Colin Kaepernick will take the field again in EA’s ‘Madden 21’


Colin Kaepernick is back on a football field. Kind of.

The quarterback, who has not played in the NFL since 2016, will be playable in Electronic Arts Inc.’s
EA,
-4.48%

popular “Madden 21” videogame through a software update. Though Kaepernick is still not on any actual NFL team’s roster, he will be available to add to any team in the game.

“The team at EA Sports, along with millions of Madden NFL fans, want to see him back in our game,” EA Sports said Tuesday on Twitter. “Knowing that our EA Sports experiences are platforms for players to create, we want to make Madden NFL a place that reflects Colin’s position and talent, rates him as a starting QB, and empowers our fans to express their hopes for the future of football. We’ve worked with Colin to make this possible, and we’re excited to bring it to all of you today.”

Since he’s no longer part of the NFL Players Association, EA reportedly negotiated directly with Kaepernick to add his likeness, which will include a “Black Power” salute when he scores a touchdown.

Kaepernick, then with the San Francisco 49ers, kicked off a social-justice movement in 2016 by kneeling during the national anthem to protest systemic racism and inequality in America. He faced backlash from many, including President Donald Trump, and has not played since that season. He later sued the league, claiming teams colluded to keep him from playing again. That suit was settled in 2019 for reportedly less than $10 million.

Earlier this year, the NFL admitted it should have supported Kaepernick’s protests at the time. “We, the National Football League, condemn racism and the systematic oppression of black people,” Commissioner Roger Goodell said in a video in June. “We, the National Football League, admit we were wrong for not listening to NFL players earlier and encourage all to speak out and peacefully protest.”

Goodell recently said he has “encouraged” NFL teams to sign Kaepernick, though none have.

Kaepernick, now 32, led the 49ers to the Super Bowl in 2013, and for a while was one of the league’s most dynamic players. And though he hasn’t seen action in four years, EA Sports gave him an 81 overall rating — a elite number that’s better than Patriots quarterback Cam Newton (78) and young Cardinals star Kyler Murray (77).

It’s quite a turnaround for EA, which controversially deleted a reference to Kaepernick in song lyrics featured in “Madden 19,” a move it apologized for at the time.

While Kaepernick’s NFL future is unclear — Packers legend Brett Favre, for one, says he still has the skills to play — his backstory will be made into a Netflix
NFLX,
-1.75%

series directed by Emmy-winning filmmaker Ava DuVernay.





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Sims Ltd ADR (SMSMY) CEO Alistair Field on Q2 2020 Results – Earnings Call Transcript


Sims Ltd ADR (OTCPK:SMSMY) Q2 2020 Results Earnings Conference Call February 17, 2020 5:15 PM ET

Company Participants

Alistair Field – Chief Executive Officer and Managing Director

Stephen Mikkelsen – Chief Financial Officer

Bill Schmiedel – President of Global Trade

Conference Call Participants

Owen Birrell – Goldman Sachs

Jack Gabb – Merrill Lynch

Lee Power – CLSA

Peter Steyn – Macquarie

Simon Thackray – Jefferies

Daniel Kang – Citigroup

James Brennan-Chong – UBS

Operator

Thank you for standing by. And welcome to the Sims Metal Management Limited 2020 Half Year Results Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions].

Today’s presentation 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 Web site www.simsmm.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 Alistair Field, Group CEO and Managing Director of Sims Limited. Please go ahead.

Alistair Field

Thank you, and good morning. It’s a pleasure to be here in Australia delivering the half year results for Sims. Joining me on today’s call is Group Chief Financial Officer, Stephen Mikkelsen and Bill Schmiedel, the President of Global Trade. The slide presentation that we will run through has been lodged with the ASX, along with the results release.

As you can see on Slide 3, the format for today is that I will run through a general overview, outperformance and the highlights for the first half fiscal 2020. I’ll then hand over to Stephen, who will take us through our financial results before I discuss some of the company’s strategic priorities and near-term market outlook and the challenges. Following that, there will be time for Q&A.

Now turning to Slide 4. The rapid collapse in ferrous scrap process in September 2019 combined with historically low zorba prices, severely compressed margins and resulted in a first half loss. This period has been challenging for all metal recycling companies globally. However, process subsequently improved and some recovery is evident in the market. While it is disappointing to present a first half loss, I believe an attractive long-term outlook remains.

We are progressing the rollout of our strategic growth plan and I’m pleased with the progress to-date, including the testing of Sims auto shred residue with two technologies. The result supported previous returns and demonstrated good environmental outcomes. Secondly, recycling with cloud volumes reached 9,000 tonnes for this half are on track to reach our FY20 target of 20,000 tonnes. Thirdly, we won an additional municipal recycling contract in Florida and the terms of this contract mitigate commodity risk. Lastly, the new regulation in China allows the import of our high-quality non-ferrous material and validates our strategic push to increase retail non-ferrous volumes in North America and other regions.

Turning to Slide 5, which highlight some key figures. The challenging business conditions that confronted us in the first half are self evident across all our metrics. Despite the loss-making position, we’re paying a fully-franked interim dividend of AUD0.06 per share, and this demonstrates our confidence in the business and its performance over the medium-term. The dividend was ultimately constrained by available franking credits, and we returned a further AUD22 million in share buybacks.

