Sims share price slips despite stellar growth in FY22

The metal and electronics recycler has announced its FY22 results. Here are the details.

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Key points

  • Sims shares are sliding on Tuesday after the company reported its earnings for FY22 
  • Revenue and net profit after tax surged in FY22 on the back of high metals prices
  • The macroeconomic short-term outlook remains uncertain, the company says

The Sims Ltd (ASX: SGM) share price is in the red this afternoon after the company posted its full-year results for FY22.

At the time of writing, Sims shares are down 3.18% to $15.21, having earlier slumped as low as $14.51.

Let's take a closer look at what the ASX-listed metal and electronics recycling company reported.

What did Sims report?

Here are the highlights from Sims' FY22 results:

  • Sales revenue rose 56.6% to $9,264.4 million compared to FY21
  • Net profit up 161.2% to $599.3 million
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumped by 65.4% to $958.9 million
  • Earnings before interest and taxation (EBIT) went up by 146.4% to $773.6 million
  • Underlying EBIT increased 95.6% to $756.1 million
  • Operating cash flow surged by 323.3% to $547.8 million
  • Declared a final dividend of 50 cents per share, a 66.7% jump on FY21

Revenue experienced strong growth on the back of a 12.2% increase in sales volumes. This was primarily driven by a 23.6% increase in zorba volumes, partially due to improved metal recovery technology.

Sims benefitted from a surge in sales prices, in particular ferrous commodities. The average sales price for ferrous went up by 43% compared to non-ferrous sales prices, which increased by 32%.

The higher operating costs of 23.9% were a result of greater activity across the business, acquisitions, greenfield facilities, and enhanced performance incentives.

What else happened in FY22?

All segments within the business experienced inflationary pressures, in particular labour.

It should be noted that the company's earnings benefitted from an 89.2% increase in earnings contribution from a 50% interest in SA Recycling.

Diluted earnings per share (EPS) increased from 112.8 cents in FY21 to 295.6 cents in FY22, a rise of 162.1%.

The weighted average number of basic shares was reduced by 3.3 million shares relative to FY21. On top of this, the company bought back and cancelled 7.7 million shares, contributing to an improvement in diluted EPS by 5.6 cents.

In addition, Sims declared a final dividend of 50 cents per share, 50% franked. That brings the full-year payout to 91 cents — a 116% increase over the prior year. The dividend will be paid out on 19 October 2022.

Meanwhile, the company achieved its lowest total recordable injury frequency rate ever after implementing its critical risk management strategy in FY19.

The business continues to hit sustainability goals, ranking 11th on the 2022 Global 100 List of most sustainable companies in the world.

What did management say?

Commenting on the results, Sims CEO and Managing Director Alistair Field said:

We made significant progress on our business strategy: successfully completed several strategic acquisitions, continued to deploy enhancement technologies in ferrous and non-ferrous, and opened new feeder yards in the metal business.

In Sims Lifecycle Services, we launched new service offerings and invested in engineering and technology to continue driving innovation and build capacity to scale up operations quickly when the supply chain challenges ease.

I am particularly proud of how our teams managed the inflationary pressures and market volatility, working across all market segments to protect margins while maintaining high safety standards.

Management provides a measured outlook

Management has flagged the uncertainty around the short term because of major volatility.

The combination of rising interest rates and increasing inflation has resulted in lower demand for steel, copper, and aluminium.

Ferrous prices were at a high of US$700 tonne in March FY22 but have subsequently dropped to between US$320 and US$400 per tonne at the start of FY23.

FY23 results will depend on how interest rates pan out but management advised its strong market position and strong balance sheet will help the business absorb the adverse impact of the short-term volatility.

Management also added structural macro trends like the global decarbonisation of steelmaking, rise in electric arc furnaces, and energy transition will act as strong tailwinds for recycled metal.

Sims share price snapshot

When metals prices were at all-time highs in April, the Sims share price rallied to a 12-month high of $22.64 per share.

However, since then, the Sims share price has taken a turn for the worse, sinking as low as $13.37 at the start of July.

Over the last 12 months, the Sims share price has fallen by 13%. Across the same period, the S&P/ASX 200 Index (ASX: XJO) has dropped by 6%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. Motley Fool contributor Raymond Jang has no position in any of the stocks mentioned.

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