, really a small part of what we do. Over the past few years, we've really moved away from the commodity business. Again, it still plays a part in what we do, but it's a small part. The next bucket of client or revenue streams we have are with the OEMs. These are the Original Equipment Manufacturers. These are the folks that make the stuff. They make printers and laptops and computers. We still work with these companies. They were certainly the core of our business and we maintain a stable group of business from these folks, but this isn't really the exciting part of our business. The exciting part are the next 2 buckets. The enterprise, the Global 100 that Ingrid mentioned earlier, where we see a lot of growth in the data center market. We'll talk a lot about data centers because that is really, really the super exciting part of our business. But I just want to emphasize that aside from the data centers, where we see the growth, we really do have a diversified, a derisked portfolio of business and a bit of business that's quite stable. So why do customers pick us, right? This is a question we ask ourselves all the time. Why Sims? There's lots of people potentially in the ITAD space, so why us? And there's a few reasons. The first 1 is global. Ingrid mentioned it earlier, but global companies, global clients that we have want to deal with a global vendor. Why? Because there's assurances and insurances that we can bring to the table, there's governance we have on a global basis, and there's also just the credibility that we have by being linked to the larger Sims Group. We're also a full-service circular supply chain -- excuse me, it's a bit of a mouthful, but we'll talk more about what that exactly means. But we're not a linear model anymore. Before material would come to us, we would recycle it or resell. Now, we're much, much more involved with these customers in the reverse and forward supply chain. You'll see some examples of that in my slide, and you actually see it out on the floor as well. Scalable solutions. Our customers want -- our customers move very, very quickly, especially in the data center environment. And this site is a testament to us being able to bring scalable solutions to the marketplace. This didn't exist 2 years ago, right? Because of the scale we can bring, the access to capital, the access to some of the skills we have, we were able to stand up this site in record time to meet the needs of 1 of our clients. Enabling sustainability. Sustainability is a huge, huge part of what we do. There used to be a false dichotomy between sustainability and profitability, and the way I see that now, I think that's a false dichotomy, where all the customers we work with have to have a sustainability plan, specifically, specifically in the data center space. Think about it. A data center, most of the big hyperscalers have pledged to be 0 carbon in the electricity used for their day-to-day operations, right? So as their day-to-day operations become carbon neutral, the manufacture, installation and de-installation of the hardware will account for 100% of the carbon that they use, and that's where we play. So we can -- we certainly can help them be more efficient in the data center space in the operation. That's what they do. But in terms of making the hardware more circular, that's exactly where we play. And finally, Ingrid mentioned being linked to the larger Sims Group. Being a part of a publicly-traded company, as I mentioned, gives us the assurances that our customers want to work with a large company. So full-service and circular supply chain. What does that mean? There's 3 different buckets of efforts that you'll see here on the tour today. We have reuse, where things will come in, and we'll sell those items on the open market. There's redeployment, where we take different pieces of hardware, some of the hardware you see here, and we'll redeploy that back to the customer, and I'll explain more about that here in a moment. And we're also doing reengineering of product. Again, you'll see that on your tour today. Where product will come in, specifically DIMMs in this case, and we'll reprogram those DIMMs to be sold again back to the same customer. More on that later, but you'll see that out on the floor. So this is where we're positioned in the data center market flow. Oversimplification, but this will give you an idea of some of the things that I've touched upon earlier. Step one, you have an OEM, Original Equipment Manufacturer. These are the people that make the stuff, that make the IT equipment that run data centers. Then you have the hyperscalers. The hyperscalers are so big that they don't buy off-the-shelf equipment anymore, right? They design their own equipment and go to an OEM and say, I need you to build me this, right? In the past, they would go just like all of us and buy a different kind of kit from different vendors, the data center of the suppliers. Where now, they tell the OEMs exactly what they need. That's step one. Now material goes into the hyperscaler data centers. They use it for 3 to 5 years, like Ingrid mentioned, and then the kit has to come out. That's where we play. So these data centers will send us the kit along with instructions, along with components that they need back, so that's step 2. We get the material, which is what you'll see here today, and we have 3 destinations for the material that we'll receive. We'll either redeploy that material either directly back to the hyperscaler to use as spare parts. We'll send the material back to the OEM to build more kit. So the material that's not redeployed will go and be resold, which is our traditional business, sold back on the global market. And what can't be redeployed or resold will be recovered for commodity value. And again, you'll see this will be a lot more clear, when you're on the floor, but this is a high-level example of what we do with material. AI. Ingrid mentioned the AI. It is becoming a big part of our business. How? Because of the modularity of what we deal with cost -- and it's happening now. This isn't aspirational, this is happening today. Again, you'll see it on the floor. Customers will send in their traditional servers, right, that are based on just regular computation. We'll harvest some components, specifically memory, like the memory Ingrid mentioned earlier. We'll send that memory to an OEM, the OEM will source GPUs, a new brain essentially for that server, put it together with the memory that we've harvested to create more servers. It's a much more sustainable way to do it, right? Each DIMM of memory takes, what do we reckon, about 30 gram or 30 kilograms of carbon to manufacture 1 DIMM. So rather than source new DIMMs as they upgrade their data centers, the data center companies are harvesting, having us harvest components, put a new brain or new GPU in to make a new server. So GPU, CPU, these are all buzzwords, right? What's the difference? Again, I'm not an engineer so this is really, really high level. So if you have any specifics, we'll have to talk offline. But in general, CPU, these are all the ones with the Intel, the AMDs. These are the brains of all our laptops and desktops, right? With GPU -- and so they're great. They're great at processing the information. Typically, they process information 1 transaction at a time. They do it super fast, there's multiple course to a CPU, but that's what the CPU does, right? It's a standard brain on all our computers that we've had over the years. Now the big buzz is with GPUs [ NVIDIA ] stock, right? We've all seen [ NVIDIA ] stock doing quite well, and that's because they're a manufacturer of GPUs. GPUs are -- the architecture of a GPU is a bit different. And what a GPU does, it processes information in parallel so it's doing multiple transactions at the same time. That's great for gamers in a video environment like the Metaverse, right? Because as you imagine, the 3D environment, when something moves, you need multiple transactions or multiple things to happen at the same time. But guess what, GPUs are perfect in [ machine ] learning and artificial intelligence. GPUs are the backbone of all the AI you see in the data center space. So what you'll see on the floor are companies, some -- well, some of the ones you'll see today, changing out this server, removing the CPU, putting the GPU in, and now, you've got a new type of server, right? Now it's not just a regular server processing cat videos and all the other stuff that's on the Internet. Now, this is actually doing the high-end machine learning and AI work. The reason we're excited about this is twofold. Number one, the move to GPUs is accelerating, no machine is accelerating, it's driving a quick refresh, which is what we want. It means material comes back to us, and we can monetize that transaction. But the really exciting thing, it's a 10:1 ratio in the value. So eventually, and we're already reselling GPUs, but it's a 10:1 value. Average CPU from a rack might be worth $120 on a generic basis. That same GPU, it's $1,200, and that ratio stayed at -- $1,200, sorry. And so for us, it's just upgrading the value of what we get. So again, it's accelerating demand or driving demand of refresh, but also the material we get now is worth a bit more money. One question I can -- you folks being analysts, the question I can see folks may be asking is GPU's driving demand. Does that mean we're going to exceed the 8.5 million units repurposed? And the [indiscernible] that's factored into it. When we put those estimates together a few years ago, we looked at some of the trends coming out, and AI certainly was 1 that we looked at that would get us to the 8.5 million. I'm glad to see that we were right, right? That certainly is a factor that's happening. So 8.5 million includes the drive or the increased demand for