Vulcan Steel Limited (VSL) Earnings Call Transcript & Summary

Good day, and welcome to the Vulcan Steel Limited Half Year 2023 Results Call. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Rhys Jones, Managing Director to begin the conference. Rhys, over to you.

Thank you. Welcome, everybody, and I'd now like to present the first half year results for Vulcan. First of all, let's turn to the performance highlights page. You'll see the revenue of $638 million compared to $463 million equivalently in FY '22. I think the key element there is that we've obviously got higher product pricing, driven by international price and obviously, the exchange rate deterioration from New Zealand and Australia. Secondly, we've got aluminium. Aluminium is 5 months of that result. So the underlying run rate is actually higher than the $638 million. In addition, just to call out the EBITDA of $115 million, that compares to $118 million in the prior period. And our profit after tax of $54 million, and that compares to $70 million underlying NPAT in the prior period. We achieved sales with over 11,940 customers. Debt excludes aluminium and -- but it indicates that we've maintained those customer numbers, and we're actually gone fractionally by 1%. And an interim dividend of NZD 0.245 is to be paid. I'll go to the next page, what you'll see there is that the metals and steel divisions are now approximately equal in size. With the addition of aluminium, we've now got much increased diversity in both products, geography end market segments we can access. And of course, aluminium and metals that they obviously can cross-sell as they can with steel. So we're pleased to see a more balanced and more diverse portfolio emerging. If I go to the next page, it sort of illustrates what I'm talking about here in terms of diversification and geographic spread. There's now 72 sites across Australasia. For example, Darwin, Cairns, Tasmania, multiple sites, we're just an aluminium. That presents us with the opportunity of expanding our other products into those regions that gives us a beachhead. It also gives us access to a wider geographic spread. Key element here is about 1,440 employees, 12,000 active accounts, excluding aluminium as I indicated earlier. The 1,440 employees, that is on the basis that we're still in the process of -- we've completed the process of analyzing and understanding how to improve the aluminium business, and we will progressively implement that in the coming calendar year. If I go to the next slide, it's our traditional growth strategy update. You can see brownfields expansions, all about falling on new clients, winning new business and existing products. It's also about entering new geographies, which extended to 10 regional markets through greenfields and initiatives across Australasia, and we've identified other areas we can improve our footprint. We've also talked historically about expanding our product range, and we've done that in the last 7 years in stainless steel engineering and now we've done it in aluminium. The aluminium acquisition was completed in the first trading month of August '22. So it's very early, but we're very pleased with progress to date. And I'd also like to call out the fact that 11 of 17 growth initiatives previously identified are now in revenue generation phase. As you know, we'd appreciate, you start something -- initially it doesn't make you money for the first few months, then it progressively gain steam and you obviously make money down the track. So we're in that phase where we're starting to get some of those movements. And I'd also just like to highlight that Vulcan was proud to achieve the Deloitte Company of the Year award in New Zealand, which represent the outstanding contribution of our employees to the value creation of the company. With regard to aluminium and our business integration, we're very pleased with the progress to date. As we indicated when we purchased Ullrich Aluminium, we had a great relationship with the Ullrich family, and Gilbert was very, very helpful in terms of the process and making sure it's an orderly transition. We're working hard on transitioning to our business culture. We've got dedicated teams of leaders working with the Ullrich team, getting them to understand where the opportunities are, where the improvements are, also with the cross-selling opportunities where we can expand. Also, how and why and what our culture stands for the performance standards, the inventory management skills that are needed, a whole variety of improvements that have been identified in that area. So the progress to date is that we've got the IT system operating in New Zealand. It's -- we're seamlessly very smooth transition. And in Australia, we're planning on implementing it Easter and we'll be fully live across the whole company by Easter. The only caveat I have on the Easter go live is we are relying on some outside suppliers. So they've got to perform and deliver, but we absolutely believe we'll be well and truly up and running by June 30. I think the key element about this is that we remain confident that the synergy benefits we've identified $10 million of well in hand, and we'll continually improve this business over the coming few years. In terms of health and safety, big focus on that. We've got a couple of sites that aren't performing as well as we'd