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Operator: Thank you for standing by, and welcome to the Sims Limited HY '26 Results Call. [Operator Instructions] Today's presentation has been lodged with the ASX, along with the results release. It may contain forward-looking statements, including statements about financial conditions, results of operations, earnings outlook and prospects for Sims Limited. These forward-looking statements are subject to assumptions and uncertainties. Actual results may differ materially from those experienced or implied by these forward-looking statements. Those risk factors can also be found on the company's website, www.simsltd.com. As a reminder, Sims Limited is domiciled in Australia and all references to currency are in Australian dollars, unless otherwise noted. I would now like to hand the call over to Stephen Mikkelsen, Group CEO and Managing Director of Sims Limited. Please go ahead.
Stephen Mikkelsen: Thank you, and good morning from Sydney. Today, we are here to resume our half year results for FY '26. Presenting with me today is Warrick Ranson, our CFO. We are fortunate today to have all of our business unit leads here with me in Sydney. So we have John Glyde, our ANZ Managing Director; Rob Thompson, our President of North America Metals; and Ingrid Sinclair, our President for SLS. The presentation has been launched with the ASX, along with the results released. First up, I will provide an overview of the results and strategy, Warrick will then take us through the financial results. At the end, I will return to talk about the outlook, after which we will have Q&A. I will turn straight to Slide 5, which looks at our strategy and strategic priorities. By now, the left-hand part of this slide should look familiar as it has guided us for the last few years. I'm going to focus on some of our recent key strategic achievements. From a customer and supplier perspective, we have made great strides in increasing our unprocessed intake, particularly in NAM, and this is definitely driving increased margin when we process it into higher-value material. We have signed a couple of significant key supply agreements in ANZ with New Zealand Steel and Alter, and SLS is expanding into Ireland. Looking at operational efficiency. NAM has really improved its logistics infrastructure, particularly the ability to deliver domestically through rail, and this has allowed us to take advantage of the domestic shred premium. Work on Pinkenba continues at pace, including a fines plant. And rail infrastructure works at Otahuhu will allow us to effectively service the Glenbrook EAF. From an innovation agile perspective, we are transitioning to an outsourced global shared services model, which will improve our service offering, lower costs and improve our ability to integrate new operations as we grow. We've just about completed relocating the SLS senior management team to Irvine in California and are already seeing the benefits around innovative thinking and ideas from the increased collaboration. We've also added a new position to the senior team with a Chief Digital Officer. Given the strategic importance of deeper integration with hyperscalers, we've appointed a dedicated role to drive closer alignment with their operational workflows. The first 3 bullet points under invest responsibly are linked. Warrick and I will talk more about Tri-Coastal, the Houston land base, and the property strategy lead role in the coming slides. It is also worth noting that we have extended our debt facilities by 12 months as we position our balance sheet for further growth. Moving on to Slide 6. Firstly, safety on the left-hand side. Total recordable injury frequency rate for the first half has been maintained at best-in-class historical lows. And just as importantly, we are tracking well on our lead indicators. As a management team, we all continue to focus on making sure our employees can go home each day just as they came to work. On the right-hand side, you can see that we are progressing nicely across governance, systems, strategy and risk assessment in support of our climate commitments, including the integration of climate data into financial and operational systems to enhance transparency and decision-making. Moving on to Slide 7, and I'm conscious that Warrick is going to take us through the financial results in some detail. So I'm only going to highlight a few points from the consolidated result. Metal sales revenue was flat despite sales volumes being down 2%. This is all about the price and contribution of nonferrous, whether it be copper, aluminium or zorba. The market is very strong revenue is up nearly 70% and repurposed units are up close to 18%. SLS has had an incredibly strong first half driven by the demand for DDR4 memory. And we will talk about this in subsequent slides. A more subtle point to highlight is the flat metal trading margin percentage despite the significantly higher revenue from nonferrous, which has a high absolute margin, but lower margin percentage. This means that we have grown our ferrous trading margin percentage through disciplined buying of non-dealer material. I'm very happy with our cost control. And it is also pleasing to see the growth in return on invested capital. Returns have improved materially over the last 2 years, and we remain focused on closing the gap to our cost of capital. Slide 8 separates the main performance highlights between Metal and SLS. The only additional points I would comment on here is the 3.5 percentage point increase in unprocessed scrap in metal, driving higher shredder capacity utilization in metal, and the 7.7 percentage point increase in EBIT margin for SLS. Slides 9 and 10, look at the factors influencing our metal businesses. Let's look at Slide 9 first. The top 2 slides actually show how tariffs are providing protection for NAM and SAR in North America. You can see on the top left-hand side, the falloff in U.S. construction activity over the last year or so. All things being equal, this would have resulted in quite a depressed steel market in the U.S. But look at the right-hand top slide, and you can see the falloff in steel imports commencing with the introduction of Section 232 in 2018 and then continuing with the tariffs. U.S. steel manufacturers have benefited more from the fall in U.S. imports than they have suffered from falling construction spend. What these charts indicate for the scrap market is that domestic pricing has been supported by strong demand although softer construction activity continues to constrain intake volumes. The bottom chart explains ANZ's dilemma and depressed ferrous results. Quite simply, global ferrous scrap prices have fallen as Chinese exports have risen. Slide 10 shows why nonferrous is in many ways the hero of the metal results, and it is quite simple. The chart shows the price in Australian dollars that Sims actually realized for its sales of ferrous and nonferrous products. Ferrous has fallen from a bit under $570 to around $545. Nonferrous combined has risen from around $4,100 to nearly $5,000 on a blended basis. Focusing on NAM on Slide 11. These 4 charts capture the progress we have made at NAM and explain not only the turnaround of FY '25, but now the continued improvement in FY '26. Firstly, the top left chart shows the benefit of focusing on profitable tons. We have grown trading margin percentage by 5 percentage points over the last 2 years. This has been achieved by focusing on, amongst other things, unprocessed ferrous, which has increased by 12 percentage points over the same period, and this has increased shredder utilization by the same amount. Those shredder tonnes are producing more zorba, which like all nonferrous products has risen nicely in price. Finally, you can see that we are exporting less as we have grown our domestic channels to market. This is particularly so for shred, where domestic premiums to export have been growing and currently sit at $50 per tonne. As a point of interest, we sold around 85% of our shred domestically from the East Coast. This would have been around 10% just a few years ago. It is important to note we still maintain our export optionality if market dynamics change in the future. Slide 12 summarizes the Tri-Coastal acquisition we announced last week. As I said at the time of the announcement, over the last couple of years, we had materially turned the Houston business around, but we needed access to better options, both domestically and internationally to really drive performance. We had a suitable piece of land to achieve this at Mayo Shell but the capital cost to upgrade the port at Mayo Shell and the size of our existing ferrous business did not justify the CapEx. TCT gives us this deep-water access and therefore, optionality, but it also materially increases our presence in the market in excess of another 350,000 tonnes, significantly reduces our operating costs through the Enstructure service agreement contract, and it frees up the sale of all our land in Houston. We estimate in excess of USD 100 million, including Mayo Shell. From a numbers perspective, we have paid a bit less than 4x EBITDA post-synergies. The combined businesses and by that, I mean, our existing ferrous and nonferrous operations plus the TCT acquisition, are expected to have an annual EBITDA of USD 25 million and a return on invested capital of over 20%. Turning to Slide 13, SA Recycling. As the chart shows, SA Recycling has done a great job in ensuring resilience and its trading margin percentage. They have been pretty consistent at around 30% for the last 5 or 6 years. In the last 2 years, this has been achieved by increased revenue from nonferrous, including zorba, and this has combated the more depressed ferrous market. SA Recycling has strategically developed a really strong hub and spoke model in regional markets. It now has a very consistent source of unprocessed material being fed from around 150 feed yards into its 24 shredders. This means more zorba from shredding and more opportunity to attract retail nonferrous from peddlers. I expand on this theme a little more on Slide 14. Firstly, you will note the deliberate acceleration of the hub and spoke model. Since 2021, SA Recycling has acquired 76 yards compared with 52 for the 10 years preceding 2021. And you can see from the map that it is still a highly fragmented market, so there remains considerable further opportunities, and there is significant headroom in its existing shredders. Its strong cash flow and balance sheet strength support the growth. SA Recycling has developed a real expertise in integrating these small bolt-on acquisitions in implementing its operational and commercial practices. What