the GPUs. So AI and GPUs, is it all just a bunch of BS? Is it real? Is it just me? I'm the sales guy by heart, right? Now I think there's some -- these are recent articles that we've -- that I've pulled out to validate some of the numbers we're seeing. Wall Street Journal, "Spending in global AI infrastructure to reach $422 billion over the next 6 years". It's a big number, and remember, all that material that goes in has to come out, and that's where we play. So the total available market will continue to grow. Schroders estimates that the future power consumption related to AI deployment will increase from 1 gigawatt to 7 gigawatt. Data centers tend to measure themselves in wattage. Trust me, a gigawatt is a big, big number, and the fact that Schroders is predicting 7x increase is a huge increase. So this just tells us we were right. We were right at looking at data centers because we see the market, the total available market continue to grow. So what are the challenges we've had, 1 of the opportunities we've had is to really become sticky with our clients. We don't want to be the piece of the puzzle that's interchangeable. In the past, our relationship was a bit passive with our customers, meaning they would deliver to us, we would do the work. What we worked on the last few years is to try to integrate ourselves into the client supply chain, and so this is 1 example. With a major data center customer, we have multiple installations around the country where we are performing work inside the data center. It's Sims employees inside a major data center that we all know, doing work on a day-to-day basis. Why do we do this? Number one, we do it because our customers want us to do it, right? Our customers, we -- our service business, and when our customers have a need, we certainly will provide that service. But this is public. But the real reason we do it is that we want to become sticky with them, right? We want to integrate our services inside their data centers to make the relationship not just transactional, but a true, true partnership. So in this facility, again, not to go into too much detail. What we're doing is we're doing data ratification. We're doing inventory of the material as it comes out, so we basically have first crack of the material because we're inside the data center. Our employees inside the data centers, no more than we do sometimes because they're in the customer site, and this isn't just a one-off. We do this multiple times in the U.S. and around the world. So we mentioned long-term client partnerships. It's a bit of good news, bad news, right? When we deal with Global 100 customers, there is a long, long lead time to cement the relationship. There's onboarding, there's initial engagement, there's setting up APIs so our systems talk to their systems. So it can be from anywhere from 6 months to 2 years before we start to engage in a big client. That's the challenge. The good news is, is we're one of the few companies that can do that because we have the governance to meet their needs. But more importantly, it creates a -- it creates a true barrier or it makes switch -- it increases the switching cost, is what I mean to say. So a client is [ravissant] to do this again because of lead time. It takes so long. So this is a real good way that we can cement our business along with our clients, and it's true. Most of the clients in our portfolio have been with Sims, in some cases, over 9 years, and I got 2 case studies to kind of talk about that. Chris is going to talk a little bit more about the Open Compute project, but it's a big buzzword that we're going to talk about a lot throughout the course of the day. What the OCP is? It's an organization which is devoted to making IT hardware, specifically in the data center environment, more open. What I mean by that, in the past, if you were to buy a server from, let's say, company Y or a company X. We can't call it X, right, because that means something else now. Let's say company Y. You buy a server from company Y, you are locked in that ecosystem. It means you have to buy other hardware in that same ecosystem and you have to buy software. So once you buy in a Y server, you're locked into that ecosystem. So what Open Compute has done because again, because the data centers have so much power, it's looked to make the hardware and software agnostic. So you can take the best of whatever you need. A server can be made by brand X, a switch can be made by brand Y and the software can be by brand Z. What does it have to do with us? Two things. Number one, it makes the material more modular, right? And so you'll see that all on the floor. Again, all pieces of equipment used to be different. But now, with OCP driving modularity, it makes it easier for companies like us to take it apart specifically, specifically with automation, and you'll see that all on the floor. The other thing about OCP which is great, because it's so open, we can show you the hardware. In the past, this was the data center secret sauce, and we couldn't share specs on hardware. It's all open. Google Search, you can find out exactly what's in this one right here, so it's very open and allows us to be more transparent with our customers. And then more importantly, the modularity also drives the circularity. Meaning, like we talked about earlier, we can take these DIMMs and put them in something else. The modularity increases the recyclability for us and also increases the value because we can sell it again and again. One of the last thing. We didn't want to -- we talk a lot about data centers, and we didn't want a short -- we wanted to talk about our global 100 customers as well. Banks, insurance companies. Not as exciting as data centers, but still a growth opportunity for us. And most of the material they sell to us are laptops, and these are some of the drivers of the value of the laptops that we sell. So briefly, what we get from these global enterprises are driven by the laptop refresh rate, and that drives the inbound volumes to us. And the quicker the refresh rate means if it's faster, we get material obviously faster, and the material's typically newer. Refresh rates expand, then the opposite is true. So once the material is received by us, we will process the material, check-in, audit, refurbish, wipe and -- wipe the data and prepare the material for resale. Then we sell the material. Ingrid touched upon it briefly. There's a few drivers that drive the price of the laptops. Number one, consumer sentiment. It's a bit tricky in our business where the demand for second, lightly-used laptops -- secondhand lightly used laptops, just like anything else is driven by consumer sentiment. But what makes our business a bit different is sometimes when sentiment is lower, it actually creates more demand for secondhand laptops because they're, simply put, they're cheaper, right? So folks are looking for value electronics, and so there's sometimes an inverse relationship between the demand for these and consumer sentiment. Like any other item, supply and demand will affect the price of laptops. We saw it with COVID, right? When everyone was working from home, kids were going to school at home, we saw a huge, huge, huge demand for laptops and the supply just wasn't there. That's rebalanced, and that's why we've seen the price of laptops become more realistic. But a few years ago, it was -- there was a huge inbounds of material. And finally, I'm going to wrap up with 2 quick case studies that hopefully illustrate some of the points that I've made earlier. There is a hyperscaler that we work quite closely with that uses this hardware that you see right here. And we have a really, really strong relationship and integrated relationship with this hyperscaler. The relationship started in 2020 where we did a security audit -- well, the relationship started before then, but this is where it really started to get formal. So in January 2020, we did a security audit with them when they came in, decided that we were safe, so that was great. We did a Phase 1 on-site with them in March of 2020. This is where we started working within their first data center. We stood up part of our site in West Chicago at the end of 2020 to do a trial one -- a trial run, excuse me. That led to us opening this site in April of 2021. Again, this site didn't exist a few years ago. From there, we've just expanded the relationship where we started to do more redeployment, we started to work on more sites with them, which led to Phase 3 where we continue to open more sites on site with them. To now, where we're retooling our HQ to handle what we think will be a huge increase in demand, and that's why we're looking to do automation. And then finally, one other quick case study. This is a customer that we've had even before I started with the company. It started as a local client in EMEA, and not to bore you with the details, but you see over the years, we've expanded our relationship with that client. Two points to take away is it's a long relationship -- 3 points, it's a long relationship, we've expanded geographically what we do with the client, but we've also expanded the types of services we have with the client. [indiscernible] if you see here at the bottom, the pie has grown, the overall revenue has grown with that client. But what I like to see is that the percentage of revenue we get from services is outpacing the revenue we get from resale. This is true to many of our clients. So we resell, there's still a bit of volatility depending on pricing, there isn't less service revenue. And that's why we do what we do to really try to drive value and get more of our revenue from the service side. That's it for me. We'll take questions at the end, but I appreciate everyone's time. And from that, I'll hand it over to Chris. Thank you.

