Radius Recycling Inc (RDUS) 2007 Q4 法說會逐字稿

(Call already in progress) -- We need to remind you that the Company's presentation and discussion today contain forward-looking statements subject to the Safe Harbor provisions of the federal securities laws including estimates of future performance and views on future market trends. Actual results may differ materially from those projected in the forward-looking statements.

Examples of factors that could cost actual results to differ materially from current expectations are listed in our earnings press release issued this morning and are described in detail under the heading Factors that Could Affect Future Results and the management's discussion and analyst section of the Company's most recent quarterly report on Form 10-Q and most recent annual report on Form 10-K. I would now like to turn the call over to Mr. John Carter, President and Chief Executive Officer. Please proceed, sir.

Thank you and good morning. Welcome to Schnitzer Steel Industries' 2007 fourth-quarter earnings webcast and conference call. I'm joined on the call this morning by Greg Witherspoon, our CFO. After a few introductory remarks we will be available to answer your questions.

We put out a press release this morning with the details of our fourth-quarter results. Before we go through the highlights of the quarter and provide you with our outlook for the first quarter and fiscal 2008 I'd like to take a few minutes to review 2007.

We had another very good year, our sixth consecutive year of record revenues. We increased our consolidated revenues 39%. Operating income was up 12% and earnings per share were up 9%, both have been adjusted for unusual items which occurred in 2006. At this point I'd be remiss if I didn't acknowledge the contribution of our 3,500 employees to this year's success, and I'd like to personally thank each and every one for their hard work.

During the year we continued to see the benefits of our uniquely vertically integrated business model, benefits we believe have continued to increase with our emphasis on acting as one company with a unified management team. We've talked in the past about how 2006 was a transformational year for the Company as we completed and integrated a number of major acquisitions which established the foundation for our future. In 2007 we took that foundation and made it even stronger by investing in an infrastructure that significantly expanded our production capacity and allowed us to become more operationally efficient.

Our metals recycling business reported a 49% increase in revenues and a 30% increase in operating income compared to 2006. Our ferrous processing sales volumes were up 1 million tons or 30% and our nonferrous volumes were up 27%. During the year we installed three new mega-shredders and upgraded our back-end nonferrous recovery systems. We now have four higher capacity, more efficient mega-shredders operating at our export facilities in Oakland, Portland, Tacoma, and Boston.

The higher volumes are primarily the result of achieving our objective of working our assets harder by increasing our throughput. As we continue to gain efficiencies from the investments we're making in technology our ability to compete for new sources of supply is being enhanced. We continue to leverage the competitive advantage provided by our access to deepwater port facilities and we took steps to improve our ability to reach the export markets through container shipments.

Throughout the year the demand for scrap metal around the world was strong. Our sales remained diversified as we sold to 19 different countries including sales for the first time to Indonesia and for the first time in a few years to Japan. We also continued our disciplined approach to strategic expansion in the metals recycling business by completing three tuck-in acquisitions which together will add about 300,000 tons of ferrous metal annually. In what continues to be a consolidating industries we intend to remain an active player, focused on acquisitions which meet our strategic objectives while creating value for our shareholders.

Turning to the steel manufacturing business, we completed the second-best year financially in our history despite higher cost for scrap another raw materials used in the steelmaking process. Volumes increased 1% even with a five-week shutdown for capital projects, projects which have increased capacity and improved efficiencies at the mill. As a result of these capital improvements annual capacity at the mill is now in excess of 750,000 tons.

In the auto parts business revenues increased by 22% primarily due to our emphasis on increasing the purchases of scrap vehicles and getting more out of each vehicle. Purchases increased 6% despite very competitive market conditions and improved yields from the extraction of cores helped offset expenses related to improving the information technology platform in this business. The full-service distribution network also showed good year-over-year growth in operating income.

In 2007 we demonstrated our ability to effectively manage our shareholders' capital. Our return capital employed was nearly 16%, well in excess of our cost of capital. We put in place guidelines governing returns on capital expenditures that target an ROI of greater than 30% and a payback of less than three years, unless those projects were associated with safety, environmental requirements or equipment replacement.

Our strong cash flow and access to capital provided us again with the opportunity to make prudent capital investments and value creating acquisitions as well as return money to shareholders. During the year we repurchased 2.5 million of our shares, or roughly 8% of the total shares outstanding.

