Sims scraps dividend

Sims Metal Management cuts costs in tough market conditions.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The world's largest listed metal recycler, Sims Metal Management (ASX: SGM), last week reported full year results to 30 June 2013. The results were mixed, with greater than expected operational cost savings improving earnings in North America, but weak overall conditions resulted in group revenue falling 20%.

The company reported a net loss of $466.1 million for FY13, including $304 million in goodwill and other charges, while the underlying net profit after tax of $17.1 million was down 76% on the previous corresponding period.

Sims noted that the decline in revenue and profit was largely attributed to lower average scrap prices in Europe, Australia and North America, and 12% lower sales volumes over the year. Earnings before interest, tax, depreciation and amortisation (EBITDA) for North America rose 30% to $102.3 million, as higher margins and cost savings of $48.4 million offset the negative impact of lower scrap prices.

EBITDA for Australasia fell 13% to $78.9 million, with the result helped by $10 million in cost savings, while European EBITDA of $10.2 million was 88% lower than FY12. Sims attributed the European result to ongoing economic weakness in the region resulting in less scrap metal, and lower prices received.

Sims did not declare a final dividend for 2013, as the company wisely chose to focus on capital management and debt reduction. In FY13 net debt was reduced by $138.4 million to $153.8 million, bringing gearing to 7.4% of total capital.

The single biggest challenge the company must overcome in the year ahead is subdued economic conditions in Australia, Europe, and North America. Scrap metal demand is largely dependent on production levels of structural beams and long steel products usually required in non-residential construction, while scrap supply is often correlated to consumer confidence as large household purchases increase with improving confidence. Growth in non-residential construction has not yet experienced the same rally as residential construction in the above regions; however consumer confidence is at a five-year high in North American and improving in Australia and Europe.

Additionally, while cost savings initiatives in the past year have been successful, more will be required to ensure the company remains profitable until the domestic and overseas markets for scrap metal improves.

Foolish takeaway

For long term investors looking for exposure to the economic recovery of Australia, Europe and North America, Sims metal management is a solid, established business with room for growth as the economy improves. It is aggressively paying down debt and cutting costs to improve margins to whether the current challenging market conditions. This should leave the company well placed to benefit from the ongoing economic recovery in the next two to five years.

More interested in dividend yield than growth? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »