Thank you and good morning from Sydney. Today we are here to present our full-year results for FY2025. Presenting with me today is Warrick Ranson, our CFO. John Glyde, our ANZ Managing Director, is also here with me and Warrick. Rob Thompson, our President of North American Metal, is on the line from the U.S. The presentation has been lodged with the ASX, along with the results released. First up, I will provide an overview of the results and strategy. However, I will spend the majority of the time explaining how our business units are looking to navigate and grow in the markets in which we operate. Warrick will then take us through the financial results. At the end, I will turn to talk about the outlook, after which we will have Q&A. I'll turn straight to slide five, which looks at our strategy and strategic priorities.
This slide should look familiar. It has guided us for the last couple of years. Just to summarize the left-side graphic, our purpose is to create a world without waste to preserve our planet, and our business is to repurpose and recycle. We are very good at repurposing and recycling when we focus on customers, suppliers, being operationally efficient, innovative, and agile when investing responsibly. What are our key strategic priorities right now, and what has driven the turnaround in the business? We're simplifying Sims with delayed, widened spans of control and driven costs out. We're putting margin back in the business by buying more unprocessed tonnes closer to the source.
We're putting more emphasis on cash generation, looking at inventory turns, getting DSO down, and actively managing margin versus cash flow, particularly given some of the timing impacts we've experienced from changes we've made in our operating model, such as our increased level of domestic sales. We're recognizing regional opportunities better and maximizing profit across the portfolio, including SAR. These things are enabling us to grow from a position of strength by having an improved supply network and experience, enhancing customer relationships, creating genuine domestic versus export optionality, and product differentiation. Turning to slide six, where we can see the actual benefits of executing on those key strategic priorities. In the metal division, unprocessed scrap, trading margin %, and shredder utilisation are all up. You can see in SLS that the growth in repurposed units is driving increased revenue and EBIT margin %.
Moving on to slide seven, and I'm conscious that Warrick is going to take us through the financial results in some detail, so I'm only going to make a couple of high-level points. FY25 has been the year that we started to deliver on the turnaround in the business, particularly NAM. It hasn't been a straight arrow month over month throughout the year, and we still have a lot of room for improvement. In a year where market conditions were no better, but perhaps arguably worse than the prior year, we have delivered a near 50% increase in underlying EBITDA to $430 million and a near 200% increase in the underlying EBIT to $174.9 million. This has been achieved despite a drop in sales volumes, proving the benefit of our change in strategy to prioritize margin.
That statement is a slight simplification, but it does capture what we are striving to achieve. Turning to safety and employee engagement, slide eight shows that we continue to perform well when looking at our lag indicators. They are at historic lows and industry best practice. I will point out that during the year, as a management team and a board, we focused heavily on lead indicators. I firmly believe that if you have the right lead indicators and structures in place to deliver on programs such as critical risk identification and mitigation, supported with training, the lag indicators will reflect this effort. I'm also pleased to share that we've maintained the high employee engagement score achieved in FY21. Importantly, we've sustained this level through a period of significant change in some of the most difficult market conditions we've faced in recent years.
This consistency highlights the strength of Sims culture and values. These are foundations that have not only supported our record safety results, but also enabled the speed at which we've executed our strategy. The rest of my presentation looks at how divisions are addressing the opportunities and challenges in their markets. Starting on slide nine, I want to back up my previous comment that the market had not provided assistance in FY25 compared to FY24, and that therefore the significant turnaround has largely been self-help. The chart shows that export prices have drifted lower over the last two years, and domestic U.S. prices have maybe had a bit more movement but ended largely flat. Despite this, you can see the significant lift in FY25 EBIT compared to FY24. I'll explain how this has been achieved, starting with NAM on slide 10. NAM has spent FY2025 executing on its turnaround plan.
We've been buying more unprocessed scrap to meet the increased shredded steel demand, driving up our shredder utilisation, and in turn, we are capturing more zorba. We have focused on higher margin purchasing discipline on raw materials where we can add value. This has impacted total ferrous volumes, but as I said, we have seen an increase in unprocessed intake volumes and non-ferrous shipments. In addition, the team has done a great job in opening up more domestic channels, and we have benefited from the U.S. domestic premium. More domestic sales also allow us to buy and sell in the same market, reducing risk. Finally, cost scrutiny is relentless. All this has seen a reversal of the declining trading margin % as we get margin back into the business. What is NAM's pathway to growth?
I cover this on slide 11, and the short answer is it is a strong pathway. The market drivers are very supportive. Tariffs have insulated the U.S.-based steel and aluminium producers, and as can be seen on the steel spreads chart, our domestic customers have been insulated from the wider impacts of oversupply of global steel. As previously mentioned, this has led to strong investment in additional EAF capacity, and the resulting new ferrous raw material demand is growing rapidly, off an already high base. NAM has adjusted its business model to buy more unprocessed scrap, process it internally, and sell more optimally. This is driving a margin-first mindset. The Midwest premium has risen sharply as a result of the growing demand for aluminium scrap in the U.S., and our LumiSource business is nicely positioned to capitalize on the strong market need for raw materials.
