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Schnitzer Steel Industries Inc (NASDAQ:SCHN)
Q4 2019 Earnings Call
Oct 24, 2019, 11:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Schnitzer Steel Fourth Quarter 2019 Earnings Release Call and Webcast. [Operator Instructions]

I'd now like to hand the conference over to your speaker today, Mr. Michael Bennett, Investor Relations. Sir, you may begin.

Michael Bennett -- Senior Director of Investor Relations

Thank you, Crystal. Good morning. I'm Michael Bennett, the Company's Senior Director of Investor Relations. I'm happy to welcome you to Schnitzer Steel's earnings presentation for the fourth quarter and fiscal year 2019. In addition to today's audio comments, we have issued our press release and posted a set of \s, both of which you can access on our website at schnitzersteel.com or schn.com. Before we start, let me call your attention to the detailed Safe Harbor statement on slide two, which is also included in our press release and in the Company's Form 10-K, which will be filed later today. As we note on slide two, we may make forward-looking statements on our call today, such as our statements about our outlook; targets; volume growth; and future margin expansion.

Our actual results may differ materially from those projected in our forward looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statement is contained in slide two, as well as our press release of today and our Form 10-K. Please note that we will be discussing some non-GAAP measures during our presentation today. We've also included a reconciliation of those metrics to GAAP in the appendix to our 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 and Chief of Corporate Operations.

Tamara Lundgren -- President and Chief Executive Officer

Thank you, Michael and good morning, everyone. Thank you all for joining us on our fourth quarter fiscal 2019 conference call. We appreciate your interest in our company and we look forward to sharing our results with you this morning. On our call today, I'll review our quarterly and full-year financial results and the market and macroeconomic trends affecting our businesses. I'll also provide an update on the initiatives and capital projects we have under way to address the evolving industry dynamics. Richard will then provide more detail on our segments performance, our capital structure and our capital investments. I'll wrap up and then we'll take your questions but before we get started please turn to slide four as I'd like to highlight the safety performance of our team this year. Fiscal 2019 was the safest year recorded in our company's history. Our recordable incidents declined steadily throughout the year.

Our total recordable injury rate was 33% better than last year and we have made excellent progress in identifying and addressing potential hazards before they become injuries. I'm very proud of our teammates throughout the company who have demonstrated the leadership necessary to achieve these results and to continue our commitment to a safe work environment and a sustainable safety culture. Now let's turn to slide five to review our quarterly financial results. Earlier this morning, we announced our fiscal 2019 fourth-quarter adjusted earnings per share of $0.42. Our Q4 results were impacted by a very challenging market environment for both AMR and CSS. During a quarter marked by sharp declines in ferrous and non-ferrous prices as well as in prices for finished steel products our teams delivered solid results. Both businesses were successful in expanding sales volume sequentially and both benefited from the productivity initiatives we implemented earlier this year. In both businesses the forward sales executed earlier in the quarter enabled us to blunt the impact of the significant drops in ferrous and non-ferrous prices during August.

We were also very pleased that our continued focus on inventory management led to another quarter of strong operating cash flow which enabled us to continue to reduce our debt and to return capital to our shareholders through both our 100 and second consecutive quarterly dividend and share repurchases. Now let's turn to slide six to look at the full year in perspective. Fiscal 2019 was our second best performance since 2011, reflecting the success of our team in delivering higher sales volumes, implementing significant productivity improvements, generating strong cash flow and further strengthening our balance sheet by reducing our debt. For the year as a whole, we experienced steadily declining prices in both recycled metals and finished steel products. And more experienced margin compression as the drop in service and non ferrous crop prices outpaced the change in purchase costs. The fall in non-ferrous prices and in particular in Zorba was the major contributor to the compressed margins.

Zorba has now fallen by almost 50% since its most recent peak in the spring of 2018. CSS's fiscal 2019 results were the second highest since 2008 supported by prices that reached a multi-year high in the first fiscal quarter before falling significantly in the second half of the fiscal year. On a year-over-year basis extended customer destocking and lower finished steel volumes including from severe winter weather conditions were the primary contributors to the decline in the full-year results.

Lastly, we delivered a $145 million of operating cash flow for the year. As a result our strong balance sheet positions us to further build out our platform through investment and transactional growth and to return more capital to our shareholders. Let's turn now to slide seven for a more detailed review of market trends. As you can see in the upper left-hand chart, ferrous scrap prices decline through most of fiscal 2019. In fact, ferrous prices have fallen in eight of the last ten months and since the beginning of August ferrous prices have decreased by almost 20% to levels that we last saw in 2016 and they're currently about $100 below the 10-year average of 330.

