Sims Limited (SGM) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Houston. For those of you online, welcome as well. Are turning around Sims, and that's sort of, again, about 3 years ago. We used the concept of must-win battles. And I might talk a little bit about those later. I think we're learning now. But that was never the final objective. The final objective was some scalable growth, and we now describe that as leaving base camp. I want to go through the presentation for today through the disclaimer there. On the agenda, the first thing I can say happily, for those who of us who are here, the first thing I can say happily for those who of us were here last time, there are no TSA issues. We don't need to rush through this presentation and miss the tour. So we can take it at a leisurely pace today, which is good to see. So I'm going to start off with, I guess, an overview looking at group strategy with more of a focus on metal tomorrow is about SLS. Rob's going to come up and give us a more in-depth presentation on the metal business. Warwick, will come up and do a CFO to and he will cover off on everything to do with capital management. We'll come back for Q&A. If we could just hold questions to the end, that would be great. I'll able us to get through the presentation. Then we're going to do a tour of the Woodhouse terminal. Then we're going to do a tour of the Woodhouse terminal. We no longer, I guess, refer to it as TCT as such, that Woodhouse terminal is where it's located and it's part of the business now, gives us plenty of time to head off to the airport. And we -- I guess, I'll see everyone tomorrow morning again in Nashville. So that's the run-through for the day. We've had a purpose for a long time now to create a world without waste to preserve our planet. That has been a purpose that's got to create a world without waste to preserve our planet. That has been a purpose that's guided us for several years now, and it's -- I think it's going to go 2 businesses. We've got the metal business, and we've got the SLS business. In many, many ways, they're complementary around the secular economy. Obviously, in the middle side, we focus very much on recycling steel, aluminum and copper. And clearly, the nonferrous is going very well at the moment. We service the infrastructure manufacturing markets and we've got operations in Australia, New Zealand buckets. We've got operations in Australia, New Zealand and in the U.S., we've got operations right throughout the right throughout the U.S., some of them we own 100% through NAM, some of them 50% through SA Recycling. The SLS is also all about circularity as well, but it deals much more with hyperscalers and enterprise type activity. it recovers it slightly differently. It's more about reusing redeployment resale as opposed to straight out recycling, but the principle behind circularity is there. And it has a global footprint. It's all throughout. The U.S. is dominated, but we're in Europe. We're out throughout Asia, India, in particular, Australia, Brazil. So very much a global business as its name, but in more locations. I think the 2 businesses work really well together. And I think for both businesses, we've got significant growth coming up over the coming period. This is a slide that we've presented a lot over the last 2 or 3 years. So I want to maybe put this into a real-life setting. And how did this -- how did our strategy to repurpose and recycle -- how did it drive our thoughts around tri-coastal TCT when we purchased that back and I think it was January this year. What was the actual essence of that deal that domestic channels and global network. That sums up TCT. It's got both access to domestic channels and the global through it. [indiscernible] and then having access to either domestic export market. So it fits very much in that category. Fourth column, Innovative & Agile. I guess what I'll call out there is one called simplified structures. And I think TCT delivers on that. We have a third party supplier that does the processing for really what TCT for us now at the Houston business is very much a commercial operation has really simplified the business, and I think that drives value as well. Fourth column under the one of strong capital management. To me, that summed up the TCT action. It allowed us to free up land that we no longer needed and now allowed us to consolidate onto that site. And right now, we've got 3 pieces of sizable land on the market all at various stages of due diligence. So very much delivered on that shared strong capital management. Last comment I'll make on this slide is on the right-hand side with the ROIC of 11.7%. It's these type of transactions that we've been putting together over the last few years and driving the business through the must win better which has allowed us to deliver this 11.7% return on invested capital. And let's be honest, then Frank, it's been a while since we've returned above our cost of capital. So it's very, very pleasing to see that in FY '26. And and no reason why we won't continue that. I want to move on now on to the North American platform and I guess, what I would say the way I look at ourselves and assay recycling within that platform is we're better together. We have slightly different market structures, but there's no doubt that the combined operations work better. And the way I think shareholders should think about it is as far as the North American businesses go, is you look at that map, we are really nicely laid out right across the U.S. we're where we need to be in terms of domestic, where we need to be in terms of export, we're where we need to be in terms of giving supply. The way I think you should think about the business is you own 100% of some of the facilities, and you own 50% of some of the other facilities a little bit, if we look at NAM first, and these are broad generalizations, but there -- but like all generalizations, they are a very useful starting point. NAM tends to be -- have large-scale shredders in large metropolitan areas. Think Jersey, think San Francisco, think Chicago, we've got very large facilities in those types of places. We have very extensive access to global markets, and that gives us true optionality. Now I'll explain -- Rob will explain and that actually got more detail. It's also worthwhile noting that for more detail. It's also worthwhile noting that for SARs exports. We are the -- we act as the sole agent for that, and we act for the majority of the nonfire, so we're very much hunting a pack when it comes to it from a selling point of view. If we look at asset recycling, it's got a very dense network of feed yards and shredders. And the asset recycling has really excelled in that, probably starting 8 to 10 years ago. It's built itself up very dense feed yard networks around shredders. And as a result of that, has really secured an awful lot of at source material. If you look at the map, you can see there in the blue, very, very strong across the southern states and in Southern California down to Florida, very complementary sites to where we are. And as a result of that, and their more hub and spoke model, they've got a really deep local sourcing. And that becomes clear as well later on. So when you put that all together, I think the 5 bullet points summarize it there, broader sourcing and customer reach, exposure to distinct regional markets. greater domestic and export optionality shared safety standards. And that's actually worth pointing out, we do share operational and safety approaches. We have some different technology, and we really do get the best of both worlds there. And amongst the whole best of both worlds there. And amongst the whole facilities, we have really good domestic exposure to what is a growing market. So very much complementary platforms, and I think that's the way we should think about it. What that does is it gives us what we call a structurally advantaged position. And to me, I can use the Must Win Battles language here again and run you through these 5 areas here. strong sourcing position, our diverse position, our diversified feedyards allow us to buy right. And that's one of the first must-win battles that we talked about, by right through strong sourcing positions. Next must-win battles was process best, and you look at that valuable processing infrastructure. Between the 2 companies, we have extraordinary access to technology, to experience around how do we process this material base because that's the number of SIMS and where we add value is by taking unprocessed and feed upgrading it to produce processed output. The third one, the attractive domestic demand with export optionality, that's the cell right part of the Must-Win battles. And if you think if you about where Sims in particular, was 3 or 4 or 5 years ago, we talked about optionality, but we didn't really have an enormous amount of optionality. We have the ability to export tree. We have solved that problem now. And between the 2 entities, we have fantastic access to EAFs right across the U.S. Multiple