NAM is now in a position to move forward with growth. We are actively pursuing land sales to fund internal growth CapEx and appropriate bolt-on acquisitions to strengthen our feeder yard network. Moving on from NAM and onto ANZ on slide 12, the main theme for ANZ in FY2025 has been the resilience of the non-ferrous business. The flip side of that has been the weakness in ferrous, driven almost entirely by the overproduction and record exports of finished and semi-finished steel products out of China. It is worth remembering that the domestic selling price for scrap in Australia largely reflects export parity, albeit regional demand and supply imbalances are playing an increasing role. A weak global ferrous scrap price feeds directly into a weak domestic scrap price. As I said, though, ANZ's large, growing, and resilient non-ferrous business has enabled it to weather the storm in FY2025.
There are also a number of positive structural shifts on the horizon for which ANZ is preparing itself. Slide 13 looks at how ANZ is executing to take advantage of those structural shifts. Firstly, in our view, the insatiable appetite for non-ferrous metals will continue for the foreseeable future. ANZ has a strong non-ferrous business with our investment in balers, cable granulation, MRPs, beneficiation, and fines plants to capture and capitalize on this demand. Governments across Australia and New Zealand are showing a real willingness to support sovereign steel manufacturing. Scrap metal is a key strategic input. Without it, there is not a cost-effective, low-emission solution. ANZ is nicely positioned. We are the only player with excellent positions in all the Australian and New Zealand markets, moving scrap to meet regional supply and demand imbalances. Our capital growth is aligned with this.
We see Pinkenba becoming a strategic logistics hub for managing scrap and meeting the needs of our customers. We have plenty of spare capacity in our shredding facilities and the capability to take on opportunistic acquisitions. Finally, turning to SLS on slide 14, SLS has found itself in the middle of an extremely fast-growing market, driven either directly or indirectly by the demands of AI. As you can see on this slide, the compound growth in SLS volumes has been impressive, but nothing compared with the growth in data center capacity. The addressable market is huge. The growth in the market, combined with the desire to control supply chains, has seen a recent and rapid hike in the price of memory, represented by DRAM, or Dynamic Random Access Memory. This is shown on the top right-hand chart.
The heading on slide 15 sums up SLS's opportunity: how to grow along with the hyperscalers. The market dynamics are clear. AI is fueling growth and memory everywhere. At the same time, there is the desire to achieve this with much less carbon and ensuring that the supply chain is de-risked. SLS's style of repurposing satisfies these requirements. SLS has proven that it can efficiently repurpose data centers into either the resale market or redeploy memory back into new data centers, giving us access to the fastest growing segments. This has allowed us to move up the value chain and, in some instances, integrate with the hyperscaler to provide a full redeployment service. SLS's challenge and therefore focus over the coming periods is to continue this scale-up through a greater use of robotics and further system integration.
I'll hand over to Warrick now for a more detailed look at the financials.
Thanks, Stephen, and good morning, everyone. I think this year's scrap metal market can be best characterized as a complex interplay of both global and local factors, with impacts varying across different metals and regions. The market for ferrous products continued trends evident in the second half of last financial year, with global scrap markets continuing to face several significant headwinds, trade volatility, and variable market dynamics. U.S. tariff concerns created an additional factor, and the lack of policy clarity impacted supply chains, creating significant negative sentiment in most markets and unevenness in purchasing activity. Despite this, U.S. spreads have generally remained solid, even with a pickup from summer construction not being as expected.
Pleasingly, most scrap metal operators maintained a level of rationality in a difficult market, and our continued focus on regaining margin in North America enabled us to preserve our position in a difficult year, significantly improving underlying EBIT in that region. Prices in the Asia-Pac region, however, remain subdued. On the plus side, contraction of China's crude steel output does appear to have commenced, albeit at marginal levels, and these have been principally driven by policy change as the government moves to better manage price competition and phase out outdated industry capacity. As Stephen mentioned, offsetting these headwinds, at least partially, has been the demand for non-ferrous metals such as copper and aluminium as they continue to rise off the back of ongoing green energy and infrastructure projects. In fact, this year, non-ferrous trading accounted for 34% of group revenue, seven percentage points higher than last year.
In parallel, significant growth in AI and the accompanying development of major data centers continued to drive demand for processing capacity and SLS's activities. Tariff imposition, data protection, and a shift in manufacturing preferences by key hyperscalers further uplifted repurposing and resale activities for memory modules, as Stephen mentioned, elevating pricing to new levels following unprecedented demand and contributing to another standout performance by that business. After normalizing for Baltimore and changes in cost classification and following further cost-out efforts, we saw our overall cost base remain relatively flat despite increases in labor costs and general inflation across the board. I'll come back and talk about our cost reduction activity shortly.
Our statutory result was impacted by the decision to cease the development of the plasma gasification technology in Queensland, restructuring costs associated with our cost-out program, and an accounting requirement to consider the potential for a credit loss on the balance of the UK metal receivable, given their request to defer that payment into the FY2026 year. Moving to underlying EBIT, and I've touched on the fundamental drivers of most of these already, so I won't dwell on this slide. Suffice to say, though, that the team in North America have done a fantastic job in turning around that business and driving the focus on getting margin to the bottom line. Our much-improved underlying EBIT of $174.9 million is certainly now reflective of the strength of the geographic and portfolio diversification aspects of our business.
I'll expand on some of the other factors driving these various movements in the following slides. Moving to the metal business more specifically, our focus on sourcing more unprocessed material continued through the year as ongoing growth in EAFs further added to scrap demand in the U.S. Reliability of supply and scrap quality remain dominant for major steel producers, with a particular focus on upgraded or low-residual quality shred, and NAM has been able to position itself as the supplier of choice to several producers. Expectations of high tariffs led to large-scale pre-buys and boosted price hikes towards the end of the first half of the year, with buyers taking advantage of pricing and purchasing large spot orders of metal in advance of any potential policy changes.
Margins, however, continued to reflect strong execution discipline, with focused efforts to match purchase pricing to market movements and further progress our market recovery momentum. Severe weather on the East Coast across January and February translated into the lower result in the second half. Ongoing trade uncertainties and tariff developments have also meant that many participants remained on the sidelines, given that market unpredictability. Despite these factors, NAM uplifted its underlying EBIT by some $93 million, and the team continues to focus on what it can control in an uncertain market. In ANZ, as I mentioned, ferrous margins were impacted by the subdued international market, which also flowed onto domestic pricing. China continued at pace at or above decade-high records of steel production and exports for most of the year, putting downward pressure on prices and global production and contributed to lower buy volumes.
Despite the unfavorable economic environment, non-ferrous sales increased during the year and supported absolute trading margin performance, providing some respite and reflecting our regional supply chain advantage. Importantly, the team's buy price discipline and continual focus on costs were also contributors to it achieving a solid underlying EBIT of $72 million for the year. Our Sims Adams joint venture experienced softer container and bulk markets in the first half of the year, as strikes, hurricanes, and logistic challenges kept overall inventory higher and reduced margins. However, a much improved second half regained trading margin performance and improved volumes as the business took advantage of the run-up in U.S. non-ferrous prices and added a number of additional feeder yards into its network. Following a review of the Singapore hub, we reduced our operating cost base in global trade by nearly $8 million.
We also picked up a brokerage benefit linked to the UK sale as we continued to trade non-ferrous for that business until the end of June. Overall, underlying EBIT for the total metal business improved $104 million, or just over 60% on the comparative period's result. Just quickly, I think it's worth highlighting the impact on our North American operations from that severe cold weather bout we experienced in January and February this year. Those sub-zero temperatures in the Midwest through to the East Coast significantly reduced our intake levels across those months, and whilst we saw a recovery in March, we weren't able to catch up on the lost volume. Moving to slide 21 and SLS now, the business has continued its strong year-on-year performance progression.
With significant growth in the number of repurposed units we are now managing, SLS has been able to reflect the scalability of its operating model, its asset-like growth, and the benefits to margin from this. Stephen's already touched on the key drivers of the market in which it operates, and I'm sure we're all experiencing that impact ourselves. To dwell on the result, other than to note this business today sits at around 20% of our underlying EBIT, perhaps supporting a greater recognition of its attributable value within the company's total portfolio. Touching briefly then on central function and corporate costs, again, some great work here across the business on cost-out efforts with labor reductions and lower consultant expenditure. Development of new yard management software continued through the year, and we hope to see the first installation of that at our pilot sites in early calendar 2026.
As previously announced, in January, we elected to cease work on the development and commercialization of the plasma-assisted gasification technology being undertaken by Sims Resource Renewal. This has resulted in us booking closure-related and non-cash write-down costs totaling $25 million as a significant item, but it will reduce future corporate and central level costs going forward by some $10- $12 million per year over the prior year. That takes us to our cost performance for the year, and we continue to look for opportunities to simplify and delay the organization as well as further rationalize the existing operating portfolio. We set ourselves an implementation target of circa $40 million in the current financial year, noting again that capturing the full benefit remains dependent on the timing of changes and restructuring activities.
Pleasingly, at a group level, we managed to keep total costs relatively flat over the period through these cumulative efforts, and what you see here on the cost waterfall slide is the flow-through benefit of the full program in the year. You can also see the impact of the annual uplift in people costs again, even with those further rounds of restructuring completed. Total labor costs comprise around half of our total cash cost base, and ongoing labor rationalization efforts have enabled us to deliver cost savings this year of $35 million through both permanent and contract labor changes. We were also able to offset broader inflationary pressures with general OpEx savings, though incurred higher project costs associated with the new yard system, as well as higher depreciation charges from prior year activities.
Moving to slide 24, whilst we are now plateauing somewhat on our operating cost initiatives, we continue to chase cost-out opportunities where we can. As I mentioned, the decision to cease development of the Sims Resource Renewal plasma gas technology will reduce expenditure by a further $6 million on this year, and we have recently commenced the transition of a number of our central transactional activities to an offshore capability center with the objective of taking a further $5- $6 million per year out of our central cost pool once it is up and running. As expected, capital expenditure was higher in the second half. A number of strategic investments were made in North America, where we enhanced our metal and waste recovery through multiple shredder downstream investments and separation technologies, most notably in the Mid-Atlantic region.
We invested further in the expansion of our national railcar fleet and barge vessel loading capabilities, and also supported logistical capabilities through investments in additional trucking and rail infrastructure. In ANZ, sustaining capital is broadly in line with the prior year, with major works covering redevelopment of our Newcastle site and an equipment overhaul at St. Mary's. Work commenced on redevelopment of the Pinkenba site, with initial activities focused on site infrastructure and the wharf. We expect to spend around $30 million there in FY26 on both infrastructure and the establishment of a new fines plant, investing through the cycle to ensure we remain well-positioned going forward. Total group depreciation, inclusive of leases, is expected to be broadly consistent with the current year. Onto the balance sheet, the group completed the year with net assets of just on $2.6 billion at balance state.
Noting that comparative numbers separate the UK metal business, working capital increased period on period by circa $110 million, $60 million of which was because of late June bulk sales which we collected in early July, and a change in payment terms with our SAR joint venture to rebalance our inter-co-terms, contributing to an $80 million impact. Lifting our level of domestic sales also increased our receivable balances by some $45 million, as domestic credit terms generally range from 30 to 60 days versus our shorter-term export arrangements. We placed additional focus on our working capital management as a result of those flow-on impacts. However, it did result in an increase in our net debt position to $332 million at the end of the year, together with elevated gearing and leverage metrics outside of our preferred range.
Pleasingly, in line with our revised capital management framework, the board determined a final dividend of $0.13 per share, fully franked, and taking our full-year dividend to $0.23 per share. While this was at the top end of our suggested range, the board felt it appropriate to reflect the cash returns from the UK sales activities in the total dividend for the year. All that summarizes into our overall cash movement for the year. I've talked about most of these already, but just to touch on a couple of other key drivers, noting this waterfall is from our December balance, where you can see that impact from those working capital changes at year-end.
Following discussions with UniMetals Recycling, the acquirer of our previous UK metal business, we agreed to defer the final payment of their principal from its original June payment into FY2026 to enable the business to undertake a full refinancing of its funding arrangements. The European business has been particularly difficult this year as Turkish metals continue to contend with weak finished steel sales and downward pressure on prices linked to tariffs. Conversion costs have also increased significantly there in the face of rising electricity charges, and DC scrap buying has remained subdued as a result. We were required to take a non-cash credit allowance on the outstanding balance for accounting purposes. We continue to work proactively with the company as it works to extinguish the residual capital payment.
Just to note that the full-year net operating cash result of $297 million includes a $66 million residual tax payment, which related to a capital gain on the sale of the LMS business in the prior year, so somewhat understating a much improved year-on-year operating cash flow performance. Back to you, Stephen.
Thanks, Warrick. I'll turn to the outlook on slide 29. The first point I will make is that the long-term fundamentals of our business remain strong. Regional EAF capacity is growing in the U.S., Australia, and New Zealand. Non-ferrous demand continues to rise across the globe, and AI is driving an exponential increase in demand. What could all this mean for FY2026? We had a good year in non-ferrous in FY2025, and quite simply, we expect this to continue in FY2026. The tariffs are protecting U.S. steel and aluminum industries, and therefore domestic demand for scrap.
This has resulted in premiums often emerging for domestic scrap sales in the U.S. We see this continuing in FY2026. In our view, production changes will take time to play out, and China will continue to dampen steel prices and therefore ferrous scrap prices outside the U.S. Countries are starting to show some objections to this, and you are seeing the shoring up of domestic steel industries with potential protection. This will take a while. For FY2026, we see ANZ ferrous margins remaining under pressure. We see no slowdown in the demand for memory driven by AI. Sims Lifecycle Services should continue to benefit from this in FY2026. Finally, thanks again to the whole Sims team. You have delivered an FY2025 result which shows that your hard work around implementing our strategy is showing rewards. Thank you for doing all of that in a safe way. Back to you, operator.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speaker phone, please pick up the handset to ask your question. Your first question today comes from Owen Birrell from RBC. Please go ahead.
