What: After several lacklustre years, disappointing results have again marred Sims Metal Management Ltd's (ASX:SGM) annual report, however there are several positive signs tucked away within.
Highlights:
- Revenue down 0.8% to AU$7,144.3m
- Constant-currency sales revenue down 10.5% on lower volumes and prices
- Sales volumes down 7.6% to 11.815 million tonnes
- Net loss attributable to members down 81% to a loss of $88.9m
- Final dividend of 10 cents per security
- Net tangible assets of '7.91' per share (unspecified; I assume dollars), down from '8.15' previously
- Underlying EBITDA of $242.4 million, up 27.3% on last year
- USA revenue down 6.2%, Australasia up 13% and Europe up 4.8%
So What?
It looks like this could be the tail end of an ugly, write-down filled couple of years for Sims Metals, with a number of improvements to EBITDA and reductions in significant expenses.
Economic conditions in the USA have improved according to Sims, with consumer confidence, new vehicle sales and major appliance sales all rising, although reduced commodity prices and difficult weather kept earnings subdued.
Australia is beginning to see a slowdown in economic growth thanks to the reduction in mining investment, although scale-backs in competitor activities have encouraged Sims enough to invest in a new shredding operation in Western Australia.
A stagnant EU economy combined with unrest in Ukraine and the Middle East means that scrap earnings are likely to remain subdued until broader economic conditions improve.
Overall however Sims achieved several significant cost reductions and improvements in EBITDA that at least look like a promising start to the company's five-year transformation which will begin this financial year.
Now What?
Over the next five years, Sims Metal Management plans to grow its EBITDA by 350% without any improvement in external business conditions – a tall order, but one that should have been given years ago.
Sims is a well-known underperformer on the ASX and has been for many years. However, I think that the plan to reform the company is a fine one and should meet with some success if management is able to make some tough decisions regarding productivity and underperformance.
For now I would counsel investors to watch and wait until the plan looks likely to bear fruit.
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