Good morning, everybody. My name is Chris Fox. I'm the COO of SLS, as Ingrid mentioned earlier. I look after all of our operations, security and engineering functions globally. Obviously, we've heard a lot about the strong fundamentals of the growth in the data center market and how we need to react to that and the solutions that we need to employ, so we're going to talk a little bit about our operating model more broadly. But the focus of this is really going to be on scalability, with the added benefit of being able to go out and see that in terms of first hand of where we are. But we're super excited to have you here. We love showing people around what we can do. We don't get that chance very often because of some of the things that Sean alluded to, so yes. We hope you have a great day here with us. We now -- we're at a point now with SLS's journey that we have to start to look at how we really focus on scale. We -- historically, the growth in the data center space has been a little bit sawtooth. We've seen really good moments and not so good moments but consistently increasing. The expectation is now that, that growth curve is really going to start to kick and compound itself just as the size of the data center space grows. More equipment will come out, and the demand for more equipment to go back in is somewhat undeniable. We're going to focus today on the scalability element of our operating plan, but I wanted to just kind of touch on a few kind of fundamentals of how we think about how we operate within SLS. So optimization for us is key. Historically, we've had a lot of variable input, and therefore, the ability to kind of standardize our processes has been somewhat limited through things like the OCP and the fact that we're really starting to define the work we do. We've got a great opportunity over the last couple of years, and that's continuing to standardize our processes, standardize the way we work to give ourselves some really good baselines for efficiency gains. I'll kind of come on to what that means in a second. And alongside that, working with our clients is -- there's a real shared way of working with some of our larger clients. Some of them are relentlessly focused on removing waste from -- out of their processes, and that's something we've been able to work with them to do ourselves. Really identifying what points of our processes are not adding value, but are adding cost and where -- there's a lot of focus on that. Some of which, again, you'll see today. Quality-led execution. What do I mean by that? Our clients move at a rapid pace and they have expectations which are very, very high. A bank or an insurance company can't afford for its service not to happen. You can't take your money out of a cash machine, you're on the phone to the bank pretty quick. So in terms of the work that we have to do, we have to make that sure their supply chains work, their value chains work, and we're held to high account for that. We're really focused on metric-driven performance and understanding what their needs are. We have a very, very good client interaction, both from a commercial and operational point of view. So at any given point, we understand what the client needs, and there's a lot of governance around that in terms of the way we work on SLAs, the metrics that we have to deliver, the data that we have to give them, whether that be transactional, sustainability, there's a lot of exchange of information. And any change that we do is often -- is managed through a disciplined and agile approach. We can't change our processes without really engaging with the client as to what that means for them. But also innovating, and this is something we're doing more and more of. And again, we're super excited to show you the fruits of that today. Generating solutions that allow our growth to be sustainable. In the same way, the solutions that we employed 5 years ago are not the solutions that you'll see today, and I hope the solutions that we have today won't be the same as what they are in 5 years' time. Simply because the technology that is driving our market is also driving our solutions. So it may sound very obvious, it's been littered through the presentation. You'll hear this word over and over again today, is that -- the fact that we need to scale. I just want to talk a bit about why we need to scale. As Sean alluded to, historically for a scale meant geography. It was a case of being where our clients needed to be, make the pipe bigger. We're in a different space now in terms of some of the fundamentals that you will have heard around, like OCP or the fact that we're focusing on the data center space, and we will continue to need to be where our clients are -- need to be. We also need to get more through the pipe, and that's where automation and scalability is really becoming really important. So from an efficiency point of view, for us, it's about reducing unit costing. We really are looking at ways and technologies that we can employ that really focus on how we can take cost out of the business and really optimize that, and scale with the delivery of focus on quality and effective measurement of that unit costing. Particularly important when you're in a service fee based, right? You know what your revenue is, you need to ultimately know what you can process the cost of your product for. Growth, so these -- the technologies that we're utilizing are opening up really new ways of looking at revenue streams. We've got a really good example of that today, looking at how we work with hard drives and how we can create revenue opportunities that didn't exist before not because the hardware itself is changing, but the automation and the processes that we have are unlocking new ways of generating revenue. Differentiation. You've heard a lot about how being part of the Sims Group is a key thing of differentiating ourselves to our clients, but we want our solutions to be those differentiation points as well. Our clients -- we often get excited when we get a chance to show clients who have not worked with us around before because they'll often come in and see things that they've not looked at before, or there's things that they've not seen before within their own work. And somewhat, we try to look at ourselves in the industry standard and joining up those collaborative ways of working across the data center industry. And again, enabling innovation. I'll kind of lean on that quite a lot today in the sense that technology is moving at such fast pace, and how do we work both internally and externally to see what's coming down the road. And again, you'll see that live in action today in the work that we show you. We talked about AI before as a driver of the input into our market, but it's an example of a way in which we are developing our solutions as well. So disciplined approach to the way we invest into scalability and technology is really key. We don't want to waste our time, our resources, our human resources or our financial resources in looking at a technology that is only relevant to a very small portion of our business or for a small period of time. New technologies are becoming readily available, and in some respects, they're starting to cross from being just applicable to the manufacturing space to the circular space, primarily off the back of things like modularity, right? When you build a server, you know what you're building to. The product is the same. But when you have 10 different servers coming back in, that modularity historically presented us with the challenges to how we automate. That is not the case anymore. So we have gone through a disciplined way of looking at how we prioritize the way that we look at automation, and I'm pleased to say we kind of got through the first phase of that in terms of the prioritization of the initiatives that we're going to focus on. That really will give us the road map to scalability. In some cases, you'll see that we're at the automation selection point where we know the road map to this particular type of technology will give us a benefit. An example of that is autonomous mobile robots. It's -- it's a technology we know has massive benefit to us, but we're in the point at the moment where we're looking at how we deploy that and how we select the right vendor. Very important that we focus on the kind of capital planning element of that and the financial planning element. I'll speak a little bit on that towards the end in terms of how we look at that and some of the trends that are happening in the industry, but that we don't move forward into full deployment phase until that is very, very clear and laid out and engaged. And on some of the technologies we're in this MVP phase, where we're really looking at how we deploy it into our operations and how we refine and get that work in before we make the commitments to go to full-scale modeling. So we thought this was important because it really -- we just wanted to demonstrate the fact that this is not a -- okay, there's a robot arm. Let's go find 100 of them, right? It's not that. It's very much how is this going to fit into our model and how do we justify that, and the returns on that and so forth. And I mentioned quality earlier on. It's really the final step because we don't want to stand still. Like as I say, the solutions that we have now, we want to evolve, we want to innovate. And therefore, there's a continuing feedback, looking at those areas of waste to make sure, okay. The technology that we have, it will be right for a period of time but it might not be right forever, and therefore, we can keep that learning cycle going. So what is this disciplined approach kind of resulted for us in terms of the technologies that we are focusing on and that we're excited to show you today? The key thing is understanding why we're doing that. So for us, there's 2 areas of focus. We've talked a lot about scale, but you will have heard me say quality a few times. As Sean mentioned earlier on, a lot of this equipment is not going into used laptops that are going to be sold to Internet cafes around the world. They're going back into live environments of some of the biggest companies in the world and their data infrastructure needs to work, so we are held often to the same quality standards as a manufacturing level facility. And therefore, the technology that we apply needs to be able to deliver that. It needs to be able to make sure it meets the quality standards of manufacturing great processes. So when we look at this, we're looking at it not just in the sense of will it deliver scale and all the efficiency and unit costing we've just referred to, but will it also achieve a quality output for the -- in line with what the client expects. I'll just touch on these in terms of what we're focusing on. So RFID, this technology allows -- what it is it allows us to track all the movements that go on in our facility in a live environment. It gives us a massive amount of data, so as things are moving, it allows us to retool our operations in a very flexible way to react to increase in volumes, changes in mix, resource levels, all the different things which are variables within our operation. And typically, you don't have the access to the data to get in front of that. We can model all of the scenarios that can possibly exist to make sure that we sell for the most efficient way. You'll see how we do that when we're out there. Machine learning really is something, again, that's driving the cloud market, but it's also driving our solutions as well. Two major benefits on this. It allows us to kind of really scale, so -- and if you look in the area of quality checks, for example, where we use machine learning quite a lot, we can verify the work that we're doing without having to do a second manual step or even sometimes a tertiary step to say, did we get it right? Did we get it right again? Machine learning embedded into our systems allows us to verify the work that we're doing when we're doing it. As I said earlier on, AMR is something that's in our road map, and we are at the very, very early phase on that. But when you go out there, you'll see that our input is a rack but our output is often much, much, much smaller parts. So we take the rack to its constituent parts, and they often know our outputs. Therefore, there's a lot of movement of parts and boxes and trays and various things which historically, would all be done by people. It's just hugely inefficient, and there's different ways of doing that and technologies that we can apply that we're working on, which we can walk you through today. The final one is robotics. Again, I'm going to lean into the OCP element of this. The modularity of the kit that we're working on really allows us to look at automated solutions to take this material apart and verify the steps that we need to do to complete it in a way that is historically the -- only the luxury of the manufacturing space. Now, it exists very much in the circular space on the back end in terms of how we interact with this equipment. And the benefits of that, again, touch all those points about efficiency and quality as well as safety. The less people we have to have interacting with the product hands on, the less risks that we present into our employees. But this is not just a kind of pilot where it's applicable to a couple of percent of our volume. These technologies went up scale, applied to fiscal year '23. Repurposed units would have actually been interacted with over 40% of our fiscal year '23 units. So at scale, they will have impact. So I just want to touch very briefly on this from a capital point of view. So SLS, the focus of SLS is continue to be a capital-light business. And in the second point, I'll come on to why we think we can do this automation and remain with that comment. Our fiscal year '24 run rate, which is noncommitted at this stage in terms of commitments we made, is $10 million to $15 million. A lot of that associated with growth CapEx that we're going to assess and continue to assess as it comes up. Our maintenance CapEx in the business is very low. But why do we believe we can remain that and start to deploy some of this technology, which holistically would imply the thought that we need a lot of money to do it? There is a massive wave through the automation space, qualified as automation as a service. Historically, it was the same in a SaaS solution, right? They didn't exist a long, long time ago, you had to go and buy the software and host it yourself and all this kind of stuff, and that was the same as the automation space. You would have to buy and invest in the robotics yourself. What's happening now is you can employ that in a service model. Major benefit for that to Sims is twofold. One, it reduced the total cost of ownership. We'd have to acquire it. We pay for it in a service-based approach. The second most important thing is that it gives us access to the most innovative technologies as they're developed, not when they're acquired. So it puts the onus on the service company and the automation company who are developing these solutions to keep innovating their products and keep giving their clients, i.e., us, access to that technology as it's developed. So it really means that, as I said at the very start, we will continue to innovate and continue to get access to leading technologies in a much quicker sense. And ultimately, the costs in this service-based approach that are incurred is OpEx, not CapEx, because you effectively pay when you drink, not when you buy. And because of that, we believe our capital requirements will remain light. There will be incremental CapEx in Sims, which will be justified as growth CapEx through those processes, and that could be linked to new locations or new strategic positions that we need to be in the market. But again, because when we talk about it in the sense of our automation plans, we're very much leaning into doing this in a scalable way through these service-based approaches. So that's it for me. I'm happy to take questions, like we said, at the end. At this point, I'd like to hand you over to Angela Catt, who's going to walk you through some [indiscernible] on sustainability.