Morning, guys. I'm Sue. Just drew a question from slide 34 of your pack where you show the destination volumes, and in particular, I'm just looking at NAM and SAR where you can see the export component shrinking from 2024 to 2025. Now, clearly, this is based on your swing strategy and better margins in that U.S. domestic market. I guess my question comes down to the Seabourn side of things and what's happening with respect to not only just the demand there, but your market share of that demand. I'm just wondering how much of that is just really weak demand, or are you actually forgoing customers because they're not willing to pay the margin or the price that you need to swing that volume into that direction?
Yeah, thanks, Owen. We've got Rob on the line, which is good. I'll let Rob maybe answer that question in a little bit more detail. I'll give my sort of overview. I think it's also the type of scrap that's being exported as well, wherein domestically we're sending much more shred versus more HMS internationally, particularly through to Turkey. That would be my overall comment. There are deliberate aspects to it, but maybe, Rob, you're best positioned to provide a bit more color around that.
Yeah, I think largely the same, Stephen. What you just said is fairly accurate. I think the way to think about this is we are optimizing the cargo on the ship. Where we used to have a lot of a larger % of shredded steel on the ship, we're now minimizing that depending on the market price and the value of those individual commodities, factoring in the stowage. The U.S. market in particular for SA and for NAM, the flat rolled steel producers are demanding and are willing to pay a premium for that product. I think in terms of market share, we're fairly stable. We actually track that. In terms of market share on the North American export %, we haven't moved very far off from previous years.
I mean, I don't know, my question is very much that, you know, if we do see a recovery in international markets, obviously pretty tough at the moment, whether you've got to be able to swing back into those international markets. It sounds like your relationships with the customers are still relatively strong, and it's just really the market being weak more than anything. Yeah. I think that's a very good summary of it. That's exactly right. Same for ANZ.
Yeah, okay. Thank you.
Thank you. Your next question comes from Goose Freeburg from Macquarie. Please go ahead.
Hi, Stephen. Warrick, thanks for taking my question.
No problem.
Could we just discuss your non-ferrous contribution to the group? You've given it for ANZ and at a group level, but just curious to see where that sits in the US and businesses and how you sort of see that track across your segment into the future.
Yeah, my overall comment on that, and then I'm happy for both John and Rob to come in with a bit more too. My overall comment is that non-ferrous was very significant to the U.S. as well, both in NAM and SA Recycling. It really was the story of FY2025, is the very robust demand and pricing of non-ferrous and the fact that we could meet and deliver on that. Maybe, John, do you want to add a little bit more flavor on ANZ and then Rob, some flavor from you around NAM? Whatever Rob says about NAM, you could say is the same answer for SA Recycling. Non-ferrous certainly gave us some resilience on our ANZ results, given the weak ferrous environment that we trade in.
Non-ferrous, I think, represented something like 50% of our total revenue if you include NFSR, which demonstrates the value that we have in copper and aluminum and certainly investments that we've made in things like cable granulation, balers, MRPs, and fines plants. Non-ferrous really was the story of the second half and the strength of it. Rob, just fine. Rob, you go.
I was just going to say not a lot to add to John's. Very similar here. Second half was solid demand as it was all year, but in particular, the second half, Warrick touched on it in his comments. There was some speculatory trading going on in the U.S. ahead of tariffs that didn't actually come to fruition. It's in line with our strategy. The non-ferrous fraction that we collect with our technology and our shredders has been a priority for us for the last several years, and it paid off with the solid demand that we saw in 2025.
I'd also say it's probably worth adding as well that while non-ferrous in NAM has done, you know, it's done very well, it also did well in FY2024, and that NAM's improvement in FY2025 was driven by ferrous. About the margins that we got back into the business, the more unprocessed material we were buying, the fact that we were shredding that and producing zorba, that is what drove the big increase in NAM's turnaround in FY2025 on the back of the strong non-ferrous contribution that we've had for the last couple of years in ANZ and NAM.
I think that's good color. Just to follow on a little bit from Owen's question, it was obviously a big swing to the U.S. domestic market given pricing. That makes a lot of sense. Could you just touch on this a little bit further? Is there more gains to be made there to shift that mix further to domestic? Should the pricing differential be this much?
I think the short answer to that question is yes, because what I would say is yes, we've had some good swings to the domestic market because that was the best place for us to be selling, particularly shred. I do think we need to start to understand that there are different types of metal grades and different HMS surface shred, which is playing a part in this. We've kept that optionality, but we're growing the optionality as well. There are more opportunities. We've been investing money in rail sidings. We're investing more money in rail stock so that we can send more domestically and also in barging. If the domestic market continues to have a, if the premium continues to grow, we absolutely have the ability to send more domestically.