Now onto Slide 6, our safety slide. Excellent safety outcomes require continued focus in identifying and managing risk. We have maintained focus and made progress on critical risk awareness and management, as well as increased safety related communications. I’m pleased that this has flowed through to our safety measures, which has seen a reduction to 1.2 for this half year.

Turning now to sustainability on Slide 7. I have said many times before that the core of Sims business model is sustainability. Our business makes a positive contribution to society but not any reducing waste that would have otherwise gone to landfill, but also lowering CO2 emissions. In 2019, we announced our purpose to create a world without waste to preserve our planet and the growth strategy. Our sustainability strategy aligns with these, and we are now developing our long-term sustainability goals. We will host an environment, social and governance briefing on the 19th of March this year, and I look forward to further discussing sustainability with you then.

Slide 8 provides the high level consolidated financial results for first half fiscal 2020. Stephen will be covering the financials in considerable detail. But I do want to highlight that despite the setback of this first half year, I’m adamant that we must return the business to achieving above a 10% return on capital.

Turning now to Slide 9, which provides charts on market conditions. The two charts on the left depict process in our key commodities over the last two years. As you can see, ferrous reached its low points in September and is currently $50 per tonne higher despite volatility in recent weeks. There is good news in the zorba price, as you can see from the bottom chart. We have seen a recovery in zorba pricing since January. And so far, zorba has shown resilience, following the coronavirus, holding close to $1,000 per tonne.

This in past is due to China reclassifying hydrate nonferrous metals as renewable metal rather than waste, enabling imports of these materials from 1 July 2020 without quotas. This means about 90% of some nonferrous grades of scrap can be imported into China, validating our investment in quality initiatives and our strategic growth of nonferrous retail volumes in North America.

I’ll hand over to Stephen now for further detail on the financial results.

Stephen Mikkelsen

Thanks Alistair. I’m on Slide 11. I appreciate that the half year is a little complicated, but the adjustments between statutory EBIT and underlying EBIT fall into three main areas. Firstly, we written off the legacy brand that is no longer used in the U. S. rather than continue to amortize this over the next 10 years, we’ve expended this in its entirety. We’ve also written off goodwill in those European businesses to remain with us following the sale of the Compliance Scheme Operations.

Secondly, we’ve increased the estimate relating to an environmental liability we have in the U. S. I’m confident that this now fully us that commitment. And finally, we’ve responded to the challenging first half conditions with an extensive restructuring and cost reduction program that will achieve its full run rate of $30 million in FY21. We will get close to one year payback here and this is about setting the business up to operate and perform through all market conditions, not just a technical response to challenging market.

Slide 12 shows the convenience, the summarized EBIT and volumes by division. I won’t talk any further on this slide, because the subsequent slides build into ’19 convey more detail and I will speak to each of them separately. Before I move on, though, I have one overriding comment. All metal divisions to different degrees were heavily impacted by the September scrap price crash.

Now, North American Metals on Slides 13. North America delivered a breakeven result despite challenging market conditions. The metal margin declined due to intense competition for lower ferrous scrap inflow and weak silver prices. Proprietary sales volumes were down 9.6% over the prior corresponding period. However, nonferrous volumes remain stable. It is encouraging to note that our technology investments are performing as expected and providing higher material recovery.

Turning to Slide 14. ANZ achieved positive EBIT margins in the first half of FY20, which was reported by internal initiatives and a swift cost reduction response; nonferrous volume remain resilient, however, ferrous volumes were lower due to lower pricing, which was partially offset by continued healthy demand for ferrous scrap from Australian steel mills.

Moving onto Slide 15 in UK Metals. The UK experienced a particularly poor first half. Negative EBIT margins were a result of unsold inventory in the first quarter of FY20, which was then sold at a loss combined with low ferrous and zorba prices leading to intense competition for reduced volumes. While this result is disappointing, we undertook a strategic restructure and lowered the operating costs base while maintaining operating capacity at an FY19 levels. This puts us in a good position for any future events.

Turning to Slide 16 in Sims Lifecycle Services business. Following the sale of the European Compliance Scheme Operations, we are focusing the business on end-of-life cloud services that includes reusing, redeploying and recycling. The word lifecycle better captures everything we do to ensure in-cloud infrastructure is in use for as long as possible and stays out of landfill. The strong first half result was driven by improved recycled cloud volumes, better purchasing, a higher gold price and maximizing profit opportunities prior to the sale of the European compliance scheme operations.

Moving onto SA Recycling on Slide 17. SA Recycling was broadly impacted by the same market influences as North American metals, but the fall in zorba prices in particular materially eroded margins. As zorba prices fell from an average of $1,000 per tonne in FY19 down to an average of $800 in the first half of FY20, SA Recycling could not lower traded fee price without seriously lowering intake volumes.

On to Slide 18. Underlying EBIT on a constant currency basis for global trading improved 17.8%. This was due to lower operating costs, partially offset by lower brokerage volumes from SA Recycling.

The final segment we analyze is on Slide 19, Corporate and Other. Two points to note here; firstly, corporate expenses on a constant currency basis increased 4.1%, largely related to advisory fees for restructuring of business systems and processes; secondly, Sims municipal recycling improved the $1 million due to the agreed paper price adjustment resolution with New York City, which was partially offset by higher disposal costs.