Thank you, Chris. And hi, everyone. It's lovely to see so many familiar faces and have you all with us here in Nashville today as well. As Ingrid mentioned, I'm the CFO of SLS, and I'm also responsible for sustainability. And I've been passionate about sustainability now for a couple of decades, so I'm very excited to be talking to you about this one today. So our clients have a significant focus on sustainability, and at SLS, so do we. This translates to our clients having very ambitious targets, particularly around the net-zero carbon, net-zero emissions, zero waste, reporting and the supply chain. More than 90% of our clients have very mature and very ambitious ESG programs, and what we're really highlighting here is that it's not just a handful of clients that are interested in sustainability. It's essentially all of them. And what I'd really like to draw your attention to here on this slide is that the external reporting obligations are really stepping up. So 60% of our clients are expected to report with the new comprehensive set of reporting standards laid out by the European Union under their Corporate Sustainability Reporting directive. Now, these include measures on supplier emissions and also resource efficiency. But with that, we expect to see an increase of requests for data from our clients as well as lots of companies setting more ambitious environmental and social impact expectations, particularly with their suppliers such as SLS. So our clients really need a partner that can help them achieve these sustainability goals, and that is SLS. We are that partner. So we know clients are interested in sustainability, but let's talk about why. Why are they interested in sustainability? So to set the scene, here is an overview of the typical data center. So they could be either a single building or a large campus filled with multiple buildings. Now, that large campus model is typically for the hyperscaler guys. Now the typical size of the data center is 300,000 square feet, and the energy use and other environmental impacts with that scale, with the size as -- of those buildings. And on the energy side of things, data centers represent 3% of global electricity use. The IT equipment on average is about 65% of that use, but when we talk about hyperscalers with the higher density and the high-power computing, that moves to 91%. So you can really see why ESG is such an important factor for hyperscalers. And these data center operators have really implemented a number of initiatives to really reduce their on-site electricity use, so their Scope 2 emissions. Where the attention is now really turning to is the embodied carbon within the data center. So that is the emissions -- the Scope 3 emissions from the manufacture of servers and also the raw materials that they require. So Scope 3 emissions is really the next focus area. And so here, we have the actual data from a hyperscaler, showing the data center footprint that they've added each year, which you could see in the yellow line. And then the direct correlation with Scope 3 emissions related to that growth, which you can see in the blue line -- blue columns. So a couple of things to highlight here. So firstly, you can see that the footprint still grew in 2020 even throughout COVID, so they are definitely growing and they're finding ways to grow. And surprisingly, the Scope 3 emissions from capital goods purchased, so the IT data center equipment that you see over here, is directly linked and correlated to that hyperscaler footprint growth. So Scope 3 will be an increasing focus area as data centers to continue to grow their footprint well into the future, and in order to manage this, all industry players have to look at repurposing. They have to look at these sorts of services that Sean was touching on earlier. So they need to repurpose their service and their other IT equipment to reduce their Scope 3 emissions. So as I mentioned, Sean touched on one of our service offerings, a very exciting one on the redeployment side of things, and this is exactly what we are doing. We are partnering with our clients to redeploy their data center parts back into their next data center, and this provides exceptional financial and sustainability outcomes. They go hand in hand. So additionally, this answers that Scope 3 emissions challenge that I mentioned on the earlier slide. So this applies to all IT equipment but we're continuing the theme here, and I'm just focusing on and talking about the life cycle of the DIMM just as an example. So a DIMM -- market price of a new DIMM would be around USD 75. The service fee for us to harvest tests, reprogram and ship this back to the client is significantly less than that. So there is a favorable financial return for our client in redeployment. It's not just the sustainability thing. It's definitely a financial benefit for the client. We recently undertook a life cycle assessment study on our operations. And we looked at a typical memory life cycle and compare this to a number of end of first life scenarios. And so what we showed was that redeploying the memory for another similar application, so reentering into a new data center can actually avoid 30 kilograms of emissions, just 1 DIMM. And that's due to the avoidance of manufacturing a new DIMM as well as significantly reducing the transport costs for reapplication. So let's bring this a little bit further to life. So if we think about a single rack, a single rack may hold 30 servers and within those servers, 12 to 16 DIMMs per server. And if we harvest all of those DIMMs from that rack, so we're only talking about the DIMMs in this instance, we can actually avoid 11 to 14 tonnes of carbon. Not to put any individuals on the spot here, but this is more than a round trip from Sydney to Nashville. So which is around 10 tonnes. But we could look at it also another way, and it's basically equivalent to the annual carbon footprint of 2 people living in the EU or a G20 site. And so what you can see here is that we do add significant value to our clients. And we can provide our clients with both financial and environmental benefits by providing our service. So our SLS service is actually a very low emission service. And this is critical for our clients because the SLS Scope 1 and Scope 2 emissions are actually our client or part of our client's Scope 3 emissions. And the positive impact we can have from our service is reducing our client Scope 3 emissions in and of themselves. So for example, the facility that you'll be seeing and entering today is 100% renewable electricity. But we also have broader programs in place, and we will actually offer a carbon-neutral service from 2025. So that will be 100% renewable electricity at all of our SLS sites. It's also about agile strategic processing operations that are really aligned with our clients and their locations and also optimize logistics which really helps us reduce the freight movements and the emissions associated with that. So our SLS targets are really purposefully aligned with our clients and that enables us to play a critical role in reducing our clients' emissions. So SLS delivers a significant impact to our clients and really the world as a whole. And what we deliver is real and tangible. So you can see here on the top, we're looking at top part of the circle, we're looking at FY '23. So in FY '23, we repurposed 3.8 million units. That then equated to 13 million kilograms diverted from landfill and nearly 1 million tonnes of CO2 avoided. But it's also financially significant because if you convert that, you can also calculate the carbon offsets that you've avoided as well. Earlier, Ingrid touched on our repurpose unit target of 8.5 million, which you can see here at the bottom of the circle. And again, if we achieve this or when we achieve this 8.5 million repurposed unit target, we will amplify our impact. So 30 million kilograms from landfill and nearly 2 million tonnes of CO2 avoided as well. And if we apply, for instance, a $50 carbon price, that would equate to $85 million in avoided costs. So for those that want further detail on our impact, we have a little bit more in our appendix, but I'm not going to be touching on that right now in this presentation. So as we know -- at SLS, we know that our clients are committed to their ESG strategy and their commitment translates to them being really driven to be a leader in the transition to a net zero economy, also to be a collaborator and a partner and to really work to amplify the secular economy and then also represent themselves through very ambitious reporting, whether that's following the mandatory reporting requirements or going beyond. And SLS is a critical enabler of these goals for these clients. Earlier, I spoke about the value we offer, both environmental and sustainability and the benefits that we achieve through avoided carbon emissions, avoided carbon offset costs, redeployment of assets as well as our own carbon neutral footprint. Secondly, partnering with our clients to make the industry and the business as a whole will circular. And Sean mentioned that we're part of the OCP. We're also part of other industry forums, and we work directly with our clients on this as well. We also offer here, in the third column, critical data that enables our clients to have accurate and auditable reporting. And this is actually really important for our clients because it means that they can position themselves externally with confidence. When they report numbers and when they use numbers, they can definitely rely on them. And it's something that I'm sure all of you are going to be happy about too. We do that in a couple of ways. So within our client portal, we have our own customizable reports on sustainability as well as other metrics, but also we have our own proprietary sustainability calculator. And with that, we have our own life cycle assessment values. We use our own operational footprint. Compared to maybe some of our competitors who just rely on EPS general averages, we use actual data so that then our clients have incredibly accurate numbers that they can rely on. So as you can see, SLS is a critical enabler of these goals for our clients. And in doing so, sustainability is an advantage for SLS. Thank you.