Perfect. Thanks, James. I'll leave it there.
Thanks.
Thank you. Your next question comes from Dylan Adrian from J.P. Morgan. Please go ahead.
Good morning, Stephen. Warrick, thanks for taking my question.
Pleasure.
Just a quick one. You've had a strong second half despite, you know, the start of the year impacted by some pretty tough conditions and some weather disruptions that you called out. Would annualizing the second half be a sensible start in thinking about FY2026? I'm just trying to build a bridge into FY2026.
That's a tough question, and I might let Warrick answer that one. Yeah, let Warrick give your thoughts on that because we've obviously been thinking a bit about this.
Yes, the overlay is obviously the continuing economic environment, but we certainly see a positive second quarter in terms of the activity in the U.S. in particular. Maybe Rob's a little bit better positioned to sort of talk about the actual market itself. It's always difficult to say, should I use it as the annualized base because there's so many drivers that come into that. Whilst weather impacted us certainly in that third quarter for us, there are other aspects that remain variable for performance.
I think it's not a bad starting point, really. I'd add to that. I agree that I'd add to that.
If all things being equal enough with the normalizers, because we can't control weather in the market conditions and where they are, you would expect us to be trading in a similar manner. I don't think that's controversial. What I would say, though, is that we haven't finished our self-help. There are more initiatives that we're putting in place. We are getting more metal out of waste. We are doing more around copper granulation and fines recovery. There is more self-help that we're doing. We're not sitting back and saying, this is the market. Let's perform the same in that market. We're still putting in place initiatives to grow, to get more margin back into the business, to optimize our domestic versus export. We didn't execute perfectly in FY25. Predictions are very different. We didn't execute perfectly. There's room for us to do more in FY26.
Excellent. Thanks very much.
Thank you. Your next question comes from Scott Rile from Rimor Equity Research. Please go ahead.
Oh, hello. Thank you very much. I have a couple of questions. I might refer to two slides. Firstly, slide 11, where you've talked about the potential for NAM acquisitions now that you're, and I don't want to put words in your mouth, but you seem more confident with the position of the business and some of the self-help you've done. I'm just wondering, how do you see the market in terms of you've built a bit more resilience into your business, but do you think your scale helps? With the acquisitions that you're looking at, are you thinking that there'll be opportunities to purchase smaller businesses who are perhaps struggling because they don't have the scale and the advantages that come with that?
The short answer to that, Scott, is yes. I mean, that would be the sweet spot. We've got a number. As I say, we've got a number of irons in the fire. It takes two, though. It takes a willing buyer and a willing seller. I would say that overall, the metal recycling industry is made up of pretty resilient characters that go through a lot. I think there's a lot of coming together now, which has really driven the consolidation of the industry. It's everything from, you know, market conditions are tough, and they've been tough for a while now. You've got stronger environmental regulations. You just can't set up a scrapyard anywhere. There's all this stuff around social licence to operate. Those are barriers to entry.
I think the demographics of the industry is you've got a number of, frankly, you've got a number of grandparents who have, you know, set up very good businesses. Probably, you know, left school when they were 14 or 15, have set up a very good business. They're now in their 70s. Maybe the next generation isn't overly interested in taking it over. You've got that sort of dynamic as well. I think those things are driving it. What I would say overall is we'll be sensible. We're very conscious that we have to deploy our capital that adds value. It's not going to be a, I'll use a free-for-all. I don't even know why I'm using that expression. It's going to be a very disciplined, surgical understanding of which feeder yard groupings suit our shredder capacity.
It would allow us to really take on more unprocessed material and not having to spend any more money on shredders. I think the whole situation is coming together.
Yeah. Okay. Good. The next question is on your CapEx slide on 525. It's a great chart because it shows sustaining CapEx being higher than at any point in the last six years versus some of the growth CapEx, which is a lot lower. Now, I don't want to quibble over the definitions of each one, but we've all seen growth and sustaining in many, many companies switch between the two. I guess what I'm wondering is, is sustaining CapEx higher now over the last six years because you did have what looks like a CapEx holiday in 2021, 2022, and there's a bit of a catch-up. Do you have a level where you look at sustaining CapEx as kind of a through the cycle or a normalized number that we should be thinking about into the medium long term?
Yeah, it's Warrick here, Scott. Yes, there has been a catch-up. Certainly, through the COVID period, it was a reduced capacity to spend. There's nothing, we're certainly conscious of not having a CapEx or maintenance debt in terms of our business. This year, we did use it as an opportunity to bring some of that deferred capital into the program, and that's what we've done. We'll actually see, as we say in that slide, we'll see some reversion of that back down. Obviously, we're also spending, you'll see an increase in our growth capital in FY2026 as we move into Pinkenba. For us, we still reference our depreciation level as a reasonable, I'm going to say, not ceiling, but target to where we would sit with our overall capital. Certainly for us, that growth capital, that's excluding acquisition type capital, but growth capital around additional volume opportunities is important.