all this means is that the business is underpinned by strong unprocessed inflows and strong nonferrous markets. This provides a very solid earnings base in the current market conditions. And when the ferrous market cycle turns, SA Recycling is very nicely positioned to capture the upside. Moving to Slide 15. There is no doubt that ANZ continues to operate in a subdued global ferrous environment, and it does not have the prediction of the tariffs that NAM and SA Recycling enjoy in the U.S. It does have a very strong nonferrous business, a good hub and spoke network and good domestic access for sales. In many ways, it is a business that is structured very similarly to SA Recycling. It is worth noting that the nonferrous contribution is even more important to ANZ as the fierce market conditions are considerably worse than North America. However, it will also benefit from an upturn in the ferrous market. With over the next couple of years, this is largely dependent on a meaningful reduction in Chinese exports of steel, which seems unlikely. Beyond 2 years, however, the structure of the ANZ market is likely to change as domestic EAFs come online and this is the focus of Slide 16. The chart shows that currently about 50% of the scrap generated in Australia is exported. However, by 2027, maybe 2028, this could reduce to under 20% as a result of increased EAF demand and additional charging of scrap and blast furnaces. This local demand is likely to support prices and potentially delink Australia and New Zealand from the full impact of Chinese exports. In our view, our Pinkenba site in Queensland will play the major logistics role in facilitating scrap finding its way to the right location at the most efficient price. This could well include importing scrap from our facilities on the West Coast of the U.S.A. No other participant in Australia or New Zealand has the capability to manage scrap flow between all states, New Zealand and the West Coast of the U.S.A. I now want to turn to SLS on Slide 17. The chart on the right tells the headline story of the dramatic rise in DDR4 chip prices. But what has driven this? There are 4 interrelated points I want to make. One, we still need DDR4 chips as they are the workhorse of many of our devices and the Internet of Things. Two, manufacturers are switching to making DDR5s with the demand from hyperscalers building AI data centers is almost insatiable. Three, this has created a structural supply-demand imbalance for DDR4s. High-quality repurposed DDR4s are a practical solution, but they are also limited. Fourth, a number of suppliers and market commentators are saying that the imbalance is likely to persist beyond 2027. I want to provide an update on our SLS expansion into Ireland, and this is on Slide 18. Firstly, the expansion is well underway, and we expect we will open the 120,000 square foot facility in early April. There will be some ramp-up in other costs, so I expect meaningful contribution to EBIT will not happen until sometime in June, maybe July. As the analysis shows, Ireland is an ideal place for expanding our data center infrastructure services. It is a major hyperscaler hub in Europe where we already have a presence. We have a proven track record in these types of facilities, and I expect it to look very similar to our Nashville site, which a number of you have visited. We currently anticipate growing the business over the next 2 years to repurpose approximately 1 million units per annum with a skew towards DDR4s. This is an exciting opportunity for us, and is driven by an existing relationship we have with a major hyperscaler. I'll hand over to Warrick now for a more detailed look at the financials.
Warrick R. Ranson: Many thanks, Stephen and good morning, everyone. Despite mixed construction activity in Australia, continued elevated Chinese steel exports and softer U.S. consumer sentiment impacting prices, ferrous scrap markets remain supported assisted by the progressive expansion of EAF capacity globally. With export markets exposed to global scrap dynamics, we continue to leverage the arbitrage in our key domestic and international markets, and sold volume proactively between the 2 to maximize margins, reflecting the significant agility and flexibility embedded within both our inbound and outbound logistics chains. In parallel, nonferrous markets delivered a structurally strong performance and provided meaningful earnings stability, with LME copper increasing by approximately 13.5% year-on-year while aluminium prices rose by 9.8%. The Asian spot price for aluminum reached its highest level since 2022, supporting considerable zorba price increases, as Stephen mentioned. Not surprisingly, nonferrous trading accounted for over 40% of group revenue in the half, up from around 35% in the comparative period. Concurrently, of course, prices for DDR4 memory continued to increase exponentially, rising by over 450% year-on-year as demand continued to increase against diminished supply with manufacturing shortfalls and a focus on new generation cards continuing to uplift repurposing and resale activities. Across the business, we continue to deliver disciplined cost efficiency initiatives. Current activities such as moving to a global shared services platform and the operational changes now targeted for our Houston operations will continue to provide performance improvements in the business. We saw our overall cost base remain relatively flat despite increases from higher inflows of unprocessed material and NAM and volume growth in SLS and of course, general inflation across the board. I'll come back and talk about our cost performance shortly. Our statutory result reflects our targeted restructuring initiatives and noncash hedge book mark-to-market adjustments associated with the significant rise in copper and aluminum prices at period end. We continue to work on the recovery of our U.K. metal receivable following collapse of that third-party business in an extremely difficult market. But in line with prudent accounting practice, we updated the potential credit loss on the residual by a further GBP 30 million to reflect current estimates. Although we have effectively reversed our prior accounting position on the sale, we remain pleased with our decision to exit the U.K., the price we got for the business and the way we were able to maximize cash flow, particularly given the number of subsequent business failures in the industry there of late. Moving to Slide 21 now. And I've touched on the principal drivers of most of these already, so I won't dwell on this slide. Positive contributions by both the NAM and SAR businesses absorbed the impact of the current market pressures on ANZ. While the strong performance from our SLS business and a range of cost reduction initiatives, as I've mentioned, contributed further to the uplift in underlying results, reflective of the strength of the geographic and diversification aspects of our business. I'll expand on some of the other factors driving these various movements in subsequent slides. Moving to the metal business, more specifically, and in North America, total material inflows remained consistent with the prior comparative period and converted metal volume moderated by 3% as we prioritized unprocessed intake in line with our value strategy, improving our overall margin position. While this added to comparative costs, the team were able to generate a number of offsets through further site restructuring and productivity initiatives. Period-on-period, we actually experienced around a 5% reduction in average realized ferrous prices, generating a circa $13 million impact on the underlying EBIT for NAM, which we mitigated through that margin discipline and our cost-out initiatives. In ANZ, ferrous margins were again impacted by the subdued international market, which also flowed on to domestic prices. Favorable nonferrous prices provided overall revenue support and helped offset shredder downtime at our St. Mary's operation in the first quarter. Notwithstanding elevated consumable input costs, particularly in the areas of waste disposal and electricity charges, net operating costs continue to be well controlled here as well, noting the current result does include an $8.8 million reclassification reduction. While U.S. steel spreads improved over the course of the half, influenced by tariff-constrained imports, which are reflective of the U.S. domestic market, in December, our Sims Adams joint venture actually reported its first upmarket for ferrous pricing since April. Despite the comparative headwinds, the joint venture was able to close out the half year strongly, driving the uplift in nonferrous prices as zorba continued its surge. Our global trading platform was able to keep its costs flat. They saw reduced broker revenue following the cessation of trading activities for Unimetals in the U.K. early in the period. Moving to SLS now, and Stephen covered a number of the drivers here already. As we've noted, the business continues to see significant growth in the number of repurposed units as well as benefiting from the dynamics of the market. Pleasingly, we also expanded our hyperscale service offerings, adding diversification to the business' revenue streams. Increases in operating costs reflect both volume gains and expansion activities and the team continues to look at additional opportunities around automation and robotics to support its cost management program. The results further validates SLS's positioning within a structurally expanding hyperscaler ecosystem and its connected drivers. Moving to Slide 24 and touching briefly on central and functional costs now. As previously mentioned, we continue to look for cost out efforts in this area. We recently relocated our corporate office to further reduce costs as well as successfully transitioned our purchase to pay function to our new global shared services hub as part of a more extensive shared services model being progressed over the next 2 years. Following stabilization of the company's SAP platform implementation, project costs fell by $2.5 million, noting that we continue to incur costs in developing our new yard management software, which we hope to take live later this year. As previously advised, we elected to cease work on the development and commercialization of the plasma-assisted gasification technology that was being undertaken by Sims Resource Renewal during last year. This further reduced the central cost pool by some $10 million to $12 million per year. Moving on then to our overall cost performance for the half, and we continue to look for opportunities to simplify and optimize our organizational structure as well as further rationalize the