I’m going to flip over to Slide 20 as it presents for convenience a consolidated picture of volumes contained in the previous slides, and I’m going to strike to slide 21. Big cases fallen from 350 million at 30, June 2019 to 150 million at 31, December 2019. Nearly three quarters of this movement is related to our flagged lower operating profit, return on capital and dividends to shareholders and capital expenditure. The remaining portion, approximately 60 million, relates to working capital, roughly 50 million of the movement is due to seasonality in our first half cash flow and we saw this in FY19 as well. There were some large provisions and credit was recognized at 30 June but paid in the first half of FY20.

My final slide before I hand back to Alistair is Slide 22 on capital expenditure. We have reduced our FY20 total CapEx forecast to 180 million, down 25 million from our previous update. It excludes any bolt-on acquisitions in the metals or energy businesses. While the company has a sound cash position, we remain disciplined in our approach and allocation of capital.

I will hand back to Alistair.

Alistair Field

Thank you, Stephen. Turning straight to Slide 24. The next couple of slides we’re going to look at the progress of our strategic growth plan. Firstly, our resource renewal business. This business will convert 1 million tonnes of watershed residue into high quality products. Of the detailed feasibility studies, including the testing of our own ASR, we have now selected plasma gasification technology. This technology supports previous internal rates of return and will provide us with the flexibility to choose between a number of outputs and maximize commercial outcomes across Sims’ global footprint. Importantly, these plans primarily use our internal material that has no other use and the gasification process has excellent environmental outcomes and doesn’t produce CO2.

Turning now to Slide 25, and Sims Lifecycle Services. The remaining global e-recycling business has been renamed Sims Lifecycle Services, as this basis affects the activities it will undertake. The business has a strong base to grow from. It is an integrated service provider, a secure partner and enables sustainability and compliance with global standards. In this first phase of growth, we are setting the foundations to scale the business in a service oriented and cost effective way. We’ve engaged with all major global cloud providers across multiple products and regions, and I’m particularly pleased that we’ve delivered increased recycling with cloud volumes in this half and are on-track to achieve our target of 20,000 tonnes in FY20.

Onto my last slide, the first half FY20 results and the outlook. Firstly, to summarized the first half has been a half with very challenging market conditions and the business has responded and strategically restructuring to achieve annualized cost savings of $30 million in FY21. As I just discussed, I’m encouraged by the progress of our strategic growth plan, and I believe an attractive long-term outlook remains. The outlook for the remainder of the financial year has both risks, such as the impact of the corona virus on ferrous and non-ferrous demand and process and opportunities. We still expect the second half FY20 results to be within the previously guided range of $40 million to $60 million after adjusting for the sale of the European compliance scheme operations.

Finally before handing back to the operator for questions, I want to thank all of our employees for their dedication over the last six months in these challenging market conditions. Operator, back to you.

Question-and-Answer Session

Operator

Thank you [Operator Instructions]. Your first question comes from Owen Birrell with Goldman Sachs.

Owen Birrell

Obviously, pretty tough operating conditions at the moment, I’m just wondering if you can give us a bit of color around what you’re seeing with respect to seaborne demand in the last few months. I mean, through December we saw pricing rise quite materially and it come off a little bit. But just wondering if you give us a sense on that? And I guess associated with that, what are you seeing out of Turkey at the moment?

Alistair Field

From a seaborne point-of-view, we’ve seen markets go up and down in terms of actual processing of shipping. Obviously, there was a rising the cost of fuel when the low sulfur fuel oil parameters came in. But in terms of the actual shipments to Turkey and in terms of the numbers of cargoes we’ve seen hitting across the Turkey, I think there’s still quite good still sitting around the 30 to 35 ships per month. Bill, I don’t know if you’ve got any comments on that?

Bill Schmiedel

Yes, I would just add that the Turkish activity has been fairly consistent. We did see a decrease in prices about three to four weeks ago of approximately 10% to 12%. But as of today, we’ve gotten about half of that back in essence the market went from 300 to 260 now it’s back up around 280, probably a little bit higher than that. If there’s a weakness, the weakness is closer into China into Southeast Asia, which has been in a rather quiet. There’s been some activity in the subcontinent. But other than that, it’s been a quiet market, that’s about it.

Owen Birrell

And just I guess looking on that Asian markets, obviously, it’s probably pretty too early to tell on I guess on the impact of corona virus. But just wondering if there’s any update on the nonferrous regulatory environment out of China? I mean is something supposed to come through mid last year, but we really haven’t heard much in terms of how that market dynamic is evolving.

Alistair Field

Well, I think you know that what was previously west was now being classified as a renewable metal, which is obviously good for us. That’s a commodity. And when you look at our nonferrous products, 90% of all our products meet that standard straight away, given that we send probably 30% to 40% of non-ferrous exports to China. The investments that we’ve made, obviously, I’m very pleased that we can deliver that quality and that diversified portfolio across.

So from a quota system, we see that falling away by the end of this year and that our products – the standard is you’ve got to basically be 99.2% metallic content, and we meet that standard. And obviously from an aluminum point of view when you’re looking at twitching the zorba and like, they’ve got to at 92% aluminum content. So that’s the expansion of our nonferrous strategy. They’re all — I think it’s probably good outcome for us in terms of the reclassification, called it renewable metals.

