Sims Faces Challenges in UK and US Markets Amid Difficult Fiscal Year

Metals recycling giant Sims is taking decisive steps to address the "difficult" financial performance it experienced in the fiscal year ending June 30, 2024. In a strategic move to streamline operations, Sims has divested its UK business, which comprised 28 sites, including three port facilities and four shredders. This decision followed an internal review that concluded the UK operations were "non-productive," as revealed during an earnings call this week.

Sims' CEO, Stephen Mikkelsen, pointed out that the tight supply conditions in the UK were a significant factor contributing to the underwhelming results. The scarcity of inflows forced Sims' suppliers to turn to container shipping and deep-sea volumes, which strained margins. However, a favorable exchange rate provided some relief, even as the production of premium low-copper shred added to operating costs.

The sale of the UK business generated £195 million ($255 million), which Sims plans to use primarily to reduce debt. The company is now focusing on enhancing the efficiency of its remaining operations. Sales volumes in the UK sector had dropped by 8% to 1.29 million tonnes year-on-year, highlighting the challenges that led to the divestment.

This strategic shift will allow Sims to concentrate on its core markets in the US and Australia-New Zealand, where it aims to improve performance following disappointing results from its North American sector. Inflow volumes in North America decreased over the year, despite the acquisition of Baltimore Scrap, a US-based recycler. Additionally, inflationary pressures squeezed margins, though shredder utilization in North America improved to 68.5% in the second half of the fiscal year, up from 66.5% in the first half. Proprietary sales volumes in the region saw a slight decline, totaling 5 million tonnes over the twelve months.

The acquisition of Baltimore Scrap was intended to expand Sims' footprint in the US and leverage the growing demand for steel. However, some shareholders are now advocating for the sale of Sims' North American assets to SA Recycling, which is partially owned but not managed by Sims. They cite concerns over the current leadership's ability to capitalize on long-term demand and revenue opportunities.

Despite global steel demand remaining subdued due to the influence of lower-priced Chinese steel and tepid economic indicators, Sims is optimistic about the outlook for ferrous and non-ferrous scrap. This optimism is driven by ongoing decarbonization efforts and the increasing demand for data center construction.

However, the financial impact of the challenging year was stark. Sims reported an after-tax loss of A$57.8 million ($39 million) for fiscal year 2024, a sharp contrast to the A$181.1 million after-tax profit recorded in 2023.