like. They have provided the outlier number that increased slightly on LTI, but the underlying improvement in the business is real, and we continue to focus on that. We're doubling down on that. And in turn, we're working very hard with the Ullrich team to make sure the aluminium safety standards up play as well. We believe it is -- we view it's well run in that regard. With regard to the environment, we're progressively moving to hybrid cars. We're working hard with our key suppliers. We've got a genuine commitment to a greener future for the world. And we're very confident that, that will pay dividends over the long term. If I look at the operating backdrop in the first half year, it's been a very strange period. As we indicated back in August, we saw New Zealand as being quite an uncertain environment with a likely reduction in demand. That was the case. As you saw, inflation was a lot higher than people understood at one point. And then you've seen a rapid escalation in interest rates, and that's created a real knock-on to business confidence and the like. So it's certainly been a challenging economic environment in both New Zealand and Australia but particularly New Zealand. Weather-related activity has been disrupted, particularly in New South Wales and Auckland recently. We believe those weather-related activities are just delayed demand or demand will actually occurred just be a later date and possibly to the new financial year. And also, we've seen a lot of destocking activity. Effectively, what was happening right across the supply chain, people are worried about supply and overstocking and carrying more stock. So some of our clients had stocks, so that now destock or in the process of destocking. And in turn, our supply chain partners, our mills, they started to catch up. So orders we were expecting to take 3 to 4 months arrived early. So effectively there's been a real catch-up in demand. And so the underlying demand is probably returning to the underlying real number, and there's a bit of a false element of demand in that COVID period with extremely low interest rates. Now the strong dollar and New Zealand dollar against the U.S. dollar since October '22. But in that period, the dollar has been weaker than the prior year, so the product prices reflected there. And inflation pressure on operating costs has been very high in both countries, labor costs, fuel costs, we were under large trucking fleet. There's numerous costs across the board that have gone up. In terms of global sector indicated, the Ukraine war and China being a bit harsh lockdown until recently, has certainly reduced the demand. And so the demand for global steel hasn't reduced, and lowered again. Aluminium, we expect to grow at 3% in the medium term. And that reflects the fact that aluminium is very much a key product for greening the world economy. So we expect that to continue. Short-term production declines in aluminium and steel reflect effect China and the Ukraine war has subdued short term demand. With regard to the underlying drivers of some of these product costs. Hot-rolled coil fell 20% in the first half of '23 compared to the second half of '22. Quite a significant drop on the larger drops we've seen for some time. It's recovered 7% since December. This is a reflection, no doubt of China coming out of lockdown. The outlook there on that price, hard to read, but clearly, if China comes out strongly and recent years, Europe is coming back a bit more strongly, you could easily see that product price improve further. There's a similar trend in aluminium, which came off a high, down by 14%, which recovered somewhat. It's still at a higher level as it steel than the historic averages principally because of the cost of energy, freight, et cetera. Nickel price is an interesting one is as aluminium. Aluminium is a key product used for 316 [ payment ]. Both those product prices are very, very high, and they haven't been fully recovered by the stainless steel mills. We anticipate those stainless steel mills in due course to recover those true costs. And we believe they haven't done that to date simply because of the absolutely shocking demand in China through the lockdown. So as China comes out the lockdown, it's highly likely that stainless pricing will recover those true costs. In terms of Australia and New Zealand economic trends, a lot of commentary in both countries. The key surveys in Australia indicate forward orders are still positive on a declining trend, but positive. So we're nervous about Australia, but we see it as the demand being maintained, whereas in New Zealand, it's a very hard to predict outlook. We've got the own activity outlook, very negative -- as negative as it's been since COVID and you're starting to see a lot of anecdotal feedback about a rapid slowdown occurring and particularly in building and construction. So we're quite nervous about the outlook of New Zealand. It may not be as bad as people think. But on the other hand, there could be a sharp correction. It's very difficult to predict. As I've indicated, building activity, very hard to predict in both countries at this point. We believe that we have a cautious outlook, and we're applying a lens of being very, very cautious and are judging results as they come board. I'd now like to hand over to Kar Yue to go through the group financial performance.