The primary drivers of this decline have been slower global growth, weaker export prices and demand and reduced mill purchases due to a combination of weaker order books, sufficient inventories and planned mill outages. Looking at the export market, scrap import prices into Turkey have declined by about 30% over the last 12 months and Turkish scrapped import volumes are lower by approximately 15% although there have been some recent restocking into Turkey, it is still too early to tell whether this will lead to a sustainable uptick in prices and demand for the remainder of calendar 2019. Even if the most recently reported prices overall levels are still hovering near three-year lows. Turning to non-ferrous prices as you can see in the lower left hand chart. Non-ferrous prices also trended down during the fiscal year and Zorba prices have now reached levels last seen during the Great Recession of 2009. Prices have been impacted by trade and regulatory actions by China including tariffs, import quotas and higher metal content requirements as well as by declining global auto sales in key markets.

Not surprisingly supply flows have been tightening as a result of these low ferrous and non-ferrous prices as they did in 2016 which was the last time the ferrous price is traded at these levels for a sustained period. Zorba prices at that time however were significantly higher. Until the impact of the structural downward shift in demand for Zorba is reflected in purchase prices for scrap or until ferrous sales prices recover to more normalized levels, we may see continued pressure on supply flows. Looking at the upper right-hand chart, rebar and wire rod prices were relatively flat for most of the year, but trended down sharply during the fourth quarter. West Coast demand continues to show resiliency in construction spending and has the potential benefit longer-term from increased state local support for infrastructure projects. Now let's turn to slide eight to discuss some of the longer-term trends.

The long-term trend for recycled metals is underpinned by several trends. These include the increased focus on the steel industries environmental impact, the wide-ranging objective to lower greenhouse gas emissions and the economic and environmental benefits of reducing energy consumption. Equally important is that a future lower carbon economy is widely acknowledged as more metal intensive. Whether it's driven by the demand for electric cars, the deployment of renewables or the efficiency and convenience of smart cities, a green economy means a metal intensive economy. A World Bank report released last year accounted dozens of metals which could see a growing market with the rising use of wind, solar and batteries for power generation. In addition to steel, aluminum, copper and nickel were identified as being among the metals expected to be in highest demand.

We expect these trends to accelerate and for the recycled metal industry to play an increasingly important role and we can see how some of these trends have already been translated into higher ferrous scrap metal usage by looking at the chart in the upper left-hand corner of this slide. As this chart shows ferrous scrap usage has significantly outpaced the growth in crude steel production in some of the largest steel manufacturing countries and as you can see in the charts on the bottom of this slide, the share of global steel production from electric arc furnaces continues to grow in China as well as in the U.S. By 2020 Chinese steel production from EAF is expected to increase by 15% compared to 2018. Scrap consumption by the Chinese steel industry grew over 20% in the first six months of 2019 driven primarily by requirements to lower carbon emissions and by higher EAF production.

China experts have also forecast that the proportion of scrap used in blast furnaces will rise from 20% in 2018 to 30% in 2025. Let's turn now to slide nine to review the strategic actions we have under way. Productivity improvements, investments in advanced metal recovery processing technologies and volume growth underpin the strategic actions that we have under way to leverage these positive long-term trends and to offset some of the current market headwinds that are impacting our business. Let's focus first on what we were doing to offset the cyclical headwinds that we are facing. Our productivity improvement program is centered on delivering benefits from production and functional cost efficiencies, improved asset management, procurement and logistics. We are expanding the $35 million of productivity initiatives that we announced at the beginning of fiscal 2019 by $15 million. We have already achieved approximately $30 million of these combined savings and benefits in fiscal 2019 and we expect to achieve the remaining $20 million in fiscal 2020.

These additional savings and benefits should enable us to partially offset the margin compression caused by the significant decline in ferrous and non-ferrous prices. Second, as we've highlighted previously and that Richard will discuss in more detail, we are also rolling out a capital investment program that can eliminate our production of lower value mixed non-ferrous products such as Zorba and enable us to produce a wide range of furnace ready products. We believe that the benefits from this investment will deliver at least $8 per ton once fully operational. The benefits come from three sources. First, improving the efficiency of our processes to enable us to meet global metal content and quality requirements on a cost-effective basis. Second, increasing our throughput and extracting more materials from our shredding process. And third, creating product optionality and furnace ready materials that can be marketed globally and both broaden and deepen our customer relationships.

