Good morning, everyone. Welcome to the Sims site tour of the North American business. We'll have a series of presentations today, from the NAM business and from the SAR business. We also have people from the group here today, but I'll let Stephen talk you through the agenda and also introduce you the presenters. For now, I would like to address the structure of the day. We have three sets of presentations, and Q&A will take place only at the end of each set. So I would like to stress, please don't ask questions at the end of each individual presentation or during the presentation. There will be plenty of time for questions and during the breaks as well, and the site tour of the SAR business as well. So without further delay, I'll ask Stephen to start the day. Oh, that's mine.
Thank you, everyone. I'll add my welcome. You're going to see a number of presenters today, as Ana said, we are going to allow plenty of time for questions. So, you know, I will do an introductory presentation, then there's some Q&A, then John and Michael, and then some Q&A, then Rob and Michael, Q&A. Then I think we've got time for some lunch, and then we go to SA Recycling after that. And we will have Q&A at the end of each of those sessions, which I think will help it flow quite well and will allow the questions to be, you know, really pertinent to what we're talking about at that time. Here's the agenda for the day.
It will end up, will end up reasonably packed, and I'm, I'm really keen to make sure we get out for the site tour of the SA Recycling facility. It's a, it's a fabulous facility and it's really going to be worthwhile spending as much time as we can there, and I guess, really making a very practical aspect of to as to what is a, you know, a series of presentations today. We will stick closely to the agenda. Lunch at around one, after one, we've got George and Tyler and then heading off to Terminal Island. I, I know everyone has met a number of the presenters today, and I'll, I'll let George and Tyler introduce themselves later in the afternoon.
And from the Sims side, we've got John Glyde here today, which you've all met before. We've got Rob Thompson, who you've also met before. We've got Steve Skurnac, who in a couple of weeks will become the interim CFO, so well done on that, Steve. So we've got Steve here today. But we've also got Michael Gaylard and Michael Henderson here today as well, and they'll be presenting, too. So I know none of you have met Michael Gaylard or Michael Henderson before, so maybe a little bit of background from them, and they've both written me extraordinarily comprehensive CV. So let me just read them rather than try and remember each one of them.
So Michael Gaylard started working in investment management in London, straight from university, and quickly found an affinity for quantities. Prior to joining Sims in 2019, Michael spent the previous 12 years working with international trading houses, ship owners, financial institution, and hedge funds, creating futures and options market for iron ore, steel, fertilizer, and both bulk and container shipping. Michael first encountered the recycling industry when working logistics and sales platform for a magnetite concentrate produced in Southern Utah, and here's where it gets interesting. During this period, he made contact with George Adams. A deal was structured to use SA R Long Beach dock facility, and to this day, the product still makes its way to Asia via the SA R Long Beach facility, and that's what we will be looking at today.
Michael lives here in Southern California, with his partner and two sons. So Michael is on our commercial side, and you'll hear a lot more from him. I think you'll appreciate the depth of experience that he brings to our organization. Michael Henderson is the COO for North America. Another person that a number of you, or I think everyone, has not met yet. Michael also has a very interesting CV, and so I will also read it, and so I do it some justice that it deserves. So Michael started working in the metal recycling space in the early 2000s, while still in high school. After graduating college with a BA in Political Science in 2004, he began his career with Metal Management Northeast, which Sims acquired in 2008.
In his career at both locations, Michael has worked in operations, commercial business development, and global strategy. His most recent appointment, as I said, as the NAM COO, came after two years as the Vice President of Operations for Sims' United States East Coast platform. Mike actually lives in New Jersey. He's not a California-based with his partner and three sons. Mike did make the observation when he sent it, that this could just as easily be an obituary if you read it in a certain way as well. I think it's really important that we demonstrate to you today the depth...
You know, you've all met John, you've met Rob over the period, but there is extremely good depth right throughout the Sims organization, and we thought it was very, very important to get both Michaels involved in the presentation today. So an update on the market conditions. Now, obviously, clearly, we put out an announcement earlier this week on the first quarter, and I really—I want to talk about the market conditions as we see them, which has led to that. So when we spoke at the half year, at the full year results, sorry, in August. It was very much in the background of steel demand.
There was a quite a subdued steel demand position. But I think one of the most interesting things was that the scrap price, as we see, didn't appear to be sufficient to stimulate a strong scrap flow. We found that a rather unusual condition at that time, and we talked to you about this, and that, you know, we've got a, let's call it, you know, a $350-$390. The scrap price has been sort of moving around in that range for ferrous for a period of time. Now, that would normally be easily a sufficient price to create quite a liquid and quite a robust scrap market. And right now, it isn't, and back in then, it wasn't, and that condition hasn't changed.
There is still the flow of scrap is still subdued. I would describe it as illiquid, and that is a rather unusual condition, given the scrap price we've got, and I'll talk a little bit more about that in the update on the market conditions. So the competition for scrap was strong, though. So we had a limited supply of scrap coming out. The competition for it was strong. You still had a number of participants in the market, the same number of participants, I guess, fighting over a smaller quantity of scrap being released from the market, and we had a margin squeeze. We had lower volumes at lower margins and a margin squeeze as a result of that.
That was generally true across the regions, though it was much more pronounced in certain regions than others. So, for example, it's probably fair to say less pronounced in as far as Sims is concerned in the Australian region. Still, no doubt, scrap flows are down and margins were being squeezed, but less pronounced in the Australian region. And it was, I guess, slightly more pronounced in the regions in the U.S. where we operate it versus the regions where SA operate it. There were some subtle changes between regions, and it was pretty pronounced in the U.K. region as well. The U.K. region volumes were particularly low. So that's what we were talking about in August. We felt the need when...
That we had to put an update out, earlier this week on Monday. Those conditions are persisting. We have not had an improvement in those conditions. I think there's a couple of indicators on that. The PMIs are very low at the moment. A little bit inconsistent in some of the data, but definitely in the contraction mode, so we've got that going on. The other thing which is really quite interesting in these market conditions is that durable goods. So durable goods demand is down, and durable goods generate scrap.
We've got some anecdotal rationale for that, but you know, it's the data says that durable goods are down, and we've got a really good reason why we think that is happening by looking at other data, and that is to do with consumer spending. During the pandemic, people were locked down. They weren't going on holidays, they weren't going to restaurants, they couldn't do the normal things that they did as part of their life, and they. If you look at the data, there was a large uptick in the purchase of durable goods. You know, fridges, washing machines, whatever you consume in your house, which is metal intensive. There was a very large uptick in the purchase of that, and that has, post the pandemic, just completely fallen away. So we...
There's less scrap coming out as a result of that. There was more scrap at that time. We had higher prices, and if you look at the FY 2022 year, I think that's reflected in that. Right now we're seeing not much in the way of scrap flowing out of that. You combine that with what we previously talked about around automobiles. There is no doubt that during the pandemic, we used our cars less. We were frankly, we were crashing them less, we were wearing them out less, and we believe there's still a rump of cars still need to come through the system at some point as in the post-pandemic period. So those market conditions haven't improved, and that's continued on.
The other comment we'll make is the newest domestic market, which we've described previously, resilient, is showing some sign of weakness. Now, a lot of this is actually largely around sentiment, and that sentiment right now is being driven by the United Auto Workers' potential strike, and that has absolutely impacted the sentiment of the market. So tomorrow is the day where we apparently will find out if are they going on strike, have they done a deal, or have they agreed to extend while they continue to negotiate? That is the, you know, that is your three large auto manufacturers are all under the threat of that, and that has caused quite a negative sentiment in the demand for steel. People are not willing to hold stocks.
They are, they've-- they're purchasing, you know, they're purchasing less steel, less demand for, for scrap. So that is right now not a factual, but I guess it's much more of a sentiment-driven issue that's happening in the U.S. marketplace. Let's see if it gets resolved over the next days, weeks, or months. As a result of that, we believe that our Q1 2024 is going to be approximately break even, subject to the normal caveats that we put on that. You know, we will have ships that are loading at the end of September. Do they get loaded at the end of September or the beginning of October? It's just a timing issue, but that could flip it from one month into the other or could bring forward from...
You know, if we've assumed something is going to load at the end of October, and it loads at the beginning of October, loads at the end of September, that will bring it forward. I'd also make the point that, you know, September hasn't finished. We've largely completed our sales program for September, but we still have to buy some of that scrap over the coming weeks. So the final price that we buy that scrap at will determine, you know, the final margin that we make on that cargo. Putting all that together, though, we believe on balance that we will have a break-even September quarter. None of this changes our medium to long-term outlook, and I think, you know, pretty much our medium-term outlook is where we're focusing in.
There's still metal-intensive infrastructure spending going on in the U.S. We've still got the Inflation Reduction Act, which is absolutely driving demand for steel. That is a medium-term trend, moving through to a long-term trend that will be around for a considerable period of time. Global decarbonization is not a fad, it's not a five-minute wonder. Global decarbonization of the steel-making industry will continue for decades to come. It drives EAF capacity. You're seeing here in the United States, Rob, Rob and John will both cover off that in considerable detail, what that's doing, you know, to the EAF construction, what that's doing to the demand for scrap. That's not a trend that's going away. That's built into the global economy for decades to come.
Associated with that is the electrification of products. Everything that's going to be electrified over the coming period is steel intensive, is copper intensive, is aluminum intensive. None of that is going away. Electric cars, wind farms, solar, they are all intensive from a steel point of view. The best way to produce those with low carbon and with low carbon footprint is recycling metal. None of that has gone away. We just have some short-term challenges over the coming weeks and months. I want to briefly touch again on our sustainability strategy, because again, this hasn't changed. It's at the core of what Sims is. Sustainability is our business. We look at our sustainability in three areas, you know, operate responsibly, close the loop, and be a partner for change.
Operating responsibly is something we will always do, whether it be from an environmental perspective, from a safety perspective, diversity and inclusion. Those are the, I guess, the foundations of our operating responsibly. We believe it's the way you have to do business, and that's the core of what we do. Closing the loop is the closing the loop and the partner for change is where our sustainability strategy connects with our customers. We are helping our customers close the loop. John will talk a lot, or a fair amount in his presentation, and the type of products we are looking at producing for our customers, which will help them close the loop.
The work we're doing on ASR and Sims Resource Renewal, turning that into ultimately a plastic, which will close the loop on the car manufacturers. That is, that is a key part of what we're doing around our sustainability strategy. And the last one is the partners for change. The type of investments that we're putting in place, the type of products that we're looking at producing for our customers, the type of ways that we are helping them close the loop, it cannot be transactional. It cannot be, "We're going to do this deal for you today, and we might not be here for tomorrow." It's, they are long-term partnerships that we need to create. We have commenced down that journey, and in fact, a number of areas we've commenced it in a considerable fashion.
These three pillars are all driving the value, value for shareholders on the other side, whether it be revenue generation, and I would say just as importantly, it's the quality of the revenue generation that we're looking at. You know, long-term partnerships with trusted customers, where we're the trusted supplier, that produces higher quality, revenue, less volatility in, in that area. The competitive advantage and innovation, I think they speak for themselves. We are. I believe in the long run, we are moving away from just a pure commodity to more nuanced products that meet specific customers' needs for the type of product that they're producing for that end customer. So knowing what that end customer needs, therefore knowing what, what the steel makers, the aluminum, aluminum producers, the copper producers, what they need to produce for their customers, key part to our business.
Looking, and I guess, focusing in particularly on the Sims strategy. At our core is Sims Metal and metal recycling. I see that staying as our core for the foreseeable future. We have adjacencies to that, which I believe are important adjacencies, Sims Resource Renewal and Sims Lifecycle Services. I believe we spoke a lot about Sims Resource Renewal at the Rocklea presentation, and I think I made it abundantly clear there that that journey is not going to be a Sims alone journey. That is going to be a joint venture journey, where we will have other partners within the joint venture, separately structured, but with Sims as a core part of that joint venture, providing the ASR in a reliable, guaranteed fashion, the way that is going to need.
That will stay there. Sims Lifecycle Services, we will be talking to Ingrid and her team tomorrow, so I won't talk too much more about that. We'll have a lot more information on Sims Lifecycle Services tomorrow. We've made the decision to divest a number of assets, and, you know, we've talked about that over the last year or so. Sims Municipal Recycling, we divested a portion of that, and we will have that fully divested in the coming months. Those negotiations continue. LMS Energy, I think it's all known to the market that we've decided that that is not core to our business, and we are-...
In the middle of finalizing that sales process at the moment, and along with LMS goes Sims Energy, which is the operation that we've got here in the U.S., in Florida. So that's the way we see the business moving forward. If you look at the actual strategies in amongst each of those, from a ferrous point of view in Sims Metal, I think we've talked about it enough, so I'll move on to the second point. But growing and capitalizing on tailwinds from demand. I think I've spoken a bit enough about that in the previous slide, so I won't dwell on that bullet point.
But I will a little bit on the second one, which is leverage our core operating platforms, and we have very good operating platforms to increase unprocessed infeed and diversify channels to market. Let's unpack that into its two component parts. We need to increase the amount of unprocessed material that we're receiving. That, some of that can be at source, where we go straight to peddler type of traffic type. Some of it will be from industrials, others of it will be from smaller dealers that have maybe collected up a volume of scrap from peddlers.
But the key thing with it that we do well is adding value to that unprocessed material, whether that be through shredding it, through shearing it, through torching it, cutting it up, whatever we do, that is where we add value to get it to a point where it is the type of material that our customers need. Core part of our strategy and we're planning on growing that considerably. That leads to the third bullet point about leading the market on new product development. The reality is that as we decarbonize, and scrap being the only economic way of decarbonizing at the moment, customers are demanding different types of scrap, different qualities, different known chemicals, normal chemical componentry. They want less tramp elements, and they need that provided consistently, and they need surety of supply.