Thank you, Rhys. Good morning to everyone. So at a high level, when you take aluminium contribution out, which accounted for about 5 months in the first half of the financial year, underlying revenue was 9% higher. The composition was simply a 28% increase in terms of average revenue per tonne achieved year-on-year basis whilst volume declined by 15%. As Rhys mentioned earlier on, underlying active trading accounts, which is a proxy in terms of how we view our market share position to be, has improved slightly in the first half of financial year '23 compared with financial 2022. Overall gross profit per tonne, when you do back out the contribution from aluminium which, obviously, increased the favorability of our revenue mix, the overall number in terms of dollar per tonne margin was actually quite robust, which is a -- in the context of the current trading environment, quite a strong achievement in our view. As a result of that, the EBITDA margin was down slightly -- EBITDA was down slightly at $115 million compared with $118 million give you, again, back out the contribution from aluminium of $23 million. Our underlying business steel and other metals segment accounted for about $79 million compared with last year of $180 million. Return on capital employed as a result of higher working capital requirement declined to 24% compared with 36% in the corresponding period. So turning on to key drivers of EBITDA change. Three things I would like to call out from this chart. One is the volume factor that had reduced our overall EBITDA by $29 million, offset by better margin and current outcome of $14 million on a year-on-year basis. As I mentioned earlier on, the contributions from 5 months following our acquisition of our aluminium business contributed $23 million in the first half. Now turning to the segmental steel. The key comment here at this table is that gross profit dollar per tonne was steady compared with this time last year. As I mentioned, this is probably one of the more challenging segment of the market that was based both across Australia and New Zealand for the reasons that we set outlined earlier on. In the Metals segment, overall EBITDA, excluding aluminium was steady with better margin offsetting the impact of lower volume. Just wanted to highlight to you that post the integration -- completion of our integration for aluminium business into the metal segment, we will no longer be in a position to provide separate disclosure of aluminium and will be incorporated into our metal segment discussion going forward, largely due to the fact that the hybrid site will increasingly -- hybrid model that we have. We increasingly makes it more challenging and difficult to dissect the operating cost across various parts of business for a given location. As Rhys mentioned earlier on, our OpEx was up to $11 million on a year-on-year basis when excluding the impact of our acquisition of our aluminium business. The key, again, is underlying inflation. That has been quite broad based in terms of impact on our business across not just head count but also all the external services and product that we buy. That's obviously not relating to [ long term ]. Integration costs, just to provide some update for you. At the time we made the acquisition, we had indicated that the integration cost in total may end up approximately about $5 million in the first half of the current financial year. We had expense about $1.5 million. As we indicated around the changes in average price or cost per tonne of raw material that we source, that effectively increased the working capital requirement that we did have in financial year 2022. And that level of working capital requirements is the timing of payment for the stock and it was the timing of the arrival of stock have basically boosted the working capital requirement that we needed. We do expect that working capital fund to start to come off in the current financial year and going to finish in 2024 as well. Finally, turning to our balance sheet and dividend. As Rhys mentioned earlier on, we have declared $0.245 of dividend per share for first half of financial 2023. As you can see from those charts and tables, our balance sheet financially remains in a very strong position to continue to support our future growth opportunities. I'd like now to turn it back to Rhys for concluding comments on outlook and guidance.

