Radius Recycling Inc (RDUS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Schnitzer Steel's fourth quarter 2010 earnings call. At this time, all participants are in listen-only mode.

(Operator Instructions).

As a reminder, today's call is being recorded.

At this time, I would now like to turn the conference over to your host, Miss Alexandra Deignan. You may begin.

Thank you, Joe. Good afternoon. I'm Alexandra Deignan, the Company's Investor Relations contact. I'd like to thank everyone for taking the time to join us today.

In addition to today's audio comments, we have prepared a set of slides, which were made available concurrently with our earnings press release. You can access the slides through our website at www.schnitzersteel.com. or www.SCHN.com.

Before we get started, let me call your attention to the detailed Safe Harbor statements on slide two, which were also included in our press release of today and in the Company's form 10-K for the fiscal year ended August 31, 2010, which will be filed this afternoon. These statements, in summary, say that, in spite of management's good faith, current opinions on various forward-looking matters, circumstances can change and not everything we think will happen always happens. In addition, we have guidance regarding our outlook for the first quarter of 2011 in our press release and in this presentation, and subsequent to this call, we will not be under any obligation to update our outlook. Finally, please note, we will be discussing some non-GAAP measures during our presentation today. We have included a reconciliation of those metrics to GAAP in the appendix of this slide presentation.

Now, let me turn the call over to Tamara Lundgren, our Chief Executive Officer. She will host the call today with Richard Peach, our Chief Financial Officer.

Thanks Allie, and good afternoon everyone. For those of you on the call who haven't yet met Allie, Alexandra Degnan is our new Vice President of Investor Relations. She's transitioning into this role, as Rob Stone has expanded his treasury responsibilities to become our new Chief Risk Officer, in addition to holding his title as Treasurer. As Allie's in our Portland office today and tomorrow, for those of you who will have follow up questions after the call, she'll be with Rob and they can be reached in Rob's office.

Today, I will walk you through our fourth quarter and fiscal year 2010 performance. Richard will then discuss the fourth quarter performance of each of our segments and our year end capital structure, and then I'll provide an outlook for our first quarter.

So, let's get started by turning to slide four. Our fourth quarter performance echoed our strong full year performance. We delivered a healthy revenue increase year-over-year of 21% and an EBITDA improvement of 32%. As a result, we're pleased to announce a robust fourth quarter year-over-year EPS improvement of 66% to $0.58. As expected, the short term market volatility that we benefited from in the third quarter reversed in the fourth quarter. However, our fourth quarter earnings still showed a healthy improvement from the lower levels of Q4 2009. Our strong cash flow enabled us to spend about $50 million in CapEx and in share repurchases without increasing our leverage during the quarter.

Now, I'd like to take a moment to highlight our fiscal year 2010 performance, so let's turn to slide five. As we look at our fiscal year 2010 in aggregate, I am pleased to report that it was another very successful year for our Company. We shipped over 4.2 million long tons of ferrous scrap, and nearly 480 million pounds of non-ferrous products, achieving revenue growth of nearly 30%. All three of our businesses sold higher volumes and delivered increased operating income and significantly higher operating margins.

Like others in our industry, we benefited from improving markets driven by rising global demand. Our financial performance, however, is not just about better markets. It's also a clear reflection of the combination of our platform, our people, and our cutting edge processes, and result from a carefully crafted strategy and years of investment. We achieved 29% growth this year and $2.3 billion in revenues. Starting with our bi-coastal export platform, we have the flexibility to deliver our product to wherever demand is greatest at any point in time. In addition, we leveraged the full cycle of the reclamation process, sourcing product through a wide network at the earliest stages of disposal. Maximizing the value of scraps through our collection and shredding operations, and producing finished steel products with our own recycled scrap. But, we never forget that our greatest resource is our people. The significant expertise and commitment to excellence demonstrated by our 3200 employees enable to deliver the high performance metrics that we measure and benchmark against on a daily basis.

Finally, our innovative approach to processes, both through our continuous improvement programs and steady investment in state of the art technologies. These processes allow us to enhance our yield and to generate new revenue sources from within the waste stream. Utilizing this core framework, we are able to get more out of every ton of material we process. All of these factors contributed to our performance in fiscal 2010. The net result was another year of strong cash flows that enabled us to maintain a strong balance sheet, to continue investing to strengthen our operations and our competitive position, to continue looking for value creating acquisitions, and to opportunistically return capital to our shareholders.