Owen Birrell

And just one final question from me on the CapEx, the reduction in CapEx by 25 million. Just wondering if you can give us a sense on, I guess, where is the 180 million going towards, what are the projects that that’s underpinning that 180 million? And what was the project or projects that were considered in that 25 million?

Stephen Mikkelsen

So I guess what we’re really going to focus on in this for the full year is maintenance sustaining CapEx and safety CapEx. So they’re going to be the number one priority and that’s probably round 130 million, 140 million of it will be those areas, so definitely keeping the business running and no compromise whatsoever on safety CapEx. The bulk of the risks of it, we’ve got the Avonmouth upgrade that finishes late January. It finished late January, maybe in probably in the February, I think it’s all up and running. So that will be there. The risk of it is just sort of minor growth CapEx projects that were already commenced and that will continue through the end of the year.

What did we stop doing? Well, what we do first, it’s what we considered nonessential CapEx or CapEx that was — are enter towards some growth projects that were there, but whether they’re not growth projects for this year, next year or the year after. It will be determined by how comfortable we are around in the business and we have executing. So I think it’s just being sensible capital rationing.

Owen Birrell

And just in terms of the potential for bolt on acquisitions, I was going to say this market environment and the market probably not going to want to see you spending on any bolt-ons but ironically it’s probably the environment that is going to provide you with the growth opportunities. I’m just wondering, is there any of your targets that you previously had on your right becoming more attractive around these levels?

Stephen Mikkelsen

It’s a good point you make and we’ve stated we’ll be disciplined and we will absolutely be disciplined. So they has to meet our hurdles and probably that’s why you’ve seen us being recently quiet over the last few months, because we’ve been — things have been put up but they haven’t meet our hurdles. I do agree that and it’s oftentimes like this which is the best opportunity we do getting things at the bottom of the cycle. We do have some things in the pipeline, we are working through the numbers, not be a year we will be disciplined, I guess that’s probably what I can say.

Operator

Thank you. Your next question comes from Jack Gabb with Merrill Lynch.

Jack Gabb

Just two quick questions for me. Firstly, just in terms of the going back to the European Compliance Operations sale. Can you give us an update on the timing for when you expect to receive the proceeds from that? And linked to that, in terms of the restructuring charges or provisions that you’ve made, is the majority of that linked to the European Compliance Operations, or is there a broader sort of cost cutting program that you’re making? And then just on volumes, obviously, pre the collapse in the ferrous price back in September and early October, I guess we had longer term targets for North America. Just kind of wondering how you’re thinking about that sort of 2025 target for both the ferrous and nonferrous right now?

Alistair Field

I’ll take the European sales and obviously going through the European Commission and we following that process and the estimate on that could be March, April and as soon as that is completed, then I will see the proceeds coming after that. So it’s really up to that European Commission process at this stage. In terms of — I’ll let Stephen answer the provision one, but I’ll just talk about the volumes in North America. The long-term targets are still our target in terms of being able to deliver that. We still believe both the ferrous and nonferrous targets are still realistic and certainly what we’re shooting for in the long-term.

So whilst we see a sight decline in terms of the ferrous volumes this year and the target of 5 million that we set, I’m comfortable that the targets are correct and obviously when market conditions are little bit more stable, I would expect us to be able to achieve that. The nonferrous market for us as you can see even during this last six months period, the nonferrous volumes are pretty much flat, which is also a good indication that we’re heading in the right direction, so very comfortable with those targets. Stephen, maybe you can talk about provisions.

Stephen Mikkelsen

Looking at the restructuring and redundancy provisions by far the bulk of those are in the UK and then from a materiality point of view, none fit in Europe. The main implication in terms of significant items of the sale of Europe, the Compliance Scheme Operations is the businesses that would lift in — that the businesses we still own, they’re at least back in Europe. They had intangibles, which we’ve impaired to the tune of $13 million. Now, they used to be part of the wider Europe CGU, the cash generating unit. But since we sold the European operations, I’ll be frank they didn’t stand on their own in terms of the valuation of those intangibles and goodwill. So we wrote off around about $13 million. But just reiterating my first point the restructuring and redundancy provisions around, I think taken very sensible restructuring in both the UK and NAM.

Jack Gabb

And has some of that restructuring being yard closures in the UK? I think you were looking to take some of the bigger yards, not necessarily reducing the potential volume as longer term, but just more of a customer. Is that right?

Stephen Mikkelsen

Exactly right. So we’ve sort of closed or shattered 11 yards and we’ve taken the volumes that they were producing down into four of our existing out, so we’ve beefed up those four yards a bit to handle the volume. So we fully expect to about handle the same volumes we handled in FY19. We heard that now capacity is being removed. We’re just saving the costs on these 11 sites, which I think again was a solid and logical rationalization.

Operator

Your next question comes from Lee Power with CLSA. Please go ahead.

Lee Power

So just continuing on from Owen’s question. Do you factor in any further recovery in Turkish process in your guidance for the full year?