existing operating portfolio. At a group level, we were once again able to keep total costs relatively flat over the period, limiting the increase to just on 4% of the rebased comparative half. Included in this was $16 million in additional variable costs related from the increase in unprocessed material and the higher repurpose units at SLS. Labor remains our largest cost element at around 40% of operating costs and ongoing labor efficiency initiatives continue to provide significant benefits in this area and in line with our previous cost-out commitments. The group completed the year with net assets of just on $2.5 billion at balance date, broadly consistent with June, reflecting a stronger comparative Australian dollar at period end, dividend payments and the further provisioning of the Unimetals receivable. Of note, this includes a $200 million expansion on working capital levels from the uplift in nonferrous prices impacting both our inventory and receivable values and a $72 million transfer to broker deposits related to our derivative trading activities following the run-up in copper and aluminium prices. And I'll talk a little bit more about the impact of this on the next slide. Pleasingly, as a result of our positive trading performance, the Board has determined an interim dividend of $0.14 per share payable in March. So a little bit more on our working capital movements and the group's focus. On Slide 27, we've isolated the overall movement to show the impact of those higher nonferrous prices on the business, which has been quite significant on a number of fronts. The impact of the run-up in the copper price from October in particular is certainly reflected in our numbers. Working capital performance through better managing inventory levels, receivable conversion rates and payment terms continues to be a key focus for us. Moving to Slide 28, and we put up this slide last week as part of our announcement on the Tri-Coastal acquisition. We've highlighted the potential to generate better returns from our property portfolio a couple of times now, and I just wanted to reinforce our focus on this area. We broadly categorized our properties into 4 areas with the third category, the most complicated and the area where we're most likely to spend a fair bit of time working through. As Stephen has previously mentioned, these are the sites where it's becoming obvious that over the next 5 to 10 years, the most valuable use of that land will not be in metal recycling. In most cases, this will require comprehensive planning, permitting and other dependencies to fully capitalize on value. As such, we're committing to a dedicated resource to ensure full management of the opportunity going forward and continuing our approach to disciplined capital recycling and unlocking embedded asset value. All that summarizes into our overall cash movement for the last 6 months. I've talked about most of these already, but just to touch on capital. The majority of this spend occurred in our North American operations primarily focused on improved metal recovery and incremental throughput initiatives, including the completion of channel dredging at our Claremont operations. In ANZ, investment continues into the redevelopment of our Pinkenba site, including the construction of a new copper recovery plant. We expect to remain within our previous guidance in this area of between $120 million to $140 million of sustaining capital for the full year. We've pulled out the restricted cash allocation on the derivatives to better reflect underlying EBITDA to operating cash conversion, noting these deposits will unwind in the second half. In October, we made our final dividend payment of $25 million in relation to the 2025 financial year. And as previously noted, the board has determined an interim dividend of $0.14 per share, fully franked, for 2026, in line with our capital management framework after taking into account the restricted cash impact. Back to you, Stephen.
Stephen Mikkelsen: Thanks, Warrick. Let's turn to the outlook on Slide 32 (sic) [ Slide 31 ]. In our view, the outlook for secondary market pricing of DDR4 chips remains very strong, and it is the DDR4s that are materially driving the excellent performance in SLS. This strength comes from the demand for DDR5 chips driven by AI. Global production of chips is understandably heavily focused on DDR5s, and this is creating a structural imbalance in the supply and demand for DDR4s. We also anticipate continued strength in the nonferrous market, underpinned by the substantial copper and aluminium requirements for global renewable energy implementation and product electrification. Tariffs are expected to continue to provide some protection for our North American ferrous businesses, and this is likely to result in the continued premium for domestic shred sales in the U.S. Furthermore, whether be in the United States, Australia or New Zealand, rising EAF capacity provides a strong outlook for our ferrous scrap products. Finally, we cannot ignore the impact Chinese exports are having on ferrous prices, particularly for our business areas exposed to markets outside the domestic U.S. market. While it appears that prices have been trading at or near floor for a while now, there is little evidence to suggest China will reduce exports from current levels. Importantly, much of our recent improvement in earnings has been self-help driven. As market conditions normalize over time, we believe the business is structurally better positioned to benefit from cyclical recovery. Before we open for Q&A, as always, I want to thank our employees for their drive and commitment in delivering on our purpose and most importantly, doing that safely. Back to you, operator.
Operator: [Operator Instructions] Your first question comes from Will Wilson from UBS.
William Wilson: Congrats on what looked like a strong result. Just on ANZ, it looks like conditions picked up post the AGM trading update, you mind talking us through just the moving pieces there and what happened to the end market?
Stephen Mikkelsen: Sure. We've got John in the room. So John, why don't you take us through that?
John Glyde: A couple of things. Certainly saw improved volumes in the second quarter, particularly in nonferrous and zorba on pricing. We also, as you would remember, we had the outage in the first quarter, and we largely caught that up in the second quarter. As I said, volumes were up a little bit. We managed to take a few -- a bit of volume from our competitors, good cost control. We delivered a little better than expected.
William Wilson: Cool. And then just more broadly across the metals business with nonferrous, just curious about how quickly those price rises result in more benefit -- more volume will benefit to the business more broadly, conscious that the rising price has been going through a while now, but you really had a step up over the last quarter, say, copper, for example, have you seen a kind of corresponding move in activity in that sense in volume activity?
Stephen Mikkelsen: Let me give sort of a few general comments, and then maybe Rob can talk about NAM and John about ANZ. So I think overall the answer to that would be, yes. I mean, higher prices, by definition, drive more volume out of the market. That relationship has been here for a while now. And you're right. You're right to say that the nonferrous has been very firm for the last 18 months, but particularly for over -- like the run-up we had in price leading into December was quite extraordinary, and you would expect to see that drive more volume out, and we're well positioned to take that. But maybe, Rob, a little bit on how you see it from NAM's perspective. And John, and -- by zorba as well, by the way, too. I mean -- we'll talk about that a little bit later, then John, maybe ANZ's perspective.
Robert Thompson: Yes. The only thing I can add is from a NAM perspective, about 2 years ago, we started to embark on our nonferrous improvement story, if you will, and fully integrated now with Alumisource, fully integrated now with our Northeastern metal trading copper granulation company. Those relationships -- those consumer relationships dovetailing with the infrastructure of data centers going up in every neighborhood in North America. It's been phenomenal. Stephen mentioned zorba. Utilization of our shredders is up 10% over 2 years, and the capture for that demand is definitely there. So volumes up, margins are absolutely playing a part in our turnaround story.
John Glyde: Yes. What I would add, obviously, zorba, as Stephen mentioned, we saw considerable improvement in server pricing late in the half, but over the half. And you must remember that zorba really is a byproduct of our shredding activity, and therefore, any gain in that price sort of in some way or another filters through to revenue and quite frankly, EBIT. So that certainly helped. But from an ANZ perspective, ferrous markets are incredibly still very, very difficult. Obviously, in very recent times, we've seen the Aussie dollar strengthened, which isn't helping our translation on an FOB basis on export sales. And I think Warrick mentioned even on our translation on domestic sales on an export parity basis. So strengthening dollar certainly isn't helping, but still difficult ferrous, nonferrous is pretty strong.
Stephen Mikkelsen: I mean I think as I said in my commentary, I really would describe nonferrous is the hero of this 6 months result from a middle point of view, and we'll just summarize it, it is -- it will get more volume out of the market. It must do its logical for that to happen.
William Wilson: Yes. Okay. I mean it's hard to see what changes there in that regard. But just one last quick one for me on SLS. I'm just curious about the lags between DDR4 pricing and when it flows through to SLS, I'm somewhat a little bit surprised of being honest in terms of you gave your guidance 45-50 back in November, you saw another step-up in December in pricing, that, that didn't come through. But yes, maybe touch on the -- and then you came into the top end of guidance, I know, but just if you wouldn't mind touching on the lags there.
Stephen Mikkelsen: Yes. I'll get Ingrid to maybe comment more specifically, but my overall thought on that is our contract position is pretty set as we go into December, we know what volumes we're getting, we know what sales we've made. So there is definitely a lag on that. I wouldn't say it's a particularly long lag. Ingrid, any further comment on that?
Ingrid Sinclair: No, I think that's spot on, Stephen. We're normally a month or 2 months out from what you see in the price increasing. So obviously, we'll start seeing it in this year, this half.