So John will talk considerably about the type of things we're looking at there and around making sure that we are satisfying and meeting those customers' needs. Last point on there, increasing the optionality between the U.S. and domestic markets. As we spoke about at the full year result, we did get caught out where the domestic market and the export market separated in the U.S., and we were competing for some very high-price scrap, selling it into the export market at some pretty slim margins. We absolutely have the ability to send more of our product domestically.
It's not capital intensive. It's more about making sure that we have the relationships with the people to provide the regular product on time, in spec, to the markets that are needed. So we will keep our export optionality, no doubt about that. We have fantastic port facilities. SAR has fantastic port facilities. You'll see it at Long Beach at Terminal Island today. So it's not about removing our export optionality, it's about making sure that it's a genuine optionality by having a domestic focus and ability and consistency to our business as well. We've already commenced that. I see that as something that we're well on the way to achieving. Last thing on non-ferrous. We've got two very distinct platforms at the moment in aluminum and copper.
We've got Alumisource on the aluminum side, which we're growing, and Northeast Metal Traders on the copper side, a very you know, copper, non-ferrous focused business. Growing those is core part of our non-ferrous strategy. And lastly, getting more metal out of the fines waste. It is becoming more possible, more technologically achievable, and the price is driving the signals to let's get as much metal out of the fines waste as we possibly can, non-ferrous metal. We will speak a lot tomorrow about Sims Lifecycle Services with Ingrid, so I won't dwell on that, and we've already given a very fulsome update on Sims Resource Renewal at Rocklea. Just on this picture for a second, and to me, this picture tells, this collage tells an interesting story.
Top left-hand side, black and white, metal scrap. Bottom right-hand side, you know, it's in color, but it's still metal scrap. Our core business hasn't actually changed. This is scrap that's thrown away and needs to be dealt with. This is scrap that's thrown away, and rather than go to landfill, needs to be dealt with. So it's really interesting. Over the last 100 years, the core of what we do hasn't changed. How we do it has. You know, a couple of interesting comments from me on this. First is, health and safety comment, and the second would be an environmental comment. So it's how we go about doing it and the technology that we use. Let's look at the second picture from the left.
You know, I'm not sure why a band around the head provides any protection as opposed to a hard hat. So we've made huge strides in health and safety. We've made huge strides in environmental production. You look at the facility on the top right-hand side there. And we've also made huge strides in technology. It is much less a people-intensive business, and it's becoming more and more a technology-intensive business as to how we upgrade and process our material. Let's have a look at it from our customer's perspective and our customer's customer's perspective. The world is committed basically to increasing scrap as a to meet societal expectations. As I said previously, the only realistic way right now, practical way of decarbonizing is through scrap metal.
And if you look at our customers and our customers' customers, like, what are they doing? I'm not going to go through these individually, but if you look, what are our customers doing in terms of helping meet their commitments to reducing carbon? And then what are customers' customers doing? Who they sell their product to, what are they doing in terms of reducing their carbon, their carbon footprint? I think it's pretty clear that the entire world is pulling in this direction. This is not us pushing scrap. This is about the world pulling scrap. Little bit of, I guess, evidence for that. This chart here shows a couple of very interesting things, which I'll highlight.
The first, which is, you know, very clear, is just the, the demand for scrap is expected to double by 2040, and it's on a very-- it's on that trajectory now. And it's clearly driven by EAF share of steel production. If you look at the blue line on the top, that's an estimate of the EAF share of steel production going from a little bit above 25% in 2020 through to, you know, around 40%, a bit over 40% by 2040. I think that's a really clear and obvious thing and undeniable in many, many ways. But in some ways, just as importantly is the green line at the bottom, and that is, what is the share of scrap that is going into the blast oxygen furnaces?
You know, right down here, we're around, I don't know, let's call it globally 2.5%. That varies hugely across the world. BlueScope is as high as John, I think, 28%?
Approaching.
Approaching 30%. But, you know, others are obviously much, much lower. That's predicted to rise from 2.5% in 2020, let's call it, up to 7%-8% by 2040. Why that is is almost as important as the EAF production, which John will go through, is that is a huge amount of scrap because it's a... Let's call it a modest percentage increase on an extraordinarily large number, and John will take us through that. So demand for scrap, I think, is undeniable. I just want to set the background here. We will go into this in much more detail during the day, is I want to present the footprint.
If you look at what is Sims exposed to in the United States from both our own perspective and at the SA Recycling, our 50% joint venture partner. You can see us in the blue. In the dark blue is Baltimore Scrap. That is in the process of finalizing now, just waiting on those final regulatory approvals. And in the orange, you're seeing SA Recycling. That picture to me tells a very nice story about where we are, where SA Recycling is, how we've got diversification across North America, and how our footprint is actually very complementary to do between the two businesses. Talking about that complementary footprint, you'll be hearing from both Tyler and George after lunch, and we'll be clearly going and seeing their facilities today.
That complementary footprint is more than just the physical assets, which is a very important part of it, but I believe the two organizations work very well together, and today is a demonstration of that. Very pleased to have... You know, Tyler's here now. George will be here shortly. Mark Sweetman here as well, that's the CFO from SA Recycling. Really pleased to have them to present jointly with us today. I mean, we share everything, from EHS, we are absolutely best practice across the two businesses are shared. Technology, R&D, innovation, we both have different types of technology. We share that technology. We share our trials and tribulations, what's working well, what's not working well. Huge importance and as technology becomes more and more important in the way that we process scrap.
Our go-to sales strategy is coordinated. We, you know, we sell SA Recycling's ferrous scrap globally. We work together in our sales strategy generally. We, between the two of us, we produce a lot of scrap. It makes much more sense to coordinate it together. Our growth strategy is coordinated. When you saw the map on the previous page, that position in the market didn't come by accident. It's a coordinated growth strategy between the two businesses. Our sales diversity. You know, right now, roughly, Sims is 30% domestic, 70% export, you know, give or take a bit. SA Recycling is roughly the opposite, 70% domestic, 30% export.
There is a diversity there, where in varying market positions, that's going to work well for the other, not so well for the other party. That diversity, you know, works well. And location and intake source diversity. We are not reliant across the two businesses on one or a few regions. We have source intake diversity and location diversity across North America. Much more on that this afternoon, but I just thought it was really important to set that, I guess, that overall picture right now. So we'll have much more from John and Rob, specifically on Sims. Much more from George and Tyler. Welcome, George, and specifically on SA Recycling this afternoon. So, as promised, we would leave plenty of time for Q&A. So happy to take Q&A now.
Any of the Sims people feel free to answer as well, and then we'll move on to John's presentation. Simon?
...
... competing against their own customers. You've got the biggies like Nucor, Steel Dynamics, CMC, all with very significant recycling operations. Now, you've got Cleveland-Cliffs moving into scrap, BlueScope, albeit small, has moved into scrap. Can you just explain the difference between then and now for us, and in terms of the capital allocation to ongoing expansion, why you don't end up in the same shitty competitive position that you were in, in 2012?
Sure.
-and 2013?
Yep. So, I think there's two or three things that amongst that. The first thing I would say is that our strategy was export optionality, not necessarily just export, but we wanted to have the option to go export. I think where it became clear that we've got that slightly wrong is that the export optionality was just export. We didn't have instantly the ability to go domestically. So that mea culpa, I think that's a valid point, but it was always about export. It was always about export optionality. What has changed between now and then? I think a number of things.
First of all, Section 232, which effectively, you know, it's a barrier to entry, that the U.S. domestic steel market has that market to itself, and imports of steel have fallen substantially, and the, you know, and the domestic market is the only steel market. Then add on top of that, the stimulus that's happened with the Inflation Reduction Act, and that's not the only act, and a number of other acts under various names that have absolutely stimulated steel-intensive growth in North America. As a result of that, the demand. I'll add one more thing, the intensive building of EAFs over that period of time. So the U.S., I'll get this number slightly wrong, the U.S. is around, you know, 80% EAF production now.
We've got some charts that show what it was, you know, 20, 30 years ago. So you've got a circumstance where it is just very clear, in our view, that for the next decade, I know, once you go beyond two or three years, who, you know, it's, it's who knows what the answer is. That the demand for scrap in the U.S. is strong, it's going to remain, and, and we need to have genuine export optionality, being that we actually can sell domestically as well.
Is it, is it fair to say that Nucor, Cliffs, you know, Steel Dy, they all have exactly the same view on steel? They've been over capacity with D.J. Joseph and OmniSource for years. They'll be absorbing that capacity over time. A lot of the expansions you guys refer to are by these same companies that are integrated back to scrap. So I'm, I'm trying to understand where the competitive advantage you've, you're gonna create domestically will be against these major players who, who own the mills-
Mm-hmm.
and who used to absolutely ream you guys on margin.
Yes. So I guess I don't necessarily view - I don't entirely agree with it. We're going to compete against them. I think we are going to be an important part of their supply chain. And the reason I say that is that the you know, if you look at the demand for scrap in the U.S., you look at the supply that's come out of Canada for a while, that's now going to stay in Canada because they are building EAFs, they're flat out. There is a need, there is a huge need for scrap in the U.S., and we, by definition, will be an important part of Nucor's SDI, which the other companies you mentioned, a huge important part of their supply chain.
I was gonna add, it's also fair to say that we can use our, on social-
Sorry.
We can use our dock infrastructure to feed that network of domestic mill demand.
Yes.
You know, our East Coast assets have the ability to load barges that can be directed into the Southeast. They can be directed into the Gulf, where some of this demand is coming from. I mean, the most efficient way to move scrap is either on barge or in bulk. So we can certainly feed that demand. And there is some areas in the country that are gonna have extremely short positions around scrap.
Where are they specifically?
The Gulf. Rob can-
Yeah, I think what I would add as well is, you know, the misnomer about David Joseph, they don't have scrap processing facilities everywhere. They, in fact, don't have any at their steel mills. They largely were a brokerage or a trading arm, and they're a raw material buyer. So our relationships with them through SA, through Sims as well, they think about raw materials in terms of captive percentages. They never wanna be 100%, but they'll be in a low 20s to maybe even a mid-30s% of their raw materials. And Nucor's taken a tack, they wanna have ore-based metals, so they've invested in HBI and DRI. They have some scrap assets. SDI, to your point, they've got scrap in regions where they don't have steel mills. They don't necessarily have a good balance.
So that's where our relationship and our proximity to their new demand comes into play, and that's where we see that, that relationship and our ability to pivot, but as Stephen says, be a very reliable supply chain partner as well.
Stephen, hi. You mentioned in your guidance that you had sold your scrap cargoes for September, but you still needed to buy a whole bunch of unprocessed scrap, of sorts. Does that mean, and it sounds like it, you've gone from being long scrap of three, four, five years ago to now being short scrap? Is that a change in strategy as well?
No, Simon, so generally speaking, and, and you know, we can only talk, speak in generalities here because it changes any point out. Generally speaking, we sell before we buy. So we tend to be, we tend. And this has probably been the case for the last, at least, John, five to 17 years. Longer. Generally speaking, we are, we sell before we buy, and typically, let's call it in the four to six-week range, and then we, then we build the cargo to meet that, to meet that, to meet that sale. So that, that hasn't changed. We are. Right now, we would be in the typically normal normal position that we are. We've sold, we've finished selling September, and we're now buying the scrap to, to meet those cargoes.
Right. Well, you have sold at higher prices.
Well, at times it does help us, and at times it's neutral, and at times it doesn't help us. I guess what I'm saying is that the caveat... No, not the caveat. The normal thing I wanted to put around the first quarter is we haven't yet bought the scrap that we've sold. If the scrap market weakens over that period, you would expect our margin to widen out a bit to what we were thinking. If the scrap market rises, it would narrow up to what we were thinking. It's not a huge... We don't, we're not in there to take positions, Simon. I wanna make that really, really clear.
We have just traditionally found it easier to be selling what, you know, four to six weeks out before we buy.
It also varies a little bit region to region, depending on our relationship with the domestic consumers.
Yeah.
- in those regions.
Now we've got.
Good morning, everyone. Rohan Gallagher, Jarden. I'm new, so I'm sort of learning on this one, but I see a very successful SA Recycling that earns multiples more than the U.S. businesses of Sims. Has there been any discussions, thoughts, considerations around bringing those two businesses together, and could you articulate to the layman, i.e., me, what the differences are between those two?
Sure. The first question is a little difficult to answer. Has there been serious discussions around bringing those business together? Not in recent times. What are the major differences in my view, and George and Tyler will elaborate this entirely from SA Recycling's point of view, when they give their presentation. I guess, in summary, the major differences between from Sims perspective, and I'll be really interested to hear later this afternoon from George and Tyler.
The major differences from a physical market perspective is SA Recycling buys much more at source slash unprocessed material and shreds a lot more than we do as a result of that, and has wider margins and better margins as a result. Both in the absolute margin on the ferrous side, so if you're you know if you're buying more at source, and when we come to SA Recycling, you'll see substantial more facilities, many more feeder yards than we've got. When you're buying more at source, you have a wider margin because you're cutting out the middleman, and secondly, the more you shred, the more non-ferrous material you are producing, the more zorba you're producing, and making margins on that side. So those...
I mean, that's a rather simplistic, but I think those would be two of the major differences. I think particularly in the last six months of 2023, financial year 2023, we also, in addition, suffered from that. When that export and domestic market separated, you know, we were exporting against a domestic U.S. price that was significantly higher, and our margins contracted as a result of that. Okay, there will be plenty more time for questions. I'll hand over to John now for the next session.
Hi, good afternoon. I think we clocked over into the afternoon, so welcome. I'm happy to be here with you today to give you a brief overview of our North American platform. We're gonna have a closer look at the footprint of our operations and then a slide on safety. Go to the next one. So you can see here we have over 1,700 of the best employees in the metal recycling industry, although I'm sure George will include the SA R employees in there as well. So between the two, we have certainly a lot of the best employees in the industry, working across 59 facilities, which includes 12 shredders operating in 15 states.