So, let's now review the contributions from each of our operating segments that drove our performance. If you can turn to slide six. As we discussed on the third quarter call, in our results and in our guidance, the significant commodity price volatility which occurred in the second half of the year, positively then negatively impacted margins. When selling prices rose sharply in the third quarter, we were able to expand margins, and, as prices fell in the fourth quarter, we were able to reduce purchase prices to maintain cash metal spreads, but our reports -- our reported results were impacted by lagging average inventory cost. However, looking at fiscal year as a whole, and as a half-to-half review, the second half trend was stronger than the first, particularly for our MRB and ATB segments.

So, let's turn to slide seven and take a look at the full year highlights of our operating segments. Our largest business, metals recycling, delivered strong revenue growth and continued to improve margins and increased volumes. During the year, we continued to benefit from the demand for scrap in the emerging markets. While sluggish US growth continues to put pressure on the availability and on the cost of domestic scrap supplies, our exposure to the export markets added significantly to our ability to maximize the value of the material we process. During fiscal year 2010, we once again exported more than 70% of our overall volume and we exported to twelve different countries around the world. MRB's revenues for the year increased more than 30%, driven by higher prices for both ferrous and non-ferrous metals, as well as significantly higher non-ferrous volumes. Importantly, we achieved a significant uptick in both operating income to $118 million from $13 million in 2009 and an uptick in operating income per ton to $28 versus $3 in 2009. The expansion of operating income and margins was the result of our ability to capture increased raw material flows, the cumulative impact of the investments we've been making in non-ferrous extraction technologies, and our focus on continuous improvement. One indicator of the success of our operational improvements is the significant increase in our non-ferrous sales. We have expanded our non-ferrous collection network and we're continuing to increase the quantity of higher value non-ferrous material we're recovering from our shredding processes. In 2010, non-ferrous represented 5% of our overall volumes, up from 4% in 2009, and, more importantly, in 2010, non-ferrous accounted for 21% of MRB's revenues versus 17% in 2009.

In addition, during 2010, we continue to invest in technology that will further increase our non-ferrous recovery. I'm very pleased to announce that we completed the installation of another major upgrade to our non-ferrous extraction system in Portland this fall. Installation of similar upgrades at our three other mega shredder locations in Everett, Oakland, and Tacoma will occur in the coming months. We've also completed two acquisitions consistent with our strategy of continuing to get closer to the source of supply. During 2011, we'll continue to remain focused on investments in technology, and on acquisitions. We anticipate delivering an accelerating weight of growth in both volumes and profits.

So, let's dig a little deeper into MRB's performance and turn to slide eight. And, on slide eight, you can see the full year-over-year look at our ferrous and non-ferrous pricing and volumes. Due to improved domestic demands, and our ability to access the export market, we realized a 24% uptick in average ferrous prices. Our ferrous volume showed a slight increase and, importantly, the run rate for our last three quarters was just slightly below the record volumes we achieved in 2008. On the non-ferrous side, we benefited from a combination of price increases, as well as higher volumes. The higher volumes were a result of our increasing yield from advanced separation technologies and an increase in the number of non-ferrous collection facilities at our major yards.

So, now, let's turn to slide nine and we can take a look at our auto parts business. Our auto parts business truly knocked it out of the park this year with a 57% increase in revenue, record operating income of $51 million, and a 21% operating margin. The sales are full service operations and the acquisition of six self-service stores enabled us to focus on our core self-service model and a retail strategy that's providing significant value added performance. Like our metals recycling business, our auto part bus-- our, our auto parts business has seen the results of its dedication to continuous improvement in both its top line and bottom line results. As we look to grow this highly profitable business, we anticipate balanced contribution from acquisitions and organic growth in key regions. The recent acquisition of six stores included four in our core Portland region, as well as two in the highly populated Dallas/Fort Worth area where we had targeted expansion.