routes to market also a Must-Win barrel. I've talked about the domestic mills, strong relationships. We can get there by rail, barge, we can export by port. We have so many trucks. We have so many different ways that we can access both the export and the domestic market. And I think what this gives us in the last point here, the market in the U.S. is still pretty fragmented. What it gives us is the ability to consolidate that market. And I'll deal with that on the next slide here. So if you look at both NAM and SAR recycling over the last few years, there has been a consolidation of the market happened already. NAMS acquired 24 sites in the last 5 years, SAR, 72 in the -- a really helped to cement our position in the market and give us a good platform for going forward. Let's look at the 2 charts on the bottom the platform for going forward. Let's look at the 2 charts on the bottom there. Clearly, what we're seeing between '24 and '26 is a robust growth in underlying EBIT. 2023, which is also a particularly strong year. Think about that, we were still benefiting from, frankly, the us and Ferrous was going great guns at that point. But if you look at the '24 to '26, it's very much been self-driven full to '26. It's very much been self-driven. There's no doubt that we've had very strong nonferrous markets. And we'll talk we set out across our Must-Win better growth, and the growth has been quite extraordinary. Look at the right-hand side of the chart, quite extraordinary. Look at the right-hand side of the chart. And to me, there's a few -- well, there's 2 main points to make here through just growing volumes. It's come through growing the right volumes and giving up volumes that we didn't want. So you see there's actually a slight driving up volumes that we didn't want. So you see there's actually a slight trend down in volumes in NAM over that period, but there's very much must be of buy right, that we've been sourcing the right materials when they buy right. that we've been sourcing the right material. We've been buying more unprocessed, buying less is that NAM has absolutely increased its trading margin percentage there. You see when we begin the must-win battles, it's trading margin percentage there. You see when we begin the must-win battles, we were down around the 17% trading margin. we're up at 21%, 22% now. But if you look at assay recycling, you say recycling has typically been around 28%, 29% of trading margin. And that is very much driven by the number of shredders that they have and the amount of ZORBA that they produced in the nonferrous cannot lift itself to those types of margins as well. We have just begun this journey. We're 3 years into it, and we're about to leave just begun this journey. We're 3 years into it. and we're about to leave base camp. Let's particularly look at the ferrous market. What this meant now adds as it adds in where the EAF is located and also adds in our barging facility. So in the green dots, you'll see barges, the grey dots are EAFs. What that to me really highlights is we -- whether it be assay recycling or NAM, we're really nicely positioned to take advantage of these domestic EAFs. SAR benefits there from our tied to hub and spoke network, NAM benefits from established port access and scalable barging exportation. So you should expect to see in the coming period, more barge transportation. You should also expect to see more rail domestically for us as well. We are really nicely positioned to take advantage of this growing EAF market. And it has grown a lot over the last 7 or 8 years, and it's still got more growth to go through the balance of this decade. The other point I'll make is on the bottom of the chart there, you'll see the ferrous sales volumes domestic versus export. And you'll see NAM is definitely more export-oriented than assay recycling. And I guess that's driven largely by shredders versus cut grades. And a gross simplification here, but generally speaking, cut grades will head offshore and shred material will be onshore in here in the U.S. as a general principle. Looking next at non-ferrous, it is fair to say that over the last 2 years, non-ferrous has been the hero of the metal result. That doesn't matter whether you're in ANZ or the U.S. or in fact, probably anywhere else in the world. The non-ferrous market has really driven the results. Look on the left-hand side there, and what we're showing is the combined NAM and assay recycling results. And if you look, first of all, sales revenue, you can see that nonferrous is in fact, exceeded across the 2 entities, nonferrous exceeds ferrous from total revenue point of view. And when you break it down, so you see that 53.7%, you break that down 70-odd percent of that is retail, and that's your plumber bringing in some for your electricity and bringing in. The balance is NFS, a bit close to 30%. And that is largely Zorba and that has driven a significant amount of our results over the last couple of years and particularly in the last year. [indiscernible] currently sitting at $1,600, $1,700 a tonne. It has a very low short-run marginal cost. So you're really managing to upgrade an infeed at, say, I don't know, it's call it $200 $250 a tonne, you're able to upgrade a portion of that to $2,700 a tonne over $700 a tonne. So before I hand over to Rob, I just want to look at what I'd say that the foundations that we've established and why I believe we're now ready for the next phase. So this slide here is a -- particularly as it relates to NIM. What have we achieved over the last 3 years? And where does that take us to the next phase? Can't underestimate the point around stronger leadership and accountability. And under Rob, who's been -- how long have you been with us, Rob, now 4 years 4.5 years. Under Rob, we have had stronger leadership. We've really managed, I think, to unite NAM around a course of getting ourselves back up to base camp and that's been worked very, very well. Under beta integrated planning, sales and operating plan is the core of the way that we run NAM, and that allows for just much better efficient use of our resources and much better targeting of the script that we want to buy and we were going to sell it to, improved operational and commercial discipline. We do run extremely good shredder operations. We run extremely good downstream operations, and that allows us to extract as much value as we can from every tonne that comes in. We've integrated the acquisitions into the network. Like I said, we've acquired 20-odd sites over the last 5 years. They're now fully integrated. TCT, we're being the latest one. I think you'll see how integrated that is within our operations. Strong relationships with domestic mills. We have really driven that over the last 2 or 3 years. Greater logistics and sales opportunity, whether that be barges, rail, truck, we now have access to the domestic truck. We now have access to the domestic mills we need to have access to, but we still have that export optionality. We will still export a fair amount of the East Coast here, particularly in cut grades through to Turkey of the West Coast into Asia. And last point, and just focus on unprocessed material. When we put in the must-win battle buy right, one of the biggest benefits from that was just a focus on making sure we're getting the right material into the yard because that gives us the opportunity to upgrade it and maximize our margin. If I look to the next phase where I think we're heading, we want to have increased control of outsource material. -- that's about filling in feed yards around our stats. Moving on to strides. We've got plenty of room in our shredder capacity to increase throughput. So we can infill without having a major capital expenditure on shredders. I think that's a big advantage. We cover more nonferrous value. we have put an enormous amount of effort to making sure that we are not sending nonferrous to waste such -- it is such a waste of EBIT. We've been working very hard on that. Some of the downstream we've been doing around fines recovery plant, which basically takes the very fine material, which has got a lot of copper in it and making sure we extract that. Integrate TCT into the broader network, we're well underway there and I'd probably say I almost declare that a one battle. When we further expand strategically into the broader network, we have got ourselves a very, very favorable starting position. We've got ourselves great facilities in the right locations. We can expand into that network. And I think we can expand without disruption, largely from inorganic growth. Directing material to the highest value market, that's key to what we do. S&OP allows us to do it. We've really driven improvements on that, and I expect future improvements. And the last one, I guess, is purpose disciplined organic and acquisition opportunities. This market is going to consolidate. Rob will probably talk a little bit more about that. We are in a position to be a really lead consolidator of that with high-value transactions. On that, I will hand over to Rob.