You can see here, see if I can get that working, with our sales volume and our sales revenue, fiscal 2017 to fiscal 2023, we've demonstrated our ability to successfully grow that on a compounded annual basis. Focusing our strategies, our growth strategies and investments in capacity, logistics, and product differentiation. The next slide we have here, just a closer look at our, at our footprint, and this was a previous slide that Stephen had up briefly that had SAR facilities in there as well. But as you can see here, our footprint is heavily focused on the U.S. East Coast, particularly in the Northeast of the United States.
This is an area that's dominated by many densely populated population centers with a lot of historical volume of obsolete grades, HMS, P&S, those types of scrap grades, but also a tremendous amount of post-consumer scrap, automobiles, appliances, things that we like to put through our shredders. This area of the country here has traditionally and historically been a net exporter of scrap, and then there's a reason why we have 11 bulk loading docks. A lot of them are really concentrated in this area right here. Despite that, nearly all of our major sites do have the logistical flexibility to ship to the domestic market as well, depending on market conditions, either through, you know, the rail serve sites that we have or the 15 barge serve sites.
Now, the other operations that we have and the other platforms that we have in the United States, they follow a similar demographic trend. We're looking for locations with high population density and/or have been traditional or current high intense steel consuming areas of the country. Our recent acquisitions since 2020, which was our ARG acquisition here in the Baltimore mid-Atlantic area, our Alumisource acquisition in western Pennsylvania and Kentucky, and our Northeast Metal Traders acquisition, are all part of a strategy to grow our sales volume and our scrap volume by diversifying our product portfolio and focusing more on shipping scrap to the domestic market in the case of ARG, and in the case of Alumisource and Northeast Metal Traders, by focusing on serving the increasingly important non-ferrous sector.
The recent acquisition announcement of Baltimore Scrap, which again, is in that mid-Atlantic area, and you can see this kind of going up and down the western flank of our East Coast operations, continues this strategy, adding four shredders and 13 other facilities, providing us with additional shredding capacity, scrap at source, and a turnkey logistical network to serve all markets. The last slide I'm gonna present on is safety. So this is a chart of our total recordable injury rate and numbers from 2017 going to 2023. When we started our safety journey, we had two goals in mind. One, we wanted to change the mindset in our workplace that where we accepted injuries as part of the job, to one that where we actually all believed that all of our employees could go home safely.
And two, we wanted to improve all of our employees' working conditions at all of our facilities. To do this, we invested in systems and safe work procedures, SOPs, and audits, all of which led to meaningful improvements in our injury rates. And while the progress was substantial, this chart here shows seven, starts in 2017, but if we were to go back to 2008 or 2010, you would have seen numbers that would have been double that. You know, injury rates over four or five. So the progress was certainly meaningful, but it certainly started to plateau. And you can see here, we dropped down as low as one point five and kind of, you know, stayed at that level. We started to think about what we could do differently.
So we changed our approach in 2019 and 2020, and we started to focus more on creating an environment where we valued psychological safety. And the idea there was we wanted to get our production employees, and really important is our supervisors, to trust us, that they could really be honest with us about the real risks that existed on the job. When we did that, it allowed us to focus our energy on high-value initiatives like critical control verifications and pedestrian-to-vehicle interactions, which those are the areas that keep us awake at night. Those are the areas that are gonna prevent--that are gonna cause serious, serious injuries. This shift towards psychological safety has shown us that we cannot fix a secret. Therefore, the trust and openness, that's really important, and that we can learn or we can blame, but we cannot do both.
These are easy things to say, easy things to write down, difficult things to put in practice. But I think the evidence is there, and the results are showing, you know, very positive. You can see from 2019 to 2020, we dropped our recordable rate below one. We define world-class as one or below. Kicked up a little bit in 2021, and then the last two years, we've driven them down to the lowest levels ever. We don't rest on our laurels, though. We know that in safety, we're only as good as the work that we put in today, and we're not gonna, we're not gonna slow that down. We're not gonna focus on the lagging indicators that we show here. We're gonna focus on the work that we're putting in every day. So thank you.
As Michael pointed out, good afternoon, everyone. Let me just make sure. So today, between Rob, myself, and Michael Gaylard, we intend to cover what we call our five pillars around our North American Metals growth strategy. I will cover the first three, best-in-class assets, quality differentiation, and large markets. Michael and Rob will pick up the last two, being, sourcing scrap at... Sorry, procuring scrap at source, mostly unprocessed, and obviously, sales optionality or channels to market. That will, that will be the, the topics of the next, half hour period. I get asked this question, I've been asked this question, I don't know, three or four times when I've been doing this presentation: What is our shredder capacity? And I've had a guess at it. Well, I've actually calculated it.
Our actual capacity, sustainable capacity utilization in North America or across our entire shredders, sits at 62%. And why is that important? Because it certainly gives us headroom for growth, and Rob's going to talk a little later about how we can grow our volumes. And as we've talked about, we want to grow our, the levels of unprocessed volumes, and I guess that will invariably end up more feedstock going into our shredders. So it's important to have that headroom, and I'd point out it doesn't come at any further capital expense. That's headroom that exists today. The other bit that I'd comment on is, and, and Stephen mentioned it, we have a, you know. The drive to consume more scrap across all forms of steelmaking means that we are going to need to improve our quality.
The only way we can improve our quality out of our shredders is to shred to a higher density. Shredding to a higher density largely means that you reduce the throughput through your shredders. So we need that headroom to accommodate this need around increased density, and I think that's important, too. And again, that can come without further capital requirements on the back end of our shredders. I thought I'd pick out a couple of what I would call our best-class assets across North American Metals, and I know you're going to visit Terminal Island this afternoon, the SAR business. George and Tyler are very, very proud of that facility. We are extremely proud of this facility. We would describe it best-in-class. It operates what we call a Mega Shredder. This is a 9,000-horsepower unit.
It's at the top end of shredders, it'll be fair to say. With that, we have very sophisticated downstream on the back end to not only extract metals from the waste stream. Stephen mentioned, you know, the opportunity around fines. That's something that I'd have to say that we are working on. There is certainly opportunity in our fines and, quite frankly, I think George would confess to this, that we both have further opportunities around getting, particularly copper, out of some of our waste streams, and we're collectively looking at options around that. In addition to that, we have our zorba separation plants and metal polishing and a whole range of other things to maximize and create value at the back end in what we sell those products at.
I think the really critical thing about our Claremont facility is its optionality. We have barge docks, we have rail infrastructure, we obviously have trucking, and we also have a deep-sea dock. This obviously provides opportunities around inbound scrap. This site services, obviously, the New York-New Jersey area, and providing our suppliers with flexibility about how they get the scrap to us or how we collect it is extremely important. As we mentioned, a very efficient way to move scrap is on water, and particularly on barges, and we do use a lot of barges to transport scrap into our facility at Claremont. On the flip side of that, when we're looking for outbound shipments to our customers, again, providing that flexibility, whether it be on truck, on rail, on barge, or in bulk shipment.
You know, as I mentioned before, we can certainly use our dock facilities to direct product back into domestic markets, you know, via barge or, or potentially, you know, other forms, bigger ships. The other site that I picked as a best-in-class asset is Monessen, and there's a couple of unique things about Monessen. Firstly, Monessen is located about 30 mi south of Pittsburgh, but until we acquired the Sims Alumisource business, I didn't realize how central Pittsburgh is to the greater U.S. Monessen sits in a region, if you draw a 600-mi radius around Monessen, 50% of the U.S. population sits in that 600-mi radius. And I think that's really important when we think about non-ferrous scrap. Non-ferrous scrap will travel.
The value of non-ferrous scrap is such that it will cover the logistics, and having a plant in an area that covers 50% of the population within 600 mi is extremely important to us. Some of the things about the facility, it's 25 acres. It has an enormous amount of undercover area, 7 acres of undercover, which quite frankly provides us with great growth opportunities down the track. Potentially looking at, you know, other forms of processing on-site, whether it be other aluminum products or quite frankly other red metal products, cable granulation, fines extraction, consolidating some of our waste streams. Our Midwest and East Coast shredders also sit within the 600-mi radius. The shredder on the West Coast obviously doesn't.
So the opportunity to consolidate some of our streams from our shredders and direct to a plant like this is a great opportunity for us. The site currently is one of two sites that we acquired as part of Alumisource. What we do on site is we shred aluminum. We have a very sophisticated downstream that will then take that aluminum and sort it into various streams of alloys, whether it be 3X, 6X, 5X. We then polish that product, and then we direct it back into primary aluminum production. So you know, some of our customers are people like Novelis, Hydro, to name a couple... again, directing this product back into primary metal production.
As Stephen mentioned, everyone's talking about increasing recycled content and reducing the reliance on, on, you know, primary production that's centered around ores, in the case of aluminum, bauxite, and stuff like that. Moving to our second pillar, product quality differentiation. I think it's widely acknowledged that steel producers globally contribute about 7% of the world's emissions, and every steelmaker across the world is, quite frankly, being forced to consider efforts around emissions reduction. It's also fair to say that a part of that strategy is certainly scrap, and as Stephen mentioned, you know, the use of, of recycled metal in steelmaking and, and in non-ferrous application is paramount to reducing emissions. If you look at your traditional EAF, whether it be a flat product or a long product producer, big consumers of scrap already.
Obviously, flat product producers have much tighter requirements around chemistry, and, you know, I'll talk about it a little more. To get our scrap, particularly around obsolete grades, to a level where they can consume more of it in flat product production, is certainly where we see the opportunity. Given that prime scrap availability is certainly limited, it is very heavily contested, and the opportunity to do something with our obsolete grades and upgrade them to direct them into what I would call higher value products, such as flat products, is certainly an opportunity. So you got your traditional EAFs that are all looking for scrap. On the left-hand side here, you've got your typical integrated steelmaker, which, you know, is a combination of a blast furnace and a BOF.
As Stephen mentioned, you know, the consumption of scrap in a BOF varies worldwide. You know, I've seen some BOFs with as little as 5% scrap charge, using specifically only go around or home scrap within the plant itself. And as we talked about, you know, you've got consumers like BlueScope pressing the high 20s and aiming to get into the low 30s. I think we worked out, Rob, that about 1.4 billion tons of steel is currently made through integrated steelmaking. A 1% increase in scrap being directed into a BOF represents 14 million extra tons of scrap that gets consumed. Just the math around it and the opportunity here is huge. And every one of these integrated steelmakers are under pressure to reduce emissions.
Obviously, some will go down the path of eventually transitioning to EAF technology. Others, you know, have got their blast furnaces that are at a life cycle they're looking to migrate over time because of the inherent investment they've got, and quite frankly, some, you know, are still considering the technology options that are out there and whether they use hydrogen or other forms of energy to reduce carbon emission. The interesting one is the one on the left, blast furnaces. And this is something that we have been working on, the opportunity to actually introduce scrap directly into the blast furnace. Again, they need very clean chemistry because it is typically going into flat product production, but you need to get the scrap into the furnace using the traditional conveying means.
So however they charge it with iron ore or coking coal, that's the same means by which you need to get scrap into the furnace, and that comes with some challenges. So for them, it's all about form, density, shape, size, and lastly, chemistry. Across the spectrum of steelmaking, every one of them is looking to increase scrap. Every one of them, with the exception of long product, yes, long product production, needs higher quality scrap. And as I said, there is limited quantities of prime scrap. The obvious opportunity exists around upgrading our obsolete grades. So how do we capitalize on that demand that's here now and only going to increase? So we've done lots of trials, and we've certainly confirmed that we can do it. It does come with a mix of things.
It starts with, obviously, inbound source control, and eliminating some types of scrap that are problematic downstream. But secondly, as we've talked about before, shredding to a higher density so that firstly, you can liberate the contaminants, whether they be non-metallics or forms of non-ferrous, typically copper, is absolutely a necessity. The simple reality is, if you don't liberate it from the ferrous, you can't extract it, and it'll end up going in the furnace, and you won't achieve, you know, the sort of chemistries that the steelmaker is looking for. So on the back end of that, once you liberate it, then you need technology to then extract it. And our trials suggest that it will be a mix of off-the-shelf technology, and we've done some pretty clever things around some proprietary technology on our back end.
Lastly, you know, when you're introducing scrap into what I would call higher end steel producers, flat product producers, they want to have absolute confidence that what you're giving them is within specification. So there needs to be a QA process right throughout this whole exercise so that you can pretty much guarantee what the chemistry is gonna be. And we're also doing some work around that, about how we can guarantee the outputs. Pretty much talked about the benefits to customers. You know, one of the big benefits also of shredding to a higher density, every electric arc furnace, you go and talk to the steelmaker, that's all about tap-to-tap time. So the higher the density, the more scrap they can fit in that basket and the quicker they can get their tap-to-tap time. So there's a double benefit for them.
As long, you know, if you remove non-metallics, their yields go up, you remove the, non-ferrous contaminants, the chemistry improves, they can introduce more scrap. So, the product on the left is sub-20 copper parts per million, something that we thought maybe 12 months ago might be achievable. We've confirmed we can do it. We actually have a couple of shredders now that are generating this product in commercial quantities. Rob's actually in recent weeks has actually sold some sizable quantities to a couple of consumers that are desperately looking for product like this. They want to understand it, and they want to know more about it. And they, you know, the feedback we're getting is the demand for this could be very significant. The product on the right is really interesting.
We have done some small quantity pilot trials of actually generating sub-10, and at sub-10, you're pretty much getting to the same sort of chemistry that you... what you would see from absolute prime scrap, new production scrap. This is something that I think, you know, as we talked about, if we're going to introduce scrap into integrated steelmaking, to a blast furnace, this is absolutely ideal. The form, the shape, the size, the chemistry, all fits. And it could have absolute widespread appeal. The downside is you've got to shred to an extremely high density that comes with a lot of cost, and the price premium has got to be there to support that.