Thanks, Kar Yue. So in terms of outlook, as I've indicated, we've got a very uncertain outlook in Australia and New Zealand. So we're anticipating no real material improvement and demand in the existing environment. Current monetary policy setting economic conditions are likely to remain fluid and uncertain in the near term. So we are holding a position that we believe that the current demand is likely to stay with us or possibly decline fractionally. In terms of our margin performance, we're encouraged by that. We've managed to improve our margins. And we've got an unusual situation where there's a lot of uncertainty about what China is going to do. So if China comes back strongly, they could have a positive effect on our pricing. We're not assuming that, and we just wait to see what happens here. And that's more likely to impact in the middle to later part of this calendar year. The ongoing inflation battle, wage and employment cost pressure, fuel cost pressure and general and inflationary pressures remain. We're very conscious of that and there's going to be a huge effort across the board to maintain and reduce our cost base. Clearly, with our restructuring plans at Ullrich, we've got a number of opportunities to exit there, which will [ live on ] coming months. Overall, in aluminium, we've been extremely encouraged by progress to date. We haven't lost any customers. We've maintained good relationships with all the employees, and we're starting to get ruled by into the bulk and culture and way of doing business. And there's numerous opportunities to improve that business and also to cross sell. So we believe there's a significant opportunity for improvement on an ongoing basis. So based on our current view of market conditions and recent trading, we've narrowed our F '23 EBITDA guidance range from the $215 million to $235 million to $215 million to $230 million. Combined with the depreciation and amortization and funding costs, we now expect NPAT to be between $95 million and $109 million. And we've previously guided towards $93 million and $107 million, so it's fractionally higher. But as is an uncertain market, and an economic outlook that is volatile, we are making sure that we keep it updated to any changes or updates as they occur. Thank you for listening to the presentation. Now we're welcome for any questions.

[Operator Instructions] Your first question comes from the line of Lee Power from UBS.

Can you just maybe talk a bit about the difference in the selling price versus kind of the underlying commodity price of the products? Is this something that you're doing around processing? Is there more processing in this half or something around mix that's driving what seems like a bigger cap?

Okay. What I think I'm hearing from you, Lee, though, I rephrase your question. You're talking specifically maintaining our gross profit per tonne in a challenging environment. Is that what you're asking?

Yes, correct.

Yes. Well, I think the key thing is, I'll make three quick observations. One observation is that some of our volume drop-off was actually in very low-margin products, which were relatively opportunistic. So probably about 6% or 7%, the 15% comes from that area. So we are, it was discretionary whether we took those orders or not. So park that to the side leg. Then the second point would be, we certainly have invested in more process equipment. And we've also been very mindful of ensuring that we sell at the right margin, and we're not chasing down unequipped orders. There has been a bit aggressive behavior, particularly in Australia from one competitor on a clear scope. So we haven't chased those prices down the expense of some volume, but it was uneconomic. So that partly accounts for it as well. And the third piece is really we've put a lot of emphasis and development on sales force effectiveness and pricing and margin management, improving our [ typo ] further. We've improved our overall service level and availability further. So I think those are all positive indicators. We're getting a lot of orders from clients, small ones and twos, all that up at EBITDA margins. So I think there's a combination of mix of product, mix of processing and being more selected when there's just no return on some large contract orders.

Okay. And then the volume piece in the first half, is it possible to strip out what you think weather and kind of one-offs were -- I'm just trying to...

Okay. I think the prior period, we were in the privileged position of embedded stock availability than a number of competitors. So we've got some one-off orders from new customers. So you could probably account for a couple of percent there -- thereabouts. But then on top of that, you've got at least, I've calculated back then by about 6% to 7% of discretionary larger orders in our [Technical Difficulty] that we've exited effectively because they're not economic. And then the other element, I think, would be -- I just think people -- the weather and the like is probably around 4% lead. The clients have got work, but I haven't been able to process is a number of -- a lot of it's been delayed. And the last thing I realized is, we've got 2 less working days, so that's part of it as well. So there's quite a few factors there. Look, one thing I would add, which is a bit of an unusual one is that, we haven't seen this before. A number of clients took on more stock because they were panic and actually hoard quite a lot of material. So that slowed up demand as well for some key cost clients.