Okay. I'm going to spend a little bit more time on this first slide because I think it will help with speeding through the rest of the slides. As Stephen said, I think the self-help journey, as I call it to my team, has really started back in the end of 2024. We -- it coincided with the divestiture of the U.K. assets, relook in the mirror at what was working and what wasn't working and a strong change in the leadership organization. I'll talk to you a little bit more about some of the things that we've done. Stephen mentioned some of the transactions and acquisitions we made. Some of the best things we got out of those on top of the synergies and the consolidation opportunities were the leadership that came into the organization. And it really started to take hold as we integrated those assets. people that were willing to look at the data, look at the facts, the market intel and kind of the analytics. And that really started to drive that change. You can see in the left-hand column there or the left-hand chart on margin. We changed the motivation. We changed competitive people want to do competitive things. And we put margin as more of the discipline or the obsession rather than just pure volume. And really, without sounding too boring, it was a back-to-basic sort of strategy here. We needed to get back to kind of a strong foundation. We had a very solid market in North America. We already had 2 iterations of tariffs and there was a strong demand curve that we needed to be able to penetrate in a much more meaningful way. On the trading margin side, Stephen mentioned this a lot, so I won't dwell on it too much, but really focused on the products, the raw materials that we're going to be sought after, mostly shredder feed, but ferrous and nonferrous. And we haven't been a very nonferrous focused company in the past. And it's not just capturing the nonferrous fraction from the shredder feed. It's also being able to participate in buying nonferrous retail products as well in the feeder yards that we have and the ones that we want to have in the future. We used the capacity that we had already invested in. It was very important for us to -- there's tens of millions of dollars deployed, state-of-the-art equipment, and we weren't taking advantage of using that capacity, let alone capturing that margin. So nonferrous retail, nonferrous NFSR, very much an optimized new sales approach as well, and we had to have the capability to do what we said. So it was very good operations to load vessels. What else could we do? We had to spend a lot of money, and you can see that on the far right-hand side of being able to get our products to markets as well. So the last couple of years, as we learned and started to grow our margins, A lot of that was on the buy side, buying the right things, as Stephen said, but a lot of this was focused capital investment in things that we're going to add value. And those are the things like the rail line expansions that we have. And in many of our yards now we've doubled the capacity of being able to bring in railcars on a daily basis and get those cars out. We've invested in railcars themselves as well. So we not only have the capacity, we have the cars to be able to get to markets further away in a very efficient way. sort of a more resilient NAM. Stephen had a very similar slide. I'm not going to dwell so much on where we came from. But suffice it to say, we've got a strong foundation now, very results motivated team. Again, focusing in on the unprocessed side, that won't change for a long time. That was on the buy side. As we said now, there's opportunities. We're going to show you a slide of some voids where we had in the past and just give you, I guess, a bit of a comfort that we know how to do this. We've done it very well in the last couple of years as well on buying feeder yards. The buy-sell spread sort of discipline in ferrous and nonferrous, in particular, just to make a point, as we pivot towards a better optimized sale, the buy-sell margin gets hedged naturally in a calendar year -- calendar month rather, when you're buying and selling in a local market. So that resilience of margin trend is also in focus for us. The optimized sale or the go-to-market, as we call it, that optionality, we have to have that capability to move to different markets when we require it. And that investment sort of discipline as well, very prioritized and again, the use of data. A lot of little things repeated over and over again. This is an example I wanted to kind of bring up this morning, probably don't talk enough about the Baltimore opportunity. Prior to my arrival, ARG was acquired by Sims back in 2021. It was 1 shredder and 3 feeder yards. And as you look down the map from really Philadelphia South, we had a big void between Philadelphia and where we existed in Virginia. ARG started to fill in that hole. And our existence started to become a little bit more consolidated. The opportunities with EAFs were motivating us. But at the same time, the synergies, we had trucks passing in the night and those costs were real. Now enter the Baltimore scrap opportunity in 2023, 4 shredders, 13 feeder yards starting to fill in that network. And this is where we'll continue to bolt on this and the Northeast region, along with the Chicago region and the Western regions as well. now fully integrated, I would say, very optimized, realized synergies, the costs are down. And as you would expect, the normal market consolidation benefits are coming. A little bit more on greater material at source. We really -- again, I'm repeating myself a little bit here. We took control of a much more disciplined buy and sell on the ferrous and the nonferrous side. Stephen mentioned it, I'll repeat it again. We weren't a shame to shrink to be able to grow EBIT and value in the organization, we did make some very difficult decisions to walk away from what I would call more wholesale volume in favor of, again, that discipline in the buy-sell and utilizing the assets that add value for us and really chasing the demand curve. As Stephen mentioned and we'll talk about in a slide or 2, the demand on the EAF side, and we're a raw material provider to those EAFs is real, and it's continuing to grow beyond GDP normal growth, but so is the aluminum side and so is the copper side, driven by a very, very strong market here in the driven by a very, very strong market here in the U.S. we drove capacity through our existing assets. We've added capacity to those assets, both in ferrous and nonferrous capture as well. We've gained those efficiencies now. They're well embedded into our results, and we're getting the benefits now of that fixed cost per ton dilution as well. capturing that high-value nonferrous NFSR. -- volumes -- and then, as I mentioned before, that sales optimization, all all contributing to the results that you're seeing here. So some of TCT, some of your -- that are with us are going to see this. As Stephen said, hopefully, there's no unexpected TSA or situations today. It's really in a nutshell, to be very simplified. We took 2 ferrous operations, hours and the tri-coastal operation. We consolidate dated into one site here you see in the slide. We still have an ongoing nonferrous operation. Really got a lot of cost benefit out of that consolidation, as you would imagine, it is a that consolidation, as you would imagine. It is -- We call it an asset-light operation now. We basically have given the operation to our long-time partner. This is an new for us. We deal with end structure at multiple sites and they have a world-class facility that you'll see here that we have allocated a large portion of improved competitiveness with added deep sea. And that was the difference between our old existing yard that you'll see -- it had good bones, I would call it, good barge access, rail access, good processing capability. We've transferred all of those good things over and now we have also deepwater access with a cost benefit and the consolidation in the market. Stephen mentioned it, I'll say it one more time. Houston is a fast-growing market. It's the fourth largest population in the U.S. rumored to be the third in the next several years, very heavy industry here rather. And it did, and we are under contract, and I'm sure Warrick will mention at the 3 properties that we had in mind when we to fund some of these strategies in the journey here. We're very We're very actively looking at relocating the