If you turn to slide ten, we can take a look at our result from our steel manufacturing business. Since December, the mill has been operating around break even, which is no small feat given the difficult dynamics of weak West Coast demand and increase in scrap costs. Demand has improved incrementally, with field production levels rising to 64% utilization during the second half of 2010, from an average of 52% during the second half of 2009. As a result, our steel manufacturing business delivered a 17% increase in sales volume year-over-year. The increase tonnage and cost containment initiatives improved our conversion cost which helped to offset an overall increase in scrap costs and a composite decrease in sales price of about $30 per ton as compared to 2009. Through our production flexibility, and that's both in terms of product diversification and reduced product production time, we were able to improve revenues from all sources during fiscal 2010. While domestic West Coast and Canadian demand have yet to generate a material increase in market activity, we believe our streamlined operation and our vertical integration, successfully position SMB for the recovery as it gains momentum.

So, now, let's turn to slide 11. To wrap up the fiscal 2010 review, I'm extremely pleased with our performance on multiple levels. We've substantially recovered from the global financial crisis that significantly impacted our markets last year. And, we not only endured, we continue to invest and prosper. Today, we're reaping the reward for strategies we've sewn over the past five years and it's very much the result of our highly motivated and dedicated employees across the country, and an integrated effort from all three of our business segments. As I'm out meeting with investors, I often, and probably too often, am asked directional questions about scrap prices. And, I'm sure that at some level that will never go away. But, it's just a short term factor that impacts the overall performance of our Company. Our fundamental performance depends much more on the emerging market demand for infrastructure, as well as our strategic sourcing, operating efficiencies, yield maximization, and global distribution network. Our ability to systematically apply our global sales visibility to our buying activities, and our ability to capitalize on our proximity to sources of scrap supply, and to access growing and long term demand, are what sets us apart from the pack. And, if you add to that a rigorous and disciplined approach to investing in new technologies, current facilities and acquisitions, you can begin to see the value add we're providing to this high growth industry.

So, now, let me turn the call over to Richard, and he'll be discussing the performance of each of our segments in a bit more detail.

Thank you, Tamara, and good afternoon to all of you on the call.

I'll start with the metals recycling business on slide 12. Operating income for the fourth quarter was $21 million, which was in line with last year's fourth quarter. As expected, this result was down from the third quarter, due to softer market conditions and the impact of lagging average inventory costs. Selling prices were also lower, but the high run rate on ferrous sales volumes indicates a continuing positive momentum in emerging markets demand. In the fourth quarter, we generated record sales volumes for non-ferrous through a focus on maximizing shredder production using our separation technologies to extract more product and the success of our initiative to expand collection activities.

The underlying trends in profitability are covered in slide 13. The short term volatility that was clearly demonstrated in our third and fourth quarters is viewed differently when you look at metals recycling performance on a half-year to half-year basis. In this chart, you can see that operating income has been on a steady upwards trend for the last two years with acceleration in both the absolute dollar value and the expansion of margins. This trend is driven by the combination of the continuing strong demand, the gradual improvement and raw material flows, and the benefits from our continued improvement program including non-ferrous.

How this trend has impacted operating income per ton is shown on slide 14. In fiscal 2010, operating income per ferrous tons sold averaged $28. While this is less than the mid-cycle average of $38 achieved in 2006 and 2007, it still represents a very significant improvement from the $3 we achieved in fiscal 2009. When we blend together the impact of the upwards then downwards price volatility that we experienced in the third and fourth quarters respectively, it can again be seen that the underlying trend in fiscal 2010 was a continuing improvement. The next two slides show more information on our volumes, prices and global reach.

So, turning to slide 15. Here, you can see more detail on volumes and selling prices over the last eight quarters. Against historical comparisons, ferrous sales volumes in fiscal 2010 had a strong run rate of over 1.1 million tons in each of the last three quarters. Ferrous sales prices peeked on average $378 in the third quarter, and although sliding back by $36 during the fourth quarter, prices still maintained a premium to the first half of the year. When non-ferrous, we generated an incremental volume of 50 million-pound in fourth quarter sales, which helped us achieve a quarterly record, and fourth quarter non-ferrous sales prices declined by $0.10, but we're still at levels well above the first half the year.