The fundamentals in all of our businesses remain strong. The growing worldwide demand for steel products and the raw materials used by steel manufacturers remain favorable to our business. We continue to believe that the worldwide focus on sustainability and recycling has made our businesses and our business model increasingly attractive. We remain committed to achieving further growth both through additional acquisitions and organically through improved productivity and investments in technology. We have built a solid foundation for the future and intend to use that base to take maximum advantage of the positive environment in which we are operating.

Before we discuss in more detail our near-term outlook, let us review the recently completed fourth quarter. In the quarter all three of our businesses performed well, both operationally and financially. In the metals recycling business we remain committed to maximizing throughput and working our assets harder, that commitment was apparent as we produced and shipped record ferrous volumes. Two shipments originally scheduled for the fourth quarter were delayed into the first quarter of '08 or the ferrous numbers would have been even higher.

We continue to be pleased with the results for the mega-shredders installed earlier this year as well as the new advanced sorting systems. As we said on our last call, early indications are that we are achieving roughly a 15% increase in nonferrous recovery from the shredding process and as technology evolves we may be able to see further improvements there.

Nonferrous volumes were exceeded only by the volumes shipped in the third quarter of this year which included about 5 million pounds of Zorba at our northeastern operations which had accumulated during the first two quarters of the year while the new shredder was being installed and tested at Everett. Those volumes provided a boost to third-quarter earnings, as we previously pointed out, and account for nearly half the decline in quarter-to-quarter earnings results for our metals recycling business.

The export markets for ferrous scrap continue to be strong as net prices remained at high levels, although slightly down from the record prices achieved during the third quarter. Net prices for shipments off the West Coast were stronger than those made in our other regions reflecting the relative strength of the Asian markets compared to the rest of the world. Our sales remain diversified as we made bulk shipments to customers in 12 countries during the quarter including Turkey and several destinations in the Far East.

We did see a weakening of prices in the domestic markets for ferrous scrap with the impact felt most heavily in our Southeast operations. Buy prices for raw material declined except in the West where the competition for materials is more export focused. Operationally, while the installation of the new Portland mega-shredder was being completed we continue to run the old shredder to maintain production volumes. This allowed us to meet our sales commitments but the operation of two shredders contributed to an increase in conversion costs during the quarter at that facility.

The old shredder has since been shut down. As with the new machines installed earlier this year in Oakland and Boston, the new Portland shredder will take a few months before achieving the expected operational efficiencies, but we like the progress that we've made so far.

Finally, we announced the acquisition of a metals recycler with two facilities in Alabama and Georgia. This acquisition further strengthens our presence in the Southeast and will add about 65,000 tons of ferrous scrap annually to our sales totals.

Turning to the steel manufacturing business, markets during the quarter remained strong and we achieved record net sales prices. As I mentioned earlier, we have been challenged by higher raw material cost for our mill throughout the year, scrap, alloys in flux costs have all gone up. During the fourth quarter the record prices more than offset the higher cost and our operating income improved sequentially. In fact, operating income was the third-highest in our history exceeded only by the third and fourth quarters of fiscal 2006.

The auto parts business produced another quarter of solid results; revenues were a quarterly record and our operating income nearly matched the record income of the third quarter. Our emphasis on increasing throughput and getting more out of every vehicle resulted in higher scrap volumes and improved core yields. Along with the full-service sales that helped offset normal seasonal declines and self-service part sales.

On a consolidated note, I should point out that we were impacted by a number of SG&A expenses that were booked in the quarter but that we look at internally in the context of the full year or even longer. Our consolidated gross margin was nearly level from the Q3 to Q4, so the decline in operating income was largely related to these items which Greg will describe in a moment. Now let me turn the call over to Greg to go through some of the detailed numbers for the quarter and for the full fiscal year. Greg?

Thanks, John. As we said at the top of the call, we put out a press release this morning with detailed quarterly and annual results. Let me spend a few minutes explaining those details. We ended a very good year with a quarter in which all three of our businesses reported record quarterly revenues which is a reflection of our focus on maximizing throughput at our facilities as well as good markets.

Operating income was also strong and, when combined with the third quarter this year, represented the highest two quarters for our operating income any time in the Company's history. As John indicated, while we saw a $7 million decline in operating income from Q3 to Q4, gross margin was down only $1 million with the difference primarily being due to the timing of selling, general and administrative expenses that fell into the quarter.