Stephen Mikkelsen: With the second half year.
William Wilson: So fair to say that the December price rise and even in the back end of November really had no -- it was too late to kind of flow through that first half.
Stephen Mikkelsen: Yes. I mean, some of it. A little bit of a got through. You see like we were at the top end of -- I mean -- to be frank, I'm getting my head around how we provide this guidance on SLS because we haven't done it before. So we're at the top end of what we provided, which sees that some of it is coming through. But you're right to think that, as Ingrid said, it's a month or 2 before it fully comes through.
William Wilson: Okay. Yes. I held back from asking about SLS guidance, but that's really helpful.
Stephen Mikkelsen: I'm sure we're going to get that question.
Operator: Your next question comes from Peter Steyn from Macquarie.
Peter Steyn: Yes. So perhaps curious on 2 angles as it relates to SLS. Firstly, is just run rate, it sounds like you would basically say that the run rate for the second half is probably incrementally higher than what you finished the second quarter at. And then I'm also interested in how one thinks about the Irish facility, you mentioned that you'd be sort of running at full tilt in June, July. But how material would this facility be in the context of the network sort of give me the sense that it is quite material.
Stephen Mikkelsen: Yes, sure. And I'll get Ingrid to cover off Ireland because she's been heavily involved in that development. Maybe I'll cover off the implied question about second half for SLS. So the first overall comment I'd make, you're right, the strong pricing that we saw in December is now flowing through into our results. And it's fair to say that the start to the year for SLS has been very, very good. In terms of what does that mean for the full year, I'd make the comment that we're only 1-month in, and I think it's probably best what we've decided is best that we will provide some additional guidance next month at the March investor presentation in Nashville. By that point, we will have a -- we'll have a pretty good idea of where our first quarter is coming in and what pricing is looking like for the balance of the year. So -- but we just asked for some patience on that. We will do that additional guidance in March. But suffice to say that, yes, absolutely, the volumes are still good coming out of SLS as -- and it's very, very obvious the prices are still high, and we've got lots of reasons why we believe that -- those high prices remain. I think there is absolutely a structural imbalance there. So certainly a very good start to the half for SLS, but we'll provide more guidance in -- additional guidance in March. Ingrid, how are you thinking about Ireland?
Ingrid Sinclair: Ireland. Yes. So Dublin will be ramping up in the second half of this year, and we expect to deliver full run rate sometime in fiscal year '27. So that's when we'll start seeing the full impact in '27.
Stephen Mikkelsen: It's probably fair to say it is material to SLS's result because it's a big facility. I mean it's at ramp-up, we're expecting to repurpose another 1 million units out of there and it's -- Ingrid, is oriented towards or skewed towards DDR4s.
Ingrid Sinclair: Very similar to the site in Nashville.
Stephen Mikkelsen: Yes. So it is material, Peter. Let's just see when it's up and running, how things are. But it's -- we've highlighted it because it is important to the future of SLS. And I think it also signals potential further expansion outside the U.S. Our strong growth has been U.S. No doubt about it. Absolutely no doubt about it. But Europe is a market where we have a presence. But I think with the likes of Ireland, now our presence is going to become much more meaningful.
Peter Steyn: Could I ask Ingrid just a quick follow-up. So the 1 million units, is that backed by the existing contract, i.e., so you're on full run rate at some point in '27. Will that be your run rates of units repurposed?
Ingrid Sinclair: So yes, at the start of ramping up, it will be off of an existing contract that we have now in an existing client relationship. So yes, that will be...
Stephen Mikkelsen: Yes, I agree with that. But I wouldn't -- I mean, it's certainly not a capacity. There will be room -- there will be -- yes, there will be room -- in the later years, they really, let's focus very much on servicing a very important customer. But I think in later years, there's further capacity in Ireland for other inflows there.
Peter Steyn: Got you. So the 1 million is an eventual target for repurposed units and your initial start in your initial contract does not necessarily supply that level of volume.
Stephen Mikkelsen: No, I think it's there. The 1 million is the initial and it's how do we grow beyond 1 million with the -- with additional activity.
Peter Steyn: Perfect. Sorry, I'm going to sneak one last one in for Ingrid. Just around the customer relationships, how you think about the pull and -- push and pull from a commercial point of view. You're obviously making a lot of money out of this activity, Ingrid. Just curious how your customers view that? And if -- with current prices, they think differently about economic sharing.
Ingrid Sinclair: Well, we have several relationships -- commercial relationships going on. And there -- it took us years to get here into this market, right? The quality that we deliver, the loyalty we have built with this particular client, and it's really truly a partnership. We offer services -- servicing, which is a flat fee. But then on the resale is where we share revenue. And that is an agreement we have negotiated with them and remain so even as pricing changes.
Warrick R. Ranson: It's Warrick here, Peter. I think it's fair to say that we didn't -- we haven't set up Ireland with the hope of gaining customers. We actually set up Ireland in response to a customer request. And the -- we've been quite -- well, obviously, have a transparent relationship with that customer. They understand our operating model and our earnings, et cetera. So we're actually responding to the customer need. And I think that really sort of signifies, as Ingrid said, the relationship that we've been able to develop. As Stephen said, the million is a starting point, it's a strong growth area we'll be looking to hopefully grow that business -- that part of the business further.
Ingrid Sinclair: Right. The 1 million is a...
Operator: Your next question comes from Lee Power from JPMorgan.
Lee Power: Stephen, I kind of -- I get the reticence of not wanting to give 2H guidance now on SLS given the moving parts. But can you maybe chat a little bit about what you saw on a backward-looking basis? Like what did SLS actually contribute EBIT-wise in the second quarter?
Stephen Mikkelsen: Yes. Again, so -- okay, it contributed obviously more in the second quarter than in the first quarter. But I think what I -- probably the most relevant thing I can say is that, that ramp-up has continued into the first half. That's probably the best way to put it. And that's -- we -- pricing is still strong and volumes are good. And that's -- so the activity that happened in the second quarter has continued and frankly grown as we come into the first quarter, which is -- into the third quarter -- sorry, the first quarter of the calendar, third quarter of this year, which is why -- look, I'm very conscious that we will need to provide some more guidance around that. I just need to think -- we just need to get that first quarter under our belt. And by the time we speak next month we will -- we'll have the actual results for January and February, and we do find it easier to predict that result for March than we might for the metal business. So we'll have a very good understanding of what that March quarter is like. I'm expecting it to be good. And then I think based off that, we'll be able to provide some additional guidance on where we think the year-end is going to come in at.
Lee Power: Okay. So through the back half or the first half, so through the second quarter, like is there much volatility within the quarter? Was that trend continuing because the pricing only really lifted in the back -- very back end of the calendar year, right?
Stephen Mikkelsen: So let me -- so first of all, it was a strong half. It wasn't just a strong quarter. It was a strong half. And yes, there is some volatility. But in some ways, it's the right expression self-induced volatility. Maybe that's not the right expression, but it's volatility that we're not particularly worried about because it's just whether or not we -- does it suit our customers to ship the DDR4s at the end of the quarter or the beginning of the next quarter. So there is definitely some volatility, but we get a good understanding of what that volatility is going to be well before it happens, which is why I think we were -- by our standards, we're pretty accurate at the prediction of the SLS result for the full -- for the half.
Lee Power: Okay. And then maybe for Ingrid, it sounds like your comments to Peter just around the commercial rate relationships and revenue sharing that you think the leverage to pricing holds. Like obviously, the battle, I think that everyone is having is that you look at what the pricing has done. I get the lags, but it kind of averaged $18 a unit for the pricing, the DDR4 pricing that you gave for the first half, and it's tracking at like $67 for the half currently. So it's obviously a very material dollar move half-on-half as well. So just any sort of color you can give us around the revenue sharing piece or that leverage might not come through for the business?
Ingrid Sinclair: Well, no, as I mentioned the revenue share that we've negotiated stays in and the partnership that we have, in particular with this client is very strong where we're investing back into the business. So the expectation is that we will increase productivity through automation, and use some of this just to improve the business for them. And moving into Ireland really is to meet their capacity needs, and this is what we do throughout. So I don't see that a clawback trying to occur. This is a very solid relationship, and the market fundamentals are strong. We just don't see that.