Importantly, these investments will also support our sustainability objectives to increase recycling and reduce waste. Lastly, let's review our volume growth and sales diversification initiative. Profitable growth in our ferrous sales volumes has been a successful multi-year strategic focus for our company. Our financial performance has benefited from the increased flexibility provided by our investments to expand our ability to access the domestic market as well as by our focus on expanding our sales to additional export markets and customers. Our volume initiative targets of additional growth of 700,000 tons to reach 5 million tons annually based on our retained capacity and assuming supportive market conditions. We expect this growth to create operating leverage equal to approximately $7 per ton on overall margins. The timing and trajectory of this goal could of course be impacted if current market conditions extend materially into calendar year 2020 or by political economic and regulatory uncertainties.

Together our productivity, technology investment and volume growth initiatives should enable us to significantly improve our margins and to continue generating strong operating cash flow providing us with additional opportunities to grow and to return more capital to our shareholders. Assuming some market recovery in the second half of fiscal 2020, we expect these initiatives to benefit our margins in the range of $15 to $20 per ton with up to half of the benefits in fiscal 2020 and the full year run rate achieved by the end of fiscal 2021.

Now let me turn it over to Richard for more detailed review of our segment performance and our strategic capital investments.

Richard Peach -- Senior Vice President, Chief Financial Officer and Chief of Corporate Operations

Thank you, Tamara and good morning. I'll begin with a review of our ferrous volumes. In the fourth quarter, our total ferrous volumes grew sequentially by 8% and for fiscal 2019 as a whole, our volumes were stable compared to the previous year. We achieved these higher volumes by using our global sales reach, our flexible operating platform and their ability to diversify sales even in a declining price environment which we experienced through most of fiscal 2019. Pivoting between most economically advantageous markets allows us to focus on profitable volume growth. As the pie charts show, in the fourth quarter we did this by increasing our ferrous sales to the export market which reflected higher selling prices compared to a weaker domestic price environment. As the chart on the right side focuses on our annual volumes by destination and shows that in fiscal 2019 weakness in the Turkish market led us to reduce our sales volumes to Turkey to 12% of total volumes and which we offset by expanding our sales to the domestic market and to additional export destinations in Asia.

Now let's turn to slide 11 for an update on non-ferrous. The Chinese government has recently begun to implement quarterly quotas for Chinese scrap importers and they're in the process of developing quality standards for imports of clean grades of recycled scrap. Recent reports have indicated that subject to more pronouncements latest Chinese import quotas issued for the fourth calendar quarter will reduce permitted volumes of imported copper and aluminum scrap by 80% compared to the third calendar quarter. These increasingly restrictive regulations have changed the demand patterns for recycled non-ferrous metals which we have adapted to in the following ways. First, we've reduced their exposure for the Chinese market and in fiscal 2019, we shipped 75% of our non-ferrous to countries other than China. Second, we've expanded our customer base and increased sales diversification. In the first quarter result non-ferrous to 19 countries including India, Japan, South Korea, Malaysia, Taiwan and Thailand.

Third, productivity improvements and higher yields from our shredding process contributed to a 6% increase in non-ferrous sales during fiscal 2019 against the backdrop of a falling price environment. And fourth, we make sure to sell a balanced mix of non-ferrous products from a combination of shredder production and purchase material. Of the total volume Zorba is around one-third with the majority consisting of pewter high-value products including copper, aluminum and other furnace ready metals. Finally, to create more value and continue to meet the needs of our customers, we are currently undertaking a major investment program to install advanced metal recovery and product enhancement technologies in several of our major yards. I'll discuss this initiative in more detail later in this presentation. Now let's turn to slide 12 to discuss the operating trends at AMR. Despite declining ferrous and non-ferrous prices, AMR was able to deliver solid financial performance with quarterly operating income of $22 million which represented operating income of $22 per ton.