Your next question comes from the line of Matthew Abraham from Credit Suisse.

Just follow up on Lee's query related to ASP and gross margin. So just to unpack a couple of those points and maybe before even diving into that, should we expect going forward there to be a dislocation between the underlying price, the commodity price and the price that Vulcan now records?

What we seek to do is to make sure that our gross profit per ton has held at an appropriate level. And we try to improve it on an ongoing relentless basis. And that principally means we drive it up through the value chain, but that might mean you bundle a product, so it's more convenient for a client. That may mean that you process it, so you can charge a higher price for it because it's -- add a value, or it might mean that in a slower environment when people need really urgent reliable delivery service, they buy a few improvements for other people. But there's a number of factors here, but our focus is always on this and it is relentless on it. Now my gut feel on this is that our competitors, their expectation of margin has probably improved somewhat as well simply because the inflationary pressure in this industry has been quite high. So the old model of what you could achieve at wood cost plus pricing has to be adjusted in their minds because they can't make an adequate return without adjusting higher. So there's a few factors in there.

Okay. That's helpful. So just on the point on investing in more processing equipment, that process in percentage, I think you have disclosed before, to be around, 47% is the number that I think you've disclosed. So could you potentially just quantify what that has increased to the percentage total revenue or otherwise, just so we can get an understanding of the quantum of that benefit...

We've put out -- well, we've commissioned 3 brand-new processing machines in the last 6 months. So the total sales incremental out of those off the top of my head would be in the order of 2% to 3%.

Just to add to that, Matthew, Kar Yue here. So the -- sometimes we go through certain periods where distribution self as a significant portion of volume that doesn't do value add. You can see from 1 month to the next or 1 quarter to the next, there is a decline in terms of percentage of value-added services that we provide. And there are other times if it's commissioned on the basis of a value-added project, it could bump it up substantially above 50% in a given period. So it can move around. But on the whole, our goal is to continue to improve that percentage of value add of ourself.

But our new equipment does add a couple of percent, that's when sold out, so what it is on.

That's true.

Right. Okay. That's helpful. And just on cash flow, the inventory, which you've indicated has been distorted by the acquisition, which make some quite sense. Going forward, how should we think about inventory and what might be like a runback balance to consider [indiscernible].

Well, I'll make a quick comment and hand over to Kar Yue. But I'd make 2 quick comments on -- Ullrich Aluminium was effectively a deep fleet company with a lot of inventory. So we bought $140 million of inventory, and we've obviously got to reduce some of that, and some of that's on a deferred payment basis. So that's first point. So we've got way more inventory in aluminium than what you need. Second point is, the aluminium has got a massive product range, which we are narrowing down, so there's more inventory to come out of that. Thirdly, in our core product ranges, a lot of our steel mills, they were months to months later shipping and then suddenly everything closed up. So to give you a clastic example, our local mills went from 3 months delivery to delivering everything within a month again. So suddenly, they wanted to deliver every single order. So we certainly got a surge of orders that we didn't necessarily want all at once, all arrive at. So all of that compounded and that, those issues drove up our inventory quite significantly. Of course, what we're doing since as we're just working through that, and now I'll hand it Kar Yue to give you a sense of what the underlying inventory will end up being.

So Matthew, thanks Rhys. So at the time of the acquisition, I think we added close enough to around that $140 million mark in terms of inventory quiet. We're working through the process of two things: one, reducing the level of inventory that's held because there was an amount of overstocking of the key items that we want to keep, partly because the previous owner of business had a take-or-pay arrangement with some of the stock. And so in the second half, we expect to work down those and as the take-or-pay has some set in the month of December as well. So secondly, there is a range of products that were identified that we would like to rationalize and reduce as well. And so those are the other elements that we expect within the aluminium business to continue for overall stock requirement to continue to come off over the course of the next 6 and 12 months. The second component for the existing business is across steel and metals segment. We're very confident that based on the current price environment, current market conditions and our ability to flex the level that we want to order in terms of replacement stock volumes that we should expect to see the tonnes to come up in the coming 6, 12 months as well.