Stephen Mikkelsen: Well, I agree with that. And the thing I would say that, which I think I said the last time I would add, to that, having now visited a number of these clients is that this is not a core business for them. This is, our front office, their back office. And while it is absolutely meaningful to us and well, that's clear, is hugely meaningful to us. Their focus is very much on their front office, which is about giving us much of these hyperscaler data centers built as they can, getting AI rolled out, putting their resources into that area. So this is nowhere near as material to them as it is to us. And so therefore, what they're valuing is they value that we do it safely. They value we do it securely. They value that every single SLA that we've put to them we achieve, and that's through -- to me, frank, from Ingrid's perspective, that's through 5 or 6 years of hard work of building up these relationships. And just to repeat myself, yes, very material to us. I'm not so sure that they would want to switch suppliers to save themselves maybe a few $10 millions of a year and run the risk that they don't get the same level of service that they do from us. And that's what's hugely important.
Ingrid Sinclair: If I can add, what's value to them is getting the repurpose DDR4, right? It's not the money. So we have this client who's starting their decommissioning earlier because they need the parts and new builds. So it's very much value on getting the tested repurposed DDR4s going back into their data centers. So that's really where the value.
Stephen Mikkelsen: Yes. And I mentioned, if we turned up late and we promised that you would have the DDR4s on this state and they're not. I mean that's the risk that they run by going with someone else. And we've now got a really strong track record over the last 4,5 years to prove that we can do it.
Lee Power: Yes. And then maybe just 1 more if I can sneak it in. So John, like -- I feel like you've undersold yourself a little bit given ANZ was breakeven in the first quarter, and you've delivered $22 million of EBIT for the half. Can you just maybe chat a bit about when we think about using that second quarter number going forward around like what the catch-up was or seasonality or something else going on because it's obviously a pretty solid quarter given what the backdrops are...
John Glyde: So obviously, Lee, the second quarter was always going to be stronger than the first simply because of that catch-up process, which I got to say we, quite frankly, completed quicker than I thought we would. So we largely got it all done in the second quarter. So what -- I guess, where you're leading to is how should we look at the second half. As I said, ferrous markets haven't improved internationally, I would argue that we're sort of bouncing along or near the bottom in U.S. dollar terms. Nonferrous markets are strong. There's no doubt about it, both in retail nonferrous and zorba. But I guess the other headwind aside from Stephen mentioned a lot about China and the amount of semifinished steel making its way into our markets and our consumers is the Aussie dollar. And that's certainly what have we seen in the last sort of 6-week period, 8-week period, we've seen the Aussie dollar go from around $0.67 to $0.71. So that is certainly hurting. So I would have said second half at this point, and I will say, Lee, we are 1 month into it. We are in January, but I would say I think our second half is broadly going to be in line with our first half.
Operator: Your next question comes from Brook Campbell-Crawford from Barrenjoey.
Brook Campbell-Crawford: I just had one on SLS and trying to kind of understand how it all works like some of the others here on the call, but maybe just for the first half on Slide 23, you talked about sort of 70% of revenue uplift relating to price. So that implies a $90 million increase in sales because of price. And then the total EBIT for the business is of $35 million. Just can you kind of talk to that, why would you have a greater drop-through from revenue to EBIT, given the majority of it is driven by price.
Warrick R. Ranson: It's Warrick here. Brook, remember, we don't get -- the revenue is gross, and then we obviously take out the percentage of -- that we retain in terms of the sales, so you don't get the full swing through.
Brook Campbell-Crawford: Got you. Okay. That's the revenue share?
Warrick R. Ranson: Yes.
Brook Campbell-Crawford: Great. And then maybe just one on, I guess, on the Dublin side. I mean is the way to think about this 1 million units, we can see what the DDR4 price is, we can assume, let's say, a 30% revenue share and then an EBIT margin in line with what you've just delivered to kind of resulted in AUD 5 million EBIT from that facility once it ramps up? Is there -- that's obviously very simplified, but would there be any large flaws with making those assumptions?
Stephen Mikkelsen: One is that some of the units will go back to be repurposed, not resold and repurpose as a service fee, which is less than...
Ingrid Sinclair: Fixed fees.
Stephen Mikkelsen: Yes, less than the resale. Just what -- I didn't quite hear, what number did you come up, I'm not going to say whether it's right or wrong. I just want to understand what number you came up with that back of the envelope.
Brook Campbell-Crawford: Yes. Listen, I was just using your 1 million unit comments. And we can see that DDR4 price is like USD 70 a unit, I'm pretty sure. And then we could assume a revenue share of 30%, call it, and then just use the EBIT margin for the division of even 15% in the half, which I think gives you around AUD 5 million EBIT from that business. I was just using that framework and were to get some sort of steer if that's sensible out.
Stephen Mikkelsen: I just need to go through your math here, because I'll be frank, I think that's a little light. it is frankly a little light. So just -- let's just think about your math on that because I'm just not quite sure that last that you're coming into. Maybe we can talk a bit about that. But again, maybe part of it will be in March, we'll be able to provide much more color with this additional guidance. But my initial reaction to that is that feels very light.
Operator: Your next question comes from Daniel Kang from CLSA.
Daniel Kang: Just continue with the SLS discussion. Maybe Ingrid, I just wondered if you can talk about the market share position of SLS at the moment. I think the initial plan was to get to round about 10% share of the addressable market. Are you there already? And maybe if you can shed some color on the competitive landscape on what the others are doing, given that you're branching out into Dublin. What are the capacity plans as well?
Ingrid Sinclair: Well, I don't think we're anywhere near 10%. I think the market share is continuing to grow just as AI is exploding and this adjacent market is exploding accordingly. So I don't think we've captured anywhere near 10%. There's still a lot of upside to go. Our competitors, we talk a lot about Iron Mountain, SK Tes. But it also is the hyperscalers themselves taking it in-house. We don't see hyperscalers doing it because they're competing with their data centers, and they make more margin in their data centers versus switching to what we do. So we don't see much movement there, certainly for SK Tes and Iron Mountain. They are in Ireland already. So the Ireland is the -- basically the nucleus for Europe -- for European data centers. It's all located there. Still plenty of market.
Stephen Mikkelsen: Is it fair to say that our biggest opportunity to grow market share is to -- is the work we're doing around showing to the existing hyperscalers who are not either doing it themselves or not doing at all that there's significant value by using SLS services. I think that's 1 of our main growth levers.
Ingrid Sinclair: Definitely, because this is a way to get material at a cost-effective price point.
Stephen Mikkelsen: It's a big market, Daniel, to get 10% aspirational that would be fantastic. It's a big market. There's plenty to go.
Daniel Kang: Maybe a question for John. I think you commented on ferrous scrap markets still being pretty tough out there. What are the things that are you looking for, for the markets to improve? So can we see some improvement into the back end of this calendar year?
John Glyde: A couple of things that Stephen has talked long and hard around the self-help piece and that doesn't go away. Ongoing cost discipline, ongoing discipline around buying, trying to direct more unprocessed products for our shredders is all sort of internal self-help. But I would say the other things that we've got coming on stream is Glenbrook, the New Zealand EAF comes on late Q4, around May, I think, is sort of power on and then there will be a ramp-up here from that. That would be good for us. We're very well positioned with the investment we've made there in rail infrastructure to service their needs. We've also got 2 fines plants that we're currently -- that are currently under construction now, and they will go through a commissioning late Q3 into Q4, and we'll start seeing some very significant benefits more so in F '27 from those 2 plants. We've got the MRP upgrade in Auckland, which is again, as Stephen talked about, self-help, metal out of waste, very good returns on that sort of investment. So it's a mix of things. As Stephen said, we don't -- and you guys on the call probably as well positioned or better positioned than us around the whole piece around China and when they're going to -- and if they go in to change direction. But ongoing strength in nonferrous markets, strong -- really strong zorba pricing, driven by the underlying copper and aluminium pricing. Ferrous is still tough. What we are seeing, and this leads to a conversation about well positioned. We are seeing that a lot of our competitors are doing it tough. And I think that will present us with some opportunities down the track around industry rationalization and consolidation.
Operator: Your next question comes from Chen Jiang from Bank of America.
