Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sims Ltd (SMSMY, Financial) reported a better-than-expected second half performance, with underlying EBIT coming in around EUR43 million, significantly higher than the anticipated EUR20-25 million.
- The company successfully integrated 17 new sites while maintaining a total recordable injury frequency rate below one, showcasing strong safety performance.
- Sims Ltd (SMSMY) achieved significant cost savings by removing 206 roles, resulting in annualized savings of $46 million.
- The SLS business delivered a strong financial year, with over a 100% EBIT increase compared to the prior year.
- The company has made substantial progress in improving its market responsiveness and simplifying business structures, which is expected to enhance operational efficiency.
Negative Points
- Sales volumes for the full year were down by 1.7%, despite a slight increase at the half-year mark.
- Inflationary pressures have been stubborn, impacting operating costs significantly.
- The company faced a challenging market environment, with all regions except SLS delivering lower EBIT in FY24 compared to FY23.
- Higher financing charges and a review of the carrying value of operating assets contributed to a statutory loss.
- The company experienced significant closure and dilapidation costs in the UK, impacting overall financial performance.
Q & A Highlights
Q: How do you view the potential for a buyback versus further bolt-on acquisitions considering that it does appear you're well undervalued?
A: Warrick Ranson, CFO: The first thing is to think about our debt levels. We need to make sure that we are resilient through the cycle. Strengthening the balance sheet is part of that. A buyback is an option we would consider, depending on our financial position at the time.
Q: Can you explain the discrepancy between intake volumes and sales volumes for SA Recycling?
A: Stephen Mikkelsen, CEO: The market size year over year has shrunk, particularly in the US. There is sharp competition for a shrinking market. Additionally, year-end issues like ship slipping and revenue recognition can affect these numbers.
Q: What is the outlook for trading margins in North America Metals (NAM)?
A: Stephen Mikkelsen, CEO: We expect trading margins to continue to increase. Historically, trading margins have been in the early 20s percentage-wise. We aim to get back to those levels as the demand for scrap increases.
Q: What drove the better-than-expected second-half performance?
A: Stephen Mikkelsen, CEO: The major difference was the performance of ANZ in the last two to three months, particularly in non-ferrous. We also saw green shoots from NAM, delivering a better second half and fourth quarter.
Q: How do you view the strategic merit of having Australia and the US under the same umbrella?
A: Stephen Mikkelsen, CEO: There is strategic merit in understanding global market trends and pricing. Both regions sell into the same global markets for ferrous and non-ferrous materials, providing valuable market insights.
Q: What are the expected sustainable EBITDA levels from recent acquisitions?
A: Stephen Mikkelsen, CEO: We target a minimum hurdle rate of 15% IRR for acquisitions. The benefits of these acquisitions are integrated into the whole portfolio, making it difficult to isolate specific EBITDA contributions.
Q: What is the run rate for corporate costs leading into 2025?
A: Warrick Ranson, CFO: We are currently reviewing our cost base, especially with the disposal of the UK business. The run rate for corporate costs will be rationalized accordingly.
Q: How do you plan to use the proceeds from the UK sale?
A: Warrick Ranson, CFO: Our priority is to pay down debt and strengthen the balance sheet. Growth in 2025 will focus on incremental activities like product quality and productivity improvements.
Q: What is the impact of higher non-ferrous prices on overall profitability?
A: Stephen Mikkelsen, CEO: Higher non-ferrous prices, particularly in the last quarter, significantly contributed to the better-than-expected results. Non-ferrous materials like copper and aluminum remain strong due to ongoing demand.
Q: How do you view the future of Sims Resource Renewal?
A: Stephen Mikkelsen, CEO: The pilot test has been successful, but commercial rollout is not expected in the next 18 months. The project will likely be moved to companies with chemical processing capacities for further development.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
