Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) Q1 2020 Earnings Conference Call - Final Transcript
Jan 08, 2020 • 11:30 am ET
second half of fiscal '20 and first half of fiscal '21.
There will be three phases as follows: first, clean copper recovery installations on both the East and West Coasts; second, a rollout of advanced metal recovery equipment in four of our major export facilities; and third, new heavy media Zorba separation plants in both the East and West of the US.
We expect our aggregate capital investment to be in the range of $75 million to $85 million, with $10 million already spent in fiscal '19, approximately $50 million to be spent in fiscal '20 and the balance of the total in the first half of fiscal '21. Once the new non-ferrous technology is fully implemented, we expect the benefit to operating income to be at least $8 per ferrous ton. In fiscal '20, we expect to achieve a run rate of around half that amount by the end of the fourth quarter and the full run rate by the end of the first half of fiscal '21.
In terms of contributions to operating income, once the new equipment is fully installed, we expect an annual benefit of approximately $40 million, assuming we achieve our target ferrous volumes of 5 million tons by fiscal '21. The return on investment is expected to be significantly in excess of our cost of capital with an average payback of less than three years once we commence full operations with the new equipment installed and in service.
I'll now turn the presentation back over to Tamara.
Thank you, Richard.
The demand for recycled metals is underpinned by multiple positive trends, and the outlook for our business is strong. While near-term market conditions have been challenging, we have in place strategic initiatives to deliver growth. We expect our expanded productivity improvement program to deliver savings beginning in the second quarter and our advanced metal recovery investments to deliver benefits beginning in the second half of fiscal 2020.
These initiatives should advance our competitiveness by improving our through-the-cycle margins and cash flow, providing us with additional opportunities to grow, return capital to our shareholders and create sustainable value for our employees, customers, suppliers and the communities in which we operate.
In closing, I'd like to thank our employees, many of whom I know are listening to our call this morning. Each of you continues to meet our opportunities and challenges with dedication and commitment, while remaining steadfast in your focus on safety, sustainability and integrity. My thanks go to each of you as you've truly demonstrated why we continue to be a leader in our communities and the recycling industry.
Now, operator, let's open up the call for questions.