Alistair Field

At this stage, we’re still looking around the $250 to $280 mark, that’s where we’re sitting today. I think the little bit really, obviously, working with the team and just watching very carefully the global sort of growth and that’s all related to the virus in China and whether that’s actually going to be contained in more stable environment. I think at this stage that’s the guideline we sort of are looking at around the 280 mark. Hopefully, the virus can be contained and we can see more stability and actually that past move up. But at this stage, we’ve been cautious in operating between $250 to $280 per tonne in terms of ferrous. In terms of zorba processing around the $1,000 mark, maybe slightly over that but again, both of them are watching for the Chinese outcome of the virus.

Stephen Mikkelsen

I might just add one more thing there, because I think the implication of what I’ve heard from your question is higher prices would automatically lead to higher outlook and maybe that is the case. But it’s very important that there’s lots of factors, so the buy price is important. So you know if we — I’ll give you — for example, we hear there’s high process, but there was very aggressive competition and came into the market and that margin was in a way the high price in and of itself might not lead to a higher outcome hitting that clearly would be placed with higher prices.

Lee Power

And then just on the UK restructuring, can you give us an idea of how much lower the breakeven point is, or maybe like breakeven tonnes or some sort of metric we can look at?

Stephen Mikkelsen

I can’t off the top of my head, I don’t know, let me think about that question a bit more, because it is quite a complicated question around particularly around these levels we have breakeven as there’s volumes versus margin, because margin is going to be probably, I’ll be frank, just as important as volumes in the UK for us breakeven. So as much as I’d love to give you a rule of thumb, I think it is a complicated combination of those two.

Lee Power

And that was kind of going to lead into my next question, which is hitting the full year guidance. Is it more a question of volumes coming back or is it a cost out story?

Stephen Mikkelsen

So I think it’s all three, because I led in margins as well. So the cost out have happened where we’ve just about through them, so we’ll hit the full run rate certainly by the time it get to the end of the year. So I absolutely expect the cost reductions to be contributing to our guidance. We would need to see volumes — it’d be good to see the volumes solidify around these types of level and get that, and see some margin come back into the business. So we’re not — we haven’t got overly optimistic assumptions as you would naturally assume. In that confirmation of our guidance, I think we probably summed up the respect is pretty well. So it’s all three but there’s no particularly growth assumptions on any of those three that we have.

Operator

The next question comes from Peter Steyn with Macquarie.

Peter Steyn

Just probably carrying on on that tangent. Is 30 million costs out that you’re targeting? Could you give us a bit of sense of that geographically? Stephen, is it — I presume the UK is making an outsized contribution given what you’ve done from a site perspective. But can you give us a bit of sense of that?

Stephen Mikkelsen

You’re right. The UK is making a larger contribution, because there clearly we would close the site, we haven’t closed sites. And then so its split, but it’s split between UK. And then it gets a little bit complicated, but I would say you’re probably looking at three quarters of it at least is coming from the UK in terms of contribution from the restructure and redundancy provision, the balance remain and a small amount from Australia.

Peter Steyn

Then I was curious just to get a little bit more detailed perspective from, Bill, around Turkey and how you guys are thinking about the progression of that market, both domestically and from an export perspective. Obviously, it’s been a lot of moving parts. If you could give us a bit of clarity on that that’d be great?

Bill Schmiedel

Peter, the Turkish market domestically appears to be slightly better than it was this time last year. The winter is already a difficult time there construction, regardless of the veracity of it will slowdown. But the signs for spring and some incentives that the government has put in with lower interest rates, et cetera have — give a better outlook. I wouldn’t call it a bright outlook, but a better outlook.

So as their export market goes over the next few weeks, we should see what the European quota will be for Turkey, which will give them another outlook. Their biggest, as you probably know Peter, export destination is North Africa and the GCC, to some extent. Asia is important add on, but not totally critical. North Africa seems to be in okay shape, demand seems to be consistent. Pricing is difficult for the Turks today. Rebar pricing was in the $430 range about a month ago and is down into the 415 to 420. And billets have gone below, down below 400 to around 390. That seems to have solidified the market there and prices are slowly started to increase.

As far as the scrap prices go, going into January I was relatively optimistic about, not just Turkish demand and steel in general but worldwide demand. It looked like we’re finally going to come out of the worldwide manufacturing recession that we’ve been in for over 18 months, and there are a lot of macro pieces that made things look better. And the first thing of course was the U. S. and Iranian issue, which essentially stopped the market for the first couple of weeks in January. And then more and more news came out about the corona virus, which certainly made people sit and wait. But regardless of that, after that two or so week period, the Turks did come back to volume, as Alistair pointed out earlier.

The number of cargoes they’re buying is about on average, so they continue to operate, they continue to fight, work on probably lower margins than they would like to. But they are continuing to mill. The operating rate hasn’t decreased from where it was last quarter of ’19. And the surrounding areas have been fairly active as well, whether that’d be Egypt, or Greece or the GCC that’s been fairly active as well. So as the market got down under 300, it brought a lot of people back into the market, which solidified and why it bounced back up in the 280s. I’m not sure if that answers your question, but…

Peter Steyn

Just one last quick one, on the China, in particular Alistair, 10% of your sales last year, you now have a little bit more of an incentive to focus on that market given your competitive position. How do you think about that strategically from a pivot point of view?

Alistair Field

In terms of our nonferrous to China, Peter?

Peter Steyn

Non-ferrous, yes.

