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Sims Metal Management Limited (ASX:SGM) is a metal and mining company domiciled in Australia. It is a metal recycler with over 250 facilities under its control, which includes joint ventures as well, located in 18 countries in 5 continents. The company operates in 3 divisions, namely, Sims Metal Management (SMM), Sims Municipal Recycling (SMR), and Sims Recycling Solutions (SRS).
Today, the company has provided its preliminary 1H19 earnings update and the changes that it has made to the segments as well as reporting style. The company is expected to release 1H19 results on 20 February 2019.
The company provided the underlying EBIT of $109.8 million for 1H19 which is 12.2% or $15.2 million below the 1H FY18 earnings guidance of $125 million. The significant impact is expected to be seen in its Europe metal segment and SA Recycling segment which are expected to be reported at $1.4 million and $16.8 million respectively for 1H19. The other segments are also expected to go down excluding the Global Trading segment, which is expected to rise by 70.9% and reported at $9.4 million.
The fall of 4.6% in North America Metals EBIT is expected due to the increase in internal recharges by $8.3 million, an increase in volatility in the market, and the increasing competition.
The fall of 87.9% in Europe Metals EBIT is expected due to the increase in internal recharges impacting EBIT by $2.5 million, challenges such as competitive pressure and margin compression in the Turkish economy, volume loss due to stricter controls on quality into sites, reduction in the sales price for Zorba for the UK market, and the National Sword initiative in China. SA Recycling, with a fall of 33%, was due to the margin compression on Zorba.
There was an improvement of $1.9 million in Corporate & Unallocated underlying EBIT. It contained the SMR division EBIT loss of $4 million as compared to a loss of $3 million in 1H18 which was due to the collapse in waste paper pricing to below zero. The SMR was earlier a part of North America Metals.
Global Ferrous Trade and Global Non-ferrous Trade earlier under the North America Metals and Corporate & Unallocated respectively have been moved to Global Trading.
A few subsidiaries have entered into financial hedges to mitigate foreign currency movements and price fluctuations in some commodities which do not qualify for hedge accounting treatment resulting in profits and losses for a particular reporting period and distort the underlying results.
The total sales volume is expected to go up by 3.3% and is expected to be 4.918 million for 1H19 with an increase of 7.6% in North America Metals and 5.2% in ANZ Metals, and a fall of 5.1% in Europe Metals and 3.9% in Global Trading. The SA Recycling sales volumes are expected to be 1.679 million with a rise of 14.1% in 1H19.
The stock has generated a positive return of 6.00% over last one month. It is currently trading at $9.190 (as on 21 January 2019) with a plunge of 16.073% in the price during the dayâs performance following the news. The company has ~202.72 million shares outstanding with the market cap of circa $2.22 billion.
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