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Sims expects weaker financial results

Keywords: Tags  scrap, Sims Metal Management, Daniel Dienst, Sean Davidson

NEW YORK — Sims Metal Management Ltd. anticipates a $21-million to $31-million decline in earnings in the first half of its fiscal year.

"Market conditions remain tough," chief executive officer Daniel W. Dienst said at the company’s annual meeting of shareholders in North Sydney, Australia, and the company expects underlying earnings before interest, taxes, depreciation and amortization (Ebitda) to be in a range of $110 million to $120 million in the six months ending Dec. 31, down from $141 million in the same period last year.

"In full-year fiscal 2012, we generated underlying Ebitda of $253 million. That result reflected tough markets characterized by weak scrap generation, tight metal margins and significant volatility, both in terms of ferrous pricing and periods of illiquid trading conditions in our important deep-sea ferrous markets. Despite a very recent significant lift in ferrous trading prices, market conditions remain as challenging so far in fiscal 2013 as they were in fiscal 2012," Dienst said.

"Let none of us hide from the fact that significant challenges remain. In two of our key scrap-generating ‘mines’—the U.S. and the U.K.—the scrap-generating consumer remains somewhat wary and tentative. During the pre-(global financial crisis) ‘boom’ years, capacity was increased and that capacity currently outstrips current arisings. But after several years of pain, the strong hand of Darwin is now eradicating and consolidating marginal and unprofitable capacity," he said.

"We are seeing some ‘green shoots,’ if you will, in the U.S. economy as recent reports and government statistics suggest that the U.S. consumer has begun to return. However, uncertainty caused by the recent presidential election in the United States, the portended ‘fiscal cliff’ also in the U.S., a struggling European Union and the soon-to-be-completed once-a-decade transition of power in China have combined to create a wait-and-see attitude," Dienst said. "This wait-and-see attitude is adding to the massive backlog for the purchasing of new products which, when met, may unleash a commensurate wave of supply to recyclers."

As part of the group’s strategy for its current fiscal year, Dienst said it is targeting group-wide cost reductions of 75 basis points against its fiscal 2012 sales and will look to advance its position in emerging economies such as China, India and the Middle East.

"We will go deep into the scrap-generating ‘mines’ for material, be that in the United States, the United Kingdom, Australia or China. We are aggressively exploring new markets, and will prudently move into them once proper due diligence has been completed," he said. "We currently expect capex in fiscal 2013, excluding acquisitions, to be circa $160 million to $180 million, depending on the timing of projects and market conditions."

In North America, Dienst said that the company will complete construction of its municipal recycling plant in New York City and will continue development of the New England and Gulf Coast markets.

The group’s electronics recycling division will continue to grow and maintain its position "both organically and externally with significant development plans in the U.S. and Canada," he added.

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