Alistair Field

I think, the overall strategy is that we wanted to be able to have our non-ferrous products being able to be sold around the world and China obviously, is a large part of that, or 30% to 40%. The Southeast Asian region, when you look at China, India, Malaysia, that entire region is obviously the focus for a lot of our non-ferrous sales. And I think technically we we’ve done what we needed to do, which has given us the capability of varying qualities. And if there’s a premium in a quality product, then we can go off to that. So I think we’ve diversified a customer base but also given ourselves the technology to be able to sell and hopefully extract premium in the coming years.

Operator

Thank you. Your next question comes from Simon Thackray with Jefferies. Please go ahead.

Simon Thackray

I’m probably a bit slower than the rest. I just really want to try and stick this through. You’ve got a targeted exit run rate on cost savings of AUD30 million, three quarters plus coming out of the UK on consolidation. You got an assumption of ferrous prices of 250 to 280, zorba in a 1,000. All things being equal, prices weren’t any way near that in October when you gave last update and yet the guidance is unchanged. So I mean and call it conservative I presume. But does the math actually make sense? I just need to the maybe waterfall for this, or stepney through, because things have improved and the way you always explained things, Bill, was that six weeks to build a cargo, forward sales, those process were improving dramatically through November and December in terms of ferrous scrap, that that should be a good quarter Q3 for the business, all things being equal. And the one thing that seems to be missing from the pack, this result is that wonderful quarter-by-quarter sort of rapid performance that seems to have disappeared. So it’s leaving us — leaving me, so I don’t want to say us leaving maybe a little bit more confused about how you get to this guidance given the conditions improved in the final parts of 2019 that should be benefiting you in the third quarter. So are you assuming a much weaker fourth quarter, or how does this work? How does the math work?

Stephen Mikkelsen

Simon, its Stephen here. Let me try and take that apart a bit and I’m sure that Alistair and Bill will go chime in as well. So there’s a few things in there. So let me go through some of them. Firstly, it absolutely initiated our cost out, we begun to understand what our cost out program was when we came out. So we reacted to that very, very swiftly. And while we’re implementing it now that was built into our full year guidance, so we knew that we were going to be — what we were going to do. It’s just going to take us a while to implement it. But that was certainly built in there. So I wouldn’t view that as additional.

Secondary, and I think it somewhat relates to the points I talked about before. Price is absolutely one of the components. But the other component you have to look at and one which is just as difficult for us to forecast as it is for the market to forecast is what is the level of competition going to be, what is the buy price going to be at particular levels. And we have seen you know particularly in this first half, we have seen some fairly aggressive buy price activity. I mean some of it doesn’t completely make sense to us, because we cannot see how you’re making margins of those. But I guess in a market that has been as volatile as it has been, some of the volatility has been extraordinary, we just don’t setting back and having a look at other the other day. We’ve had 10% and 20% swings month-on-month both up and down on pricing. And that makes understanding where your buy price needs to be from a competitive point of view very, very difficult.

Alistair Field

The first comment I’ll make before Bill and anyone else want to chime in. We actually got very strong feedback from our shareholders that they didn’t like the quarterly slide, because they thought it added volatility to our business and much more short term focus than it should be. So I guess we’ve listened to those shareholders that acknowledge as analyst you might not be all very happy with that, but we’ve listened to that feedback and not included there slide.

Simon Thackray

The only concern that I have is that it’s commodities plus volume, they all go together to have that kind of underlying volatility in buy prices and there was some explanation for in North America in terms of seasonality as well. But if we’re saying it’s a highly volatile environment, I accept it how to give guidance. So it’s very difficult for me to understand with any kind of clarity what 3Q or 4Q could look like? It feels likes a bit of a dart board from the way you’re describing how volatile the environment is. So I mean…

Stephen Mikkelsen

I wouldn’t describe it as a dart board. And I guess what we’re saying is…

Simon Thackray

But you just described the buy price is very highly volatile, moving 10% to 20%, that’s pretty volatile…

Stephen Mikkelsen

Yes, it is and I’ve described it as what we’ve just been through. But bear in mind that was driven by a scrap price pressure in September that was around three standard deviations from the norm. So we’re talking a very significant event. And as it recovered, it recovered in a very volatility fashion and that caused volatility in the buy price. We have seen some stability return. We’ve actually seen some stability return. And that is one of our assumptions I will make that very clear. One of our assumptions when we’re looking at, we think we’re going to come in at the year-end as that’s somewhat level of stability that returns remained. If it went to another highly volatile market, I don’t know the corona virus or who knows, what could cause that level of high volatility and that would clearly be a major change to our assumptions.

Simon Thackray

Can I just flip to across to something that I also don’t understand, but that looks pretty interesting is this cloud recycling. You might have referenced to the link to the gold price, I probably didn’t understand, I don’t understand what the drivers of that business are. So I just wanted to understand little bit more about that reference to the gold price. And also it sounds like a pretty attractive large market growth market. Just what the current competitive environment is in the recycling of the cloud and what you expect it to be over the next sort of couple of years?