Chen Jiang: Stephen, Warrick, John, and Ingrid. Maybe first question to Ingrid, SLS. A big increase of the revenue share from resale, I guess, majority due to higher memory prices. I'm just wondering what is the strategy for SLS to grow your earnings, if it's structured versus one-off sugar hit when the DDR4 prices normalize. I guess the SLS business is not only solely DDR4 prices. What are the levers you can pull from here, given the market is still, you mentioned very fragmented and you are less than 10% of the market share.
Ingrid Sinclair: Yes. Well, that's very true. It's not all just DDR4. So we're also seeing increase in pricing in hard drives and the other elements we sell. So we don't just sell memory. We sell all components that are accessories to the data centers. How we're going to go is through volume. So we're going to see more volume coming through our current contracts and expanding geographically. And don't forget that once DDR4s have run their course, we'll start seeing DDR5s coming out so that this will replicate and just go on to the next technology shift.
Stephen Mikkelsen: Can I have one more thing, Ingrid. Chen, you made an interesting comment about prices normalizing. And look, it's a very valid and interesting point. But the way we're looking at it, and this is a very unusual market structure. But the way we're looking at it is what does normalizing mean? Because you've got 2 really interesting things going on. Firstly, DDR4s, as I said before, DDR4s are the workhorse of the Internet of Things, are the workhorse of our computers. DDR4s are not going away anytime soon. So you don't have this falling demand in the next couple of years. You just don't have it. So you've got this demand, which is strong. But what you have is this falling dramatically falling supply, which has been absolutely turbocharged by AI and anyone who can make chips is making DDR5. So that's what they're turning to. No one is setting up new factories to make DDR4 of any quality because why would you? You might have put all your resources into DDR5. So from an economics point of view, you've got this -- weird is not quite the right word, but you've got this unusual situation where you've got strong demand and supply not there to meet that demand. And normally, you would think it would because it's been completely diverted somewhere else. So I'm not sure to say -- I mean, time will tell on how it plays out. But I'm not sure what normalizing means when you've got that market dynamic.
Chen Jiang: Sure. I mean, normalizing. I mean, it almost trades like a commodity. So I'm not talking about demand, but more like a price given how the price has been over the last...
Stephen Mikkelsen: Where it doesn't behave like a commodity. And I keep watching we're grappling ourselves with this because this is a new -- this is new for everybody, what AI is doing, where it doesn't behave like a commodity. When demand goes up or demand -- and pricing is going up, you would normally -- a commodity there'd be more supply come on, people would invest in things and more supply would come off on and that would dampen the demand -- dampen the price and normally, they overinvest. And so down price goes and then they will pull out in the commodity cycle. This doesn't really follow that cycle because you just can't -- you can't bring on more supply.
Chen Jiang: Right. That's a very good point, Stephen. I appreciate that. And second question, if that's okay, again, focusing on SLS. Are you being able to provide any color on the resale revenue sharing across corporates or hyperscaler? Is that like how the contract work, understand, Ingrid, your team spent 4 to 5 years -- over the last 4 or 5 years, built a very strong relationship with hyperscalers and hyperscale revenue has been growing CAGR like 40% or 50%. But if you can give us any color on your existing contract position as well as if any new contract rather than just leverage to the DDR4 prices?
Ingrid Sinclair: That's -- I don't think we can get into too much detail it's commercially sensitive on our contracts and what we've negotiated. But once we do, our contracts do run 3 to 5 years long. The percentages are negotiated upfront and just fixed through the contract.
Stephen Mikkelsen: Yes, I think I agree. There's a lot of commercial sensitivity in that, Chen. But I'll go back and remake the point that why are we successful and why is Ingrid's team successful. It's around we've spent the last 5 or 6 years building up our proven capability to deliver and delivery, particularly when repurposing, which has the benefits that we get some resell as well. It's really important for these hyperscalers. But yes, I'm with Ingrid. I just don't want to get into detail on commercial contracts.
Chen Jiang: Understand. Absolutely -- I fully understand. Well, let's put it another way from like contracts or relationships or even how your revenue model work? How is that different to your competitor, Iron Mountain and other small competitors given it's such a very fragmented market. I don't know if that's perfect competition or...
Stephen Mikkelsen: Ingrid, I don't -- but for me, the business model is fundamentally the same across the industry. That's not it's...
Ingrid Sinclair: Pretty much. I mean what -- what we are doing though as far as repurposing DDR4s, going back into the data center, we are the only ones that are doing that.
Stephen Mikkelsen: We're absolutely...
Ingrid Sinclair: Testing, reprogramming, and it's going back into data center. So it's competing against virgin material. So that is something very special that we do, and that is in strong demand by the hyperscalers. They need the parts, because they can't get it on the market.
Stephen Mikkelsen: That is a good point, Ingrid. That's a big differentiator. The industry structure generally, but it's actually a very good point around that service that we're particularly good at.
Operator: Your next question comes from Owen Birrell from RBC.
Owen Birrell: Just a few questions from me. As with everyone's first question on SLS, a couple of angles here from my perspective. The first 1 is just looking at Slide 23, useful revenue by segment splits between resale, service and other. I'm wondering if you can give me a sense of the 5.3 million repurposed units during FY '26 -- first half FY '26, what split of those units by volume went to resale versus service?
Stephen Mikkelsen: Just let me -- I mean, we -- obviously, we know that number. I'm just thinking just from a commercially thing, does that -- Warrick, what's your thought?
Warrick R. Ranson: Let us have a think about that and we'll come back to you.
Owen Birrell: Okay. Well, then let me ask a subsequent question to that. Is that split likely to change going into the second half? Like do you have forward commitments for more service volumes as opposed to resale or vice versa?
Ingrid Sinclair: We do have service commitments, but the way it works, Owen, when you get in a rack, there is only a certain percentage that is fit for purpose to go back into a data center. So technically, there's only a certain percentage that can go in. So regardless of the increased need to go back into a hyperscaler, there's still a percentage that is for resale and revenue share. So the increased need would be met by a faster decommissioning cycle because they need the part.
Owen Birrell: So indicatively, the splits between resale and service volume perspective are largely constrained and therefore don't fundamentally change from period to period. Is that kind of what I'm getting from that comment?
Ingrid Sinclair: Yes, right. Because in a fully populated rack, there's only a certain percentage that can go back in.
Stephen Mikkelsen: So I guess the other way of looking at it, we would not be expecting second half splits to be materially different to the first half.
Ingrid Sinclair: I would expect the volumes to go up because they need more parts.
Owen Birrell: Okay. Excellent. And just on [ NFSR ], I guess, in terms of -- from our perspective, understanding how the business -- the operating leverage flows through -- given the lease model that you operate, is it fair to say that it's a very high variable cost business. And are you able to give us a sense of, I guess, what the fixed to variable splits in the operating cost basis.
Ingrid Sinclair: Yes. Well, the way we're attacking that, Owen, is we're automating. So we're going to automate wherever possible so we can bring productivity into the process and control that variable cost. But yes, normally, as you would scale, you would expect costs to increase, but we're going to attack it with automation.
Owen Birrell: I mean my understanding was a lot of that automation was actually going to be leased anyway, so it essentially becomes more of a variable cost.
Stephen Mikkelsen: Some of it is we do have a -- you're right. We -- the stuff we showed in Nashville was a -- on a volume base, yes, that's correct. But I think there's -- I think what Ingrid is talking about is we will end up to be charging. I think there's 2 things about SLS going forward. One is we will turbocharge automation because I think there's definitely productivity savings to be had there where we can effectively use our lease facility 24 hours a day through automation. And the other thing I would say -- the other thing I would say is moving forward, expect to see some additional expenditure going into R&D because what we know for sure is that in 3 or 4 years' time, the DDR5s that are going in now are going to come out. And they present a completely different challenge to DDR4. Some of them are in the good cooling. Some of them are more sensitive. So we are going to spend some money on R&D to make sure that we've got a business here that has the potential to last for decades because there's constant replenishment cycle with new equipment.
Owen Birrell: Okay. Just final question for me, for Warrick. Free cash flow conversion was quite weak during this period. And I understand there's often seasonal swings and trade swings. Just were there any sales booked very late in the period that you haven't received the cash flow yet?