nonferrous business as well for growth. It's a very, very big contributor to our bottom line. The site you see here, and I'll explain this a little bit more in our tour, but for those on the website, it's a 55-acre site. What you see there more or less visually. -- we occupy somewhere just north of about 20 acres, 15 to 16 acres in of about 20 acres, 15 to 16 acres inside the secure port, and then I'll explain this when we get out in the bus of another 5 acres outside. It's important to know that because we want to be able to attract smaller dealers as well. Going into a large port like this is a little bit -- let's just put it, you'll see it today a little bit intimidating at the best of times. We have the same capabilities to torch and share. We have cranes and excavators with 20-car rail spur. It switched daily. We have access to 2 major line -- rail lines out of the Houston port on top of deepwater barging, river barging, and the slip on the left you can see there I'll say this is just under 12 meters of water. The slip where you see the boat in front has just over 13 meters of water. The front boat is a super. The other slip that's dedicated to us is able to handle a handysize vessels. so 30,000 tons. So if we want to go international, we can. The Mexican market is right around the corner, so to speak. The North American market is either by rail truck or barge, and then we can go anywhere else in the world with ferrous and/or nonferrous with containers. So on the market optionality side, I'm not going to spend a lot of time here. We've talked a lot about it already. All of our locations on top of that buy discipline, we've really been driving in. We call it bolts in the gun a little derogatory, but it is in our market. And we're creating those opportunities, both ferrous and nonferrous to actually be able to -- both ferrous and nonferrous to actually be able to execute the buy and the sell plan. And that is a very integrated plan in North America, soon to be in Australia. It's working capital discipline, but it's also just that margin discipline as well. Just a little bit on the market. I'm not going to dwell too much here, but a couple of things when you look at this. The ferrous on the left, and I'll raise your attention to, you can see sort of some seasonality in there. Stephen talked about the demand growth. The shred portion of the has a lot to our team internally. I say this a lot to our customers. There's not a lot of new manufacturing happens -- there's not a lot of new manufacturing happening in the United States of -- that's producing prime industrial scrap. There's a lot new more capacity of steelmaking. So those steelmakers are going to have to make steel in their EAF using a different recipe of raw materials. It Is going to be highly sought after. It already is on the international front when you break down raw materials consumption. It's going to be even larger here in the United States. We are -- it's going to be even larger here in the United States. We are in the high 70s in terms of steelmaking capacity by EAF. It could go to 80%, 83%, 84% in the next 10 years. That's mostly scrap, 75% to 80% scrap with not a lot of new prime scrap coming to market. Shred and high-quality shred are going to be highly sought after. You see the blips in January -- January, February, that's seasonality. Those are supply problems during the winter months here in North America. But what I want to draw your attention to now is it didn't drop in March and April and June as far as it did the previous years. And that's the value, perhaps the new value that shred used to commission. We've been talking to you about the 20-some-odd million tons of new capacity coming online It's starting to take shape. And as you see that international Turkish price, it's staying closer because it's -- the domestic market is forcing the international market to be more competitive. If you want to buy scrap here, you have to pay a higher price. Similar on aluminum, the aluminum industry doesn't also benefit or does benefit from tariffs. I should phrase it that way. They always had tariffs, but they are 10%. You can see where we denoted when the big adjustment was made to 50%. Not only were some of the aluminum projects that were sort of on the back burner expedited new capacity, new demand is coming online, but a scarcity or the words that some people were bringing has driven the price and the value for aluminum as well. We're going to show you another slide in a minute on the demand curve that's going to keep that real. And you can see with ZORBA, ZORBA is driven a little bit more by aluminum, but it also has a copper-bearing portion to it as well. And those, I would say, are going to be higher for longer for the foreseeable future. This is that strong demand curve that I wanted to kind of mention here. And you can see sort of the growth publicly made available investments. This isn't just our idea of where this -- isn't just our idea of where GDP might go or where consumption may go, these are projects that either have steel going into the ground to build the new steel factories or aluminum either in the phase of commissioning or about to be commissioned and then new pro market. Some of you have seen that slide on the right-hand side. If you go back a few years of our trajectory -- if you go back a few years of our trajectory, you had the COVID phase where the Amazon fulfillment centers, Walmart fulfillment centers were driving the growth for steel. They're driving the growth for more racks and conveyors and digital systems and weighing systems and all the aluminum and copper that went along with the innards of those facilities and garage doors, those types of demand curves. Then you get to the next phase, probably want to talk about the Biden administration, where traditional infrastructure came back into things that build back better. You had docks, you had airports. That demand was pulling through. And then there was a green phase with renewable energy, wind towers and solar. And those tax credits still exist today, these steel mills are -- and those tax credits still exist today. These steel mills are very busy. These aluminum producers are incredibly are incredibly busy right now. And this is all on top of the world's largest economy by GDP. Now in this phase, and we can't keep up as an industry, building new plants, everyday data centers, and the water filtration and the cooling systems and the infrastructure, the buildings around them, the racks, the copper cable that has to go to the grid that has to go into the air conditioning. We've got -- from Bloomberg, I believe, the source was that per megawatt hour, you can see here about 11 tonnes of copper and aluminum per megawatt hour on top of all that steel demand. So this isn't a flash in the pan. This isn't a supply problem or seasonality. This is a driven market. with state-of-the-art infrastructure that's being built here, both in steelmaking, aluminum furnaces and copper refining as well. And then really on the back end here, scalable model for growth, more of the same, but it is a rinse and repeat. And I say and appreach all the time to our team, we have to keep doing this right over and over again on securing more unprocessed material. We are -- we're going to grow to some other, I'd say tuck-in markets where we have a void where we have a logistics opportunity to reduce cost, where we have an opportunity to consolidate a market again. We are taking a hard look at our footprint, where should our central processing facilities be? Where should our mindset of innovation be on separation technology. And we've done a lot of this already. We are now looking at should we have more furnace-ready aluminum products? Should we have more copper granulation and furnace-ready refinement there as well, bring those value propositions to the end market and to the customers. And that's both in the nonferrous recovery side of the -- and that's both in the nonferrous recovery side of the shredding side, but it's also in the nonferrous retail side. Of course, religion with sales optionality and really optimization. What we want is the best price. It's obvious in trading margins, and it's been working. So what you'll hopefully hear from me in the near future in the next coming ones or coming meetings is some of the opportunities that we've been able to transact on to fulfill some of those voids and those opportunities pass it to work. I'll pass it to Warrick.