Moving to slide 16, I will now turn to exports and freight. The chart from the left shows that exports generate the majority of our revenues. In fiscal 2010, we exported 74% of our volumes mainly to emerging market economies. Of that total, Asia represented 78%, and Europe, Africa and the Middle East were a total of 22%. In the fourth quarter, China and Taiwan were the largest buyers and sales to Turkey were steady. Overall, we shipped to twelve countries. Export freight decreased in the fourth quarter by about $6 per ton, to an average of $45. There was a slight softening in freight rates, but it was mostly a change in the mix of countries that drove down our average costs.

Moving on, I'd like to discuss our auto parts business on slide 17. The fourth quarter operating income of $10 million was an improvement from $8 million in the prior year quarter, but a decline from $18 million in quarter three. While still a strong result, the fourth quarter operating margin of 15% was down from the third quarter. This was a consequence of the drop in commodity prices and a lagging average inventory cost which fell more slowly than the purchase cost of cars. However, our underlying business growth trend continues which is seen more clearly from the next two slides.

On slide 18, when you look at the performance of auto parts on a half-to-half year basis, you can see operating income has been on a steady upwards trend for the last two years. And, back in fiscal 2010, we sustained a margin improvement at a high average level of 21%. This improvement has been driven by stronger momentum in car purchasing, the rapid integration of our new stores, and efficiency and effectiveness improvements we've made across our operations which we believe have increased the overall value we can achieve from every car we buy.

Increased car purchase volumes are indicative of our growth in scale, and these are shown on slide 19. In the fourth quarter, car purchase volumes remain strong, and increased by 13% over the prior year quarter. For the fiscal year as a whole, we purchased 329,000 cars, which was up significantly by 28% from fiscal year 2009. While shop commodity price movements impacted margins in the short term, the development over supply channels, our increased scale and improved buying practices, all contributed to the higher run rate in car purchase volumes that we've now achieved.

And, now, changing business, I'd like to move on to discuss fuel manufacturing on slide 20. Our fourth quarter operating result was a break even, which is $1 million less than the fourth quarter in 2009, and $4 million less sequentially. The key -- the key factors in the lower sequential performance were softer demand and higher cost inventory at the start of the quarter.

On slide 21, you can see that on a half-to-half year basis, and while still modest, the financial performance of the steel mill was improved in the second half with higher utilization, a slight pickup in demand, and benefits from previous cost reduction initiatives which have kept our cash flows near break even too.

Slide 22 shows year-over-year sales volumes and average selling prices. During the fourth quarter, we sold 160 million tons, which is flat compared to prior year, but down 12% from third quarter. On a sequential basis, pricing for finished steel products fell by 3% to $618 per ton. A sustained improvement in West Coast demand for finished steel products has not yet occurred. Until it does, we'll continue to optimize the mill's performance in cash flow. And, with our lower cost base and flexible products mix, we believe we are well positioned for when the market conditions eventually pick up.

Now, moving on over the next couple slides, and starting with slide 23, I will summarize how our business performance has impact our balance sheet, cash flow, and net debt position. During fiscal 2010, we invested $122 million in a combination of CapEx, acquisitions and purchasing shares. Our annual CapEx spend was $64 million which included maintaining the business and growth CapEx investments in new non-ferrous technologies. We also spent $41 million in acquisitions for the six new auto part stores and a scrap recycler based in Montana. And, in the fourth quarter we took the opportunity to repurchase 413,000 shares at a cost of $17 million.

Slide 24 shows that our operating cash flow in the fourth quarter was positive, $49 million, and was $89 million for the fiscal year. Net debt for fiscal year end was just $70 million with leverage of only 7%. Despite our investment activity over the past twelve months, this low level of net debt is flat against our last fiscal year end. As we noted previously, we have a $450 million bank facility which matures on July 2012. At our fiscal year end, we have $350 million of available capacity to draw on, if we need to. To summarize our financial position, the culmination of strong cash flow and access to credit provides us with significant headroom as we continue to execute a strategic growth plan.

I now will turn the call back over to Tamara, who will provide our outlook for the first quarter of fiscal 2011 and discuss our opportunities for more strategic growth.