Well, that concludes our discussions and again, this is how we lean into the mission to create a world without waste to preserve our planet. So we think SLS does quite a bit, and we live this purpose narrative daily. So we'll open it up for questions.

You showed us one of the hyperscalers that you showed a mix of 60-40 services versus, I guess, sales of product. Can you talk about what that looks like on the group, maybe services, refurbished products sold? And then what is eventually sold to scrap or other streams?

So yes, the majority, we have -- we saw this a couple of years ago where our revenue came from recycling products, right, where it was 75%, 25%. It's flipped, so it's really 75%. And on services, it's increasing. So it's 60%.

Exactly, yes. So definitely, what we're seeing is that the recycling revenue as a percentage -- I'll talk percentages, not whole numbers, but recycling is definitely a much smaller portion of the revenue base. Then we've got the resale piece. And while that is also growing, what we're finding is that the service revenue is growing at a larger rate.

And Stephen, can I put you on the spot there. I mean has that -- you've been on this evolution, originally, you thought you were going to be selling a whole bunch of copper and other componentry and now that's much less important. Does this business still have a logical fit in the broader Sims' network where we take big bits [indiscernible] make a little bit to metal. It feels like this is much more of a services business now.

I believe it does. I mean it's an adjacency to the business. I mean it certainly fits with our purpose to create a world without waste to preserve our planet. So when we put it through that filter, it certainly fits. I think I've said right from the start, but I've always viewed -- I've always viewed SLS as a no-regrets strategy. As Chris alluded to, it's to date been a very capital-light business. So therefore, we've never put shareholders' capital at risk. The automation coming up will require more capital, but the business model will prove that up, and it will be -- have to go through all the standard returns that you would expect. So I mean, in summary, yes, I do think it fits in with what we do. And I think we've still got plenty of runway to go to proving out the business model over the next couple of years.

I've got a question, sorry, this is stuff that I find kind of hard conceptually to get to because this is all the things that work in our life that we don't see happening in the cloud. This is actually dealing with the hardware behind it that makes it all possible. So my question is an easy one. If a new deal is $75 and your clients want that recycled, repurposed, sustainable product, why the hell do you sell it so far below that price? If that's what they want. If that's the demand, why would you sell repurposed units materially below the price of a new unit that has all the carbon coat in it. I don't understand that comment.

So I don't know that we're reselling. We're redeploying it back to them. So it's not that we're reselling it. We're redeploying that unit back to the client. So it's not a sale. It's basically harvesting something and essentially giving it back to them.

Even if you did that, why materially below the price of a new deal, if that's what they want. If that's the demand for the service. Why? I don't understand the pricing model. It's -- what I'm saying is if you've got a lot more headroom for price and this -- or is it a competitive environment? Who are your competitors in this space? And really, to Andrew's question before, are there others that are attached to large public companies that you're competing against? And I guess, Stephen, could this be attached to another public company and still be just as virtuous as a business. Because I see it standing on a [indiscernible], I can see that. I just don't understand the pricing model if that's -- if what you're selling is in such demand from your clients that you would repurpose it at such a discount to the price of a new DIMM, you're saving the planet.

Yes. So -- okay. So maybe I'll just start a couple of things. So there's actually price ranges for DIMMs. So $75, I've gone for some middle price. It's not that, that is the set price for every single DIMM brand. So -- and then -- thank you, that's good. Let's start there. And then I think as we work through this, it's -- what is the value of our service. And so we need to think about it in terms of this is actually our clients' asset. And they are the ones who would like to have this return to them in a manufacturing level quality so that it can reenter their new data center that they're creating. Now this is, in a sense, it is a secondhand DIMM. But what we're doing is bringing it up as much as we can to a first level DIMM. And so it's not that the value of that asset, for instance, if it was resold in the market would be at that sort of price, just to be good with as a start. And then what I'm really happy with is that in moving to a service revenue-based model, it really derisks us and the association with market prices and the volatility that can be at times, not always, associated with those prices. So I think in this sense, the revenue model that we've established is right. The value we provide to our client is right. And then as we provide more value to our client, I would expect that the price that we can charge for that would be increased to commensurate with that. So it's not that prices are set in stone at this point in time.

Maybe a slightly different point of view from me, but completely just leading on from Angela, so I guess you've got to look at what's the alternative. The alternative for them is to sell it and take a revenue share, which is the revenue share model that -- I mean if you look at the growth journey, it's gone from originally, everything was just treated and sold as recycling. The second part was it moved on to a resale model where that was a revenue share model. And the third part, which we would ultimately like to give customers to as a service fee for returning their asset to them. So it always is going to have to compete with what they would get as a revenue share by selling it into the open market. And I think based on that, I mean, we haven't disclosed what the service fee for it is. But based on that, I think we get a good service revenue for the service that we provide.

How are those service contracts [indiscernible]. I know you're going to give me the answer in a [indiscernible]...

I think, yes, like 3 years, I think, is a good one to answer the question directly. But what I really liked about Sean's presentation is that he's like looking at our client tenure. And our clients have been with this cycle on average for 9 years if we take our top few clients. So it's not necessarily, I don't think about the contract length, it's actually about the client tenure. And that, Sean and his team do a fantastic job as well as Chris in what they deliver operationally.

And I think I have the last question that I had bundled up [indiscernible] 27 questions. Who's your major competitor [indiscernible] Ingrid, you said 10% market share at sort of making somebody else's? Is there's lot of players with a lot of share or there's somebody else who feel this space?

So I would say the biggest one of publicly traded would be a company called Iron Mountain, right? We know these guys from the paper shredding business, and we certainly compete with them. But we'd like to say we don't have any competitors, right? We like to think we're in the space of all our own. But they would be probably the most equivalent to us.

But also, I think that the other aspect is that there's a lot of maybe smaller players who don't even recycle. They don't even reuse and repurpose. So in that sense, there's a large part of the market that isn't there. Also, our 10% target, we're not in Russia. We are in China. And so in this sense, it takes that into consideration as well, just to give you a broader holistic picture.

Just sorry, [indiscernible], on that competition bit, if Iron Mountain's your largest noncompetitor, why can you not just double your fees per unit or service fee because you're saving 30 kilograms, it's all part -- I just, yes, just recap the deal and double it.

Of course, we would like to and as the CFO, I'm all for that. But we have to also work with our clients. And I think when we're thinking about our competitors, like a large portion of it is still quite small and they're based in very localized sort of locations. And so there are these other competitors out there. It's not that there is only one competitor, I think Sean was illustrating and just providing an example, but...

