The results, published last week, show the UK was one of the worst performing regions for the group, which is based in Sydney, Australia. The UK saw a fall in profit contribution of 24% to 16%.
A major challenge to the business globally was overproduction within the Chinese steel market which has hit prices in world ferrous markets. In contrast, high non-ferrous prices helped the group as they pushed up the value of scrap material.
The accounts themselves take on a new dimension following the merging of the Hugo Neu Corporation into Sims Group last summer which created one of the largest recycling companies in the world. With the acquisition, Sims has added a contract covering management of New York City recycling contract to its expanding portfolio.
The results posted for the group's first half year to 31 December 2005 are seen by the company as being in line with prior market guidance. Profit after tax was 29 million, down from 46 million in the comparable period in 2004.
Volumes
Commenting on the results, group chief executive Mr Jeremy Sutcliffe said: “Although representing a significant reduction on fiscal 2005’s exceptional performance, the first half result is satisfactory and indeed impressive against any other historical measure”.
Principally as a result of the Hugo Neu merger, overall intake volumes increased by 22%, although underlying volumes did come under some pressure, particularly in the United Kingdom, which experienced especially difficult ferrous market conditions.
Ferrous margin across the Group came under pressure as selling prices declined during the 2nd quarter and intense competition in some markets precluded a corresponding drop in ferrous buying prices. In the US, the relative strength of the domestic market, whilst a positive for domestic selling prices, led to margin compression for our North Eastern export focused operations.”
Forecast
Looking ahead, Mr Sutcliffe noted that in 2005 Chinese steel production ran well ahead of domestic consumption leading to a significant reduction in domestic steel prices, particularly for hot rolled coil. “This, and the knock-on effect it had on steel prices throughout the Asian region, dampened demand, and consequently prices, for recycled steel making raw materials. The impact of softening ferrous prices will be reflected in the early part of the Company’s 3rd quarter trading performance. Consequently, on the back of a weak January, 3rd quarter earnings (including a full 3 months contribution from the Hugo Neu businesses) are not expected to match those of the 2nd quarter.
“Looking beyond the 3rd quarter, ferrous prices have partially rebounded, but largely as a result of supply constraints, rather than as a result of strengthening finished steel prices. Accordingly, this rebound in ferrous prices, if sustained, should assist 4th quarter earnings.”
Recycling Solutions
Sims Recycling Solutions is the division which offers added-value specific services such as electronics recycling. The company said this division “continues to make progress” recording a 62% increase in earnings year on year.
Results at the Solutions division include a six month contribution from MIREC, the company's European E-Recycling business which it acquired from SITA.
Within the UK Sims Recycling Solutions has three main operations, in Newport, Manchester and Dumfries. In Newport the company has a television recycling plant close to its fridge recycling facility. In Manchester it has a granulator to handle a range of electronic items and Dumfries, a former Mirec site, is used for asset management work including the preparing computers for re-use and recycling.
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