Thanks, Richard. We do have a clear road map for growth, so, having that balance sheet flexibility is essential. Let me take a few minutes to review our expectations for the first quarter of our fiscal year 2011. In our metals recycling business, we see a continuation of the broad based demand for our products from the world's developing economy. In our first fiscal quarter of 2011, we expect our ferrous volumes to continue to reflect strong recent trends and be up slightly, versus the fourth quarter, and up significantly versus the first quarter of 2010. We expect non-ferrous volume to approximate or decline slightly from the record shipments in the fourth quarter, but to increase versus the first quarter of 2010. We expect that ferrous prices will remain stable, and that non-ferrous prices will increase slightly from the fourth quarter. And, finally, our operating income for 2010 is expected to improve and to approximate 2011 levels.

So, let's turn to slide 26. In our auto parts business, we expect revenues to increase slightly versus the fourth quarter driven by better part sales and admissions. In addition, we expect margins to expand from the recent fourth quarter level to the average level achieved in 2010, as result of improved part sales and the benefits of average inventory cost. And, finally in our steel mill business, the overall demand for finished goods is expected to remain a significant challenge in the near term. We -- we expect a slight decline in demand to occur versus the fourth quarter, resulting in sales volumes slightly below both first quarter and fourth quarter 2010 levels. We also expect average sales prices to remain especially unchanged from the fourth quarter. As a result, margins and SMB are expected to be slightly negative in the first quarter of fiscal 2011, but to be improved from the first quarter of 2010.

To conclude, let's turn to slide 27. As we close out our fiscal year 2010, I think it's worth a moment to reflect on what we've accomplished over the last five years. Since 2005, we've made 15 acquisition, we've increased our workforce by 75% to over 3,200 people and we've grown our normalized revenues by over $1 billion. We've built a very solid foundation for our Company, both operationally and financially. With a bi-coastal network of 70 water ports and close to 100 collection facilities, we have a unique combination of scope and efficiency, and, most importantly, we've proven our ability to grow profitably and to adjust nimbly in the face of major market movements. Operational performance and fiscal sustainability are the building blocks upon which we plan to pursue even greater growth. In fiscal 2011, we're well positioned to reap the benefits of the many investments that we have made over the past five years in our people, in technologies, and in facilities. The end of the recession officially, or, or at least technically, occurred in June 2010, but it is very clear that the domestic economy still faces a long road of slow growth. But, what's more relevant to us is that demand in the emerging markets for raw materials is increasing and not just in our traditional ferrous markets. Non-ferrous products, like aluminum and copper, are at all time high demand in pricing levels. We believe the long term fundamentals underlying our business are strong. The global infrastructure buildout throughout the developing world, and our ability to serve their raw material needs with recycled scrap, should provide us with sustainable, dynamic markets for many years to come.

Operator, we can now open the call up for questions.

Thank you.

(Operator Instructions).

Our first question come from the Eric Glover with Canaccord.

Hi. Good afternoon and congratulation on the quarter.

Thank you, Eric. Eric?

Operator?

He seems to have dropped out of the queue. Our next question comes from -- once again, sir -- our next question comes from Brent Thielman.

Hi. Good afternoon.

Hi, Brent. How are you?

Good, good. I guess, first question on the metals recycling business, were there any ferrous shipments held over into Q1 from Q4?

From Q1 to Q4? Are -- ?

I was just wondering, was there any, any shipments, in terms of timing of shipments that got pushed out into the first quarter from the fourth quarter?

We've been running, I mean, not -- nothing out of the ordinary. We ran Q4 volumes at -- at slightly below, at about 1.1 million to 1.2 million tons which is slightly below our -- our fiscal 2008 run rate. So, nothing out of the of the ordinary.

Okay. Okay. And, then, I guess we'll -- on those lines, I mean, any thoughts into what supporting sort of the sequential improvement in volumes in Q1? I just -- given sort of past years, we haven't typically seen that trend. So, any -- any other color there would be helpful.

Well, that's a great question and we've talked about it internally because normally our first quarter is soft. But, the previous decline, as we've said in the past, have all been due to discreet factors rather than an underlying seasonality. So, in the first quarter, we expect to see a continuation of the strong trends in both volumes and margins, and, overall, we see the market stabilizing from Q4 to Q1 and improving in tone. Demand remains, customers are still producing and need raw material. And, the excess scrap that was generated by the runup in prices in Q3 has been absorbed by the market. And -- and the drop in price that occurred put pressure on supplies. So, mill inventories are low and our outlook and tone has stabilized and is improving.