As I said in my narrative, I think it's one of the reflections for us that we're still investing through the cycle. Whilst it's been a tough year in terms of the market and we've done quite well in terms of our operating performance in that context, we haven't held back on our capital at the same time because we don't want to end up in a position where the market turns, moves forward in a positive sense and we're not ready for it.
Yeah, understood. Just in terms of looking forward, you know, beyond 2026, is it fair just to think about that sort of $120 million, $140 million range that you've given as where you might look at our sustaining CapEx in the medium term?
Yeah, I think that's a fair assumption.
Okay, great. Thank you. If I can just be a bit cheeky and sneak in a third one, I wanted to ask about your off-take non-binding MOU with Alta Steel. I guess I see it as a bit different in New Zealand where you actually had BlueScope as a counterparty with a current plan to go to EAS. What's the status of this project? I guess how do you think about, I'm assuming you're doing pricing in a similar manner relative to the traded benchmark like New Zealand, but how do you ensure you retain flexibility if the project doesn't proceed?
I'll let John answer that one because John's really driving that project from Sims' perspective.
Thank you. The timing of the project is obviously we're in an MOU stage, so we're yet to negotiate a binding agreement. The FID decision is sometime in the next 6 to 12 months with a planned construction and commissioning date of about July 28, 2028. Westview or Equest Steel, Alta Steel are certainly more progressed than any of the three other EAFs that we've also been talking with, by the way, two others in Queensland and one in Western Australia. They're certainly more progressed in a development application perspective. They're more developed in terms of their business case, their off-take agreements, and all those sorts of things. You're quite right. Pinkenba, you know, its proximity to the proposed Alta Steel site serves as well to service their needs. It's about a kilometer up the road.
If that mill didn't progress, it doesn't change the dynamics that Pinkenba can provide a logistics hub to support the needs of others, whether that be the other domestic consumers or other export consumers. Pinkenba really is a first-class facility that has deep water access, it has short sea access, it has rail infrastructure and road infrastructure. Developing it into a logistics hub will service the needs of, quite frankly, Westview or potentially, if that doesn't get up, any of the other domestic consumers or export markets.
I think that's a really good point, John. Just to emphasize that, we did not purchase Pinkenba and get board approval to commence building out Pinkenba either on the assumption that there would be a domestic EAF just down the road. To me, that's fantastic, but it was never, ever part of the core approval of that.
In terms of your question around pricing, as you pointed out, or Stephen highlighted before, around export parity pricing, our discussions with Westview have been pretty frank in that when we see periods of regional deficits, pricing will need to move somewhere between export parity and import parity. The other benefit that Pinkenba brings is if we need to bring in scrap from other jurisdictions, whether it be the West Coast of North America or potentially out of South Island New Zealand, to support the needs of that mill or other mills in Australia, there is always that import opportunity too. The pricing will sit somewhere between export parity and import parity in my view.
Great. Thank you. That's all I have.
Thank you. Once again, if you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Kai Erman from Jefferies. Please go ahead.
Thanks for taking my question, guys. Just one on North American trading margins. Obviously, the first half 2025 trading margin print was quite strong. It seems like the trend into the second half was a little bit weaker. Just kind of keen to unpack why that may be and also what the trend looks like for first half 2026.
Kai, just checking that's trading margin %?
Yes.
Yeah, there's a little bit of mix goes on in there. Rob, I'll hand over to you. At a very high level, there's a little bit of mix goes on in there. Non-ferrous did feature more strongly in the second half relative to the first half. Therefore, non-ferrous trading margin percentages by definition are lower. On a $10,000 copper price, you don't get 20% margins, and that mix does move it around. I wouldn't read too much into it. When I look at the margin percentages that we're getting on our ferrous, they are just as good in the second half as they are in the first half. We would expect that to continue. It's more mix. Rob, anything else you'd like to add to that?
No, I think, Stephen, you covered it well. I think the only other thing I could add is when the price did correct internationally and domestically in the ferrous market, we did get caught with a bit of a COGS impact, so cost of goods sold inventory effect. Other than that, margins remain a priority and a focus for us.
Yeah, I think we would see them. You know, we focus heavily on it. I can promise you that. Our meetings that we have regularly going through the market, I'm still seeing that the ferrous margin % is looking as good as it was.
Okay, thanks. That makes a lot of sense. Just a follow-up, if I may, just one on the cash flow. Obviously, a lot of moving pieces in this half, as you guys called out. I would be keen to sort of hear your thoughts on how you think that might trend into first half from, you know, cash conversion or in, you know, gross dollar terms perspective, just for operating cash flow.