However, compared to the third quarter this was done sequentially as benefits from higher sales volumes were more than offset by the impact of the declining prices and margins seasonally lower retail sales and to a lesser extent higher environmental related expenses. For the full year fiscal 2019, AMR's average operating income per ton was $26. As the top left-hand chart shows, quarterly performance was relatively consistent over the year despite the margin compression from falling prices. The two primary reasons for this consistency were operating leverage from sequentially improving volumes and an increasing trend of benefits from our productivity initiatives which contributed $6 to AMR's per ton profitability for the year. However, as the chart on the top right shows, we've recently seen ferrous prices at near 2016 levels and Zorba prices are now a 10-year loss. The drop in Zorba prices has adversely impacted AMR's profit per ton in fiscal 2019 by around $15 compared to the margins being achieved before China imposed tariffs on aluminum scrap.

AMR's ferrous sales volumes in the fourth quarter increased by 9% sequentially benefiting from seasonally improved supply flows, steady car purchase volumes and contributions from commercial initiatives. Exports in the quarter were 74% of our ferrous volumes and we made sales to customers in ten countries on several continents. Average ferrous net selling prices in the fourth quarter were down by 8% sequentially and by 16% year-over-year. While our average selling prices were lower sequentially, the prices we achieved reflect our ability to sell ahead and the shipped prices we realized at the start of the fourth quarter were well above those that we achieved in August. Non-ferrous sales volumes were up by 4% sequentially on higher production volumes on our successful sales diversification program. Average nonferrous net selling prices decreased by 10% sequentially reflecting a continued impact of Chinese retaliatory tariffs, import restrictions and slowing rates of auto production globally. It's important to note there are forward sales made earlier in the quarter,

Zorba price is expected to lead to break-even performance in our first quarter of fiscal 2020. While the changes in ferrous prices and volumes are cyclical in nature, which we are offsetting through our productivity and volume initiatives we are addressing the structural change in the market for Zorba with our implementation of advanced metals recovery technology which we expect to deliver benefits beginning in the second half of the current fiscal year. Now let's move to slide 13 and discuss operating trends in CSS. CSS fourth quarter operating income was $6 million which was a solid performance all via a sequential decrease of $2 million compared to the third quarter. Benefits from higher sales volumes were more than offset by an adverse impact on margins of the decline and selling prices for finished steel. CSS operating income for fiscal 2019 was $32 million. This was the second best performance for CSS in a decade and as the chart on the bottom left shows reflects much higher profitability compared to fiscal 2013 and 2014 when rebar imports were at similar levels.

Finished steel metal threads were higher in fiscal 2019, this improvement also demonstrates benefits from increasing productivity and from maximizing internal synergies between our steel mill and our Oregon recycling operations. Our finished steel sales volumes were 4% higher sequentially and rolling mill utilization was 90% in the fourth quarter. Demand in West Coast markets remains steady and our sales activity benefited from a seasonal improvement. Average selling prices for finished steel were down sequentially by 4% reflecting lower input cost including for scrap and other consumables. Looking ahead to the first quarter of fiscal 2020, we expect CSS finished steel sales volumes to approximately the first quarter of the prior year. Due to the lower contributions from recycling we expect CSS operating income in the first quarter to be slightly below the fourth quarter of fiscal 2019. Moving on let's proceed to slide 14 to review our capital structure. Operating cash flow in the fourth quarter was a healthy $82 million driven mainly by profitability and effective working capital management. Operating cash flow for fiscal 2019 as a whole was a $145 million which continued a strong multi-year trend.

As the chart on the top rate shows, our operating model provides for opportunities to generate positive operating cash flow through the cycle and in differing market conditions. This is because in strong markets increased profits can exceed a buildup in working capital and in weaker markets benefits from releasing working capital tend to exceed the adverse impact and profitability. Our strong fourth quarter cash flow enabled us to reduce net debt sequentially by $41 million and at the end of fiscal 2019, our net debt of $93 million represents the lowest level in the past nine years. Our balance sheet remains strong with net leverage of only 12% and a net debt to adjusted EBITDA ration of just 0.6x. We have an existing credit facility of $700 million with a 2023 maturity and which provides us with financial place ability as we pursue our strategies for growth. Reducing there is part of our balanced capital allocation strategy which also includes investing in our business and returning capital to our shareholders. In addition to our quarterly dividend, in the fourth quarter we repurchased an additional 115,000 shares. For the full-year, we have repurchased almost 2% over our total outstanding shares.