I also think as well in terms of the way that the -- we interact commercially with our clients, as Ingrid said at the very start, the DIMM is 1 component amongst many. We're going to show you -- and again, the DIMM fee is a proportion of a wider set of service fees that we typically engage with. So there are other elements to the way that our commercial position works, not just related to that kind of one piece of equipment related to other parts and other services that we provide. So again, I don't want to get into kind of client-specific kind of commercial arrangement, but there's a broad set of commercial transactions that happen around the server, the DIMM is just one part of that.

So I'm not after some client-specific data, but maybe some unit economics then. I mean 1 DIMM can be sold back to our service. Your service revenue per DIMM is X, it takes 4 minutes to service and repurpose a DIMM, the hourly labor cost is Y. So that we could just work out. I mean, how does it work? What are the economics look like?

So I think we're not really going to go into the specifics. I know you would like to have a really direct answer to that question, but we're not going to be able to go into the specifics of that right now. I think what you'll see when you go to the floor and also what Chris was touching on earlier is that, at the moment, we have what could be fairly manual processes throughout, but we have a whole bunch of this automation coming through. So in a sense, even if I told you what the labor cost was and the rate and the current processing, within 6 months' time or a year, it's completely different. And that is exactly what we're working on to bring that down and make that as efficient and automated as possible just on the cost side at least.

Thank you. Good morning, everybody, and thank you for your time. Just probably an extension to one of the 53 questions just asked, but with the contracts, can you just sort of work at no customers place, but just what a typical contract is. For example, if I'm servicing [indiscernible] in Australia, I'm using that just because it's local to me, if -- is that for one site? Or is that a contract for a region? Or is it a global contract? How does your relationship work in terms of the extent of the stickiness of that customer tenure over time?

Yes. Typically, it is a global contract. That's why the lead time is so long before they used to be regional contracts. Each contract is a little bit different, but customers really want that kind of the one neck to choke is what we say, right? So the contracts tend to be global, which can be difficult, right, in terms of tax and trade and some of the other environmental regulation. But yes, the contracts we have with our biggest customers are, in fact, global.

And from a financial point of view, I think everyone is trying to ask the same question, but if you're explaining this business to a 14-year old, how do you guys make money? And what sort of sustainable margins can you realize because I'm sure that the repurpose units, not all units are the same. And so for us, it's like we're comparing apples with oranges. So can you help us in terms of how you would see that profile and how that 8.5 million repurpose target, what does that look like in terms of sales? Or is there sustainable margins that this industry works towards. That would be super helpful.

Yes, sure. So I think a couple of things on that, and I'll start, and then Sean we'll add to that. So I think, firstly, what you'll see actually is that with the delayed refresh rate, is that we have a lot of fixed cost capacity, and that will get some operating leverage. I know you like that word, and it's very familiar to you for the metals. But we'll get some operating leverage as those units come through. And so we should see some EBIT uplift and margin uplift from that alone. Then I think the other aspect that we'll see is a continued move to service revenue, which we're just touching on before. So we've seen that demonstrated over the last couple of years. I'd expect to see that to continue also going into the future. Ingrid also touched on some of the short-term temporary headwinds that we've been facing just regarding resale prices. And so that would be another aspect there. I think we also touched on some of the medium-term tailwinds that we're expecting. And so those medium-term tailwinds are likely to increase some of the resale prices. So again, that would then flow through to more margin on the retail revenue side of things. So just a couple of points that come to mind to start answering that obviously, very big question.

And if I could jump in, I do have a 14-year-old, and he ask me all the time, "Dad, what do you do? So there's a perfect opportunity to practice. I want to explain him what we do. We basically have 3 buckets of revenue. There's -- based on the [indiscernible], we've got the commodity revenue, right? And you'll see some hard drives, circuit boards, the tonnes of steel that we deliver to Sims. So that's sort of the base. We've got resell revenue. Typically, we sell something we keep a percentage of that, simply put, right? We sell something for $100, we keep a percentage. There's redeployment where per unit, we charge a fee and then there's reengineering, which is very similar to redeployment for every unit we charge a fee. So that's what I see as the 4 major buckets. The fifth one that's emerging quickly is the on-site work where we're actually being able to charge for our labor working with our client. So that's kind of the fifth emerging bucket. Chris, sorry?

Yes. I was just going to say, finally, Ron, to your question of stability of margin in terms of how consistent that can be, whilst I see there is a kind of live debate on where that service price point could be and how that relates to margin. Ultimately, we see -- when we compare our service-based margins to historically, maybe our resale margins were a little bit more -- historically a little bit more exposed to things like China. Ultimately, they are more consistent and more consistent, we can make our cost base through that automation play. We've figured out and it's not just our kind of revenues, but ultimately, our EBIT will become somewhat more consistent as well.

Can I just ask, do any of the people you put in the hyperscale kind of bracket self-perform on this kind of work? Do they do it themselves?

Yes. In the sense that they execute the work themselves. Yes.

One in particular, yes.

Yes. So there's different combinations of how that works. We have people who are permanently dedicated working with our clients, within our clients' ecosystems. We have other ways where we will partner with our clients directly and go and do that work. And then there's different times when the client will just leave us to it on a more project basis and let us kind of do it as we see fit.

So maybe I wasn't clear. Just thinking more about undertaking this work themselves, recovering their own kit and doing that. And I guess my question is really why -- as some of these guys that are already mega grow exponentially, do they need Sims in the ecosystem? But if we can start with many of the hyperscalers self-performing, is doing this themselves?

For most of the ones we've talked to that do it, they don't -- one in particular, they don't necessarily do it themselves. They sell -- they're selling themselves, but just like they build the stuff they're having other people perform the services under. Talk to the other hyperscalers that's not that one. They look at it as a risk. They don't want necessarily the guy putting this stuff together to take it apart. So I don't -- I think the one company that does do it in-house, I think, doing the anomaly. I think the other companies, just for lots of different reasons, will continue to rely on companies like Sims to do it. And remember, they still have -- there's a bunch of issues. When they do it themselves, there's a whole set of regulations that govern taking something apart. They're different than the legislation of putting something together. And that's where a lot of these hyperscalers can see that as a potential risk where that's what we do, right? We know how to get material out of Malaysia, out of many defaces and so I know where you're going. Is it a risk to our business, they're just going to do it themselves. And I think there's many, many reasons why they won't. And again, they don't think of it as the other 3 that we're talking to directly, don't see that as part of their core business.

Just focus on the commodity in the resale business. Do you pay for any of that product that come in, do you actually have to pay for any of that? Because it's one thing about this because I've never got my head around is that customer pays you to take stuff off them and then you can then go and sell and is it -- you're clipping the ticket twice when any other company would be paying for their raw materials to...

So on the resale, yes, it's a revenue share. So we don't pay. We just share in the proceeds. But one of the nice things are on the commodity side because we're in the service business before the whole business was based upon sharing the commodity value in many cases, because we're doing a service, the commodity value doesn't -- we get to charge a service and we get to -- it doesn't come into play, the commodity value. So we get a service fee, and that's what we get for the material.

So all those -- and just on a [indiscernible] Stephen pointed out the trucks got in the front [indiscernible] those FedEx trucks and whatever else that's out there. So the customer is then responsible for getting that. And that -- I presume some of that in the resale business, some customers bringing their own stuff to you, you're doing it here and then you're taking a percentage? There's some trucks that were [indiscernible] SLS branded trucks or third-party type trucks? Yes. So the customer has actually done the -- taking the products out themselves from their facility?

Yes, there's a lot of control in terms of the -- not to get into the weeds too much about how you decommission out of the data center environment. And our clients in some spaces allow us to do that. In other spaces, obviously, there's going to be a control around that from a data point of view and data control. Yes, typically, in some areas of the world, we handle that logistics piece between our clients' environment and ours. And in other parts, they want to undertake that delivery to deliver it to our door. Some of that leans on the -- Sean was telling earlier about waste controls. And in a certain state, a product could be costed as waste and in another state, it might not be costed as waste. So there's different elements to that.

And the reason I paused on your question, it's not just even the customers that deliver the material, it's not a passive relationship where stuff just shows up. We're actively involved with their systems. So we know what's going to show up before it shows up. So even if they're arranging for the freight, it's not a passive relationship on our part. We're forecasting and balancing our demand capacity based upon what they say they're going to send us. Did that make sense? It's not just stuff showing up. It's an integrated relationship.