In August we amended our stock based incentive plan to change the rules regarding vesting upon retirement. As a result of the amendment we were required to accelerate the recognition of benefits rather to continue to accrue the expenses over time as we were doing previously. The incremental expense we recognized in the quarter was about $2 million.

We also have an annual incentive compensation plan for our employees based on our operating divisions and the Company meeting overall financial objectives. As the Company performs well, as it has done this year, our employees' variable pay plans increase. During the fourth quarter we recognized an additional $2 million in compensation expense to bring our annual accrual in line with the amount our compensation committee deemed appropriate for the performance of our people this year. These two items account for $4 million of the $6 million increase in SG&A expenses for the quarter and all of them reflecting expenses which should be viewed in the context of a full year or longer.

Turning to the full year, consolidated revenues were up $700 million over 2006 with the increase driven by both higher volumes and higher market prices. Acquisitions contributed to the higher revenues, but more than 75% of the increase was related to organic growth. Consolidated operating income increased $39 million compared to 2006. As you may recall, we recorded a $15 million charge last year for the SEC and DOJ investigations. Excluding that charge operating income increased $24 million or 12%. While sales prices were up year-over-year, raw material costs increased as well and the increased operating income was almost entirely the result of higher volumes in all three businesses.

In the metals recycling business revenues increased $700 million or 49% with processed ferrous volumes up 1 million tons or 33% and nonferrous volumes up 81 million tons or 27%. The three mega-shredders installed during the year have increased our capacity significantly and higher volumes reflect our focus on maximizing the utilization of these assets. Average ferrous and nonferrous sales prices were up 22 and 17% respectively during the year reflecting the strong worldwide markets for recycled metal. That strong demand also translated into higher raw material costs which were only partially offset by lower conversion costs from our investment in new technology and infrastructure. As a result the increase in operating income was due to the higher sales volume.

In the steel manufacturing business revenues increased $38 million or 10% over 2006 driven by a 1% increase in sales volume and a 9% increase in the sales price. During the year we shut down one of the two rolling mills for five weeks to install a new reheat furnace, but were able to keep up with sales demand by building inventory prior to the shut down. The installation of the new furnace and other improvements at the mill have increased our capacity from 600,000 tons in 2005 to over 750,000 tons today.

During the year cost for scrap, alloys and other raw materials used in making steel rose more than the increase in the sales prices resulting in narrowing margins. Nonetheless operating income was the second highest in the mill's history exceeded only by the prior years. The auto parts business revenues for 2007 increased $48 million or 22% compared to fiscal 2006. The increase was primarily due to a 6% increase in scrap vehicles purchased allowing for higher core and scrap sales volumes. Also contributing were higher prices for recycled metal and higher full-service parts sales. Operating income increased 3% as the increased revenues were partially offset by higher car purchasing costs and higher information technology expenses.

Let me close with a couple of final items regarding the quarter. During the quarter we continued our share repurchase program, buying back 1 million shares at an average price of $53.75 per share. We have 2.2 million shares left under our current Board authority and, as always, we will evaluate alternative uses for our cash and debt capacity and market conditions for our stock and allocate our shareholders' capital appropriately.

Finally, depreciation during the fourth quarter was $12 million and capital expenditures were $16 million bringing the CapEx for the year to $81 million. Later today we will be filing our 10-K with the Securities and Exchange Commission. Let me now turn the call back over to John.

Thanks, Greg. We spent the first part of the call looking back at a very successful year. I'd like to spend the rest of the call looking forward and start by talking about our priorities for 2008. First, we spent a lot of time discussing with you our focus on increasing operating leverage through productivity enhancements and improvements and higher throughput.

Our success in achieving this objective in 2007 does not mean that we intend to rest. And in 2008 we expect volumes and velocity in all three of our businesses to increase. We also expect to realize benefits from the capital investments we have made, both from lower conversion costs and improved recovery of high-value materials.

For the metal recycling business we are anticipating processed ferrous volumes will grow to between 4.4 and 4.7 million tons and nonferrous always will grow to between 390 and 410 million pounds. In the steel manufacturing business we really we believe we can increase our sales volumes to take advantage of the increased capacity at the mill and sales are expected to reach between 725,000 and 750,000 tons.

Second, more opportunities remain for capital investments to bring technological improvements and provide operational efficiencies. For example, we intend to continue upgrading our non ferrous sorting systems and take advantage of evolving technology that further improves the rate of recovery of high-value material from the shredding process. We plan to continue improvements in our dock facilities that will allow us to load and unload greater volumes of material more quickly and more safely.