Thanks, Rob, and good morning from Houston. So Rob, we talked a little bit about capital management and the approach that we take there. So we introduced our capital management framework how we approach our -- both our investment philosophy, but how we manage our balance sheet. For us, it's really about how we manage our balance sheet. For us, it's really important that we do reward shareholders along the way, but we aren't to yield stock. At the end of the day, our opportunity today is really through growth. And both Steve and Rob have talked about leaving base camp and earning the right to grow. And that's really, I suppose, the focus for us going forward. At the center of our capital management framework is value creation, obviously, for our shareholders and how we drive that. But we are in a commodity-based industry, it's really important to maintain, strengthen our balance sheet and be able to operate through the cycles. Are we seeing a lift in the cycles in the cycle or a step-up in the cycle, I think that's still to in the cycle or a step-up in the cycle, I think that's still to sort of evolve, but we will respond to that after we get a little bit more experience from what we're seeing at the moment. But for now, it's really about making sure we've got the right operating assets, and we're investing in those assets and maintaining those to ensure strong operating performance, and Rob has talked about that the balance sheet strength in order to grow. And then as I said, rewarding shareholders along the way, but in the sense of, ultimately, our opportunity is around capital Working capital is a key component of that as well. Obviously, with the increase in nonferrous pricing, we need carry that. And I think that some of the opportunities that we see coming to the market where other players haven't been as robust in terms of their capital management framework and their balance sheet strength. And our struggling with the rise of nonferrous pricing and the ability to actually purchase that material, that's been one of our strengths in terms of being able to do that and then see the reward come back in through our margin performance. Okay. So one of the things I just wanted to sort of highlight because I think it's -- there's been a bit of feedback as to how we sort of -- highlight because I think it's there's been a bit of feedback as to how we sort of think about our dividend policy. As I said, one of we want to reward shareholders along the way. I think the easy reference part of our capital management framework is that out of pre-growth what we took pregrowth free cash flow, we want to pay a portion of that out to -- we want to pay a portion of that out to shareholders. 25% to 35% is our capital management framework. There's a couple of aspects, though that I wanted to highlight around how we think about our pre-growth free cash flow. And this is actually highlighted in our OFR within our reporting structure. So it is a readily available calculation. But I think it's useful just to go through a couple of the aspects of it. The first one is when we think about our tax expense, we use what we call our underlying tax expense. So from a payment point of view, that's slightly different. Obviously, there's a timing element there, but we obviously, from our earnings performance need to make sure that we can deliver our tax payments at the end of the day. So we use an underlying tax calculation in that. The other aspect of our free growth free cash flow is the timing of receipts from our joint venture interest and participation in -- so there's 2 aspects there. One is that SAR retains some of the earnings in order to fund the -- both the capital program and the general capital management within that business. And the other aspect is, we get paid quarterly in arrears. So when we have a -- what we saw in the -- in the FY '26 results was, extremely strong fourth quarter performance from SAR that money came in, in the first quarter of the current financial year. So there's a timing element that flows through there as well. So we have to manage against that, and included in the calculation of our pre-growth free cash flow. What we've then shown on the right is how we actually think about it. So if you take the $180 million 25% to 35%. We've got around about 193 million shares on issue. We paid an interim that the Board declared a $0.14, a give and take there. So it was rounded up. That's how we calculated our final dividend. So I know that sometimes we get that question of how do you actually work out what that dividend is I thought it useful just to demonstrate that. Capital discipline is extremely important for us. It's really important that we make the right decision last sort of 12 to 18 months is actually improve and evolve our capital investment framework so that we really move that through a testing and challenge period. From us, one of the things that we changed early on in my tenure was to move that sort of growth in the business from something that we held centrally to the growth in the business from something that we held centrally to the business. It's really important that the business knows the business. The business puts forward its propositions about where it sees growth. But the role of the center is really to manage the overall capital portfolio. So when we've got -- we put those against each other. And then one of the things that we do now is actually challenge those or go through a -- actually challenged those or go through a rigorous review process around those capital proposals. Have we done the calculation right? Have we undertaken a risk assessment? What are the risks that come with those elements? And I suppose really working through those together with the business to challenge ourselves. And then we bring that forward to our executive team to again continue that review process. I think making the right -- there's a lot of investment opportunities out there. I think making the right -- there's a lot of investment opportunities out there, Rob, and the team getting approached every day about opportunities that we could -- that we can consider. But what we need to make sure of is that we're actually making those right decisions. And as Rob said, it's not really about -- it's not about expanding our footprint per se, it's actually about the infill that we need. We've got the existing infrastructure to infill that we need. We've got the existing infrastructure. Our target is really about infilling, improving our unprocessed feed and using that existing infrastructure to its maximum advantage. So I suppose one of the things I just really wanted to highlight today was that we've done a lot of work in terms of our capital allocation processes. We've got a lot of discipline around the way that we approach that. I know sometimes it actually annoys the business that we go through that process, but it's really a critical part of what we need to do to make sure that we're making the right decisions in line with our capital management framework. And so ultimately, our growth funding is sort of -- we split it up into 3 sort of different areas. That smaller productivity and fee and some of the opportunities that Rob is now currently focused on. A lot of that we can do through our existing cash flow. That's really a smaller spend, USD 5 million to $10 million sort of something that we can certainly cater out of our existing operations. The bolt-on acquisitions like TCT, what can we do in terms of recycling capital? What are the opportunities to rationalize our portfolio and fund that through either our existing balance sheet capacity or recycling something like the property sales as we've done here in Houston with TCT, a combination of both. Ultimately, though, there's larger strategic opportunities as well. And as we continue to improve our operating performance, continue to grow that -- those feeder yards, improve our infill. I think ultimately, we see that opportunity to really add those. So more of those I suppose, Baltimore style acquisitions into the portfolio. How we fund those, we will depend on where we are at that point in time. It's really a case-by-case basis, but it comes back to our capital management framework. Are we maintaining balance sheet strength. Are we able to operate through the cycle, what does that cycle look like? We do a lot of work today in terms of our own internal modeling about our way forward over the next 5 to 10 years, what does our cash flow look like? What are we able to sustain and how we should do that. As I said -- as I show on the slide there, our considerations include all those principles around our capital management framework. -- our liquidity, making sure we maintain a buffer, what do we see as the market conditions going forward. So we can't provide an answer in terms of how we actually do that. But I think one of the things, again, I wanted to highlight is that we do see those opportunities come across our desk and they are ones that we would like to ultimately pursue as well. And I think that sits from me.

