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CommentsSims Metal Management Ltd. reported fiscal half-year revenues of $3.49 billion (3.4 billion Australian dollars) and a net loss after tax of $303.4 million, or $1.48 per diluted share, amid inventory valuation issues and allegations of fraud at its U.K. operations.
The Australian-domiciled international scrap metal and electronics recycling giant reported revenues of $4.7 billion and a net loss of $3.15 per diluted share for the comparable period last fiscal year. It attributes the fall in revenue to a reduction of intake and shipments in North America.
In the U.S., "subdued scrap generation, particularly within the consumer segment, negatively impacted sales and margins in the first half, which was compounded by weaker commodity prices and tepid ferrous demand," group CEO Daniel Dienst said in a conference call about the report. "... The continued challenging set of global economic conditions, weaker metal prices, tentative demand for the majority of the period and the impact of adverse significant items resulted in statutory loss.
"Our North American colleagues are not satisfied with this result and continue their efforts to streamline their business."
Sims Metal Management's total scrap intake and shipments were 6.0 million metric tons and 5.9 million metric tons, a decrease of 18% and 17% respectively.
Financial results were also impacted by a recently announced write-down of the company's U.K. inventory.
The company announced Jan. 21 that it was investigating possible inventory valuation errors and fraud at two of its U.K. facilities. A special committee found the U.K. inventory had been overvalued by $80 million, due to "supervisory control failures," representing about 29% of the company's U.K. inventory and about 9% of its total inventory.
Approximately $17.5 million of the write-down impacted results for the half-year ending Dec. 31; results from 2010, 2011 and 2012 were restated to reflect the change.
Dienst said the announcement of employee misconduct was "tough medicine to swallow," but "conditions which allowed improper conduct to occur were unique to the two U.K. facilities."
"The alleged conduct we discovered does not represent in any way, shape or form the way Sims Metal Management does business, or how we expect our employees to behave," he said in the conference call. "... The isolated acts of a few reckless people and supervisory control failures should in no way question the reputation of our broader [Sims Recycling Solutions] franchise scattered across five continents, 18 countries and more than 50 sites, nor should it undercut the broader successes we've had in this fast-growing market."
Sims Metal Management is continuing to investigate allegations of fraud, the company has stated. The company declined to provide further details about the incident or its planned actions.
The company also announced its CEO, Daniel W. Dienst, will retire when his contract expires June 30. Dienst has been group CEO at the company for nine years.
In the conference call, Dienst declined to comment on the reasons for his departure, saying only, "Normally, when you hear these kinds of announcements, people say they want to spend more time with their family. I will tell you up front that my family does not want me to spend more time with them."
The company's Board of Directors will conduct a global search for a new CEO as well as consider internal candidates.
Sims Metal Management has seen safety improvements in its fiscal half-year and is continuing to implement cost reduction measures, the company has stated. The company's operations in the Northeast were hit by Hurricane Sandy, but are now seeing an increase in scrap generation as cleanup efforts continue, Dienst said in the conference call. The electronics recycling business Sims Recycling Solutions also acquired new assets in British Columbia and Maryland during the fiscal half-year.
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