We will be making investments in equipment that will enable us to more efficiently load containers for export of ferrous scrap and steel products. Doing so will allow us to turn our inventories even faster and provide an alternative source of transport for our export sales. And we will continue our work on upgrading our information technology systems to provide us with better tools for decision-making.

Based on the projects that we see at this point capital spending for 2008 should approximate the levels of 2007. The process we introduced in 2006 for selecting capital investments remains in place and the projects we included in our capital budget meet our strict criteria for returns and payback.

Finally, the used auto parts and metals recycling industries remain highly fragmented and present numerous opportunities for further consolidation. We intend to continue our focus on increasing scale through accretive acquisitions. As in the past, we intend to be disciplined in our approach. This means looking at opportunities that have a strong franchise that provide opportunities to capture value to management for capital investment and that offer synergies to our existing businesses. There is no question that all three of our industry sectors are consolidating. We will continue to actively look at transactions as they present themselves.

With our strong cash flows and relatively low leverage we believe we will have more than enough capital to pursue our strategy of internal growth through productivity improvements and technology enhancement and external growth through acquisitions while at the same time looking for opportunities to return money to our shareholders through our share repurchase program.

Let me spend a few minutes talking about our outlook for the first fiscal quarter 2008. In the metals recycling business we expect to see a good flow of materials into our yards and customer demand appears to be fairly strong. Our shipments and the tons produced in the fourth quarter were a record and it will be challenging to match those totals particularly with the new shredder in Portland still getting up to speed.

We did start the quarter with pretty good inventory levels, so at this point it looks like ferrous volumes during the quarter should be between 1.1 and 1.2 million tons. Nonferrous volumes are expected to be down about 10% with slightly lower shredder volumes contributing to lower Zorba sales. Both our ferrous and nonferrous sales volumes will be significantly higher than the volumes shipped in the first quarter of 2007.

Export market pricing for ferrous scrap continues to remain at good levels and we're starting to see an uptick in gross sales prices. As you are probably aware, oceangoing freight costs have been on the rise and it looks like those increases are going to more than offset the higher gross prices during the quarter. Based on our current view of the market and sales made to date, average net prices will decline slightly during the quarter, but will remain at significantly higher levels than a year ago.

We've taken a number of steps to mitigate the increases in freight cost including entering into contracts for future shipments and pursuing an alternative to bulk cargos. We've begun investing in equipment which will improve our ability to load scrap into containers. While it takes a lot of containers to match the volumes we can ship in bulk, it does currently give us an opportunity to export at better margins and turn our inventories even faster.

We've also been taking advantage of opportunities at our port locations to maximize shipments by barge to domestic steel mill customers. Taken together the barge and container sales will represent a relatively small percentage of our overall sales, but are something we can build on going forward depending on the behavior of the bulk carrier market. We will continue to evaluate all possibilities that allow us to leverage our port facilities and achieve the best possible margins.

In the steel manufacturing business our West Coast markets remain good, but we are starting to see some softness in demand. The good news is that customer inventories are low and, outside of some product coming in from Mexico, overall imports are down. Based on current market conditions average net prices achieved during the quarter are expected to be down up to 5% from the record prices in the fourth quarter, but they will still be significantly higher than the prices in the first quarter of 2007.

Overall sales volumes are expected to decline from the volumes in the fourth quarter and approximate the volumes shipped during the first quarter of last year. Our recent investments to expand the capacity of both our mill shop and our rolling mills provide us with the capacity to serve our traditional customer base as well as take advantage of the opportunity to reach out to new markets when it makes economic sense. This additional capacity ha provided us with further means to become more efficient. We are focused on utilizing this capacity to its fullest, to drive down conversion costs by improving our production mix and additional sales including [bill outs] to both existing and new markets.

Finally, in the auto parts business compared to the fourth quarter normal seasonal improvements in the self service parts sales should be offset by a similar seasonal decline in full-service sales as the first quarter is generally the weakest quarter for repair shop demand. In addition, lower material prices should lead to a slight drop in [foreign] scrap revenues. In this business, as in our other two businesses, we are expecting year-over-year improvement.

I'd like to conclude by recapping. We just completed another very successful year and we look to 2008 with optimism. We believe we are well positioned to take advantage of the positive long-term fundamentals which support all of our businesses. Operator, let's go ahead and open up the call for questions at this time.

