PITTSBURGH Spotty demand for ferrous scrap, anemic growth in the United States and erratic supply-demand fundamentals worked against Sims Metal Management Ltd. during its recent fiscal year, resulting in a significant loss for the worlds largest recycler.
"We have taken our medicine in 2012 and are well positioned for better circumstances," Daniel Dienst, chief executive officer, told investors during a conference call to discuss the loss.
Sims posted a net loss of Australian $521.4 million ($546.25 million) for the 12 months ended June 30, a sharp contrast to earnings of A$192.1 million the previous year, despite a 2.1-percent increase in sales to nearly A$9.04 billion ($9.47 billion) from A$8.85 billion. Shipments rose to 14.5 million tonnes from 14.2 million tonnes in the same comparison.
"We were impacted most significantly by extreme volatility in product pricing and demand, decreased commodity prices, diminished supply of feedstock, tepid ferrous trading conditions, particularly at the end of the (fiscal) first and second halves, and reduced metal spreads," Dienst said.
A hefty impairment charge pushed its North American segment to an operating loss of A$618.9 million ($648.28 million) vs. earnings of A$114.6 million the previous year. The recycler announced in February that it would record a loss of A$614 million related to acquisitions made before the financial crisis of 2008 (amm.com, Feb. 10).
Meanwhile, sales by the segment inched up 0.6 percent to nearly A$6.03 billion ($6.31 billion) from A$5.99 billion on shipments that rose 1.1 percent to 11.08 million tonnes from 10.96 million tonnes.
"Our North America Metals business faced significant headwinds and challenges again in fiscal 2012. Scrap intake and shipments were in line with the prior corresponding period, but a challenging set of global economic conditions and the impact of adverse significant items resulted in a statutory loss," Dienst said.
In an effort to streamline operations in North America, the company embarked on a restructuring effort in its fiscal second half that is expected to reduce expenses by around $4 million per month, Dienst said. "Reducing controllable expenses became a priority as a measure to offset margin compression and to align resources with tight scrap flows and generally weak market conditions."
Sims has also set its sights on China and is actively exploring ways to expand in what it perceives is a fast-growing market. It entered China this year with a minority investment in Chiho-Tiande Group Ltd., a metals and electronics recycler operating in China and Hong Kong (amm.com, Jan. 18).