Okay. Fair enough. And, then, I guess, Richard, sorry if I missed this, but did you provide sort of what the CapEx is behind for the new non-ferrous technologies you're -- you are implementing in the new export platforms?

Yes, well, CapEx overall for, for fiscal 2010 was -- was $64 million. We expect to spend higher rate overall in fiscal 2011. We're not actually disclosing the level of cost for our new non-ferrous technologies. Brent, that's commercial information.

Okay. And, then, just lastly, I guess, just given initial views in the non-res construction into 2011, can you just provide an update on where the Company stands with the steel manufacturing business? And, are you evaluating for the strategic alternatives for a cascade?

Well, steel mills in the US remain domestically challenged and they will be so, as long as the US economy remains sluggish. In that -- in that context, we're very pleased with our mills' performance. We're running it at break even, at low utilization rate. It's not a drag on cash flow. And we've -- we've used the downturn as an opportunity to improve the efficiency so that it is able to operate at break even levels.

Okay, thank you very much.

Our next question comes from the Eric Glover.

Hi.

Hi Eric.

I guess, yes, I'm on. Okay. I was wondering if you can talk about scrap flows in each of your geographic regions and whether you've seen any pickup in manufacturing, or prime scrap?

Well, the flows are good at our export facilities where we -- where we're located, we're less dependent on manufacturing capacity. They're slower, but steady, at our other facilities at -- which are really in the southeast where there's more reliance on manufacturing. But, they're still okay. So, we're seeing steady flows across the board.

Do you think that you'll be able to continue increase auto purchases in fiscal 2011? It was up -- if I remember right -- 13% this year.

Yes, well, one thing, one thing to know about 2011, of course, is we will have our, the six new stores that we acquired in fiscal 2010. Of course, we will have them for a full year in 2011, whereas we only had them for part of the year in fiscal 2010. So, any detriment that might come from the fact that we some clunkers cars that came in during fiscal 2010, we believe will be offset by the fact we got our new stores and they will provide us with extra volumes.

Okay. Could you just provide a current update on what you're seeing out of China in particular, as well as Turkey?

Sure. The market, let me start on the -- on the Asia side. The market is showing broad base demand throughout Asia and that includes -- that includes China. There was less market volatility, and there is less market volatility, on the Pacific than on the Atlantic side. And, the Pacific was actually down less than the Atlantic. The Atlantic is more susceptible to change because it's more affected, as you know, by the domestic market. And, also the Mediterranean and the Mid-East demand hasn't been as steady as Asian demand. But, Turkey has re-entered the market, and, and we are seeing, as I said before, a good tone.

Okay. Thank you very much.

Thank you.

Our next question comes from Torin Eastburn.

Good evening.

Hi.

Tamara, can you say a bit more about the raw scrap supply environment?

Sure. Beyond what I said -- you know, I could -- I could put it in this scenario. Clearly -- clearly with lower economic growth, we've seen tighter scrap flows and we've also seen pretty strong -- pretty strong sales prices in the context of the global financial crisis. But we've performed actually quite well in that environment and, so, while the -- the flows are down, our purchase volumes have been up significantly year-over-year. Our sales volumes have grown and -- and our overall performance in all of our businesses has -- has improved year-over-year. MRB sales volumes grew, as I said, last three quarters we're on a 2008 run rate which were, which were record -- record run rate.

It strikes me that the guidance for profit that you're giving in MRB for the coming Q1 is actually pretty close to what you earned back in 2005 and 2006 when the supply environment was better. Can you help me understand -- I guess, how much of the improvement is coming from the process improvements you mentioned, and a pickup in non-ferrous, versus how much is coming from a change in supply?

Well, our margins are improving because, first, operating efficiencies from continuous improvement is lowering our conversion costs. Their margin's also improving because of our cumulative investment in non-ferrous extraction, and we are anticipating further improvements with the coming online of this -- of the new non-ferrous technologies that we -- that we've spoken to you about.