Same with both, in fact, you know, at the end of the day, you're investing more energy, you're using more consumables, you're putting more technology on your shredders, not that the capital investments that great, but it all comes at cost, and there needs to be a price premium to support that. Just touching on a couple of non-ferrous products, and Stephen mentioned Northeast Metal Traders. It's very much a copper-focused business, but they do operate a granulator, and they do something really clever with their copper granules. They actually have a sampling process that involves a mechanical sampler. Each and every box, 1-ton box of product that comes out of this plant is sampled. They actually cast a puck.
They then put that across the spectrometer, and they can actually certify the quality and the specification, the chemistry of each individual box. And that product is going directly back into very high-end copper consumers that are looking to replace the use of copper cathode with that. The product on the right, we've talked a little bit about Sims Alumisource. The product on the right is 6X polished extrusions, and as we talked about, the opportunity for that, not opportunity, it's a reality, going back into aluminum billet production, going back into the manufacture of 6063 extrusion or 6061 exists today. And, and, and again, the appeal of this is, if you look at it, it's very low impurities, yields, fantastic. They can be very confident feeding that into their furnace without explosion risk.
Every, you talk about people like Hydro and Novelis, they're all talking about increased recycled content. That's the sort of product they want to introduce into their furnace. Touching on the third pillar that I thought that I will cover, and then I'll hand over to Rob and Michael, is large markets, and I think Michael mentioned this. Big cities are big generators of scrap, particularly post-consumer scrap. Car bodies, white goods, appliances, packaging, you name it, people generate scrap. And I think what's important about this particular map is, if you have a look at it between ourselves and SAR, we've got a lot of these large markets currently covered. But what I would highlight even further is there's still plenty of opportunities for both our organization to grow our business in other regions. Thank you. Q&A.
Michael, did you want to join me?
Sure.
Simon?
Sure. Can we just talk really quickly about transaction multiples for, for, for M&A, domestically, you know, in, in the U.S.? Given there is a growing, growing importance for scrap, and, and notwithstanding, I'm sure George will tell us later, it's about how important the relationships are to get those, that M&A through. But are transaction multiples expanding in response to this, you know, growing importance for, for scrap in, in terms of feeder yards or dealers, et cetera?
That's not been our recent experience, and I take your point. It takes two willing parties, and that tends to get bound up in cycles, whether you're at the top of the cycle, the bottom of the cycle, or where in that sort of multiple period that you're talking about, but it does take a willing participant. And I'm sure SAR, George, and Tyler will comment. It takes two to tango.
Yeah.
But the other consideration for a lot of businesses is the lack of succession. You know, the business that, you know, that we're looking at acquiring, Baltimore-
Mm-hmm.
There's four brothers in that business. They are all in their late, mid- to late 60s and 70s, and they have no succession. So some of that is simply their need to do something with their business they don't have a logical hand on. So that also forms part of their thinking.
Yeah, no, that's very helpful. Then just in terms of the processing capabilities for scrap, the whole industry is moving to higher density, lower impurity. I don't know what percentage of the market you're currently servicing in flat versus long. I'd be interested to know whether that is genuinely a growth avenue for NAM or for SAR. But the technologies that we're talking about exist already, as I understand it?
To get to sub-20, yes. But as I said, it will be a mix of some bolt-on OEM technology. But then you still need to do some of the other things, inbound source control, shred to higher density-
Sure.
and there's some proprietary stuff on the back end. If you really want to certify sub-20, it, it's quite a complicated process, and quite frankly, we're leading in this process. And if we're talking sub-10, we are really leading in this process.
Yeah. Maybe Steve can tell me more about what the other... what the integrators are doing in that with their own scrap, those that do process, appreciating that Nucor isn't processing. Certainly, you know, BlueScope, with their acquisition, they're processing, they're running, looking to be 40% self-sufficient. As you said, John, push the scrap charge up, you know-
Rob, Rob, did you want to comment on-
Rob, sorry.
Yeah, I guess what I would tell you is on the North American front, let's consider that as USMCA. It's a 120 million ton market. I would say 35 million is long products, roughly. That includes non-vacuum degassed SBQ, which isn't that high quality. In terms of how we service that market, I think George's, George and Tyler's business is, as John said, about 70%, and we are about 30%. You know, collectively, I would say, and this is just a number I know off the top of my head from a recent visit, we're approximately on a Nucor basis, 10%-12% of their raw material in-feed at this point in time. So we're already significant in certain regions where we have proximity.
I think that's been the MO for the SA folks, and they're going where the growth is. We've been coastal bound for the moment, but we're looking at expanding, and we're looking at modes to get to market as well, so. What John's describing here is taking quality to the next level because we do believe we're going to have to take a heterogeneous metallurgical product, an obsolete product, and try and create a solution for a customer that has a need. So...
John, Alumisource, what does its feedstock look like? Where does it get it from?
The feedstock for Alumisource is typically retail aluminum, largely, largely sheet grades, so things like taint/tabor or old sheet, which traditionally goes into a secondary market. I think the really unique thing about Alumisource is being able to take that product, separate the alloys, get a chemistry that's acceptable to a consumer, that then redirect that product back into a primary market, as opposed to a secondary market that would traditionally go into something like what they call in America, A380 or ADC-12. So it's really unique.
And those alloys that they separate, what are they?
Sorry?
The alloys that they separate from aluminum, what are they?
So, we will get a 3X product, a 3000 series aluminum. We'll get a 5000 series aluminum, and we'll get a 6000 series aluminum. And each of those have very unique applications. 3000 series will go back into can manufacturing, as an example, UBCs, beverage cans. 5000 series will go back into more structural plate sort of opportunities and sheet. 6000 series will go back into extrusion, which will go into window frames, door frames, things like that. So each has a very unique application. The value to the customer, other than the recycled content, is you've got those alloying elements that they would if they bought primary aluminum, they would then have to add alloying elements to get to the specification they need.
The scrap that we're giving them has all that intrinsically in it. Thank you.
Just a quick follow-up question on that one, just and maybe George will touch on this later, but in terms of decisions around territories, because that Midwest expansion by SAR has been pretty significant over the last 15 years. You know, and if I overlay your map on page 40 of the slide pack, where the demand is to where your presence is, you seem pretty well covered, acknowledging that not every pin represents the capacity in that market, so I accept that. But where is the growth? Texas looks obvious, the Gulf looks obvious, but how do you decide between SAR and North America as to who goes where? How is that decision made, or how is that agreement struck?
So I mean, I guess it started off with a base position and an agreement on that base position where areas we were in together right from the start. And from then, it's just frankly about working together. We have a strong relationship, and we figure it out. When we go through the governance structure, you'll see the board structure of SAR is four Sims, four Adams Family, and we work it out.
I think, I mean, I guess what you would take from that is the proof of the pudding is in the eating, and it's. We've ended up with, I think, a very logical separation or very logical structure within North America on the map that you've seen. So it's a bit of historically where it started and just working sensibly together since then.
I think a good example of that is we recently had a transfer to facility, Odessa, Texas, that quite frankly, fitted better with SAR , George and Tyler's business than what it did with ours, and we actually moved that asset out of our books into George's books. For that reason, there was more synergies within his footprint than was in ours.
Did he go on the other one?
Houston. You're right, Lopez. So, yes. Thank you, Mark.
Sorry, is there a casting vote, like if you both decide you love an area?
How do you... I mean, you guys are North America, 100% of that and 50% of the JV. Who has the casting vote?
I think frankly, it's never come to a casting vote. It's a sensible way of discussion, and I think again from this it's worked. I mean, I don't, I'm not sure casting vote would-
I'm just wondering, is there a differentiation in the capabilities that determines the territory? I mean, is it because it's got a better non-ferrous, you know-
I mean, all of those are relevant.
So let me just take this as a correct, I-
Here's the SAR perspective, yeah.
George Adams, guys. So look, it's a big country. There's a lot of places to go, right? Legally, the way our joint venture is, is Arizona, California is the territory, right? So my family can invest in those, or Sims can invest in those. But SA can, right? 'Cause that is the joint venture territory when we formed it. Outside of that territory, there's no restriction on SA. If SA wanted to go to San Francisco and open up a yard, right? I mean, it's not legally prevented from doing that. But the fact of the matter is that Sims is our partner. They're a really good partner. There's a huge country. There's 1 million scrap yards to buy in the South, and there's no reason for us to go into their territory and try to compete against our partner. It just doesn't make sense.
But there's no legal restriction from stopping us to do it. And you know, Baltimore Scrap, the guys at Baltimore Scrap, you know, I know them. They called me, and I referred them to Sims, right? Because for me to go to my board, which is half Sims, but to say, "Hey, well, let's go. SA wants to go buy a scrap yard right in your backyard," it doesn't make sense. Now we're competing against each other. And trust me, there's a lot of scrap yards to buy in the South that I can buy that don't have to compete against Sims. And I think that's really the way it is. It's not a question of casting a vote because it's a 50/50 vote, but it's just really more a question of what's logical.
So for us, you know, there's plenty of places for it to grow where we don't fight our partner.
So George, why is North America not on the back of locations? It just seems unusual but-
In Oklahoma?
Yeah.
If you know, there's nothing against us going to Oklahoma. We just really haven't got there. You know, we tend to grow by a region, right? You know, we'll go to an area, and we like to grow in that region. We'll buy, we'll establish a beachhead, and then we'll grow from that beachhead and buy more yards around there, and get more mass. And so, no one's really offered me something in Oklahoma, and a lot of it comes along, people approach us, you know, for because they want to sell their business. When we decided to move into the Georgia region, you know, we were approached by the Newell family, and then we go to work on, you know, on doing something like that. Obviously, something has to be available for sale.
Some of it is very strategic for us. We want to go there, and because it's in between our territories or something like that, then it really makes a lot of sense, or it's competing against us in regions. Like we really wanted to go to Nashville because it was competing against our other businesses, and the same as in Birmingham. You know, so some stuff is strategic for us. We'll try to move in there because it's affecting our other businesses. But the answer to the earliest question as far as you know, how we go, there's just things that make more sense. Like I said, it's a big country.
It doesn't mean in five, six years, you know, we run out of places to buy in the South, and we've got to have a discussion, but it's a long ways away. We don't need to worry about it right now.
Sorry, we have to move on to the next presentation.
Thank you.
We are a bit behind now.
Okay. Is that working okay? Yeah. Yeah, as John, John explained earlier, he and I and Michael Gaylard will join me shortly, after the first pillar. I'll talk to you a little bit about the unprocessed side of things, why we see that as a necessary step in kind of the journey and our strategy, adding value and better utilization of our already invested assets. And then we'll talk a little bit about the channels to market, that optionality, the pivot potentially, not an abandonment, but a pivot to better markets. As Simon mentioned earlier, when do we make the decision or how do we make that decision to have a fixed price backlog versus more of a spot price marketplace here in the United States and in Canada?
So, current situation, I think, suffice it to say, we've done the analysis. We've done this globally. We have to continue to do this on our existing situation that we have in terms of our asset utilization. That's incumbent upon management to continually do this, and look at what our current position is versus competitors, what value proposition we might have versus somebody else in that marketplace. And it's come to light that we have an imbalance, if you will, of how we buy scrap in certain regions. And that chart on the right is meant to be vague.
That is our, sort of our look at our global shredding situation on how many feeder yards or captive scrap, just as we talk about steel mills having a certain percentage of raw material and a balance that they would have going forward into their, into their process, we wanna have a certain percentage of guaranteed, secured material to go, go into our processing equipment as well. So looking at the current situation and then improving upon that, and I'll get into how we're gonna do that, obviously, a little bit, little bit more. At the same time, this isn't a, a market share war. This is solidifying the relationships we have in those geographic presences, those, those JV partners that are informal, those people that we have relationships with.
We're going to allow them to continue to be great, valuable suppliers, but we're gonna go to regions and pockets inside of a market where perhaps somebody's pulling material away from us. We need to have that material to fill John's capacity, Michael's capacity with our shredders. So a rebalancing through acquisitions, potentially. These are gonna be smaller, very regional acquisitions around our equipment, whether it's granulator, shears, or shredders. Greenfield, potentially. A little tougher. You know, you've not only have to get the permits, as we've discussed with some of you earlier, but you gotta go and fight for that market share. You have to. It's a long, tenuous journey where there is not gonna be a lot of return for a little while.
So there's a combination of a buy, a potential organic growth as well on top of this as well, where we just need to do things a little bit more difficult, but roll up your sleeves and try a little harder. At the end of the day, asset utilization of our shredders, our MRPs, and shears, and profitability as well. A little bit more reliable balance at our locations. So there is a standardized process that we've rolled out in 2024, FY 2024. It is very holistic. It isn't just about the utilization or process, but it's a framework, if you will, that we will push through the organization to look at our regional, our country, our national, and then regional differences.
How are we gonna go to market with our sales, but also at our buy side as well? Develop those regional roadmaps with sourcing plans, optimization plans, collaboration with operational excellence, KPIs and goals, push through monthly targets and tie it to annual budgets. At the end of the day, it prioritizes our resources, our talents, and our CapEx, and at the same time, optimizing asset utilization with unprocessed material. The name of the game in the unprocessed material is to take, again, going into the metallurgy side, to take a heterogeneous product and upgrade it to a usable solution for an end user or consumer, whether it's in the aluminum space, the copper space, or the ferrous steel-making side.
At the end of the day, improving customer service and profitability. So the bottom chart is one of our regions of how we buy scrap today. Obviously, there'll be goals by region on how we wanna move the needle for those regions, depending on the opportunity there. An example here for you is a recent JV that we did in, on the West Coast here, where we partnered with an auto dismantler, Planet Auto, we acquired eight sites where we actually buy car bodies, end-of-life car bodies that we put on a rack, depollute, pull off some valuable products that we wouldn't recover in our recovery systems, such as catalytic converters. The idea here... And you can see some of the locations in red.