(OPERATOR INSTRUCTIONS). John Rogers, D.A. Davidson.

Good morning. A couple of quick things. First of all, Greg, you mentioned -- it was Greg or John mentioned -- CapEx would be flat in fiscal '08 with '07. Do you have what it was for fiscal '07?

I believe it was $81 million.

Okay. And depreciation for the year?

$41 million -- up $10 million from '06.

Okay. And then in terms of the scrap business, can you give us a sense of the difference in margins for you between containerized shipping and bulk shipping?

Well, as we said on that front, John, the margins for the container shipping tend to be a little greater at the moment because of the backhaul rate for containers. On the other hand, a container contains 17 tons of scrap, so when you look at the bulk rates it's a lot of containers to make up for one bulk shipment. Our expectation is that markets over time correct themselves, but we want to be able to take advantage of what we see as an aberration in that shipping market at present and we will.

And how much can you load in containers now? I mean, I'm just trying to get a sense.

Let me make sure we're clear, it's not going to be a significant amount of overall shipments. What it does is it allows us to reach some particular customers that are more suited for container shipments. And it allows us to also keep our inventory turns at a higher rate because obviously we don't have to accumulate for a bulk shipment if we see an opportunity to take advantage of a price change.

Okay. And then the last thing is you talked about expected pricing in margins in the first quarter, but is pricing -- and I guess margins by virtue of freight rates, is it leveling off now or is it still coming down? Tell me what you see there.

Well, I think as we said and as we said a number of times, we obviously don't manage this business to a quarter-to-quarter type of outcome. And we see the macroeconomic effects and the trends in our businesses are still very strong. So when we look at our business over the last two years, as you know, our annual financial performance has been very strong despite weak first quarters, and the first quarter has some attributes to it that cause some pressure on that.

And in our outlook for the 2008 first quarter is that it will be significantly better than in prior years, even if it might not be as strong as the second half of 2007. The margins are going to continue to be affected by the freight costs and the cost of acquiring material, but it's a cyclical business. So we expect them to go up and down as it has in the past and we expect to be able to take advantage of the export markets which remain very, very firm.

Okay, thank you.

Sal Tharani, Goldman Sachs.

Good morning, John. Quickly your comment -- I just wanted to get some color on the West Coast pricing. Buying price, you said it hasn't moved downward like the other parts of the country? Is that correct to say?

The demand for customers in Asia is still very strong. And as a result, unlike the East Coast where the domestic demand was down and some of the domestic pricing on the acquisition side was weaker during the fourth quarter, the demand for export scrap to Asia continued strong and as a result buy prices continue to be under some pressure.

Is this demand coming from container shippers also?

It's a combination of the bulk shipment and the containers shipments. The bulk shipment -- I mean really it's driven by the customer side and the customers are very -- still see very strong steel markets and are very needful of scrap. As you know, Sal, there's an awful lot of pressure on iron ore as well, and so those iron ore prices continue to go up and that has an effect on the scrap prices.

Do you see scrap prices following the iron ore out next year as you expect iron ore prices to be up 30% or so?

Well, the demand for steel is what drives steel prices and the demand for steel remains strong. The iron ore price, part of that equation really is a reflection of the strong demand for steel products. And so that same strong demand for steel products means that there is still a very strong demand for scrap and we continue to see those trends very favorable for us in 2008.

John, going back to the (inaudible), I always thought that one of the advantages that Schnitzer had was that on the West Coast there was less competition than the Midwest or East Coast for the scrap and the buying price was always lower than the East Coast price. Is that still correct to say?

Yes, I think that's still correct to say, Sal. The demand curve for export on the West Coast still leaves us with what we think are very positive margins on the West Coast and we're very comfortable with where we are in meeting the objectives there. I'd also like to point out if I could that our volumes, as Greg said, which are up significantly, also help us deal with the pressure, the headwinds, that we're seeing in raw material and freight costs because it improves our productivity and these investments we've made in the mega-shredders are helping us offset that significantly.

Great. And switching to the auto parts business, can you just give us some color on the integration? All the service centers you bought I believe were greenleaf acquisition -- are up to speed or any improvement you will see in some of those facilities?

We feel that the full-service auto body parts are up to speed. We converted five of them over to self-service, four of them are over a year old now, the conversions, and they're going to operate with all the rest of the self-service. So that only remains one store that we feel is not quite got up to speed yet. Organic growth in the auto parts business was 16% and '07 over '06 though, so it's performing very well.