There's a slight improvement, and, and what I would say is more like an underlying steadiness from the materials flows, versus -- versus the -- the trough of the economic crisis. And, we do think that the benefits from our technology investments and our continued investments in technology will continue into fiscal year 2011.

Okay. And, last question, with the spike in non-ferrous metals prices, are you seeing a change in supply environment on that side?

With the spike in -- what did you say?

Non-ferrous metals.

Oh, non-ferrous. I'm sorry. Well, generally, scrap corollates with run ups on the -- on the metals exchanges. So, we're -- we are seeing a net effect of an increase in selling prices.

Okay, thank you.

Our next question comes from Luke Folta.

Good evening. Couple questions here. Firstly, just to talk on the non-ferrous recovery, I think, a bit more, I just wanted to get a sense of how much more improvement we could potentially see? As you noted, you did over 5% recovery, as far as non-ferrous volumes as a percentage of total ferrous. What do you think that number could get to in the next couple years as this technology is -- begins to be implemented?

Well, we didn't say 5% recovery. What we said was our -- our revenues were -- our MRB volumes had increased by about 20%, 21%.

That's right. I mean, what we -- what we saw in the last year, Luke, was that non-ferrous volumes grew at a faster rate than the -- than the ferrous, than the ferrous volume. And, if you look back over the last several years at the underlying trend in our non-ferrous, you will see that year-over-year an underlying trend of something in the range of 10 -- 8% to 10% percent and growth per year. What we are doing is trying to accelerate that growth with -- with a number of different initiatives that -- and Tamara, Tamara talked about, a combination of, or continuous improvement that maximizes shredder production in -- in our export yards, that gives us more non-ferrous out of the back of that process, expansion of our collection facilities, and for non-ferrous throughout our network,. The new technology that we're putting in that will allow us to extract more non-ferrous that we're not currently getting, and, also, improvements in our selling activities for non-ferrous that give us access to greater markets. So, I think you can see us -- expect to see us pushing on at least the rate you've been -- of growth you've been seeing the last few years.

Okay. Let me -- let me rephrase that. I mean I -- I definitely see what you're saying. I'm just looking at total non-ferrous shipments as -- non-ferrous as a percentage of your total. I noticed that it's definitely going up pretty meaningfully year-over-year. But, I wanted to understand where does that top out?

Where does that cap out?

Yes, I mean -- I mean, I imagine --

It, it --

Go ahead.

We don't, we don't really see it capping out. We're not -- we, we don't see our growth capping out. We are continuing to grow through acquisitions. We're continuing to grow organically, and we are continuing to grow through technology. So, the non-ferrous, when we report, is both the combination of what we extract from the shredding process, as well as what we buy directly. So, we don't -- we don't see a capping out. If what you're -- we don't see a capping out.

I guess, I -- I mean I'll try one more time. How much non-ferrous material is typically available per ton of ferrous at your processing facilities? Because I understand the amount you're extracting per your current flow is improving. I'm trying to get a sense of -- if you got all of it, per ton of ferrous, would that, what would that equate to?

That's a -- that, number one, that will vary from facility to facility depending upon what we're taking in. But, the other half of that question is -- is information that we -- that we don't disclose.

Okay. And, just secondly --

But, that's okay. That was four -- four tries to finally get us there.

That's okay. Just secondly, you had talked a bit about China. I just wanted to drill in maybe a little bit more just to try to understand what's happening there with the government trying to put some restrictions on production here through the end of the year. But, we've also been seeing that production seems to have rebounded here in the second half of September. And, iron ore markets sort of remains pretty tight which indicates they're still buying. Just want to get a sense of what you think the impact that whole aspect has been? And, what your expectations are looking forward?

Sure. Well, bottom line, it was a non-event for us. The shut downs that occurred were predominantly impacting small remote locations. Not coastal mills in China. And those were mills that use pig iron, or low grade scrap, and they weren't overly efficient. And, so to the extent that they reduced exports from China, that had a positive impact on our customers in the rest of Asia. But, what you will see in our K and the like, China was our leading ferrous buyer in Q4, so, it didn't -- it didn't impact us as all. We didn't see a drop in demand. And our understanding is that those -- those facilities are back online as of about a week ago.