The idea here is that we guarantee the reliability of the source of material going into our shredder, giving us a base load, but it also guarantees sort of that we maximize the yield of product, of FE, ferrous, and also the non-ferrous recovery as well. In the U.S., scrap is bought somewhat on a calendar basis, so the domestic steel mills buy scrap on the first week of the month. The challenge with that is, as you're negotiating in that first week of the month, depending on how complicated the market may be, you'll lose an entire week of material coming into your yards.
With your own internal scrap, that scrap comes in every single day, whether it's the first day of the month, the last day of the month, a Monday or a Friday, you have a guaranteed stabilized input coming into your shredder, very helpful for efficiency and productivity as well. So, just an example here, and then not to overkill the Baltimore Scrap, but very much in line with what we're talking about. You can see the four shredders denoted from Upstate New York all the way down into the Virginia region, Baltimore, and Pennsylvania. They have 17 locations, one MRP, 12 feeder yards. Very much like our, our SA Recycling Group, hub and spoke. Shredders with a certain percentage of in-feed that allows, them to run on a more stable basis.
It's not 100%, but it's a percentage based on regional market share, based on regional competitiveness, rather. You can see around 600,000 tons on an annual basis. We do see, very complementary to the Sims Metal, a nice flank of insulation, if you will. And we absolutely think we can learn from them as they can learn from us. There's some non-ferrous residue that we think we can teach them, but at the same time, we also think there's a lift in the retail non-ferrous and ferrous unprocessed material. With that, I'm going to introduce you to Michael. I think Stephen did a great job introducing his background.
Michael is the Global Head of Ferrous Trading, and he's going to talk to you a little bit about ferrous go-to-market.
Thanks, Rob. Good afternoon, everyone. What we are seeing and what has been spoken to a lot by both Stephen, Rob, John, and Michael so far today is, yeah, the evolution of the scrap market as we go through this decarbonization phase that we're having to implement globally at the moment. So what we're seeing just here in NAM, obviously, we've talked about a transition towards EAF. Certainly since 2020, there's been an acceleration, continuing new plants coming to market, increasing demand all the way out through to 2028, and only yesterday, an additional plant announced for construction in Mexico as part of DEACERO to increase and complement their already existing plan. What that will do, obviously continue to disrupt markets within NAM and increase competition for tons across the board.
So for Sims, on a trading basis, for ferrous, what we have to understand is how this demand, and both geographically and also here in NAM, is going to affect and disrupt existing trading patterns that exist and have been in place for many, many years to this point. So pathways to market. Sims has an extensive international network of customers that we're consistently moving material to, whether it's in bulk, whether it's containers, and from our multiple regions around the world, whether that's A.N.Z., U.K., or North America. So one thing that's been important to us is capturing that data as we see it live day to day, and how we can respond and react to it more quickly. And that could be, yeah, looking at how we pivot between different channels to market.
U.K., for example, right now, we have pivoted away from bulk, which has been consistently a market there for the previous few years as that Turkish market and other local short sea markets have provided a better FOB value for the business. Within a six-week period, we've basically turned the business and pivoted towards virtually all containerized movement of ferrous scrap, whether that be busheling material, shredded material, HMS material. So the business, and with strong communication with the operations department, have managed to pivot away from bulk traditionally and into the containers to basically maximize the available value and margin that there is for Sims.
Having that optionality, understanding where that pricing is, getting that feedback from our agents, from our customers globally, and being able to respond to that, is very important to how Sims now go forward in, you know, what is a changing environment and moving away from the historical patterns that we've seen. So understanding net sales ops optimization, but also then working closely with our operations team, with John's team, with Michael's team, with the other teams in A.N.Z. and U.K., to be able to maximize that. You know, we can't pivot all our tons into what might be the best. Operationally, what do we have available? How much can we do from this area by barge? How much could we do via containers?
Understanding that will help us grow that business and be more reactive to very much dynamic pricing that we're seeing globally now within the recycled steel markets. Understanding for us the tools that are available. Consistently, we are seeing an evolution in the recycled steel markets, whether it's futures and options pricing, whether it's index pricing. Yeah, how we use these, can they complement our business? Can we use them? Are they just informational aspects for us, or are they tools that we can actually bring into our portfolio and utilize to best manage our execution and our exposure to these markets as we move forward.
Then lastly, I don't want to overplay Baltimore, but Baltimore fits very nicely into what we're talking about here of sales optimization, pivoting, being able to look at bulk export, being able to feed the domestic market, looking at containerized projects. All of these things are currently captured within the Baltimore Scrap. And so this will be a very strong complement to an existing ferrous trading business and how we're going to adapt to the markets that we're currently facing. I think one thing that I'd also want to point out is that we looked at the previous pathways to market. A lot of material and flow here points away from the U.S.
There's nothing to suggest that we can't actually use our bulk infrastructure to bring material back into the U.S., to feed that demand that we see is likely to come. Can we bring material back from Europe? We already do. Can we expand that, and how can we use our existing networks to maybe re-engineer, in a small way, those flows that we're seeing out of the U.S. back into the U.S. to complement the demand? And that's something that Sims are very well positioned to be able to do. I'll pass back over to Rob.
Yeah, what I would, I'll, I'll just finalize here with the, the non-ferrous pathways to market. John, John already, already spoke a lot about the, Alumisource business, but, and Stephen spoke about our customers' customers. So, going back to 2018, Section 232 comes into play, and not only does it and we talk a lot about the steel business and how that's grown, that reinvestment in the EAF production and, and so on, and that, that end-use demand. The same is very apparent in the aluminum side as well, and, and the, and the copper side. Roughly 2 million tons of new aluminum melting capacity has been announced in the United States, and this is sort of the, the customer's customer, if you will.
Since 2022, you can see $150 billion in private investment in 47 new facilities, really in the electrification side of the industry. 27 solar panel and cell manufacturing facilities coming to the United States, again, largely east of the Mississippi, 10 new battery manufacturing plants and 10 wind power manufacturing plants. Stephen mentioned the Inflation Reduction Act and the infrastructure bill in general. You can, you can read what you can see there on the EV manufacturing side, $2 billion in grants and $3 billion in loans, the power grid, $74 billion, clean energy financing, and so on and so on. So this is that end-use demand that's beyond the melting capacity that we serve, the raw material side. So we like this space.
We like where it's going to be in the midterm and really right now. If you look at clean technology in general, and we alluded to this early in the presentation, but you know, internal combustion engine usage of copper and aluminum, when you look at a battery electric vehicle, you can see on the aluminum side it's twofold, and on the copper side, it's fourfold. So as more and more of the sales continue and the manufacturing process goes towards of electrification of vehicles, you can see the kilograms per unit or kilograms per car. That on the back of all of the steel demand to build those facilities is a quite nice look into the future. Same with renewable energy versus a more dirty coal and gas.
You can see the multiples of metal intensity and demand are absolutely there. So, Alumisource, and somebody asked: How does scrap get bought? And really, not to get into all the grade one kind of what happens in scrap, but largely, if we think about dealers or peddlers, ABCDs, there's various degrees from people that come into our facilities and SA's facilities as well, with pickup trucks or even shopping carts, if you will, at the lowest sort of denominator level, right up to very sophisticated scrap dealers that have their own shredders and so on and so forth. Or we're buying scrap from a manufacturing process, their waste, their recycling.
So as we think about scrap generation and how we fit into the value chain, this is the origination, and somebody has to go out and collect that scrap, as Stephen said. We have largely served here as an aggregator, so we are buying bigger lots and to some degree, a small amount of processing, largely just to facilitate logistics at the end of the day, and we can move non-ferrous a lot further than we can ferrous because of the value, obviously. Where Alumisource puts us is into this category. We're actually preparing a homogeneous, ready product to go into a furnace.
As John mentioned, whether it's a 3,000 or a 5 or 6,000 grade, we're also now getting into remelted secondary ingot as well in a very small way, but it- it's part of the solution of raw materials for those end users as well, and we like the position that that puts us in. So very, very much a little bit further along the value chain... providing the competitive advantage. It does provide that innovation side, a barrier to entry, but it also, you know, as we get further and further along and closer to solving solutions for end users, some more profitability there as well. It is a very customer-centric focus on the value and use, on, on what the customer is able to put into their furnace, and as we say, it's a homogeneous raw material product.
Alumisource does provide us with a strategically, well-located two facilities really in a good demand area right now, but also for recently new demand areas that are gonna be expanding as well. That's it. So if there's any questions for Michael or I?
Of course. Sorry, Rob, can I go back to Michael, to slide 40? Just the top left. Now, call me old-fashioned, but I'm looking at the export from the U.S.A. going into pretty rapid decline through 2023 and accelerating into 2024 and going down in 2025. Is this... and I appreciate the growth in domestic scrap consumption, but it is this sort of like a sense of urgency, given where NAM is positioned on export tonnes? 'Cause that graph, to me, looks sort of concerning, but maybe I'm overreaching.
As people look at it as a risk, I look at it as an opportunity. It's a customer that needs a product, and we have the product. As I said earlier, steel mills and my background, Simon, is steel mills for 25 years. Can't and won't do it all themselves. Stephen Mikkelsen and I are, you know, just recently back from a very prominent producer in the United States. We have an excellent relationship, and they're looking to expand. That's the math. Does it play out that way? I don't know. You know, supply elasticity, and we talk a lot about this in our meeting rooms, will bring out more scrap. How quickly you and I dispose of our fridges and stoves and car bodies, that all plays into how much is gonna be left.
The reality is, and I think this chart here on the far right tells you, when John speaks about BOFs utilizing 5%-25% scrap, these guys use, let's say, 85%-90%. Some of the flat rolled producers are probably more in the 75% when they use their pig iron and DRI. But as we add that capacity, and to your point, those are publicly announced capacity additions. That's a four-year average of what the U.S. exports, 13.5-14 million tonnes. In 2024-2025, there's a 10 million tonne spike in the EAF production, and that's before we even talked about the DEACERO announcement. So there's a massive demand coming.
There's a massive demand coming because there's a massive demand of infrastructure demand, and that is going to add the need for melted and poured steel in the United States because that's the only steel that can go into those projects.
That's super helpful. Maybe Michael, you made a comment that the U.K.'s pivoted away from bulk, 100% containerized. Maybe this is part of a two-part question. What markets have you pivoted to that are taking containerized scrap? I mean, we know Taiwan takes a lot, but I'm trying to think about it from the U.K. perspective. And secondly, just more broadly in terms of end market demands for seaborne ferrous. I mean, the, you know, Turkey is buying billet from Russia. Could probably do that for as long as it likes, given the excess of billet that's you know, being produced in Russia. But we've seen Bangladesh and India really ramp up in terms of demand. So how, how do you see the sort of evolution of, of, of the end markets for, for exports? Is the second question.
The first one is, where is the U.K. pivoted to? Thank you.
Yeah. So from a U.K. perspective, it's not 100% into containers. We're probably around 75%-80% into containers, having been less than 10. The end-use markets for those at the moment would be India, would be Bangladesh, would be Pakistan. They're the main receivers of containerized scrap. From the Indian perspective, we saw a very strong spike middle of last year, where they bought, yeah, upwards of 25-30 bulk cargos. And I think the experience they had on the receiving end for those cargos was a challenge. They weren't used to receiving bulk, and their inland logistics became complicated. So what they have done, they've gone back to buying more containerized material because it's what they know, it's easier to handle.
And post-COVID, we've seen the availability of containers and the actual freight rate for containers drop considerably. So that ability then for them to receive an increased amount of scrap via the mode that they're more comfortable with has led to an increase in purchases by, by those countries. So Bangladesh also, as I say, will buy containerized scrap in volume. Pakistan and India are the main sort of avenues for that material, and that covers both Europe and the U.K. So, you know, there will be other parts and other suppliers that will be pivoting in a similar direction.
The growth, how do you see the map changing over time?
Yeah, I mean, I think that map, it, it's going to, it's going to constantly evolve and ebb and flow depending on, domestic scenarios. Turkey, at the moment, yeah, they have, moved back down from probably a close to 80% capacity utilization down to maybe around 60%, where they are at the moment. So they may be down 15%-20% in terms of arrivals of bulk vessels on a monthly basis. That's allowed the capacity to go towards India and Pakistan. I wouldn't be surprised if that turns its way back around in the next three to four months, and we see a pivot back towards the bulk aspect. But for us, what's important is trying to recognize and see those as they're making that transition so that we can get ahead of the change.
You know, managing our internal data and managing the data that we see come back from our end user markets is what's gonna be really important for us to take advantage of this volatility that's becoming more and more present in the market.
Can I just ask a little follow-up just on that specific point? It was one of my questions, and we've talked about, and I know Simon raised it earlier. But if you're selling tons before you're buying tons, I presume you're knowing the source of those tons, you know, that becomes pretty important as well as you're filling a cargo. So how is your visibility in terms of forward planning to knowing where your scrap purchases are coming from, to fill those orders?
Yeah, I mean, the scrap purchase aspect of Sims, whether it be NAM or whether U.K., has been fairly consistent over a period of time, and what we receive into yards and how we receive that into yards. Yet, if we look at how we're going to forecast a month or two ahead, there is... We can look back at the previous three, four, five, six months and understand what those trends are going to look like. Obviously, we've been impacted in the last couple of months. Flows have become slower, and so encouraging tons has become a little bit more difficult. And so working with our buy side, we've then had to adjust what our sales program might look like to take into account what we're hearing back from the commercial buy team on the ground. What's available?
You know, what's available in others' supply stockyards, is that gonna come? Are they holding back tons? Are they anticipating a rise? Is our decrease in flow due to their expectation that the market is probably gonna have a jump in the next four to six weeks, so there's actually material being held that will be released at some point? So also understanding from the commercial buy team, what they're seeing and how they're feeling the market will help us adjust our sales strategy.