Thank you, Rod, for Q&A. I want to just really summarize or bring together the way we think about what is the investment case, the key takeaways for SIMS. And really, for us, it's around 4 structural increases we see for structural increases we see in demand. And let's go through them quickly and talk about around demand. So firstly, decarbonization. There's a lot of noisy voices in the world at the moment, and it seems to anti decarbonization. The reality is the world is still decarbonizing. It's going on very quietly despite the noisy voices that are out there. We are very nicely exposed to that decarbonization theme. The recycling of any material, whether it be ferrous or nonferrous, data center equipment very, very nicely exposed to that decarbonization thing. Secondly, electrification. The world is electrifying, and that's not going to stop either. We are very nicely exposed to that. Our nonferrous business very good franchise around collection, very good processing facilities, turning messy copper wire into beautiful copper really into smelting, Same on the aluminum side reorder very nicely exposed to that. AI infrastructure. Rob mentioned it. I think probably if it wasn't for the development of the AI data centers here in the U.S. I'm not sure where the steel demand would have gone up Rob, over the last 12 months, 24 months, there's a huge amount going in there. We went nicely exposed. That's about EAF producing that steel. We supply the EAF market. Clearly, that is ongoing. The amount of money -- we'll talk about this tomorrow, the amount of money being poured into data centers is almost uncountable. We're very nicely exposed to that. On the technology refresh. So that's all about SLS, and we'll go through that in detail tomorrow. But I think the key takeaway there is those 4 significant demand drivers that are -- I think they've got decades to play out. Between our metal business and our SLS business, we are very nicely exposed to that. I'm going to call the presentation over there. I'll call back up Rob and Warrick and happy to take your questions. Also, Mark's got a microphone there for the benefit of our people online so that they can hear the question.