And the last one from me and very simple. I probably missed it here, I apologize. But is data centers -- how much of data centers is the business now?

It depends on how you look at it, it depends on weight, revenue.

So I think what I might refer to as actually Chris' slide. And so I think what Chris was referring to here is that a lot of this automation technology is more data center centric. And so if we look at the FY '23 number, it would apply to 40% of our repurposed units. So I think that may be a good little base. But I would expect that -- so one, our repurpose units will be growing. But two, I would suggest the percentage of repurposed units associated with data centers will also be growing. So that number would increase, both the percentage and number.

40% of [indiscernible] in 2023 will...

At least, yes.

So 60% of the business is non-data center at the moment.

Yes, it could be enterprise. So it could be similar type equipment, but not coming from a data center, a hyperscaler [indiscernible] enterprise global 100...

[indiscernible] where it could be material from an OEM that's destined for a data center, but never actually got there. That makes sense. So it's hardware from a data center, but it's also a hardware from OEM that would be going to a data center, but we get directly. So that's why it's kind of a tricky thing to answer directly.

Why would you get directly from the OEM...

Not a reason, just overstock, right, if they change a configuration -- see, exactly, for whatever reason, this configuration didn't sell or it's warranty returns. Yes, lots of different reasons, so...

Does that mean you can hold inventory. So if you're taking that from an OEM, are you taking that on risk because they're getting rid of it to you, presumably, does that mean you've already got an end market for it? Or are you taking that on books on risk?

We always have a market for you. Where -- if we take it in, we'll have a market either commodity, resell or redeployment.

Okay. So you're happy to take that risk on [indiscernible] you want to place it?

It's not really risk because we're working with our client. We'll say, "Hey, this is where this is destined. So we'll work it out. So we're not buying something on the hopes that we can sell it. Before it even receives our -- comes to our dock, we have a rough idea of where it's going to go.

So is it a service arrangement? Or are you buying inventory of the OEM?

Both. And it depends on the relationship that we do both.

Okay. Just 2 questions, sorry, and soft question first. Thoughts on putting circuit boards through shredders and the PFAS that comes with that?

Oh, that's a really good one. But do you...

For the plastics, you mean? For recovery of the plastics?

Well, I mean, that's 1 of the largest consumers of forever chemicals, circuit boards...

So talking about smelting or -- from the smelting business. So we know a little bit about smelting circuit board, but I don't know if this is appropriate time.

I'll say certain jurisdictions. We're seeing the impact of that start to come through. So for -- in Europe, for example, where we recover -- where we are doing a recovery of circuit boards either in kind of small commodity play at the bottom or a byproduct of our client sites, we're seeing regulations regarding the controls we have to have on manifesting different terminologies and so what the controls around that are very becoming, I would say, very stringent. So practically, for example, we're seeing things like water control, dust control, [indiscernible] associated with various parts of processing certain types of circuit boards, more testing of things as to whether pollutants are present or not. But more often than not, what we're seeing is that, for example, in this facility, you'll see some of that equipment is in demand in a repurposed circular supply chain. So it's not necessarily that it's going to go to a smelter or a shredder. That's absolutely secondary usage for it as well.

So you wouldn't necessarily care whether the circuit boards themselves have PFAS in them, you would just take them, right? I mean you don't try and source from customers who don't use PFAS, for example?

Typically not. It's not that we don't care, but there's the due diligence that we would do with the client in the sense of assessing what the hardware is in terms of mapping that to our downstream route internally and any downstream vendors we use in external.

And also, I think, as part of the industry forums that we're in, this is where we also influence and talk to some of the industry players about these sorts of things, too.

Okay. And then the other thing, there were quite a lot of questions around the economics of all of this. And yes, perhaps I could come at it from a different angle. So what would success look -- how would you describe success numerically? And I'm really trying to find out what we should be rolling the red carpet out for and what we should be paying blood for? And what is bad and what is successful for this business?

8.5 million units, right...

So I think yes, the 8.5 million units -- so I think with the dollar in front or a percentage increase. That is what I'm guessing. Okay. You want a dollar, okay.

I don't know. But I mean, from a shareholder perspective, I mean if a percentage increases, you go from 8.5 million units, up 50%, and you do that without generating profits. I mean that's not great, so when I said the percentage, I meant like a return on equity, return on invested capital or margin or -- yes dollar...

We've always said that SLS has to get to the point where it sits at the table with the other metals businesses and has an equal seat at the table, and that's because it's contributing a profit to make it worthwhile. So Ingrid and I've always talked that for me, that means $50 million to $80 million of EBIT, that gets itself a decent seat at the table. And we can see a pathway to that figure. What I would say that -- and I've talked about that number before, so it's not -- but what I would say is that while -- why I believe it's a no-regret strategy in the unlikely event that we don't give -- for whatever reason, we aren't burning shareholders' capital because it's not a capital-intensive business. So the worst case is, it is slightly embarrassing. I've been embarrassed about different things before, but it's just slightly embarrassing because we didn't get what we would see we could get to, but we have not destroyed shareholder value in getting to that number. But when we look at the market -- when we look at our position in the market, in my view, $50 million, $80 million of EBIT is not an unrealistic number. And at that point, SLS sits at the consolidated Sims' table with a good contribution to EBIT to take up the management time that it does take up.

Should I think you'll find shareholders think this is a very good business. It does lots of great things for society that you not a charity.

No, absolutely, we're not a charity, and that's -- it's an entirely commercial business. And the service fee that we charge the resale percentage that we get does give us a very good return on what -- on the effort that we put in. Clearly, SLS has been impacted by China. And that business model where a higher proportion of our revenues coming from reselling is subject to commodity risk and the whole idea of going to a service model with redeployment is to remove the some commodity risk and turn it into a service base business where the automation of it will drive lower costs on the same service fee and therefore drive higher margins. That is the game that we're trying to achieve.

I think just on extension of that [indiscernible] repurpose units, where does that fit on the pathway to our 50% to 80% EBIT?

That would fit halfway to be honest.

So we're talking -- are we talking call of $30 million, $8.5 million I'm in the -- we don't -- I don't care personally, but it's more the case to try and find a benchmark. So if our new standard is we're going from $8.5 million to $15 million then does that mean we go from [ 30% ] to [ 60% ] or through more stable margins. I think people are just trying to understand the amplitude of the volatility and you're obviously trying to reduce that by service fees, but also where -- what does $8.5 million repurposed units actually mean financially.

Yes. Does that make sense?

No, definitely -- and I think Steve is spot on when he's saying it's about halfway. I think that's a really fair assumption and fair statement.

So get back to 25x, 30x. I'll be hoping for more than that was I'm hoping that Chris is going to deliver automation which drops out...

17 million units [indiscernible] [ 25 ].

Just for saying I don't know that it was $8.5 million and 25...

That gets us halfway there.

Well, I don't think it would -- hopefully, it's not going to take double that to get us all the way because we get automation efficiencies. I mean there's a scale advantage to this business. Yes.

There's a second microphone.

Just on that, Ingrid, when you're going to go for more capital. The growth capital you can prove up the business model, you're going to go to 50 to 80. What sort of EBITDA funds employed do you work on? What sort of commitment do you give Stephen on the corporate team? Is it 15%, 20%? How do you -- what's the process? And how do you go about that and the time period to get there?

Yes. So basically, we have the same plus a bit that the metals business does. So... exactly Yes. I'm conscious yes.

So we -- our current hurdle for the metal business is 15% post tech nominal [ IRR ]. SLS has to be higher than that. I will say though that right now, we haven't had to address that question really specifically because it has not been a capital-intensive business. That will rise once Chris starts delivering us to a technology that will remove the variability of the HR costs will allow us to be more operationally efficient because robots don't need -- don't need brakes, they don't need all the things you do. So we at least -- we haven't specifically addressed that because we haven't yet had a business case that says we want x number of robots that's going to deliver us this cost savings providing us with this amount of margin improvement. That discussion will happen once we move to that point.