Okay. That's helpful. And just one more, if I may. So we've spoken about gross profit for a time. It looks as though the gross profit margin in percentage terms had come off against the [ pay ], primarily due to the steel segment. I am just unpacking that a little bit -- is that potentially the product of competitive forces or otherwise?

Okay. I'll give you a quick couple of comments on that. We highlighted this time last year, we had some benefits and tailwind of around 3% minimum on margin percentage due to the fact we were selling old product prices at new replacement costs. You probably remember that. So there's about 3% associated with that. And then there was a sudden -- which I referenced a suddenly a massive drop in steel price early on in this first half year, which particularly in Australia, lead to some people panicking and trying to ditch-stock, and then, of course, the product prices jumped back up again by 7%. So there's a couple of factors there. I don't think they're typical. So I think the margin we're currently achieving is probably a little bit on the low side to what we'd like long term. But the one this time last year was 3% to 4%, probably overstated due to the impacts of selling -- the pricing going up as we saw.

[Operator Instructions] Your next question comes from the line of Rohan Koreman-Smit from Forsyth Barr.

Congratulations on getting through what looks like a pretty interesting first half. Just a couple of questions. First one, just on the OpEx. Just trying to look at the divisional level here. When I look at steel EBITDA of $64.3 million and you gave us a gross profit margin of 32.2% for that division, it suggests that you've had a pretty big uplift in OpEx within that division. And then backing out ex Ullrich, what is implied in metals suggest there's a bit of a decline, can you just talk to the dynamics there?

Okay. I can talk to and then I'll let Kar Yue have the crack as well. I think that's correct. We've had significant increase in costs, particularly fuel, because we run a big trucking fleet. We've been slightly down on volume, so the truck goes out and it delivers to a client 4 items not 5. You don't get the freight recovery even that you're incurring the same cost. Then you probably appreciate that part of our company culture is, we always make sure our employees are absolutely -- appropriately looked after. So we paid a significant one-off payment prior to Christmas. And it was a deliberate strategy to make sure that people were made whole, and we ensure that they are not disadvantaged in this highly inflationary environment. And we also have policies where we make sure that people's pat rates an overtime availability is maintained even during a downtime. We've talked about this before as part of our core culture and it really pays dividends long term. The other aspect, I would say, though, is that, we had a number of vacancies in that when we started the year, we've basically filled some of those vacancies. And then there's been a bit of a marked drop-off in demand in some areas in the last few months. So we're clearly going to be looking at our cost base in steel generally, okay? So it's definitely a challenge. We're working on it. We've got a number of programs to reduce the costs, and they're already underway. You've got to appreciate, of course, we're busy integrating a major business in Ullrich Aluminium and they've got all sorts of restructuring opportunity as well. So we want to make sure that people are displaced that they've given the opportunity to role somewhere within the company if that occurs. So you can probably appreciate, Rohan, it's a bit of a moving feast. So it's been quite hard to manage to a really high standard. We think that will settle down in the new year and work out. And the other point I'd make is, look, we've been locked down. We've done a lot of travel. We've done a lot of integrating with our employees, a number of conferences. We've really got people motivated and see the vision of where the company is going, because we've had 2 years of Teams-only contact. So there has been a bit of that and a little bit of contact with clients that are more than usual. So there has been some one-off costs associated with that. But look, my general theme would be the inflationary pressures across the board have been quite high. So we're going to work hard to offset them. Does that cover from your viewpoint?