Warrick R. Ranson: We always have some sales. I wouldn't say it's a material amount. I'd probably dispute the cause about free cash flow being weak. I mean I think you have to sort of, for us, you have to back out the amount, like in our working capital, we have to include the margin deposits. And we had, as I pointed out, effectively, we had sort of $200 million sort of come through because of nonferrous pricing. We managed to maintain our total working capital balance at around about pretty much the same level. So actually converting our activity into cash has actually been quite strong. So like if you take out that $70-odd million that went into those margin deposits, EBITDA to operating cash was pretty close to sort of 95%. So...
Owen Birrell: It's just timing. I guess what I'm getting at is just timing and it should have potentially rectify itself into the second half.
Warrick R. Ranson: Correct because yes, those margin deposits, et cetera, will come back down.
Stephen Mikkelsen: One thing I would -- and the risk of -- as Rob's got a great expression breaking into jail. The one thing I would add to that, though, is that if nonferrous prices keep rising, we see them keep rising and rising and rising. 2 things will happen. That will boost profitability. But it also puts -- I mean, we've always been on this. It puts more money into working capital. We've done a huge amount to hold our inventory levels. And I think we -- I think Warrick is right, we've done a great job. The team has done a great job in managing that. But rising nonferrous prices boost profitability, but they absolutely increase our working capital requirement. So for the end of this year, at the end of 2026, we have another surge in prices on nonferrous. You will see a similar thing happen.
Owen Birrell: Sure. Just one final question on SLS. You talked about sort of that pricing, I guess, sort of 1 month in advance. Is there a risk that you get a, I guess, the opposite trajectory? I mean, if prices come back down, is there any exposure that you have to falling pricing environment from an input cost perspective? Or is it purely just revenue share?
Stephen Mikkelsen: It's revenue share and service fees. So I don't think so because it would flow through this. So we're not -- we don't take it. I think of what your question is, do we take inventory risk, we...
Owen Birrell: Basically.
Stephen Mikkelsen: Yes. There is a small amount, but it's not massive. You can't be perfect...
Ingrid Sinclair: It spreads over pretty quick.
Operator: Your next question comes from Harry Saunders from E&P.
Harry Saunders: I'll start off with NAM for the sake of variety. So came in ahead of guidance, I mean anything you would call out to not sort of use this as a run rate for NAM in the second half given sort of current market conditions, perhaps?
Stephen Mikkelsen: I think you're right. We've got Rob in the room and for the sake of rise, I think Rob is feeling a little...
Robert Thompson: Harry, no, I think you could safely say that, as John said, we're only 1 month into our third quarter. The domestic market has increased twice in this third quarter for us, $30 in January and another $30 or so depending on the grade. Some markets are good. Nonferrous pricing is holding. If you recall last year, we had some severe weather where we operate. That is reoccurring this year as well with inbound flows. But I would say margins are going to hold this year and we'll have a better third quarter than last.
Stephen Mikkelsen: It's probably fair to say, Rob, from an EBIT point of view, the impact of the cold weather has been nothing like it was last year at all here.
Harry Saunders: Right. So this implies overall reasonable increase year-on-year in 2H EBIT, [ that's your call ].
Stephen Mikkelsen: I think that's a fair conclusion to draw. But I know Rob's comment, we're 1 month and we're 1 month in.
Harry Saunders: Great. And I will go back to SLS now. I'm just wondering if you can outline the percentage of SLS revenue that is resale that was 61% in the first half, like what is memory within that?
Stephen Mikkelsen: DDR4 memory in particular.
Warrick R. Ranson: I think that comes back to Owen's question. We'll take that offline, Harry, and have a think about coming back to you on that.
Stephen Mikkelsen: Yes. Obviously, to the extent we do dispose something, we'll disclose it to everybody. But we're just [ grappling ] in our minds what is commercially sensitive and what is sensible to talk to everyone about, which doesn't impact our business with either our competitors or our customers. But let's get back on that one. So -- and we'll definitely will.
Harry Saunders: Okay. Then I'm going to ask this anyway. And I know you probably won't answer, but if the memory price does hold at the current level and based on -- you were saying earlier, the repurpose versus resold -- or reuse versus resold units don't vary materially in percentage terms. You must have some idea of what the pricing benefit should be in the second half. So I mean, can you talk through the potential benefit there in terms of quantifying, please?
Stephen Mikkelsen: Holding -- I mean you're right, if you hold all those -- if you hold all of those things constant, you would expect the second half to be materially better than the first half because the prices rose into the first half. And if they come into the second half, we're clearly going to have increased absolute resale. We will without a doubt, we -- volume is looking good, so we would expect some increase in service fees. So that is -- yes, so if you hold all of that equal, you would expect a materially -- a material improvement in the second half versus the first half. What we'll do in March is try and provide some additional guidance on -- from what we've actually is happening where we think that number is.
Harry Saunders: And then maybe just asking Brook's question in a different way. I mean, any reason not to look at Ireland is the 1 million annual units as a ratio of your existing -- or you did 5.3 in the first half, so call it 10 or 11 annualized, looking at that as just an EBIT ratio to unit?
Stephen Mikkelsen: I think the mix is different. So when you're looking at the whole business, and I think this is a correct answer. You're looking at the whole business, which includes much more than just hyperscaler activity. And so it would skew higher than the business as a whole.
Harry Saunders: Okay. Last question, if I may, on SLS. Just wondering if you get a pricing benefit from customer reuse or if that's kind of a fixed dollar amount. So you're only benefiting on the actual resale percentage? And also just the revenue share, I mean, is there anything to stop customers lowering that percentage when the contract is eventually renewed? And are there any major renewals coming up?
Ingrid Sinclair: There aren't any major renewals coming up shortly. We're still another couple -- 2, 3 years out on our existing contracts.
Stephen Mikkelsen: So the service fee is a fixed percent.
Ingrid Sinclair: Service fees are fixed, that's correct. And we're -- it's volume.
Stephen Mikkelsen: Yes. But Ingrid made a really interesting and valid point before, is that, in terms of the service fee of putting it back in, it's -- when a rack comes out, it's not a 100% redeploy it back into the unit. There is a substantial amount of those DDR4 that are not suitable to go back in and they find their way to the resell market. So just because we're getting -- if we get more -- well, in fact, we get more activity around -- around the service revenue, we will pick up more resale revenue with that as well.
Harry Saunders: Okay. I'll sneak one more in. Just are you seeing any new competitors enter the market recently in SLS?
Ingrid Sinclair: As Stephen has mentioned before, it took us years to get here and to get to the level of qualification with the clients to make their technical specs, the security specs, data security. So we are not, at this moment, seeing anybody -- any new entrants. It takes years just to...
Stephen Mikkelsen: Our biggest competitors remain the hyperscalers doing it themselves or not doing it at all. Those are the -- that's where -- that's our next frontier.
Operator: Your next question comes from Scott Ryall from Rimor Equity Research.
Scott Ryall: I'm going to start, if that's okay, on Slide 22. And it's a question, I guess, for Rob and John. Specifically looking at the trading margin, just an observation first. Rob, I hope you're giving John a bit of a needle about beating them for the first time in 5 years, I say, based on my numbers. And I guess my question for both of you. So Rob, is your aspiration to get your trading margin up towards SA Recycling over the medium term? And John, is that decline? I mean you've spoken about the top line and the ferrous markets and nonferrous markets. How much of an impact on the trading margin did the outage has in the first half, please?
John Glyde: I'll go first. As I said, over the half, we actually managed to clear most of the inventory that was accumulated during the outage. So we've got a small amount of overhang that will wash out in H2. So over the half, it was pretty much clear. The other thing I should point out around trading margin is proportionately having higher nonferrous volumes and higher nonferrous pricing actually impacts trading margin in percentage terms as opposed to dollar per tonne terms. So actually doing more volume at higher pricing in nonferrous has a negative impact on trading margin percentage-wise.
Scott Ryall: Is it fair to say that's the biggest driver then, John?
John Glyde: Sorry.
Scott Ryall: Is that -- is it fair to say that that's the biggest driver -- the trading margin...
John Glyde: No. ferrous is extraordinarily challenging.
Robert Thompson: I guess, Scott, first of all, thank you for noticing that. A lot of work to the team. In terms of SA Recycling, they're a heck of a model to aspire to be. And I think the simple answer I can give you will be that, yes, through examples like TCT, the recent acquisition and some road map activity that is yet to be released to the market, some of the feeder yard, bolt-ons that we've talked about over the last several years, that's where we differentiate with SA largely. They have more than twice as many shredders and more than 2x the feeder yards where they're able to collect material at a much lower level of volume, but also at a higher margin. So NAM in the past has been built on big cities, big populations, we can have something in the middle. So yes, there's more work to be done, and we're going to continue clawing at it.