I think there was a compounding element to that as well in the sense that, as I said in the presentation, a lot of our resources historically have been positioning in terms of physical or these things that you're set in, right, to be in the countries and the markets and the geographies we need to be. Naturally, we're set up for additional capacity that the organic growth of the cloud is going to deliver. So it's not a case of just automating the processes will become more efficient. We have to have capacity within the current cost base to be able to take on that volume as it's starting to come through.

Could I -- presumably developing markets, emerging markets don't have the same level of don't do this. There wouldn't be one of these facilities in Africa, for example or. As we progress towards that, and the world progresses towards that, is that a good or bad thing for this business, like if developing markets come start being more sustainable, like do it take away your recent selling markets or whatever? Or is it good or bad thing?

I think I personally think it's a good thing, I think, because again, whilst the developing market may not have a perception that they work in, in a certain way, our clients who are in those developing markets definitely do. So for example, we've -- in India for our over 15 years. And if we look at the standards, we have to deploy in India in the way that we work, are as equal to the standards that we have to do in the U.S. or in through Europe. So whilst there may be a concern that there may be players that may come up in developing markets that may want to prescribe this service in a slightly different way. I kind of lead back to what Sean said at the very start, the clients we are working with expect the standard relevant of where it is to be deployed in a certain way. So and there's not always a plethora of people who they can work with you can enact that service in some of these places.

Because what we see, what I see in developing market is the opposite. I see more and more of the big hyperscalers opening up in developing markets, and they'll have a need they're not going to go with the local guy in that developing market. They're going to want -- to Chris' point, the same standards of developing markets. The hyperscalers are going there first, right? They're moving from co-locators they're doing it themselves. And once they do set up, and we're involved in these plans with our hyperscaler customers. Once they do open their own facilities in these developing markets, they're going to have a need for our service. So I think we can actually follow them to these new markets.

Sorry, just a quick question on how the senior leadership team at SLS is incentivized? Is it based on SLS's -- you got a profit share? Or is it based on Sims Group outcomes?

So new this year, SLS has specific goals around growth, just for SLS. So in the past, we had part group and part the whole enterprise itself. But this year, going forward, next 5, it's SLS growth only. And that these targets are run down through all the levels of our organization. So we're all marching in the same direction.

Okay. And that's unit growth or profit growth?

Both -- so there's a repurpose unit number in there. There's also an EBIT number in there. as well as onboarding new systems, getting it to work. That's all these type of goals that we have.

I think, Simon, you would be happy to hear that the EBIT is a very large portion.

Great. Good luck. Sorry, just going back to -- I'm trying to do a few of the dots together. You made a point earlier, Ang said and that there's a lot of smaller operators in the space. but I don't know how to reconcile that with the fact that the top 100 global clients who would have global standards wanting to look at procurement, look at audit, look at compliance. I don't understand how they would go with a local provider. Because you the way you presented, it's like you've got like a unique offering. Maybe Iron Mountain hasn't been similar, but it's not the same as if it's so unique and it's so important to the top 100 it sounds like you would be commanding the market share of that top 100 rather than just the 10% of the total market and et cetera. So how much of your revenue is from the top 100? And then second part of that question, of the top 100, how many of -- how much is that represented by the hyperscalers?

So let me take the first part of the mine. So you would be surprised. So we are trying to drive the maturation of this business. But in some cases, there are very big financial institutions that still will work with the "local guy" It's changing. It's becoming more and more mature and needing companies like our, but there still is that local part of the business. We think that part will go away as companies want to become more compliant. But it would surprise you. I mean, really large companies will still use Joey around the corner, right? That's changing, but it still happens. But we're changing that by driving the maturation.

Exactly. And exactly Sean. So the clients, I would say that are with us are ones that are definitely focused on exactly what you were talking about, the compliance and auditability and making sure things are done correctly. But then also, we've had a large bank, for instance, only a couple of years ago was fined what, $50 million, $100 million for a breach because they did choose a local provider and that local provider sold that data [indiscernible] it's public record, I can send you the link, if you like, but it's available on a thing that this is a large bank. And so it's not that everyone is there. Of course, we would like them to be there, and we're ready to service them when they are there.

And that's why we see the growth segment in that sector as companies come around to that. That's why I see the. If you remember the tiers that we see such a big growth in that market, as things like this article that Angela mentioned happened, it just drives customers to us because they realize it's a liability. So -- so that's why you see that...

Yes, I thought it was sort of intuitive exactly what you're saying because the compliance and the data privacy and the issues around data, I'm just so surprised that a major bank would use.

When we've had discussions and is that traditionally, historically, a lot of this work has been driven by the procurement departments of these out these companies as well. And it's only in recent times that the sustainability departments of these companies are getting involved in procurement. Procurement was all just about cost. It wasn't about sustainability. It wasn't about quality. I was just what's the cheapest price I can get that service.

Sustainability and security, save a security...

Yes. I think it's well the way you so to the point and made around that kind of incident that was public that happened at a compounding effect within the market as well. So at that time, there was a lot of repositioning of who people wanted to work within markets because I don't want that to happen to me, right? That can't happen towards -- even though they weren't impacted directly. So there's a reevaluation of vendors there. I'd say the second point is the regulation space around this really was very loose a few years ago. So 10 years ago, there wasn't the GDPR regulations, right? Nobody really was looking at regulation and the impact of regulation on data through their businesses. That's a completely different landscape now. And we see the same with sustainability and some of the regs coming out of the EU. Also with what things around controls of products that come out of this type of equipment. There's much more controls in place now, which are forcing clients really from a compliance point of view to have a broader discussion around the companies they work with. So...

Sorry, Chris who sets those -- what are the regulating bodies? And do you work directly with them? Or are you working with your clients who are working with those regulatory body? So I'm just trying to understand how the standards change more opportunity that provides SLS.

Both. Well, so we definitely work with our clients on them because our clients have a vested interest in the certain of these regulations. So as your first question about who sets them. They're generally set at state levels or in like, for example, at EU level within the European Union. But we broadly engage and believe we're an industry leader in a lot of the industry bodies that we set in that do a lot of the work to how these regulations have brought there, right, in terms of how they're shaped. We work collaboratively across the industry as well to do that. So whether it be industry level, direct level or a client level, we're kind of involved in all of those discussions.

Because presumably, it's like building products companies that helps at building standard cuts for materials, that would be your advantage if you're helping to write the rigs, yes. So if you've got that connectivity then you're influencing, this is the best way, safest way most sustainable way to process.

And we're making sure we're positioned in the right discussion as well. So similar to the innovation commentation I have earlier on, it's not just innovating in our processing, but it's 2 of the bodies that we're talking to. So again, as the industry matures, there's no industry bodies that are guiding policy and regulation in a slightly different way. We want to be in those discussions. So it's not that we just stick to the legacy bodies that we've always worked with. It's really looking at, okay, who are these new bodies that are shaping policy going forward.

Yes. That's helpful. And then rounding back to the question I asked at the beginning in terms of the top 100, what that represents of your revenue because revenue is easy because then talking about margin. And then of that 100, how many of those are the hyperscalers themselves.

So can I just quickly go back that will help answer this question but also just touch on, I think, the question we're talking about earlier with Ben. Just in terms of the repurposed unit percentage and where that's allocated. So the 40% that we were talking about earlier, it is data centers, but there was also another requirement on that, that the data center equipment came through at scale. So the repurposed units that came through at scale would then be suitable for automation. And so that was the number in Chris' slide. But if you do repurpose unit percentage for data centers, it would actually be a lot higher but because there are also materials that come through from data centers that are not at scale. So I did want to correct that just to make that a lot clearer because it's not that then 60% is something else I would say it's probably more like 30% is something else if I was just doing high-level numbers. So I wanted to clarify that one first, which I think will help answer yours. And so when we're talking about the hyperscalers, there's 2 hands, maybe worth of hyperscalers that we would be thinking about when [ John ] is talking about the Global 100 clients yes, they would be part of that. But when we use that term, we're talking more about banks, insurance companies and actual corporations. And so if you're looking at repurposed units, then what I've just said is that it would be about 70% data centers and hyperscalers and then the other 30% would be enterprise. So I think that's probably a fair percentage.

So Lianne will give us the safety guidelines before we have -- what we need to do before handing it over to the....

All right. Welcome, everybody. First of all, we're going to...