Good morning. Thank you for the presentation. It's Lee from JPMorgan. Stephen, just on the trading margin, you talked about lifting it towards where SAR is like there's obviously some differences between your businesses. I think we've got 50% more shredders as prices between your businesses. I think we've got 50% more shredders as differences in like in processed and the nonferrous piece. What do you actually think you can kind of get to?

To answer that one. The detail about where we're looking. But the principle is it's around infills around growing our feed yard. So if you look at what SAR has done very well over the last 8 to 10 years, it's acquire feed yards around their large shredders and really have a very dense supply network. That's driven more unprocessed ferrous into their business, and they can turn that into ZORNA. It's by having more fear networks, you get more nonferrous retail as well. And that is the biggest difference between the margin percentage that we make. There is no reason why we can't do that. It's not going to happen tomorrow next year or the year after. But over the next 3 to 5 years, I see us growing strongly. And maybe I'll get Rob to potentially talk about the sort of opportunities we look at and really what our filter is around.

Yes, Lee, I don't have a tremendous amount to Warrick has mentioned this. We're getting offered a lot of -- this is a [indiscernible] good market. These prices are driving smaller operations, I'd say, into difficulties with the working capital requirements. So there's a [indiscernible] it probably wasn't as much in our DNA in the past, that SIMS Metal North America. It is absolutely on our radar now as a must to there.