Stephen Mikkelsen

So the reference to the gold price, actually reference is more with our business that we sold on 30th September. So what we’re saying is they have traditional scheme options did quit well in the first quarter [Multiple Speakers] gold price. The gold price doesn’t have a big influence on recycling of the cloud. We do view it as a potentially very good opportunity, I guess what I’ve been saying, we’ve been consistently saying over the last year and what we find attractive about it is its lower capital. So it’s a no regret strategy for us. We can cycle the costs up and down very quickly. If the market volumes rise or if they don’t rise, we can pull it back pretty quickly. So we review it as a no regret strategy, because it’s doesn’t involve capital.

I guess we view it as an attractive market for us for a number of reasons. One is its global, and Sims is a very much a global player. The type of companies we deal with, the names as you expect are the large global providers of cloud services. Infrastructure as services they now call it to large players. So they are interested in dealing with a large reputable industry player, which we are. And I guess thirdly and over the last five to 10 years in our ITAD business, which is our asset disposal business. We have actually built up a lot of expertise in this area. So we think it all comes together. I will admit it’s a blue sky opportunity, but we view it as a low risk…

Alistair Field

And I might add one other comment there is that in terms of competition there, there are other competitors in this in the USA, but from what we can see at the stage that they are not global competitors. And one of the key focuses for any one of our large customers does around the security of managing their product. So we do have an advantage in that sense as well.

Simon Thackray

And then one real quick one to wrap up, just ANZ, another good performance from that division. You saw good strong domestic demand for scrap. And Bill’s point about Asia being quiet from the global trading perspective is obviously pretty well known. Just in terms of the, if you can, just in terms of the split between sort of the export tonnes and the domestic tonnes, and that relative resilience of ANZ and probably a little surprised, I thought that maybe it did feel that that Asian pressure a little more in this half. What are you expecting for the second half then as well for ANZ?

Alistair Field

The split would remain pretty much the same as it is and has been for a while, so it’s just 50-50 pretty much domestic versus export. So there is solid demand for both. And actually we watch the pricing. But I think the export volumes should be the same as what we saw in the first half.

Operator

Thank you. Your next question comes from Daniel Kang with Citigroup.

Daniel Kang

Just maybe a question for Bill or maybe Alistair, in terms of zorba pricing and

U. S. domestic scrap pricing. The rallied and actually sustained the strength, it’d be good to hear your thoughts on drivers here and whether you expect this strength to maintain?

Alistair Field

I’ll take the zorba pricing issue first. And obviously, we have just over a $1,000 plus to $1,100 per tonne at this moment. And from a stable market environment point it’s good that we’ve seen that the rising zorba pricing from the lows of 800 early in last year. Part of that has obviously got to do with China in terms of that economy and whether that upswing is going to come to see if any of the zorba prices rise. But we’re suggesting that it’s going to stick around the levels that you’re seeing today, and the drivers really is the motor car industry. So that is something we’ve got to watch very carefully across the globe. In terms of the USA domestic scrap pricing market, I’ll hand over to Bill over there. But I think the one thing I would comment on is the volatility we saw in domestic scrap pricing for ferrous last year.

Bill Schmiedel

Daniel, are you mostly interested in non-ferrous or ferrous in the U.S.?

Daniel Kang

Ferrous, Bill.

Bill Schmiedel

I think the outlook is pretty good for ferrous in U. S. for the whole year. There are finally some infrastructure projects that are being funded. The outlook, I think, the order books that I speak to about which new cores and others are fairly solid fleet, maybe a little bit weaker than they would like, but flat product seem to be going pretty well. That doesn’t mean that the market hasn’t been volatile.

It’s been extremely volatile, probably more volatile than the export markets over the last say eight months from July to February. And I think the next couple of months that volatility will abate a bit. I think we’ll get off the 10% changes every month to something more reasonable. At least that’s where it appears to me now. But of course that is affected by the international market. So it’s really difficult to make an accurate judgment. But I’d say it will be less volatile the next few months than it has been.

Daniel Kang

Just another question in terms of the buy price, I think in your guidance you mentioned that you’ve noted some softening in terms of the aggressive competitive behavior on the buy price? Typically, do we tend to see competition reduce prices rebound?

Alistair Field

I think when we see pricing increase and I’ll take you back maybe 18 months, two years ago. When you see prices up in the 300, 350 range, there’s obviously a lot of scrap flows in that sort of price levels. And whilst this competition, they doesn’t seem to be that much of a buy price fight, that’s more relaxed and given the volumes are flowing and people can actually extract their margins.

What we’ve seen is when the pricing becomes difficult is when we see the prices down in the 250 mark and volumes are starting to slow down and individuals have committed to a sale, then you see a lot of competitiveness. And that could be literally within 5 miles of an operation. And that’s where I think a little bit of the competition that we talk about in the buy price does affect the competition in that particular region. And we’ve seen in the UK and in the U. S., I mean in certain parts of those countries where we have a higher level of competition on one cost versus another or a domestic versus an export competition in the UK. So I think pricing and that competitive environment is quite specific to regions.

Operator

Thank you [Operator Instructions]. Your next question comes from Brennan-Chong with UBS. Please go ahead.

James Brennan-Chong

James Brennan-Chong here. Just a couple of clarifications on what do you think the reclassification of China’s non-ferrous material will mean. Positive to see that 90% of your products will be making that threshold, so three quick questions on that; one, what do you expect will happen to the remaining 10%; two, do you expect any costs of compliance to ensure that your 90% of those non-ferrous volumes will get in; and thirdly, at a macro level or an industry-wide level, do you think that you are standing out, being able to put in 90% of your volumes into the Chinese market once this reclassification is done or do you think that the broader market will also be able to get 90% of its volumes into China as well? Thank you.