You said 16%?

Yes, sales growth.

All right, thank you very much, guys.

(OPERATOR INSTRUCTIONS). Eric Glover.

Can you just give us a better sense of what we should anticipate for SG&A expenses going forward?

We think for fiscal '08 they should be flat to '07, barring any significant acquisitions.

Flat in dollar terms?

Yes, sir.

All right. And then in the guidance you said you expect lower scrap and core volumes in the auto parts business. Can you explain why you expect that?

I think John was saying he expected lower prices, not lower volumes.

But not significantly?

Okay. In the press release it says sales should be offset by lower scrap and core volumes.

I think it's margin, Eric. I don't think we meant to say volumes.

There's a possibility because this is a traditionally weak quarter in the auto business, that there's a possibility we won't be able to match the record volumes that we got in the fourth quarter and the first quarter. So that's just cautionary, it's not expected to be significant.

Okay. And then finally, I was just wondering if you could talk about the rise in containerized shipping in general as it pertains to the industry. Has it been a very significant increase rapidly over the past year or so given the increase in bulk freight rates? Can you just provide more color there?

Well, I think as we've talked about before, the rise in containerized shipping of scrap is really a phenomenon that's been driven by the need to return empty containers to Asia because of the import situation. A lot of that has been focused on Southern California where we do not operate. The containerized shipping of Zorba of course is something that we've done for a long time.

And to the extent that we see opportunities in our other areas which are not heavily containerized shipping ports we'll take advantage of the lower prices for container shipping of scrap where we think that allows us to access some customers that are more comfortable with smaller volumes than the bulk shipments provide. As far as containerized shipping effect going forward, I think that's really a macroeconomic question that has to do with the balance of imports and exports. It will continue to be a significant factor at Los Angeles.

Okay, thank you.

[Jeffrey Cole], Cardinal Partners.

Good morning, guys. I just have three general questions about the business, basically the first one is how much of your scrap supply is provided by Schnitzer Steel or the auto parts division?

Well, our scrap supply from the auto parts division is really -- fundamentally provides us car bodies for our Oakland operations. There is some provision elsewhere, but that's the fundamental area that we get auto parts car bodies. And that's a significant amount of the Oakland intake for car bodies.

And as far as your steel division, does that kind of supply scrap to your scrap yards?

No, just marginal -- small amounts of scrap come back from the mill. It's really -- the mill uses scrap of course from our Portland facility which, because we would otherwise export it, the mill takes an export price.

And I guess my next question is it looks like about 20 to 25% of your scrap goes into your steel business, how is the pricing determined on that scrap?

I think that was the answer I just gave which was (multiple speakers)

Oh, I think we might have mixed up. The first question was, I know your steel operations probably have a lot of byproduct and I was wondering how much of that byproduct would go back in to your scrap division?

The response to that is the same which is not much, there's very little that's generated and to the extent that it is it goes back into the operation. It's not material.

Okay. And then your scrap yard provide your steel division or your recycling business provides your steel division with scrap and I was just wondering how is that pricing determined.

That pricing is in our company -- pricing that's based on the export price of scrap per ton.

Just to let you know that the steel manufacturing business purchased a little under 186,000 tons of scrap from our metals recycling business which is just over 11% of our total profit.

I noticed historically that the number was more like 20 to 25% of your processed scrap goes to your steel divisions.

I think that's probably correct. As you notice, we've increased the volume substantially this year and so those increases in volumes have the knock-on effect of reducing the percentage that actually goes to the mill.

Understood. Okay. And my last question deals with I guess your ferrous trading sales. I was just wondering, what kind of gross margins do you derive from those sales?

Are you talking about ferrous trading?

Yes.

The ferrous trading sales are really done for purposes of a window on the export market that we don't actively participate through process scrap and those trading margins are very small, they really reflect no value added from processing, so consequently they are driven by positions in the trading business that move quickly and consequently margins are quite low.

I've seen some of your competitors sometimes state a margin of 5%, is that sort of in the ballpark range?

No, I don't think -- I mean, the margins will vary a lot depending on the timing of the scrap purchases and the scrap sales. But that's not a margin that we would anticipate there.

Okay. Thank you very much.

I show no further questions in the queue.

Thank you very much, appreciate you joining us on the call this morning and that's it.

That concludes the presentation. You may all now disconnect.