Sure. And then sort-term question. Just freight and the diesel price, like how does that actually impact your feed into your business like you obviously have a focus on getting less process [indiscernible].

[indiscernible] to as much inflationary pressure. You're seeing some of the price increases, some of the steel price increases around [indiscernible] passed on to the end use products. In terms of our supplier coming into us, they're being driven, again, it's really -- price is motivating those individuals to go out and find scrap and bring that supply into us and we're mindful of the costs affecting us, and we're having to be mindful of the price that we pay to get them out of their bed and bring those supplies in. But we are maintaining those margins and you can kind of see that price escalation also kind of matching.

Okay. And then so maybe more kind of medium-term question given that comment. Is there any chance that the nonferrous side of thing like a trading margin business to like a dollar business. So rather than having a percentage margin on a very high number, people start shifting to dollar like almost a $1 per tonne?

Yes, I think we've always looked at both. So as the prices get higher and higher as you go more and more to nonferrous, the dollar per tonne will become more of a feature. So we're just more of a feature. So we just -- in many ways, the trading margin percentage is an output we had the highest margin that we can possibly make and that flows into a trading margin percentage. But you're right. If the business goes more and more and more to non-ferrous in that situation, you would expect to see the trading margin percentage 4 because you're obviously not going to make at 21%, 25% percentage because you're obviously not going to make a 21%, 25% trading margin on a $14,000, $15,000, $16,000 copper price. So we look at both. We balance both. I think EBIT in that trading margin percentage outcome..

Daniel Sykes from Jarden. I was wondering if you could help us a little bit with [indiscernible], you had about 70% was on process. Just in terms of the time line of that, I mean, how is that -- how did that look 3 years ago? And then I think in it was 90-ish -- then I think in SAR, it was 90-ish percent. Is that where you'd expect to get through with this focus now?

Yes. That grows to 50 -- or it was probably closer to 50% about 3 years ago. It's been a lot of hard work. It's been a lot of difficult conversations with old suppliers that we now compete with difficult conversations with old suppliers that we now compete with. The trajectory should continue. We're not stopping with at, whether it's shredder feed or it's material. Yes, it's really bolts down to what's -- yes, it's really bolts down to what Stephen has been saying about these tuck-ins to direct across our scales of unprocessed, higher margin, obviously, we're adding value. So that's going to be the target. We have that investment. And yes, we're looking to continue on that journey.

Thank you very much for your explanation. I'm very pleased to hear that NAM made significant progress in the last 2, 3 years. And my question is that what's the progress in the last 2, 3 years -- and my question is that what kind -- what's the level of earnings do you believe that the NAM can achieve over the next 5 years?

What do we see in the growth in the level of earnings over the next 5 years. That's something we're not -- I'm not going to comment on specifically. I'm always very reluctant to give out our view on if you -- what are we looking about at the fundamentals over the next 5 years? And to me, this chart we're looking at right now, is what drives it. If you believe that decarbonization, electrification, AI infrastructure and technology refresh are all growing, then it would be [indiscernible]. We haven't and we won't put out a target growth percentage over that per otherwise, we were constantly having to come back and revisit it. But I think it's fair to say that we are comfortable that we are nicely exposed in our position in the market, whether it be NAM, assay recycling or SLS. We are a major player in all of those markets from a recycling repurpose and redeploying point of view.

Another question is about the capital allocation, given the significant improvement in earnings, strong cash generation these price performance, do you see any scope of revisit your -- the current shareholder with our framework over time? Do you have any idea of changing the.

So that question has got Warrick written all over it, so I'm going to hand that one straight to Warrick.

I mean, I think, again, we come at it along the way in terms of that percentage. We don't see that percentage necessarily changing in the current environment. Our focus is really about how do we continue to grow the business from a capital reinvestment perspective. So yes, 25% to 35% of earnings, whatever those earnings [indiscernible] shareholders from a pre-gross free cash flow perspective, but the rest of the earnings we want to reinvest in the business. That's really at the end of the day.

I'll ask a follow-up. Just on the SAR business. We had Tyler Hugh earlier in the [indiscernible] in the last 5 years and the acquired 73. Is there any sense that you get -- and it seemed at the time he didn't suggest that, that pace was going to slow. Is that still the operating assumption for the SAR business?