UK, SA Recycling weigh on Sims' 1H results

Weaker results in the UK and from its SA Recycling joint venture offset stronger volumes in North America and Australia to drive Sims Metal Management's profit down by 7pc in its fiscal first-half from the same period a year earlier.

The Australia-based recycler sold 5mn t across its geographic segments in its fiscal half-year ended 31 December, up from 4.8mn t in the same period a year earlier.

The increase was driven by higher ferrous shipments, which rose to 4mn t in the period from 3.7mn t in the prior year. The company did not provide specific second-half guidance, but said it expects full-year ferrous volume to be higher than a year earlier amid improved demand from Turkish mills in recent weeks.

Non-ferrous sales dropped to 221,000t from 226,000t, with full-year shipments expected to be in line with the prior year. Brokerage sales fell to 767,000t from 786,000t.

The company's Europe Metals segment and SA Recycling joint venture weighed on performance at the regional level.

North American shipments rose by 8pc to 2.5mn t, representing half of Sims' overall sales. The uptick pushed underlying earnings before interest and taxes (Ebit) in the region up to A$52mn ($37mn) from A$50mn along with disciplined buying and investments in technology. Regional earnings are adjusted for internal recharges and stated on a constant currency basis for year-over-year comparison purposes.

The company's California-based SA Recycling segment, which is not included in North American results, boosted volumes by 14pc to 1.7mn t as a result of multiple acquisitions in the southern US. Still, Sims' 50pc share of earnings fell to A$16mn from A$25mn on the back of lower zorba prices and general ferrous margin compression.

Sales in Australia and New Zealand rose to 948,000t from 891,000t, pushing earnings up to A$52mn from A$50mn. Strong demand from domestic steel mills in the region and the acquisition of the remaining 50pc stake in the New Zealand-based Sims Pacific Metals joint venture helped offset an outage at the company's Melbourne shredder.

But reduced shipments pushed profit down sharply in the company's Europe Metals segment, which comprises its UK operations.

Europe Metals earnings fell to A$6mn from A$17mn in the prior-year period as reduced demand from Turkey and higher quality standards for shipments to the country drove ferrous volumes lower. Declining zorba prices and the impact of tighter restrictions on non-ferrous shipments to China impacted non-ferrous shipments and margins. Issues in the UK were exacerbated by strong competition among exporters in the region weighing on overall margins.

Sims sold 794,000t generated by its 45 UK locations in the first half, down from 811,000t in the same period a year earlier despite several months' contribution from the 170,000 t/yr Morley acquisition in northern England that was approved by UK regulators in late 2018.

Global e-recycling earnings remained little changed in the first half of the year at A$10mn. The company expects stronger performance in the division in the second half as a result of recent contract wins, partially offset by expected increases in downstream processing costs.

Across the group, sales rose to A$3.3bn from A$3bn on higher volumes, an increase of 12pc from the prior year. Underlying profit fell to A$77mn from A$83mn.