Earnings up and more to come says global scrap metal and recycling company Sims Limited – and that’s despite the downturn in the pace of activity in the Chinese economy.
Sims told its AGM yesterday that if the new result pans out as expected the company will make nearly as much profit in the six months to this December than it did for all of 2020-21.
The company said in a statement issued ahead of the start of the AGM (and repeated at the meeting) that it now expects underlying earnings (that’s EBIT or before interest and tax) for the first half of 2021-22 financial year to be around $310 million to $350 million, thanks to its strongly performing North America and solid commodity prices.
The half-year forecast comes close to the $386.6 million in underlying full-year earnings it reported in the 2020-21 financial year, which was a massive rebound from the $57.9 million loss in 2019-20.
Sims reckons higher volumes of scrap, growing demand for recycling services and lower prices will see the company emerge strongly from the pandemic.
“Each of our major business divisions showed strong earnings growth as a result of higher sales volumes, active margin management, and lower predominantly fixed costs,” according to CEO Alistair Field.
The company did warn that it is facing potential headwinds to the first half of the 2021-22 financial year, including delays in the global shipping chain, which could lead to potential volatility in market and freight prices and the “and the emergence of inflationary pressures on general business costs.”
“Proprietary intake volumes for the September Quarter 2022 were up over 10% on the prior comparable period. However, they were slightly below the FY19 average proprietary intake volumes, largely due to Covid-19 related lockdowns.
“Operating cash flow for the September Quarter 2022 was solid, with a positive contribution from working capital movements.
“Operating cash flow for 1H FY22 and FY22 could be significantly positively or negatively impacted by the level of working capital in the business at that time, largely stemming from sales mix, commodity prices, and inventory levels.”
“The business is expected to benefit from positive medium to long term macro trends. Stimulus spending around the world will increase demand for steel-intensive infrastructure spending and drive additional retail consumption.
“Additional retail consumption will also increase post-consumption scrap. These trends are positive for both ferrous and non-ferrous metal recycling.
“Action relating to the decarbonisation of steel making and electricity generation has gained a significant pace over the last year. The move globally to build more Electric Arc Furnaces will drive the demand for recycled metal.
“Decarbonisation of the electricity industry will see increasing use of copper. Cars are increasingly using more aluminium in their construction. Sims is well placed to benefit from these trends as it continues to provide high-quality recycled metal to global markets.
The shares edged up 0.4% to $14.39.