Okay, thank you.

Thank you.

Our next question comes from Timna Tanners

Hi, good afternoon.

Good afternoon, Timna.

Wondering if you could you also, I guess, following on Luke's question, but could you talk about a little bit about potential greater export opportunities? Either from a weaker dollar, or from Korea's new EAS? Is that something you're seeing as an opportunity?

Well, I'll -- I'll comment on, on both. On the currency side, we're not exposed on currency movements on a -- on a real basis. You know, we buy and sell in dollars. The market, the global market, is a dollar market. So, on occasion with the very weak Euro, the -- the calls might -- the, it might impact us for a week or two. But -- but it really, the currency exposures don't really -- don't really impact the market.

In terms of increasing demand from -- from the export markets, that's clearly what we are seeing. We are continuing to see new customers and old customers with higher demand continue to access -- access us for raw materials. And, that's why the Q1 tone is -- has gone to a stabilizing to improving tone.

So, that would be primarily driven by overseas demand rather than domestic demand? Is that a fair conclusion?

Yes.

Okay, great. I wanted to just drill down -- my other question is to understand, as far as when I go to the operating income components, everything seemed fairly expected. And, then, with the corporate and eliminations, and the SG&A line, they fell relative to what we've seen either in the prior quarter or in the past, during your fourth quarter fiscally. So, just wondering if there's anything to take away from that in terms of run rate we should be looking for corporate eliminations or SG&A?

That's -- that's a good question. And, the answer is in the fourth quarter we had a $3 million insurance reimbursement that we received. And that -- so we have a non-recurring item in our fourth quarter SGE that has benefited our results. Which mean that the fourth quarter SGE is not indicative of our future run rate. You'd have to add that -- you'd have to add that back on.

What was the reimbursement? I think I missed your accent. I'm sorry.

Sorry. Sorry, I'm still blending in. It's insurance --

Insurance.

-- reimbursement.

So, about $3 million. And, then, so that would be an SG&A. And, then, anything in terms of corporate and eliminations run rate? That also was a lot different than the prior quarters.

So, that -- that's really just timing and, so there's nothing to take away from that in terms of, in terms of future run rates. I think the fourth quarter is not indicative of the ongoing run rate. It's mainly -- it's normally a profit elimination. The way things worked, though, in the fourth quarter stand alone, it actually helped our profits by a small amount, by about $800,000, but normally, we are, we are eliminating profits. It's just a -- that was just an unusual item.

Okay. Thank you very much.

Our next question comes from Sal Tharani

Good afternoon, guys.

Good afternoon, Sal.

Can you break down your non-ferrous volume between what you get from your ferrous extraction, or ferrous separation, and from your actual collection of non-ferrous?

No, we don't disclose that.

Well, would you say that majority is the direct collection?

We really don't disclose that, Sal.

Okay. Fine. Any impact on you -- your cascade mill farm and [Inaudible] acquisition of Tamco mills? Does it any way help you or hinder your sales in that region?

It -- it hasn't had any impact on us. Tamco's always been there. I will tell you that -- that the challenge in the market is not competition for any of the steel mills. The -- the challenge in the market is the economic environment.

Okay. All right, that's all for me. Thank you.

Thank you.

(Operator Instructions).

Our next question comes from David Lipner.

Hi guys. I was just wondering, how far ahead do you sell your non-ferrous scrap? Your guidance was just considering what non-ferrous metal pricing has done. I would have thought your guidance for non-ferrous scrap would be a little bit higher.

Well, our -- our forward sales are, are a little bit tighter than our -- than our -- or non-ferrous forward sales are a little bit tighter than our ferrous forward sales and obviously move with -- with the market. What we guide to ferrous forward is four to six weeks, generally, and non-ferrous, it's -- it's inside of that. But, it does, it does move from -- from quarter to quarter, if you will.

Okay, thanks.

There appear to be no further questions on the phone.

All right, well, at this time, I'd like to conclude our call. It's always a pleasure to highlight strong results and I particularly would like to thank our employees for their hard work and dedication, for that's what's enabled us to execute so well in our operations and in our strategic plan. Thanks for joining the call today and I look forward to speaking with you again in January.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a nice day.