Yeah, Warrick again. Certainly, you know, there's a few things that will come into our cash flow in the second half of the year. The recovery of the UK metal receivable, as I said, we're working with UK metal around that. We certainly see that coming through. I think in terms of more broadly the operating cash flow, we do have fluctuations in our inventory levels, but we're placing greater emphasis these days on our working capital balance and trying to smooth that out instead of some of the volatility that we normally see around the reporting periods, etc. I'd say we're certainly working to bring that down. We're not comfortable with the level of gearing, etc., that we're currently sitting at and, you know, really converting that operating performance into bottom line cash.
Perfect. Thanks. I'll pass it on there.
Thank you. Your next question comes from Nikolai Dale from Barrenjoey. Please go ahead.
Yeah, thanks for taking my questions. Maybe just following up on that last question on working capital. How should we think about the movements in FY2026? Should we still expect sort of an outflow there, given you've got that $50 million benefit in July? As well, more broadly, if you could comment on what you think the sort of mid-cycle level of working capital to sales is for this business. Thanks.
Yeah, I'd say, you know, certainly from a payables and inventory perspective, you could use those amounts going forward. We certainly wouldn't want to sort of see too many dramatic changes there. I think certainly the receivables, trade receivables amount, you know, it did come down early in July with the recovery of those late sales coming through. We would certainly see a reduction in our receivables. There's a little bit of a swing there. I mean, our objective is to, as I said, is to try and smooth out the inventory fluctuations that we have because, you know, really, I suppose, to provide a little bit more consistency to the business in terms of our month-on-month trading positions.
Going forward, certainly, I think, you know, inventory levels, those levels, and a reduction with a reduction in our trade receivables balances is something that you should think about in terms of going forward.
Okay, thanks. Just a second question on land sales. Are there any sort of surplus land sale benefits that we should be thinking about over the next six or 12 months?
Yes, we are actively working on a small number at this stage of land sales. We've quoted sort of $100 million to $150 million U.S. And yes, they are U.S. They are based in North America. We certainly see opportunities to recycle that capital back into the business. That's not to say, you know, we know we have a large portfolio of land. We're continuing to look at opportunities around other disposals, but they need to, you know, we need to do them right. I think we've seen some benefits recently across the industry where making sure you've got the right buyer, that you've got the right price on those is the way to capitalize on those. It's not like a fire sale. It's something that we have to continually progress.
Part of the rationalization work that's going on in the business and supporting our acquisition of further yards, improving our shredder capacity, et cetera, it's a combined effort across that. I think the other thing I'd add is that the land that we're looking at selling here, we wouldn't see a reduction in EBIT as a result. It's not. These will end up land surplus to our requirements that are currently not producing EBIT.
Yeah, that makes sense. Sorry, was that supposed to drop in the first half of 2026 or the second half of 2026 at this stage?
I think the touchstrike was a bit hard to do, the timing of the sales. I would, I mean, we're going to, because we're not, I mean, we're not in a desperate situation. I think Warrick's did right. You're looking for the right buyer, you can actually realize quite a lot more. My intention is that over the next 12 months, I think maybe we can get somewhere in the first six, but I would think it's more, we can just do it sensibly and have it done in the next 12 months.
Thank you.
Thank you. Your next question is a follow-up from Owen Birrell from RBC. Please go ahead.
Yeah, just a quick follow-up, if I may, just on global trading. Am I correct in saying that that's turned a profit in the second half? If so, were there any sort of one-offs in there? How should we think about that business from an earnings perspective going forward?
Yeah, Warrick again, Owen. Certainly a lot of work done from the team in terms of cost-out. We took about $8 million out of that. We do fluctuate a little bit in terms of our FX position and the cash that runs through that trading business. It's a little bit variable. We did also pick up a benefit this year from the UK metal activity. We were continuing to handle their non-ferrous trading through that. That gave us a benefit in there. We're not sure that that arrangement will continue, just given, I think, it was part of a transition arrangement to make sure that the business was set up under its new owners. They're still working through whether or not they want us to do it or whether they'll go independently on that. We're probably pulled back a little bit in terms of expectations.
Certainly, if we get more brokerage through there, then there's definitely opportunity. We have, as I said, taken $8 million out of that cost plus.
Should we think about that as more of a break-even sort of argument going forward, or are we sort of still running?
I'd say it's still a small operating loss just in terms of what we've got there. It's a central functional center, so the benefits are really flowing back through the business in terms of not just our business, but we also do brokerage for SAR. There's a huge benefit that comes from that. Having a single voice to the customer, etc., is really important. Right across that, it means we can manage our exposures and pricing discussions, etc. It's a really important function for us.
Thank you.
Thank you. There are no further questions at this time. I'll hand back to Mr. Mikkelsen for any closing remarks.
Thank you, everybody. I'll see you over the next couple of days as we get out and about in Sydney and Melbourne. Thanks very much.
That does conclude our conference for today. Thank you for participating. You may now disconnect.