Yes. Yes, that's a very thorough answer, Rhys. The next question is just, I guess, if you look at what Ullrich has been running at in your comments around maintaining that in the second half. And if you take the prior guidance for Ullrich, that's set within the full guidance. It suggests you probably lower the view on the core or base business by $10 million to $15 million at the EBITDA line. Is -- can you talk us through, I guess, your thinking around that in terms of volume and price or gross margin?

I would like to comment on makers, though, we see the, particularly in New Zealand, Rohan, there is -- since -- [ there has been ] announcement has been -- we've just been hit by storm of very bad press and a lot of uncertainty. So we're naturally conservative. So we are being very cautious in our outlook, Rohan, do deliberately. And you're starting to see we don't want to come back to the market and do a downgrade. So we have been very careful and conscious of being conservative in our outlook. And equivalently, we've done that in aluminium. We think we bought a good business, we said that. But we're working hard to improve it. We've been pleasantly surprised by how well it's gone so far. And we haven't really unleashed all the full potential of the business. So there's some puts and takes there. So we think with an uncertain environment, there could be ups and downs. We think we've covered overall. Do you have any comment on that Kar Yue? Because you're...

Sure. Thanks, Rhys. So yes, so as Rhys mentioned earlier on, the market environment, the economy, even the interest rate environment and the inflation environment is quite uncertain. And with that, you would appreciate that we're taking a cautious approach. That's not to say conditions can't get any worse, they could. If you look back in that business confidence, especially the own activity survey outlook, which has been particularly negative suggest that there could be positional downside. At this point, this is our best guess, best estimate of what the outcome would be based on all of those things that we try and [indiscernible] forecast. This condition changes, we will obviously be obligated to come back and advise the market.

Perfect. And so two more quick ones. Just more around your strategy in the softer environment and as you said, active trading accounts are up. Can you just talk to, I guess, how you plan on tackling the cycle? Is it find pockets to grow in? Is it rationalized and sit tight and wait for better operating backdrop?

Look, what we typically do, we're quite aggressive. So we got a highly motivated workforce. We've got a highly incentivized sales force as we've indicated previously. So you're aware of that. So we will definitely chase new business. We're also -- the bundling opportunities we get, and the new opportunities in Australia where I'll give you an example, Cairns. We've got an aluminium business up there, but we don't sale much stainless or engineering stores. So clearly, we've got a base we can work from. So we're looking at -- we indicated in the presentation, a number of sites are on growth mode. I'll give you a specific example. Aubrey, we've doubled the size that site, and aluminium is going in there, and it will start in May, June. That is a case example where all that Central Victoria area, we're going to be able to offer a really good service and a new product range completely. So we've got a number of organic growth opportunities. So our default is always to grow organically and press ahead. So I don't think we'll be taking a breather, I put it that way.

Perfect. Last one. Just looking back to inventory. Can you give some indication of, I guess, how many -- how long the inventory position is? I think typically, you talked -- is it 4 months of inventory on hand. Do you feel comfortable? Can you just give us an idea of where it currently sits?

Okay, core business, depending on what division you run and where we're buying up on it from Asia, you'll have 4.5 months inventory, and then it's from local, say, New Zealand steel or from [indiscernible], it's only 2, 2.5 months. But our typical inventory goal is around 4 months. And then it's stainless, it's longer because it's a longer lead time. So there's typically 4.5 months. Engineering steel is more like 5 months, and aluminium were well and truly overstocked because just 2 points here. The old party, one, carried a lot of stock; and two, they also bought it all by cash. They didn't have turns on it. So there's a couple of positive benefits here that we'll get we sort all that out. But our gut feel, we're not -- through our planned program as would have made major reductions and be a much better balanced stock position in the midyear period. Do you want to comment, Kar Yue?

Sure. Thanks, Rhys. So in the context of average across the whole entity, excluding aluminium, you should expect us to be at around that 4 month, right now. We are higher than that obviously, higher than what we normally would carry. But given the price expectations and the current price dynamic in the market, I think to be fair, we feel that we're in a good position.