Well, I'll add, you know, the process is we've implemented S&OP, so sales and operations planning. We have a 60-day view forward constantly, where we're working not only with operations on making sure that they have the capacity, they're not in a maintenance outage, but we're also working with finance to make sure that we're buying and selling to the cash flow requirements of the company, and the working capital targets are where they need to be on a 30-day and a 60-day basis. So that's a process that we've put in place in the last four to six months then.
Does the ERP, maybe, Stephen, you can talk to this? Has the ERP implementation have any role in this? Is this part of this process? I mean, we went to great lengths to talk about the ERP component.
Yeah, no, that particular one, Rob was talking about, the ERP doesn't play a huge role in it. That is around, that's around straight communication between the buy and the, and the sell. So short answer to is no to that.
So what's the ERP do?
So the ERP is around inventory management, around the general edge of financials, the relationship between inventory and cash flow. That's where the ERP is helping us out.
Sorry, just a quick question on this pivot in the U.K. Is that unique to Sims, or has EMR also shifted to containerized?
I would expect that they have also pivoted to containerized, as have other suppliers, I would imagine. What we are or what we haven't seen yet is, capacity from container lines being used up so that we aren't available to continue, or we're not seeing increases in container pricing. So I would suggest that not everybody has moved in that direction yet, because we would start to see a reaction from the shipping lines if there was suddenly a huge volume of boxes come to the market that there wasn't previously. So yes, I would expect that others are seeing similar price dynamics. Quite how they've responded to it, not quite sure, but to this point, we're not seeing, the availability of containers or freight pricing on containerized push and spike to then, you know, bring that back into line.
Okay. But Sims' U.K. operations are more suitable to less bulky bulk than, say, EMR's, right? Given the size of the ports, et cetera.
In theory, yes. The draft availability for us at our deep water bulk ports is not what is there for EMR, correct. But at the end of the day, if you're seeing a $20, $25, $30 premium for putting it in containers, you're not going to continue down one avenue. You are going to pivot to take advantage.
Yeah. Okay. Thanks.
Sorry, we need to stop here and break for lunch. Lunch will be served in the hallway, and if we could all get back here five to two, please.
... Testing. You guys hear me all right? How's that? Everybody hear me? Yeah. Perfect. We ready?
Thanks, Tyler. Okay.
All right. Good afternoon, everybody. My name is Tyler Adams. I'm the Chief Operating Officer at SA Recycling. I have here my father, George. George Adams. Would you like to introduce yourself?
Uh.
Yeah.
But yes, as I said earlier, I'm George Adams, and I actually have, as I tell people all the time, I am the luckiest person in the whole world because I've had the great fortune to have, you know, an amazing family, from my parents to my siblings, in the transition, to my sons. You know, Tyler's here, but I've got two other sons that are working in the business also, and then, you know, amazing employees. As was said earlier, we would argue who has the best employees, right? But we'll just agree that us and Sims have the best employees.
But we have amazing people, and so I tell people all the time, I'm the luckiest person in the whole world. So anyway, with that, I'll let you.
All right. So we'll get into a little bit of detail about, you know, who we are and what SA Recycling is. Here's just a little bit about our board members as well as our upper management. As we discussed earlier, you know, four board members from the Sims side, four from the Adams Steel side. Our executive team below, my father, George, myself, Mark Sweetman, our CFO, as well as Terry Adams, who was going to be here. But anyways, our Executive Vice President, as well as one of our board members. Just a little bit on just the collaboration and the general marketplace between SA Recycling and NAM. We've already talked a lot about many of the synergies and the participation and the cooperation that we have here in North America.
Obviously, there's the Sims Global Trade aspect. All of our ferrous metals are traded via Sims Global. That's been an excellent working relationship now since our inception. It really gives us one voice in the marketplace. All of our containerized shipments, our bulk shipments, all are done through Sims, and it's really been, I think, a great strategy for both partners here. On the non-ferrous side, you know, it's a little bit more of a collaborative effort. You know, we have our non-ferrous trading team. Much of those metal units are still traded through Sims and through their global network of traders and representation throughout the world. But we also have our own trading team, and again, there's a lot of collaboration between the two teams.
We also mentioned on the EHS side, obviously, safety and environmental standards. You know, we're constantly collaborating on that. And then, lastly, just, we had also mentioned the Odessa and the Houston swap, and we got into a little bit of a discussion in terms of how, you know, we, we manage through various acquisition strategies. And that was just one good example of us really optimizing our assets and, and, and making sure that, you know, we're, we're really geographically aligned. So, SA Recycling has over 3,000 employees. I think we're up to 3,300-3,400 now. We're operating in about 16 states, 24 shredders across the United States, and about 130 facilities. You know, further within that, we have, you know, over 40 non-ferrous baling operations.
So, much of our acquisitions and our growth have really been focused around non-ferrous growth, processing capacity, and more grades than just shredding and unprocessed ferrous grades. So, really kind of trying to diversify, you know, the capacity in which we can process non-ferrous metals and as well as ferrous grades. Uh-oh! This thing's a little touchy here. Hold on. Let's go. Okay, so there's been a lot of comments, questions about, you know, maybe some of our growth. And you know, here's the last, you know, seven or eight years or so of acquisitions. 20 acquisitions since 2017, really in a wide geography. We jumped from the West Coast and being predominantly a Southwest U.S.-based operation, with the acquisition of Newell Recycling in Atlanta, Georgia.
That really gave us a stronghold in the Southeast marketplace that I would say catalyzed much of our growth throughout the Southeast. We're arguably as large throughout the Southeast as we are now in the West Coast. And really, that was a result of that, you know, prime footprint that we were able to establish there. From there, you know, there's just been pretty much rapid acquisition growth throughout the continental United States. We obviously won't go through these. There's a wide array of types of acquisitions, but a very diverse strategy in terms of the capabilities that each of these acquisitions present. For example, Georgia Recyclers up there in 2019 gave us bulk loading ship capacity in the Southeast.
That was a critical strategy that we needed in order to diversify our predominantly domestic footprint in the Southeast and give us that export capability in the bulk market. That's come to fruition, you know, a couple times. We've actually only loaded one bulk ship out of that port. However, having that option has really given us a lot of leverage in that domestic space, and multiple times has garnered significant returns as a result of that. So you don't have to actually utilize it in order for it to be beneficial for us. There's wire chopping operations, there's shredding operations. Again, just a wide array of capacities that are represented up here. So feel free to jump in anytime if I...
That's right. You're doing good. I think one of the questions that was asked earlier by Simon, and I think that when you start talking about... I guess they want me to stand in front of here. When you start talking about this and, you know, he said, "How did you- How do you possibly integrate $1 billion worth of acquisitions in that period of time?" And actually, I think it's about $1.2 billion of acquisitions that we've done. And really, the key to being able to do all this, right, is how do you assimilate those people in and still keep your culture? And I think I asked them to send everybody a book.
I don't know if you guys all got one of my books, but we really work hard at bringing the culture of the company to our employees as quickly as possible. And it is our incentive program or bonus program, whatever you wanna call it, definitely gets people's attention right away. The first time they get a bonus, then they really... They change their thinking because I think most people don't believe that they're actually going to get a bonus. You know, a lot of times people get promised things. People get promised things, and it doesn't happen. And so we work really hard to try to integrate the people into our culture, and there's nothing like receiving a check for them to start believing in you.
And as I was talking behind there in the back there, you know, I try to take and make every single expense in the company come out of somebody's wallet, right? If you can get people to start thinking about like it's their money, and if you can make every expense in the company affect someone's wallet, whoever owns that wallet is gonna watch it, right? And so I work really hard at trying to develop this culture where the people have ownership on what they're doing. And it can be a little challenging if we're buying operations that have union operations, but most, the vast majority of all these acquisitions are not union, and so it's much easier to, you know, to bring the culture in there. And so...
But really, if you add all those up and you add before then, you know, since we formed the joint venture, it's a little over $1.2 billion in, you know, acquisitions that we've funded out of, you know, cash flow and profits, you know, since the formation of this deal. So anyway, keep going.
I think it's about 50 acquisitions, right?
Yeah, it's a lot.
All right, so just getting into a little bit more about the growth strategy. You know, obviously, we're always seeking, you know, opportunities. We probably sign an NDA a week, every other week, right? There's, you know, the market, especially right now, is exceptionally liquid. A lot of people looking for exit strategies. We spoke about succession planning in many of these opportunities and a lot of the legacy mom-and-pop type, you know, scrap operations just don't have a succession plan in place, so lot of opportunities there. We are one of the largest wire chopping companies in the country now, just in terms of the pure quantity of wire choppers from East Coast to West , all the way down into Miami.
We have, you know, wire choppers, again, trying to diversify a bit into the copper market and making sure that we're producing copper units as well as aluminum and ferrous units. Obviously, we're always monitoring, you know, cutting-edge NFR technology. And, you know, I believe we have, how many patents have we filed now?
We have seven patents, and we have an eighth one we're trying to get-
So-
on our MRP plants.
Again, just an example of, you know, it's not just about, you know, acquisition growth. It's about, you know, how do we create more value, and how can we pursue higher yields and, and generating incremental margin through our existing waste streams? Let's see. Again, we talked about the 50+ acquisitions in 15 years. He's mentioned a little bit about just integrating, you know, these acquisitions and, and how we accomplish it, the scalability of the infrastructure that we have. You know, as we go through and implement new systems and processes, you know, really it has to pass a scalability check.
As any company gets larger and gains size and mass, it really has to pass the fact that we can scale it, and we can implement it across a wide array of facilities, and we need to be able to do it quickly. So, a lot of what we do in terms of as we're implementing those, is just making sure that, you know, we can implement them quickly. You know, we can close an acquisition in 30 days from start to finish, and we've done it, and that's allowed us to capitalize on some unique opportunities that, you know, whether you're approaching the end of a tax year and someone's just looking to get out, that's kind of allowed us to capitalize on some of those opportunities.
Being able to move quickly, trying to eliminate red tape, and executing acquisitions, you know, in a quick manner has been extremely effective. Obviously, there's a number of different types of acquisitions we've done, whether they're bolt-ons, whether we're entering in entirely new markets, such as the Newell acquisition. Again, that catalyzed us to be able to bolt on an entirely different array of geographies onto that existing footprint, and which all continue to gain in from a scalability standpoint, as well as the synergies that we've been able to achieve from all those acquisitions, just become exponential. So, it's been proven to be very effective, so... Again, on the capabilities of just sourcing material, we also talked about our retail presence. We're very effective at the peddler in the retail space.
So many of our acquisitions, they're really not even large acquisitions. In some cases, it might be few $100,000 to open and buy a small retail footprint. But we're able to utilize that footprint to then, you know, continue to add market share to our overall, you know, shredding and sourcing material.
So if you look at our... Actually, we just want to correct one thing. We actually have three patents issued. I have four very close to being issued, but as I thought about it, they're not actually issued yet. But all on MRP technology. But on the when you start talking about peddlers... And really, I think that our strength, you know, as a company, one of the things that we're just really good at, and I think better than anybody else in the country, is our retail or peddler trade. And the reason is because that's our roots, right? When we started out, you know, we were a little, tiny company.
When I first started working for my father full-time, forget, you know, being in school, but full-time, we had one truck, one crane, and one tow truck, and that's all we had. And so we built our first shredder out of scrap, which actually came from Simon. You know, well, our first shredder that we got came from Baltimore, actually it came out of Pennsylvania. But anyway, it was an old piece of junk in the ground or sitting on the field that they had sold, and we built it. They put a new one in, and we got their old one. But we couldn't buy- I couldn't afford to buy dealer scrap because we didn't have any money, and so we had to buy retail peddler scrap.
And we started, you know, doing little peddler yards 'cause that was the only scrap that we could buy. So that's really our roots. Our whole company was grown up or based on, you know, buying the peddler trade. So everything we do as we go out there, we buy the peddler trade because that is the most difficult for people to compete against you with, right? A big steel mill can throw out a price out there to a dealer, and he can, you know, overpay for that dealer to travel long distances. It's really hard for them to throw a price to a pickup truck. So that's really our focus. In all of our facilities, you know, we focus hard on the retail trade.
So obviously, you know, all of these acquisitions don't come without challenges. There's a lot of opportunities, obviously, but from the challenges that are created, obviously, there's a safety concern. You know, you're integrating new cultures. Typically, a lot of these yards have zero to no safety culture. So implementing our safety culture and trying to drive, you know, our PPE policies, our best practices through across, especially when the acquisitions are relatively large, trying to get that safety culture and that injury rate in line with, you know, what really our goals and expectations are, can oftentimes prove to be challenging. I have a slide on our safety that we'll get into here in a little bit.
We mentioned the preservation of our culture, and the book has been an extremely useful tool in ensuring that, you know, we can drive that culture and get to all of our employees. They know what our expectations are in terms of the way our management is to treat our employees. We encourage them to push back, speak up, really trying to make sure that we maintain somewhat of a ground-up mentality across the entire platform. Lastly, you know, many of these acquisitions are really capital intensive. They're oftentimes distressed assets. They've been undercapitalized for a number of years. Depending on where we are in the business cycle, these could be businesses that have been losing money now for multiple years. That's great because we're able to pick them up for discounts.
The flip side is that they're very capital intensive in terms of rebuilding them, investing in them, putting the infrastructure in to to truly maximize, you know, what we consider their potential to be in achieving those synergies. Obviously, on the opportunity side, you know, there's a large untapped market there. We talked about the size and scope of the U.S. scrap market. We still believe there's tremendous potential to continue to grow. We will maintain that vision and that trajectory. Many strategic acquisitions. One of the best parts about many of the facilities that we've acquired is really the human capital component. The assets that we've acquired purely from an employee and a talent standpoint has been exceptional.
