Metal recycling business Sims [ASX:SGM] provided a trading update for the first quarter of FY23, expressing caution in its short-term outlook.
Sims pointed to ‘soft market conditions’ leading to lower volumes, tighter margins, and ‘resiliently high inflation.’
Sims said it has suffered from ‘significantly reduced economic activity’ and rising competition, which has fed into lower scrap volumes and tighter margins ‘in both percentage and dollar per tonne terms.’
SGM shares were down 10% late on Tuesday.
Year to date, SGM shares are down by 35%.
Source: tradingview.com
Sims’ trade update: ‘costs to remain elevated’
Sims expressed concerns over the overlying macro trade environment conditions, which it first picked up upon reporting its financial results for the full 2022 fiscal year.
The following were some of these continuing concerns:
- The company reported that economic activity has significantly slowed while competition in the industry grows more competitive, resulting in lower scrap volume.
- Due to lower scrap processing, trading margins (as percentage and dollar per tonne) have also tightened.
- The company’s 1Q FY23 cost mitigation initiatives ‘have only partially offset inflationary pressures,’ resulting in continuing cost elevation in the first half of FY23, with further measures expected for the second half of FY23.
- Inflation remains a crucial ongoing concern, with it now being at a ‘40-year high’ in the US.
- Underlying EBIT for the first half of FY23 is forecast to be $65–75 million (which may be impacted by upcoming shipments due by the end of the first half of FY23).
Nevertheless, Sims CEO, Alistair Field, believes that while businesses will have to find ways to pull through in the short term, there is still hope for conditions to improve in the longer term:
‘We believe these are short-term headwinds driven by macro-economic factors which do not alter our belief in, and our focus on, the medium-term outlook for the business.
‘I have every confidence that the fundamentals for metal recycling remain positive
for the medium-term, with the decarbonisation of steel making, growth of EAFs, and
the energy transition expected to continue driving demand.’
What’s next for Sims?
Sims’ updated forecast for FY23 relates to a sustaining capital expenditure of $170 million, $50 million lower than the previous forecast of $220 million.
The recycling firm wishes to exercise caution in the short-term, expecting costs to remain at high levels even despite recent initiatives put into place.
In the medium-term, the company is taking its ‘strong earnings in the previous three financial halves’, recent acquisitions, growing footprint, and its ‘successful transition from a regional to a functional organisation’ as a sure sign it will be in a good position for when the markets (eventually) recover.
Are you prepared for the EV takeover?
The electric vehicle (EV) revolution is here.
EV sales are rising, and global powers are set on the transition to greener energy, via government initiatives and funding programs supporting global production.
We’ve all received the ‘Save The Date’ for zero carbon emissions by 2030.
But our energy expert, Selva Freigedo, thinks the global transition to EVs means the industry faces a supply crunch — which can send prices for battery materials soaring even higher in 2022 and beyond.
If you’d like to know more, check out Selva’s battery tech metals report for free.
Regards,
Kiryll Prakapenka,
For Money Morning
