Sims Metal Management CEO describes challenging fiscal year

Sims Metal Management CEO describes challenging fiscal year

With the exception of its North American business, Sims' operating divisions delivered a better second-half performance, according to the company.

Subscribe
September 4, 2019

Sims Metal Management Ltd., with headquarters in Rye, New York, has announced underlying net profit after tax (NPAT) of $161.9 million for its 2019 fiscal year, ended June 30, representing an underlying diluted earnings per share (EPS) of 78.8 cents for its fiscal 2019. Statutory NPAT of $152.6 million represented a diluted EPS of 74.2 cents.

The company’s sales revenue for the year was $6,640 million, which was 3 percent more than Sims’ sales revenue in the previous fiscal year. The company attributes this to sustained sales volumes despite a declining price environment. It also benefited from weakness in the Australian dollar. Sales volumes were relatively flat at 9.8 million metric tons.

Underlying earnings before interest and taxes (EBIT) of $230 million for its 2019 fiscal year were lower than underlying EBIT of $275 million in its 2018 fiscal year. Challenging market conditions continued into the second half of the year; however, with the exception of the North American business, all operating divisions delivered a better second-half performance in part because of investment in technology, according to the company.

Underlying EBIT for Sims’ North America Metals business was $100 million in 2019 compared with $105 million in the prior year. Metal margin declined because of challenging market conditions and a decline in nonferrous pricing that was partially offset by technology investments.

Proprietary sales volumes of 4.9 million metric tons were flat despite market volatility and increased competitor activity, according to the company.

Regarding Sims Metal Management’s 2019 fiscal results, CEO and Managing Director Alistair Field says, “This year has been challenging for all recycling companies globally. Despite these market challenges, we delivered underlying EBIT of $230 million and underlying NPAT of approximately $162 million. Our investment in sophisticated material processing facilities coincides with customers requiring higher specification products, and we are well-placed to capture an increasing share of this demand.”

Underlying EBIT for Sims’ Australia New Zealand Metals business was $107 million in 2019 compared with $97 million in the prior year. Proprietary sales volume growth of 11.2 percent over the prior corresponding period was driven by the full acquisition of New Zealand JV, robust demand from domestic steel mills and internal growth and improvement initiatives partially offset by declining nonferrous prices, Sims says.

Underlying EBIT for the company’s U.K. Metals business was $20 million in 2019 compared with $35 million in the prior year. Proprietary sales volumes were down 5.3 percent mainly driven by ferrous quality improvement requirements, Sims says. EBIT margins were lower compared with the company’s 2018 fiscal year because of the need to provide higher quality ferrous product to Turkey and to other markets and declining nonferrous prices. Its EBIT for the second half of 2019 grew by 98.5 percent compared with the first half of the year in part because of its operation of separation technology investments and disciplined purchasing of material, according to the company.

Underlying EBIT for Sims’ Global Electronics Recycling business was $26 million in the 2019 fiscal year compared with $31 million in the prior year. Sims attributed the decline in EBITto lower commodity prices, margin compression in continental Europe and some additional costs to produce higher quality product. In the second half of the year, EBIT was up 60 percent compared with the first half because of adjusted and more selective procurement activities and recent contract wins, including recycling the cloud initiatives, according to the company.

Sims’ underlying share of results from SA Recycling, its U.S. joint venture partner that is based in California, was $36 million, a 48 percent decline compared with 2018 primarily related to the fall in zorba prices and general ferrous margin compression.

The company has declared a final dividend for 2019 of 19 cents per share, 100 percent franked. This takes the total dividend for the year to 42 cents per share, which represents a 53 percent underlying payout, Sims says. The final dividend will be paid Oct. 18 to shareholders on the company’s register at the record date of Oct 4.

In April 2019, Sims announced a significant growth strategy for its current lines of business and an expansion into new environmental adjacencies. Several forward-looking megatrends provide long-term sustainable opportunities to continue to grow in the environmental sector.

Sims says it has made good progress advancing its growth strategy during its 2019 fiscal by increasing its North American Metals’ nonferrous volumes and tons of cloud material recycled compared with 2018. The company says it is in a strong position to further advance the strategy in the upcoming fiscal year with growth targets set across all key priorities.

On the topic of Sims Metal Management’s strategic initiatives, Field says, “I’m pleased with the progress made in advancing our growth strategy during FY19. This provides a strong foundation to make further headway in FY20 and in future years.”

The company says it continued to reinvest in the business with the commencement of 15 downstream separation plants during the year aimed at producing more and higher quality material.

Sims says its capital allocation strategy will continue to balance the ongoing requirement for distributions to shareholders with the need for business reinvestment to support the

According to Sims, it has shown resilience in navigating challenging market conditions. While the long-term growth outlook remains attractive, the backdrop of increasing escalation in trade wars and tariffs runs the risk of a further general decline in global activity. Specifically relating to the scrap industry, low Turkish demand for ferrous scrap has forced Turkey into the export market, and weak automobile sales are placing downward pressure on ferrous scrap prices and aluminum prices, the company says.

Sims adds that it does not expect its nonferrous business to be materially impacted by quotas on Category 6 imports in China and that its quality initiatives are performing well.