Capital expenditures in the fourth quarter totaled $34 million and included a combination of spend on maintaining the business, environmental capital projects and investments in growth. For fiscal '19 as a whole, our capital expenditures totaled $95 million. Corporate cost in the fourth quarter was a $11 million which was more sequentially because the third quarter included a $2 million charge for a legal settlement. Looking ahead to the first quarter of fiscal '20, we expect corporate cost to be $1 million lower compared to the fourth quarter. Our effective tax rate in the fourth quarter was an expense of 25% and we expect the tax rate in the first quarter to be the same although our actual tax rate will be subject to a level of financial performance and other relevant factors. Now, let's talk in more detail about our capital investment plans for fiscal '20 including our advanced metal recovery and product enhancement technology strategy.

As I mentioned earlier, we have commenced on major capital investment program to replace upgrades and add to our metal recovery technologies including our existing downstream sorting equipment which we use in our major export facilities. Our plan includes new wet and dry processing technologies, enhanced Zorba separation capabilities, more advanced sorting equipment and a further rollout of our clean copper recovery program which we'd already started in 2018. Once implemented, these new technologies are expected to improve our yield of metal recovery from the production process and enable us to produce more furnace-ready products consistent with the needs of our customers and the structural trends in our industry. The new automated technology will allow us to convert Zorba to higher value furnace-ready products such as twitch, copper, brass, zinc, stainless steel and other sealable metals. By early 2021, we expect to be in a position to eliminate Zorba from our product set by converting to more valuable products.

Now, let me provide you with some additional detail on the implementation schedule and our expected returns. The new equipment will be installed in at least five of our major facilities on both the East and West Coast of the United States. And has expected to create additional operating leverage as we target further growth in volumes over the next few years. As a projected implementation schedule shows on subject to receipt of applicable payments and order lead times, our installations will take place in three phases. The clean copper recovery installations will come first and continue to rollout we started in 2018 within our operations in the South Eastern U.S. we will be installing new clean copper equipment on both the West and East Coast and expect to complete a rollout by the fourth quarter of fiscal '20. The second phase will be the rollout of advanced metal recovery equipment in four of our major export facilities. These installations will replace and upgrade our existing downstream process and take place during the second half of fiscal 2020 and first half of fiscal 2021. And the third phase will renew heavy medium Zorba separation plants on both the East and West Coast which we expect to install during the second half of calendar year 2020.

We expect our aggregate investment to be in the range of $75 million to $85 million. With $10 million already spend in fiscal '19, approximately $50 million of the remainder to be spend in fiscal '20 and the balance of the total in the first half of fiscal '21. The fiscal year 2020 alone for the advanced metal recover and product enhancement projects will be the primary component of total expected growth capital expenditures of around $60 million in fiscal '20. This amount also includes investments to support volume growth and for platform expansion. Once the new nonferrous technology is fully implemented, we expect the benefit to operating income to be at least $8 per ferrous ton. We also expect to be achieving a run rate of our own half the amount by the end of fiscal 2020. The return on investment is expected to be significantly an excess of our cost of capital with an average payback of less than three years once we commence fuel operations with the new equipment in place. In addition to our growth investments, we also expect to invest in the range of $65 million during fiscal '20 for capital expenditures for maintaining the business and doing environmental capital projects. In summary, our strong balance sheet provides us with the opportunity to invest in major growth capital projects at the same time at investing in necessary capital expenditures to maintain our business.

I'll now turn the presentation back over to Tamara.

Tamara Lundgren -- President and Chief Executive Officer

Thank you, Richard. As one of North America's largest metal recyclers, sustainability is at the core of what we do and how we operate. Advancing sustainable business practices and further integrating sustainability to alert our operations are key components of our long-term strategy. In fact, the advanced metal recovery technologies that you just heard about have enormous sustainability benefits, most importantly the ability to divert metals which would otherwise go to landfills, reduced energy usage and increased the amount of recycled metals used in metal production. Our commitment to sustainability is broad and also encompasses our commitment to delivering value to our customers, investing in our employees, dealing fairly and ethically with our suppliers, supporting the communities in which we work and generating long-term value for shareholders.

We expect to publish our next sustainability report later this fall which will include a number of multiyear sustainability goals focused on our people, our planet and our profit. So, now let's turn to slide 18, to conclude. As you've heard this morning, in the fourth quarter and for the full fiscal year, we delivered a strong set of financial results despite challenges in both the nonferrous and ferrous market. Our performance can be attributed to the steps we have already taken and steps which are currently under way to continually improve our business performance. While near term market conditions are 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 together with our organic volume growth in sales diversification targets should improve our margins and enable us to continue our track record of delivering strong operating cash flow through the cycle, providing us with additional opportunities to grow and to return more capital to our shareholders. With the demand for recycled metals underpinned by multiple positive trends, the long term outlook is strong. In closing, I'd like to thank our employees many of whom I know are listening to our call this morning. Our performance is the direct result of your ability to drive best in class results without wavering from our core values. Each of you continues to meet our opportunities and challenges with dedication, commitment and result strengthening our company at of return. 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, Christel let's open up the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question comes from Tyler Kenyon from Cowen. Your line is open.

Tamara Lundgren -- President and Chief Executive Officer

Good morning.

Tyler Kenyon -- Cowen -- Analyst

Hey, good morning. So Richard, I just wanted to be sure I heard you right, did you say breakeven profitability in AMR in the first fiscal quarter?

Richard Peach -- Senior Vice President, Chief Financial Officer and Chief of Corporate Operations

Yes Tyler, and that includes negative $8 per ton expected impact from average inventory accounting.

Tyler Kenyon -- Cowen -- Analyst

Okay. And is there any way to parse out how much of this compression quarter-over-quarter is transitory more or less just a function of spread compression because of what the cost is in inventory versus selling prices. I know you have the $8 per ton impact from average inventory accounting but just trying to think if there are any other transitory margin compressing factors that should revert moving into the fiscal second quarter.

Richard Peach -- Senior Vice President, Chief Financial Officer and Chief of Corporate Operations

Yes, Tyler. If you look at our fourth quarter in our profit of $22 million compared with the breakeven we're expecting in Q1. You can really split what's happening to you into four components. The first that the accounting effect of average inventory accounting which will be above a quarter of that change in total. And of course, that's a temporary factor than what's has we owned. Then we have the cyclical effects of the impact on of lower tariff volumes that we expect and the impact on spreads from the lower prices the dropping prices that we've talked about and together these are about half of the total change. And then the last thing is that continued drop in Zorba prices which is more structural in nature and which we affect which we are addressing through our new technology programs.

Tyler Kenyon -- Cowen -- Analyst

Okay, that's helpful. And with respect to Zorba pricing, lately I'm curious as to whether there's any way to determine if some of the recent labor issues we have with GM and some of what's being going on in the automotive sector here with the North America. Or perhaps weighing on that in the pricing environment?

Tamara Lundgren -- President and Chief Executive Officer

What I would say with the GM situation, I don't think that that has been a huge impact for what we've seen as a trend. But if you look at overall auto production globally, it is down significantly in Asia, it's down significantly in India, and obviously it's down in the U.S. So, that has been a big depressant if you will on Zorba prices.

Tyler Kenyon -- Cowen -- Analyst

Okay. And then just last one from me. What -- embarking on some capital expenditure programs here. Any way to couch exactly what you're thinking capex will look like in fiscal '20 and moving into fiscal 2021 at this day?

Richard Peach -- Senior Vice President, Chief Financial Officer and Chief of Corporate Operations

Yes. Tyler, we expect in fiscal '20 to be spending our own $60 million on growth capital projects including a $50 million on our technology projects. And as you know as we've said we expect these technology projects to have returns well in excess over cost of capital and have a short payback of less than three years. And in addition to that, we expect to spend $65 million of capital expenditures in 2020 on maintaining the business and environmental capital projects.

Tyler Kenyon -- Cowen -- Analyst

Okay. So, a $125 million in fiscal '20?

Richard Peach -- Senior Vice President, Chief Financial Officer and Chief of Corporate Operations

Yes.

Tyler Kenyon -- Cowen -- Analyst

Okay. Thanks very much, that's it from me.

Tamara Lundgren -- President and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] And I am showing no further questions from our phone lines. And I'd like to turn the conference back over to Tamara Lundgren for any closing remarks.

Tamara Lundgren -- President and Chief Executive Officer

Thank you, Christel. And thank you everyone for joining us on our call today for your interest in our company. We look forward to speaking with you again in January when we report our first quarter fiscal '20 results. Thank you.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Michael Bennett -- Senior Director of Investor Relations

Tamara Lundgren -- President and Chief Executive Officer

Richard Peach -- Senior Vice President, Chief Financial Officer and Chief of Corporate Operations

Tyler Kenyon -- Cowen -- Analyst

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