Financial Results for Nine Months Ended March 31, 2009:
Sims Metal Management today announced a net loss after taxes for the nine months ended March 31, 2009 of AUD94.0 million, which included a non-cash goodwill impairment charge of AUD173.0 million. Earnings before consideration of the non-cash goodwill impairment charge was AUD79.0 million. EBITDA (earnings before interest, tax, depreciation and amortisation) was AUD279.5 million, down 28% on the prior corresponding period. The company’s financial results reflect the impact of the global economic recession, which has resulted in markedly lower commodity prices, diminished flows of scrap metal and decreased steel and metal production. Sales revenue increased 64% on the prior corresponding period to AUD7.3 billion, due to the merger with Metal Management Inc. (MMI).
Financial Results for Three Months Ended March 31, 2009:
In the third quarter ended March 31, 2009, Sims Metal Management had a net loss of AUD14.6 million while generating EBITDA of AUD25.4 million. EBIT was a loss of AUD20.9 million. The company recorded provisions in the quarter related to inventory adjustments and redundancy accruals of about AUD6.5 million and AUD2.2 million, respectively, and costs incurred in connection with the implementation of Sarbanes-Oxley compliance initiatives were AUD2.7 million in the quarter. The non-cash goodwill impairment charge of AUD173.0 million previously announced on 19 February 2009 had no impact on the third fiscal quarter results and the impact of contract renegotiations was insignificant in the third fiscal quarter.
Chief Executive Officer Daniel W. Dienst said, “In our third fiscal quarter we continued to face headwinds due to the unprecedented deterioration in global manufacturing, as evidenced by historically low steel and metal production and steel mill and smelter capacity utilisation. Scrap prices, while improved as compared to the November 2008 levels, remained weak and volatile in our third quarter. Scrap flows also remained relatively weak in our third quarter, which we anticipated due to the direct correlation between prices and volumes, though we did see some sequential improvement in flows.”
Dienst continued, “Our results were positively impacted by the aggressive cost reduction strategies we have implemented at our operations around the world. In the overall context of the global economic downturn, we are proud to have generated positive EBITDA of AUD25.4 million and a net loss of only AUD14.6 million or 8.03 cents per share in the third fiscal quarter. It is a further testament to our employees’ commitment and leadership that, in the face of such adverse economic conditions, we were able to maintain an extremely strong balance sheet with marginal borrowing on a net debt basis at 31 March 2009. With cost-cutting initiatives taking root, a steadier pricing environment and a return to somewhat more normalised trading conditions, we are cautiously optimistic that we have stabilised our business and are well positioned for current or better market conditions. Sims Metal Management is the global recycling leader and, with the best workforce in the industry, we are confident that the company is poised for solid growth and profitability as and when conditions so allow.”
North America:
Sales revenue was up 134% on the prior corresponding nine month period to AUD5.5 billion. On a US dollar equivalent basis, sales revenue was up 96% on the prior corresponding nine month period to $4.1 billion. EBIT (earnings before interest and tax) in the nine months ended March 31, 2009 was a loss of AUD8.6 million.
EBIT before non-cash goodwill impairment (AUD173 million), inventory adjustments (AUD77 million) and non-ferrous contract renegotiations (AUD24 million) was AUD265.4 million in the nine months ended March 31, 2009. North America has been negatively impacted by low scrap intake volumes and anemic consumer demand as evidenced by historically low mill operating rates. Since the end of the first fiscal quarter, the company has implemented necessary cost reduction strategies in North America, which included staffing reductions of employees and contractors that affected about 900 positions, or about 20% of the workforce, before consideration of the recent acquisition of Global Investment Recovery, Inc.
Dienst added, “Our scrap intake declined by 39% in North America in the first nine months of our 2009 fiscal year on a year on year (excluding brokerage) and pro forma basis for the MMI merger. We have maintained tight controls over buy prices and inventory levels, and aggressively reduced our operating expenses. On a U.S. dollar equivalent basis, our operating expenses in North America declined by about 29% in our third fiscal quarter as compared to our first fiscal quarter. We’ve made difficult but necessary decisions to reduce expenses in order to offset margin compression and align our resources with lower scrap flows.”
Australasia:
Sales revenue was down 25% to AUD886 million on the prior corresponding nine month period and EBIT was AUD27.0 million in the nine months ended March 31, 2009.
EBIT before inventory adjustments (AUD9 million) and non-ferrous contract renegotiations (AUD10 million) was AUD46.0 million in the nine months ended March 31, 2009. Scrap intake declined in Australasia by 23%, on a year on year basis, in the nine months ended March 31, 2009. Since the end of the first fiscal quarter, the company implemented necessary cost reduction strategies in Australasia, which included staffing reductions of employees and contract workers that affected 83 positions, or about 8% of the workforce.
Dienst stated, “Our Australian and New Zealand operations have done an excellent job of defending our margins and showing market leadership. We have aggressively reduced costs and operating expenses in our third fiscal quarter by 23% compared to our first fiscal quarter. By carefully managing our costs, prices, and operating expenses, we have been successful in mitigating the impact of the decline in scrap intake. We’re pleased that these operations, even in these challenging markets, remained profitable.”
Markets & Outlook:
Ferrous and non-ferrous trading conditions remain difficult to forecast. There are encouraging signs, such as Chinese, Asian-Pacific, and Mediterranean activity, and the fact that prices for both ferrous and non-ferrous commodities have improved and are showing resilience at the current time. However, it may be too early to call a sustained recovery in both pricing and scrap intake levels.
Dienst added, “As we hope can be appreciated, the markets and economic conditions continue to make forecasting very difficult. April conditions have continued to reflect the circumstances of our third quarter and while encouraging signs exist at this early part of May with ferrous pricing firming and demand for copper scrap in certain cases trading at a premium to exchange traded metals, we remain cautious in our outlook. Based on the global economic turbulence and the general uncertainty in the scrap and metal markets, we are unable and unwilling to forecast our fourth fiscal quarter.”
Dienst concluded, “The men and women of Sims Metal Management know that ‘hope is not a strategy’ and will remain focused on those things within our control: working safely, efficiently and protecting our balance sheet to capitalise on the many opportunities in front of us.”
