Sims Metal shares crash as blame game begins


What has 13 lines, 3 sentences and tells you very little?

This morning, the answer seems to be ‘an earnings downgrade from Sims Metal Management (ASX: SGM)’.

If you’re investing your hard earned and often harder saved capital in shares of a company, you want to think the board and management would tell it like it is.

If that was Sims’ intention, they certainly let the lawyers have their way. Seriously, tell me if you can make it through this earnings downgrade (sorry – ‘market update’) without your eyes glazing over:

“Sims Metal Management Limited (the “Company”) advises that basis the continuation of global economic challenges and headwinds, and with only 10 months results known at this point, that full year earnings for Fiscal 2012 ending 30 June 2012, including a gain on the sale of a business in February 2012 and after adding back goodwill impairment charges provided for in the first half of Fiscal 2012, will be materially less than 85% of the prior corresponding period. Results for the balance of Fiscal 2012 are not yet certain and may be impacted by global economic events and conditions as well as specific factors including, but not limited to, trading illiquidity and softness in deep sea ferrous markets, current weakness in ferrous metal prices, potential for gains or losses on non-ferrous and precious metal commodity hedges, gains or losses on derivatives acquired in connection with the investment in Chiho-Tiande Group, volatility in foreign currency markets, as well as timing and recognition of planned cargo and container shipments. The Company also notes that the gain on sale of a business as previously advised in February 2012 will result in a gain of $36 million during Fiscal 2012 instead of $32 million as previously advised.”

And for the record – the formatting is all theirs!

Buried at the end of a 77-word, 5 line sentence was the fact that earnings were going to be ‘materially less than 85% of the prior corresponding period’.

Sorry if you wanted management to be straight with you – what they mean is that ‘profit will be down more than 15% compared to last year’. Why didn’t they just say that?

Why will earnings be way short of last year? Well, there’s the catch-all ‘global economic events and conditions’ – the corporate version of ‘the vibe’ of The Castle fame. They didn’t blame the constitution, but other than that they’ve covered the waterfront. Oh, you wanted specifics? Sure – the company then helpfully shares – wait for it – 10 different permutations of possible reasons, including ‘gains or losses’ in two different factors. Gains or losses? Which one is it, Sims? Turns out they’re all external factors too – how about that.

Sims isn’t on its own as far as downgrades go – we’ve seen Myer Holdings (ASX: MYR), Seven West Media (ASX: SWM), Stockland (ASX: SGP) and QR National (ASX: QRN) – among others –all lower guidance in the past few months.

That is happens isn’t great, but at least shareholders deserve candour and full information about what happened and why.

3 sentences, 13 lines, 202 words – and yet, other than a buried profit downgrade, we’re none the wiser.

Sorry shareholders – if you wanted to know what is happening at your company, you’ll have to look elsewhere.

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Scott Phillips is an investment analyst with The Motley Fool. You can follow Scott on Twitter @TMFGilla. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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