Some of the best members of our team today, we've acquired through growth, and it's really allowed us to continue to grow, again, exponentially as we've acquired really some key level talent throughout those acquisitions. Lastly, I'll just say that many of these assets, you know, again, they're legacy, they're third, fourth generation. In the event that these assets are picked up by, you know, any of the other large players, very unlikely that they'll ever come to market again, right? These are really oftentimes one-time acquisitions. These are not acquisitions that are gonna hit the market three, four, five times . Maybe if they're picked up by a private equity group, but there's not that many private equity groups out there in the M&A space, right?
So these are assets that really, it's almost a race to pick up unique legacy-type assets, and we've been successful at capitalizing on some really unique facilities that, in my opinion, you can't necessarily duplicate, so. I'll let you take this one. This speaks a lot about really just the entrepreneurial spirit, the book, the bonus program, et cetera. So-
So look, it really goes to the core of our company, right? And as I said earlier, when I talk about, you know, having every expense come out of a wallet. And so if you think about when you talk about profitability by location as opposed to a cost center, most big companies run their individual yards as cost centers as opposed to profit centers. And the reason is because it's very difficult to do profitability by location because you have to do transfer pricing, and it's a lot of work, and it takes a tremendous amount of time. But it's all about the culture of how you're gonna do it. If you're thinking about it, you're competing against very strong, entrenched, successful entrepreneurs, okay? Owner-operator people in most markets.
It doesn't mean you don't have the big steel mills, too. But I'm just saying in all the little markets that we're in, and when we're trying to get out there and buy the peddler business, you know, we're competing against people that are, you know, really mom-and-pop-type operations. And so how do you get that culture across? And so, you know, by us taking and making each yard stand on its own, each yard, and when we produce a financial statement for every single individual yard, every single yard they get their financial statement. The manager can see it, they can project it, and the employees all benefit off of it, including the manager. And so...
As I talk about in my book, you know, if you take, for example, a small yard, and we'll call it a 10% yard, and we say tax is 45%. So if a yard makes $100,000, that means the net profit of that yard was $55,000. If it's a 10% yard, that means the manager's gonna make $5,500, and he's going to get that by the third pay period of the following month. So what happens is it changes the paradigm on what it's being done. You guys are gonna go down to the port today, and you're gonna meet Moises, okay? He's the manager down there. So are we loading the ship?
Yeah.
We are loading the ship. That's awesome. So you guys are gonna get to see we're loading the ship down there, and so I think they stop at five, right? So we gotta make sure we're there by four.
Yeah, we should be there by 3:00 P.M.
Okay. Anyway, you guys are - well, you guys will meet Moises, and I talk about in the book, but it's just an example of the culture. So before, ships always come in wrong times. They come in Mother's Day, Christmas, Easter. That's just when they come in, right? It never comes in when they're supposed to. And so Moises is down there. He's a Peruvian immigrant, and he's down there, and he's loading ships. And his wife is always saying, "You do this on purpose, right? So, 'cause you don't wanna be at the family, right?" And getting upset at him, right, 'cause he's gone.
And so now, you know, we get the company, this is 2007, and we get the bonus program in, and the next month he gets a bonus, and he brings this check home, and his wife's like: "What's this check?" "Oh, well, you know, we loaded three ships, and, you know, this is the bonus." "Wow, okay." And next month, you know, the same thing happens. Check comes in. "What happened?" "Oh, well, you know, we loaded a couple ships." Third month, she's like: "What the hell are you doing home? You get down there and load those ships!" Right? 'Cause she wants that bonus check. They got two kids in college, and they want that bonus check, right? And, and what it does is it changes the paradigm, and it makes people become more of a teamwork.
Because if you're gonna be in this business, you gotta work hard, and it's really a family decision on what you're doing. You know, the husband or the wife, 'cause we have a lot of women managers. The husband or the wife is, you know, there for long hours and, or they're doing work at home, and you've gotta have that teamwork and that support. Man, but like I said, you'll meet him, you'll meet him later on today, and you ask him, he'll tell you. But, but that's just the way it changes. And so... And then the other thing is that a lot of companies don't share financial information, okay? We really share financial information with our, our people. Our guys, our, our men and women that are running our yards, literally, they get their financial statement.
They can see it every day 'cause it's live, and they have all the details of their yard. And a lot of companies never share financial information with their employees. I don't know, they don't want them to know or what the deal is, but all our guys see their, see their financials. They know exactly how much their yard's making, and we expect them to be our partner. So they're not an equity partner, but they're a profit partner, right? And that's really the key of what we try to do within our culture, is to make our yard managers our profit partner. And because they're getting paid, they're getting that bonus the very next month, right? It becomes very real to them as far as what's happening.
And people look at it, they're, everybody needs money, you know, to live on. People got kids in school, and what's going on, and it makes a big difference when they can feel that they can make more money by doing it. And so, and also, you know, our guys have tremendous ownership. We're very much a bottom-up company, not top-down. A lot of companies, they make all the decisions at the top, and maybe these are really brilliant people, I don't know. I'm not that smart. I need people that can, you know, work hard and tell me what I need to do, and so we're bottom-up. Our purpose within our company is to support our people, all right? If you look at so many companies, the corporate, right, they're like the top, and everybody works for corporate. Whereas on us, it's the opposite.
You know, the corporate is supposed to be service for our employees. And so they're supposed to provide that service. Our employees aren't supposed to work for corporate, and you change it around as far as what's going on. And it just changes the culture, and it changes the dynamics, and it's really of what we do, I think, the most. Well, you can see some of the comments, right? You know, the family that runs the company are born and raised in the industry, so they understand it, how to empower their employees to continue to grow themselves and the company in competitive market. And so you look at, obviously, you know, it's different when, you know, I go out in a yard because I grew up in the yards, right?
I've done every single job in that yard, and so I can talk to the guys. I always wear overalls out in the yard. I never go out in a suit or a coat or anything like that. I just go out looking like one of the guys, and so I can talk to the people. I climb up on the equipment. I shake hands with as many people as I can, and that's this whole culture of what we do. But I think the number one thing right here on this slide is we try to put an entrepreneurial culture within our companies, each one of our operations. And I think that's why the individual companies are so successful, is because of this entrepreneurial culture that we can put in there, so.
Last comment I'll say, just on the bonus perspective, so this Friday, right, would be the 15th. We'll pay bonuses for whichever facility was profitable in the month of August, right? So it's real time, and that's really the objective, it's that everybody's rewarded almost instantaneously for their performance last month. It doesn't matter what the rest of the company did. So if I have a facility in Yuma, Arizona, that was profitable, and the rest of the company didn't make any money, those employees are still entitled to a bonus. They performed, right? And that's a critical component to this, so... All right, a little bit about our sustainability themes. Obviously, you know, many of our core principles are very much in line with much of what was discussed earlier.
Certainly, from a safety perspective, again, I'll get into safety culture in a little bit. You saw some of our Glassdoor rankings, if you will. But in terms of our workforce, you know, 38% of our managers are female. And just some of the accolades we've earned from a workplace environment. On the environmental side, we were the first U.S. recycler to install emissions controls on its shredders. Terminal Island, which you'll see in a little bit, installed their RTO here in 2011. Anaheim's was in 2014. Again, these are the first in the United States. We've got solar panels and electric equipment. Again, you'll see much of that at Terminal Island. The electrification of our fleet has been an ongoing process.
We're continuously reinvesting, upgrading most of our equipment to Tier 4 F inal. And so again, this is a company-wide initiative that we've been implementing for a very long period of time. Our equipment budget's anywhere from $80-$100 million a year in terms of CapEx, purely mostly from a replenishment and equipment standpoint. Again, recapitalizing a lot of our distressed assets and so forth. So, our stormwater advanced treatment systems have been implemented throughout 2021 and 2022. Working in collaboration with the Water Control Board and Orange County Coastkeepers to draft permits tailored to the scrap metal recycling industry, and particularly in the Santa Ana area. So again, all of these initiatives have been long ongoing, and been really a core since our inception.
Do I?
We're here today to unveil a new electric mobile crane here at the Port of Los Angeles. This is exactly what we need here in our port complex, doing everything we can to move our goods, but also do so in a green way. It's investments like this, which every day get us one step closer to becoming a zero-emissions port and keep us the world leader for clean port technology. I'm pretty excited about the crane, if you can't imagine. I brag about it all the time. I have pictures on my phone. I show people... Whenever you get together, you know, people show pictures of their kids. When I get together with, you know, my fellow scrap guys, okay, I brag about my crane.
You know, long before this crane, SA Recycling was a leader in environmental stewardship. Everything this crane puts onto ships is being diverted from our landfills, and it is only fitting that the crane that moves it is also environmentally friendly as well.
It's great to be here today to represent the Port of Los Angeles and help celebrate yet another milestone in our collective efforts to grow clean, green technology use at our port complex.
One of the things I've always been a big champion on has been the environment, and I'm always talking about how do we get to moving toward cleaner, greener technology? And today, we see that in this crane.
Working together, we can reduce emissions from all aspects of port operations. The beautiful electric crane we see here today is the type of new, advanced technology that exists and can be deployed.
The truth of the matter is that we could have bought this crane just with a diesel engine. How do you justify going electric? In order to get this thing electric, we had to get from the transformer all the way over there. This pile of scrap had to be shipped. We had to dig a huge trench all the way through here. You see this trench in the line here. None of that happened by itself, and it's because of the EPA, because of the port, because of that partnership of going for a zero-emission green port, that this crane is electrified the way it is.
Are they gonna show the 5 million ton, or does it, is that-
I was just-
So now, right, the. We just did another one of those same little things like that with all the people down there, 'cause we just crossed the 5 million-ton mark. So this was when we first installed the crane, and now we just crossed the 5 million-ton mark loading with that crane, and so. Anyway, you're gonna see it. Actually, we're loading the ship, so this is just pure luck, 'cause ships never do what they're supposed to do. And, but we're actually loading the ship down there. So you'll get to see that crane work, and the ship work, so.
Oh. All right, just a quick slide on our safety and, you know, a couple things here. On the dark gray line, you'll see. Let me see if this works.
This is just purely our facility count over the last, you know, 13 or so years. You can see a pretty significant ramp up and escalation in the pure number of facilities. The light gray in the back is the number of man-hours worked per year. So you can see up here, we're running upwards of 8 million to 9 million man-hours per year. Almost, you know, let's see here, almost threefold what we were back in early 2015. With that, naturally, comes challenges from a safety and a recordable injury rate. We saw this red line here, significant decrease as we implemented our safety program and our safety culture back in 2010, 2011. We really started to plateau and we were still seeing some positive improvement.
This recent escalation in overall man-hours and facility count really gave us this kind of uptick, and we've managed to get that back on track here down and moving back towards, you know, an improvement. So, still, the black line being really the sum of the benchmarking data that we collect working with the other industry participants in the United States. So, that black line is really the industry standard, as I would call it, relative to the scrap metal industry. The largest scrap metal companies in the U.S. are reporting against that benchmarking data.
So we're still maintained significantly below that, but again, unfortunately, it's this increase here, primarily as a result of the newer employees, the newer facilities that we acquired, and again, just one of those challenges that we see as we continue to grow. Okay, a little bit about our overview. Again, you guys have seen multiple maps today, so I won't get too much into it. Obviously, the orange dots being our facilities. We are actually missing one right down here on the tip of Texas. That is our shipbreaking facility that we acquired back in late last year, 2022. We're dismantling ships for both the commercial and the naval industries down in Brownsville, Texas. The black, the gray X is obviously being the U.S. steel mills.
Again, pretty well situated to service most of the domestic steel industry. Approximately 50% of SAR's shredders and use advanced ASR processing technology, the remaining have access to that capacity. So similar to the way that we've implemented really a hub-and-spoke methodology for our feeder yards to feed into our shredders or feed into our non-ferrous hub processing facilities. The newest and the greatest non-ferrous to shred and MRP recycling technologies are obviously require significant capital investment. Many of our shredders would never generate the kind of volume to justify that type of investment. So we've been working on technology and ways to bring that material to travel longer distances to be able to feed into the larger plants.
Really, it's a hub-and-spoke methodology on top of that, which is really all of our shredders feeding into larger plants. Not unlike what many companies are doing. All right, just to go into a little bit of our competitive advantages. Obviously, we've talked too much about this over the course of the day. Large geographic footprint, the hub-and-spoke methodology, large footprint of shredders, engineering excellence, and strong balance sheet. Really on top of this, I think what's critical is the diversity in our logistics capabilities. Obviously, we talked about our bulk loading capabilities. We've got about 20-25 container loading facilities here on the West Coast. Again, we use patented container loading technology to be able to load HMS containers in less than 20 minutes.
That's really a strength that allows us to diversify the West Coast operations particularly, and able to feed the Taiwanese export market, as well as the bulk export market. So, in a moment's switch, we can divert material into the bulk market or into the container market. We're present in both markets at all times, so depending on what our position is, depending on what premiums, what we can achieve in either market, we're able to pivot. And, and that's been a critical strategy for us here, especially in Southern California, and one that we've implemented now for, you know, 13+, 15 years or so. The farther east you move, you really move into much more of a domestic footprint.
Again, many of our recent acquisitions have given us tremendous flexibility and able to move scrap longer distances, whether that's by barge, via rail. Our rail car fleet is in excess of 1,200 rail cars. We have over 500 trucks, 11 facilities with barge loading capabilities, 56 facilities with rail access, and that number continues to grow. So, we've recently completed numerous rail expansion projects, so a lot of these legacy assets that we've purchased maybe can hold four or five rail cars. We need sites that can hold 13, 15, 20 rail cars, right? And so we've been able to invest in much of that infrastructure to make sure that we can get that scrap moving longer distances.