Scott Ryall: Right. Okay. And then my second question is predictably for Ingrid. But it's a bit different, I think. I guess what I'm wondering, just when you're planning your business, Ingrid, what is the visibility that you actually have on a rolling 6- or 12-month basis? And you mentioned there's about 2 months lag for pricing. So do you -- does that mean whatever the traded prices now you're getting in 2 months, and therefore, in 3 months, you're not -- you can take an educated guess, but you're not quite sure what the price will be. And then I guess the same for the units. Do you have pretty clear line of sight on a rolling 3- to 6-month basis? Or is it longer based on your contract like what you've just done in Ireland. I just be interested to hear how your business settings actually work.
Ingrid Sinclair: Scott, a tool that we use, which you can also subscribe to is TrendForce.com, and that gives some visibility certainly in this market, on the memory market pricing and so forth. Depending on the client, we do have some visibility because we're in their inventory systems. They're in our inventory system, so we can see the decommissioning cycle. So we don't necessarily know what's coming out of there, but we can see when racks will be decommissioned and come to us. So that does give us some planning visibility.
Stephen Mikkelsen: And Ingrid, it's probably for you to say that when it's varied from that, it tends to come earlier, not later is what we've found. So that's been our planning challenge if something has arrived earlier than we do. Yes.
Scott Ryall: But when do you feel most comfortable with making 95% confidence level as opposed to, say, 80% or something or 75%. When -- is that -- do you feel really confident on a 3-month basis as opposed to 6, 12, those sorts of things?
Stephen Mikkelsen: I can say from my -- and Ingrid I'll let you think. By definition, the price is something that 2 months out gives you a lack of confidence in terms of what it's actually going to be, we've got confidence around what we think drives it. So when I look at our results, I feel pretty confident about what Ingrid's predicting 2, maybe 3 months out. Beyond that, there is just some very bit of what do you think the price is going to be. Is that probably the main variability. Ingrid can show me what the volumes are. I think 3 months out, we're reasonably confident on volumes and maybe it's going to come in earlier, which is, I guess, why we think we've chosen the March -- the March date should give us some degree of confidence around additional guidance for June. I mean whether it's at the 95%. 95% feels a little bit like a utility. We're not there. But it's certainly -- it's a reasonable level of confidence.
Scott Ryall: Yes. Okay. And so just with that in mind and I know you've got very good reasons for having, followed a customer to Ireland. But -- so how much -- when you go and spend the money and I know what you're saying, Stephen, about R&D and automation and things like that. How do you get -- there's no business plan in the world that's riskless. But how do you get the confidence of at least making a minimum return on capital for that investment decision, please?
Stephen Mikkelsen: Maybe, Warrick, you think a lot of that capital maybe.
Warrick R. Ranson: Well, I think the beauty of the SLS model is it's capital light. So our investment there is, in terms of -- is really around the lease commitment and how we structure that. So we obviously cater for that within the way in which we approach that. But from a capital investment perspective, it's actually -- it's a great model. It doesn't -- there's not a huge amount of capital that goes into it.
Operator: Your next question comes from Ramoun Lazar from Jefferies.
Ramoun Lazar: Just a couple of questions on NAM and SA Recycling. Just on NAM, comments at the AGM for a meaningful step-up into the second half. Could you maybe build on Harry's question around NAM and how to think about the second half given the seasonality that we saw last year. And I guess what you're seeing there with the step-up in nonferrous pricing, what could we expect from NAM in that second half period?
Stephen Mikkelsen: For me, it's around market -- I'm going to Rob answer the question. But to me, it's around market pricing and our operations within that market. But Rob, you think about this all day every day? Second half. How do you feel about second half and what's driving it differently from last year?
Robert Thompson: Yes. I would say this to you. The way we've structured and I think the presentation that you've been able to see, the pivot over towards domestic consumption, whether it's ferrous or nonferrous and having those customers, it's a self-hedging margin preservation. So I'm buying and selling in the same markets. The international side, we're optimizing when it suits and we're dramatically changing the compositions of our cargoes based on best prices by commodity. So -- and nonferrous resilience is there. I think the scarcity of copper and aluminum, and really the demand pull has been good. In terms of what Warrick mentioned earlier about construction spend, I think we're coming into the season in the next 45 days or so, where we'll start to see some more construction demand. The steel mills are running in the high 70% utilization rates. Their margins are tremendously good, and they're not going to miss a heat. So they're looking for raw materials. We're looking pretty solid in the second half.
Ramoun Lazar: Okay. I guess the step up in nonferrous would have given you more confidence around that meaningful step-up versus what you said at the AGM? Is that fair?
Stephen Mikkelsen: I think unlike ANZ, I think in NAM, you need to be thinking about ferrous as well. So ferrous does gives us -- ferrous, we do have some confidence in nonferrous as well, unlike -- I mean ANZ, we're fairly confident that China is going to keep depressed and there's nothing going to happen in ANZ -- everything is about nonferrous. NAM, the domestic shred premium, what we've done around our logistics to make sure that we can sell domestically. And that number I said before, is quite amazing. 85% of our East Coast Street went domestically. 2 years ago, we would have been capable of doing 10%. So the increased demand in there's more [ AIs ], there is more [ AIs ] have come online. Rob's right around the construction activity. So we are feeling reasonably good about ferrous as well in North America versus first half.
Ramoun Lazar: Okay. That's helpful. And then SAR, I guess, a pretty meaningful step up there in the first half versus PCP, and that far off the strong second half '25 result. I guess how are you sort of framing that business into the second half. Anything to think about in terms of headwinds or costs or anything like that, that could...
Stephen Mikkelsen: No, I don't think there is, Ramoun, I think SAR is -- will enjoy the same market structure that ANZ than NAM is. What I would add to it, they can continue to produce a lot of zorba and we don't see zorba coming off in any meaningful way when things always strong. We don't see copper coming off. We don't see aluminum coming off. They have a good non-retail ferrous. I'm not seeing headwinds in the second half versus the first half. But you're right, second half of last year was very, very strong for them. And that would be great if they could replicate that. But we're 1 month in.
Operator: Your next question comes from Charles Strong from Jarden.
Charles Strong: I was just wondering whether you could quantify the impact of trading margins in percentage terms, there has been [ from greater ] nonferrous mix, whether at the regional level or across metals?
Stephen Mikkelsen: So not specifically, but what I would say is, by definition, greater nonferrous lowers our trading margin percentage because we make greater margin per tonne on a much, much higher. So when you're selling copper, I don't know, $12,000, $13,000 a tonne, your trading margin percentage is always going to be lower because you're making more in absolute dollars. So if I then say why I think that's been -- when NAM has done particularly well is despite that dynamic, NAM has actually grown its trading margin percentage, which I think goes back to Ramoun's question a little bit, which has come from ferrous. It's grown quite nicely.
Charles Strong: Just one more, if I may. You had net corporate cost saves. Do you see any further opportunity there with the outsourcing shred services or anything of the like?
Warrick R. Ranson: There's always opportunity. I think what we've said before, we took a fair amount of cost out of the business sort of a year, 18 months back. We did say that we would start to plateau in terms of those major structural changes to the business. But we're always looking for sort of cost out, but I'd say they're more on the fringe. And it's really about just sort of maintaining our cost levels at sort of current rates at the moment, Charles.
Stephen Mikkelsen: The only thing I would add on cost, Charles, is if nonferrous was the hero of the result in many ways, costs were a pretty good support act. I mean if you back out the variable costs that came from increased unprocessed and increased activity in SLS, the actual underlying cost base has performed really well in some still pretty inflationary times. I agree with Warrick. It's relentless the cost program, and we will continue being relentless. But I think probably the major, major cost reduction programs, well, I think we're more continuous improvement now, Warrick...
Operator: There are no further questions at this time. I'll now hand back to Mr. Mikkelsen for closing remarks.
Stephen Mikkelsen: Well, thanks, everyone, for joining the call. Thank you for the interesting questions, very good questions, and I will see a number of you -- we will all see a number of you over the coming days as we get out and about. Thanks very much.
Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.