Alistair Field

The 10% of our products you talk about and as I said, we send 30% to 40% of our product actually goes to China. So we are quite comfortable that we are capable of delivering that 90% to China but the remaining 10% is markets and we don’t have to have high operating costs for those 10% then there’s markets for that, so quite happy with that 10% and where that goes to.

In terms of your second part of your question, they are very small packaging costs that we’ve noted that China regulations about for packaging to be quite specific sort of one-time bag. So there is a little bit of cost around that we’d need to do, but nothing major. And then the third part of your question then in terms of the macro and does some standouts. I would say we’re probably leading across our group in terms of the technology we’ve already installed, and that some of our competitors are still going through that process. So in typical engineering fashion, you probably get a year ahead of anybody else and then they catch up. So for us, it’s really about managing our costs in producing products, keep them as low as possible and make sure we diversified and have a handful of our markets and we are aggressively wanting to grow that business, the non-ferrous as for our strategy.

James Brennan-Chong

And I just finally Slide 24, just on the strategic growth, converting ASR into gasification process. I may have missed it. Can you just remind me, have you chosen a location for this site? And given that you’ve started engage the government. Do you have any initial CapEx numbers please?

Alistair Field

No, at this stage, we haven’t opened up the locations. We’re obviously reviewing that. So we haven’t negotiated. But the first one we are planning on building will be in Australia. And as any new group management process for us, the location is going to be part of the discussion with EPAs and the local government. It’s more than just one project it’s also about relationships going forward. So at this stage, once we’ve chosen the technology we need to go through the next feasibility phase and that will give us a level of comfort around costing. So that will only come out after the next phase.

James Brennan-Chong

And do you have budgets on how much you’re going to spend studies and all that over the next 12 to 18 months?

Alistair Field

The board needs to obviously approve. We’ve finished the prefeasibility study, which is rather small in terms of capital, it’s not significant at all. But the next phase in the feasibility study is probably $3 million, $4 million at this stage and that’s fairly small.

Operator

Thank you. Your next question is a follow up question from Lee Power with CLSA.

Lee Power

Just a quick follow-up on the cloud recycling. Can you just remind me what the split in terms of tonnes in that business is between recycling like obsolete equipment into its base materials as reselling components?

Alistair Field

Going forward, because the historic one will be completely dominated by the nonferrous after the [indiscernible] what we’re doing. Going forward, let me get back to you through Angela, but off the top of my head I don’t know what to split is strategically. I mean what I would say strategically, our big focus will be on the cloud, but we do have a baseline of ITAD business that we still continue. But for Europe from your perspective, I think we shown most of what we want to do will be clamped going forward and it will start to dominate. But let me get back through Angela, if I can.

Operator

Thank you. There are no further questions. And that does conclude our conference for today. Thank you for participating. You may now disconnect.





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Woodside holds on to stake in Senegal oil field as FAR challenge fails By Reuters



(Reuters) – ConocoPhillips’ (N:) sale of a stake in a $4.2 billion Senegal oil and gas project to Woodside Petroleum (AX:) has been cleared by an international tribunal, resolving a long-running challenge by Australian partner FAR Ltd (AX:).

Woodside and FAR said on Friday an International Chamber of Commerce panel had ruled that FAR did not have a pre-emptive right to match the offer for the 35% stake in the Sangomar project that ConocoPhillips sold to Woodside in 2016 for just $350 million.

FAR said it was reviewing the arbitration award. It holds a separate 15% stake in the Sangomar project, which also counts Cairn Energy Plc (L:) as a stakeholder.

FAR’s shares fell as much as 9% to 3.1 cents, their lowest level since the middle of 2013, on the news that it would miss out on the chance to potentially raise its stake in Sangomar for a comparatively low price, or win compensation.

At that level the shares were also well below the 4.25 cents apiece that investors paid in a recent issue of new stock by the company.

The resolution of the case comes just as Woodside and its partners have begun development of the Sangomar project, following final investment decisions in January, with first production expected in 2023.

FAR, which discovered the Sangomar field in the world’s largest oil find of 2014, disputed Woodside’s acquisition of its stake in the acreage, arguing it was not allowed to exercise its right to pre-empt the sale of Conoco’s stake.ConocoPhillips and Woodside, now operator of the project, had maintained that FAR’s challenge was without merit.

“Woodside is committed to working … to progress the Sangomar Field Development, which achieved final investment decision in January 2020,” Woodside said in a statement on the tribunal’s ruling on Friday.

ConocoPhillips had no immediate comment.

Analysts had thought that if FAR won the arbitration, it might get some form of compensation from Conoco or Woodside which would have helped the minnow fund its share of Sangomar development costs.

“While disappointing for FAR, we think it remains in a reasonable position with respect to its forward funding profile albeit this as come at the cost of significant equity value dilution,” RBC analysts said in a note.

The company raised A$157 million ($105 million) in December through the sale of new shares to help cover its $480 million portion of Sangomar development costs. It plans to cover the rest of its costs by taking on debt.

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