Much of that is catered towards feeding, I guess, the complexity of the domestic market, as well as maintaining that capacity to get scrap to move longer distances. Just two generic charts, really. One of which is our rail, the rail map here, again, kind of focusing in many of the areas where we're geographically located. Chart on the right being the major barge ways, the Mississippi River being a critical component to scrap movements. With the PSC acquisition, we acquired several facilities now that have significant access to the Mississippi River ways. Much of the mill expansions coming online here in the foreseeable future will rely heavily on the Mississippi to move scrap. So that's going to be an important part to our strategy in moving forward.
Again, talked a little bit about overall profit margins and, well, and sourcing of scrap. Stephen had mentioned this a little bit earlier, but in terms of, you know, dealer source, you can see the dealer source is a much smaller percentage of our intake. And then, you know, overall, in terms of non-ferrous sales volumes, again, trying to achieve a little bit more of a balanced approach, whether it's zorba and MRP grades, non-ferrous retail as well as ferrous grades. And then the export domestic composition, which again, has garnered quite a bit of attention here recently, so... That's about all I've got. So unless I missed anything. So I guess now we'll open up to Q&A. I'm sure there's plenty of questions.
Can't imagine you had a question today.
Thanks, Tyler. Thanks, George. Appreciate that. You've made some really interesting points. $1.2 billion worth of acquisitions over the last 15 years. Looking at the ramp-up of the facilities, a lot of those have been made since 2020. A small, you know, impact on health and safety. I appreciate that because you are, you know, at pace integrating these facilities. And if you can turn around an M&A deal in 30 days, then you've obviously got a very good capability in that space. Just in terms of what the future footprint looks like, George, you know, are we going to stay at that pace, or is this a consolidation phase? Do you feel like you've got the right footprint? And you made a point, Tyler, about the legacy assets. Once they're sold, they don't get resold.
So it's a bit of an arms race on for those legacy assets that are, that are finished. So I'm sort of trying to think over the next three to four years, how SAR is gonna-
Right. So, look at my family and my executive team joke that I've never met a scrap yard that I don't like. And so standard joke in the company. And I guess maybe it's a little bit of hubris on my part that I feel like there's not a scrap yard I couldn't fix, so it doesn't matter, you know, how bad it is, I could make it better. It's not always 100% true, by the way, but I still feel that way. Look, we're gonna keep growing. You know, we have to grow out of profits. And so if you look, the reason there's more acquisitions, you know, if you think about it, you have 1 yard, right? And then you make enough money, you get a 2nd yard.
Well, now you have 2 yards that are making you money, and so you can buy the 3 yard quicker. You can imagine by the time you have 50 yards, well, now, assuming you did good acquisitions and you're running them properly, now you're making more money, so the 51st yard goes really fast. We're really at a point now where obviously we're making good money, and we keep reinvesting that money to buy more yards. The more yards we buy, then if you do it right, you should make more money, and then you can buy more yards. The curve kinda goes like this, and it goes up exponential. Look, my goal is to keep buying yards and to keep buying as many yards as we can make profit to buy them.
I'd probably never make a good public company leader because, like, the idea of buying back your stock would be, like, abhorrent to me. Man, if I had money, I'm gonna buy yards, right? So, I don't ever understand all those different things, but for me, you know, every dime we make that we don't have to spend on equipment and we don't get distributed back for tax and stuff, we're gonna buy more scrap yards, and we're gonna keep growing. You know, you talk about arms race. I mean, look, there is, there's a lot of yards out there, and I think there's going to be a lot of changes in the future. I do believe steel mills will buy more scrap yards.
I mean, they're doing it now, and it's gonna happen. But, you know, we're going to too, and I think that, you know, 10 years from now, I plan on being a whole lot bigger, so.
... Okay, that's, that's super helpful. And then just on your balance sheet representation with the debt to equity staying pretty stable during this, this period. So how-- two parts to the question: How much of your acquisition is out of free cash flow, to your point about buying 1 yard, 2 yard, 3 yards? And then in terms of your debt stack, is it, is it, you know, what's the nature of that debt stack? Is, are they revolvers? Are they long-term debt? What, what's the-
Yeah, so we have a revolver, and, you know, we have a fixed term. And so, it goes up, you know, the term debt goes up, and we pay it down, we make more money, we buy more yards, it goes up again, right? But if you look basically at our debt over the last 15 years, it's been... The term debt has been pretty stable. Obviously, because we're so much bigger, the revolver, the working capital goes up much, much higher. But the term has been pretty steady, you know, on there. And like I said, we have to grow out of profits, and so it is our single biggest limiting growth.
Maybe that's a good thing 'cause that way we don't get ahead of ourselves, but that is, you know, what limits us on that end.
Just with the rates, you know, obviously, rates have gone up pretty dramatically over the last 12 months. Has that diminished some of the returns or some of the or changed the return hurdle?
You absolutely have to factor it in, right? Before, capital was almost free.
Mm.
So now everything you do, you have to factor in at that much higher interest rate. So when we do a CEV, you know, ... What the hell does CEV stand for?
I was about to ask the same question.
There you go. When we submit to our board, right? You know, before, the cost of money was really not a factor. Now, you have to factor in the cost of the money, and it either means the deal's got to be cheaper or, you know, some deals maybe you can't do, so.
Great. Thanks so much, guys.
Just to Tyler, one for you. On the safety, the recordable injury frequency rate, is there a calculation-based difference between that and NAM? Because NAM was at 0.77, and you guys are at 1.54.
Yes, I believe they were using TRIR.
TRIR, yeah.
Total recordable incidents.
Yeah. So I believe it's actually the same calculation, but ours is what? 200,000. It's total incidents times 200,000, divided by the total man-hours worked. And so I'm not sure if that's the exact calculation, but I believe it's the same. Yeah, so it's a very impressive safety record, to be clear. Yeah, so.
Thanks.
Yeah.
Thanks, guys. Of your growth in terms of the last five years or so, how much has been organic, and how much has it been through acquisition?
Oh, I think it's all been acquisition. I don't know we've had any-
Yeah
... organic growth. I think it's all acquisition.
Pretty much... I mean, look it, you can greenfield an operation, and if there was nothing in an area, I mean, maybe you'd have to consider doing that. But I would much rather take out a competitor than start a new yard, and, you know, they're already established, and then I got to compete against them. So to the extent that we can go in and buy out somebody that's already got a customer base, always got a work- already got a workforce. You know, as Tyler mentioned earlier, I mean, look at the biggest-- What, what is our most valuable resource, right? Our most valuable resource is our people, right? That is our single most important asset in this company is our people. And the...
We don't have extra ones, you know, to go start a new yard and send, you know, 10 or 15 or 20 or 30 people there. That's very difficult to do. So, you know, we would much rather buy an existing yard that's got people, that's got a permit, and take out a competitor, and then we can grow from there, you know, in that region. So really, it's really all by acquisitions.
George, you, there may be with 50 acquisitions, I'm assuming there's a lot that are strategic as well. But what sort of return to you sort of targeting to get on those acquisitions?
So when we submit to the board, you know, we're always between 10% and 12%, but the a lot of what we do is strategic, you know, and so sometimes they're more important to me... Sometimes it's hard to say. Let's just pick an operation. You take Birmingham as an example. We have a shredder in Mobile, in Phenix City, and Decatur, right? And we had it, and we have two in Atlanta, but we didn't have Birmingham. And, you know, it was, it was they were coming into our market, and it was, you know, it was definitely a challenge. And so strategically for us, Birmingham was a really important acquisition. And the... And I think that our return on that one was a little lower, although ultimately we're making really good money there now.
Yeah, I think to be clear, that we generally present with the most conservative worst-case scenario, excluding any synergies, et cetera. That target is generally needs to be in excess of 12%, 10%-12%, right? In an optimistic scenario, with all synergies achieved, we're well in excess of 15% on a, on a general basis. So, so the opportunities are always there, but yeah, so we're, we're generally, let's call it, you know, minimum 10%-12% conservatively, all the way up to, you know, 15+ on the, on the, on the optimistic side.
But there's so much that we can do in an operation, like a shredder. Most shredders don't have our technology on the non-ferrous, and then we can take their waste and move it to one of our existing plants and get a lot more money on it. And then, you know, it, it's just the sheer mass of being in a market. You have a much better opportunity to make money. You know, when you own the vast majority of the shredders in a region, right? It, you just have a better chance to move freight around, have very efficient trucking going back and forth. You just have a lot of assets in a region, and you have much better control.
The final question. In terms of the acquisitions themselves, are a lot of them relationship-based, or are they transactional in terms of the asset comes up for sale? And if they are the latter, are there people that you're bumping into more frequently than others?
Yeah. So a tremendous amount of them are relationship, all right? You figure, I was chairman of our National Association, and I still sit on the board. I go to all of the board meetings, and literally, I mean, I flew in - I woke up this morning in Louisville, Kentucky, because I was at the Scrap Expo speaking yesterday, and so I speak at these meetings all the time. I was the Ferrous Spotlight in Vegas, you know, the last time. If you go online, you can you can look at some of my speeches that I've given in the industry. If you just Google my name under SA Recycling, all my speeches are there. But, and so we're really well known.
I mean, as an example, at in Vegas last year, not last year, but the year before last. Last year was in Nashville, or this year was in Nashville, right? This year was in Nashville. Anyway, the 2022, the Vegas 2022, I keynoted the, or headlined the Ferrous Spotlight. And there was a guy sitting in the audience, and his company, not his company, but it, it was owned by investment fund, but he was the manager of it, and they were working on selling, and he heard my speech, and I'm talking about the Brownsville, Texas, thing. And so because of that, you know, he approached us about... I didn't personally know him, but he approached us about buying his company, which ultimately we did.
But the vast majority of the acquisitions are people that we know and that we've known for a long time. You know, when we bought TVR in Decatur, I mean, Joel Denbo and I had sat on the board for 30 years together in Israel. When we bought Newell in Atlanta, you know, we bought our first old shredder from Scott Newell, and when we built our mega shredder in 2004, we flew to Atlanta and, you know, Scott's sister, Sharon, gave me the plans for their shredder. So, I mean, you have. When they decided to sell their business, you know, we're the logical choice. So most of the acquisitions we buy are relationship and built out, built out over decades. But then also, if you're in an area, we're, can be a logical buyer.
So, like El Paso, I mean, I talked to Lopez before, but I didn't necessarily know him. He hadn't really participated. But we were the logical buyer because we're the biggest player in that market. And so lots of times it'll go, it'll go that way just because we're there. And also, you know, we've done more acquisitions than anybody, and more two or three times as much as anybody in the country. So, you know, we're in the American Metal Market, well, that's AMM, all the time, and so people see it, and so people know that we're buyers, and so, you know, they also call and approach us, and so we get it goes both ways, but the most of them are relationship.
Just one more comment, just in terms of the, you know, the organic growth, so to speak. We've opened about four facilities within the last year or so that have been what I would call just restarts, right? These are facilities that were mothballed by previous ownership, whether it was PSC or Newell, et cetera. They're assets that we've retained. We really never could justify reopening them, but within the past, you know, 12-24 months, market conditions have been such that, you know, we think those yards make a lot of sense. We've restarted them. They're already permitted. They require nominal amount of investment, and again, it's just trying to maximize that footprint that we have. So there's been some growth to that extent.
Hi, Alex Rock, Evans and Partners. Thanks for your presentation. You mentioned patents, and we've heard technology used a lot today, and you outlined in the case, I think the immediate case strategically is to grow the network as a priority, but how do you and Sims collaborate or not on R&D and tech? Can you maybe talk a little bit about that? And then can you talk about where you think we're in the journey to optimize what you're doing across the plants from a technological point of view? Thank you.
So, I mean, just like yesterday, we were us and Sims were in Atlanta. I said I woke up in Louisville, but yesterday morning I woke up in Atlanta, right? We were just testing new technology on a not a remelt. What the hell is it?
Cage mill.
Cage mill, Jesus! We were just testing technology on a cage mill. The Sims was with me when we were in Venice, Italy, and we sent samples over there, and then they sent one of their people over there, and we were doing some testing over there. And so we try to collaborate on some of the stuff that we're doing. We tend to be more wet technology because we're in the south, and they're dry in the north, and so because obviously, it's much colder where they are, and so everything freezes. And so we work a little bit different technology on... They're doing more with air, we're doing more with water. And most of our stuff, most of our patents and stuff are based around water.
But we do try to trade as much information as we can on it, and obviously, we do things a little different. As an example, in Australia, most of the way their shredders run is they do air right out of the shredder, and they pull all the lights out before, and then they end up with their heavies there. Whereas here in the States, we run our material over magnets first, and then we do air. And so, you know, kind of different, different countries kind of have different ways. I don't know that one's better than the other, but that's just the way it's always been done.
I think that's it. No more questions. Stephen, I think you can do some closing remarks.
I might take that mic. So we're closing up. So thank you very much, George. Thank you very much, Tyler. Found that absolutely fascinating. Thank you, George. That was great. So, the guys have helpfully got us back on time, actually. I hope you appreciated that presentation from Tyler and George. I think it really does show how the two companies work together. I think it highlights the differences between two companies, the similarities between the two companies, and I personally found that very useful myself. So where to from here? So George has and Tyler have talked a lot about their technology, a lot about their facility. So we're about to go and see Terminal Island. Ana, I believe we leave at 3:30 P.M.?
Sorry?
We're leaving at 3:30 P.M.?
No, we are leaving at... So if you could meet outside at 3:00 PM.
Yeah, sooner the better, I think.
Yes, 'cause we have-
And everybody-
Okay, let's not miss the loading of the ship. So-
Yes.
Let's assume we're gonna leave at five to three, which is one minute. So let's get ourselves, that'll get you all hurrying up. So, Ana, whereabouts are we meeting?
We're meeting outside. There is a bus picking us up to Terminal Island. That's-
Okay. So outside-
Yeah.
Outside when we walk in.
Yeah.
We'll see you there very, very shortly, and we'll get over there. Thank you.