US weakness takes $614m off Sims Metal

9 Feb 2012, 4:26 pm   -   Source: AAP
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Shares in scrap metal recycler Sims Metal Management slump as weak North American market forces a $614 million write down in value.

Scrap metal recycler Sims Metal Management expects a small improvement in first half underlying earnings despite difficult trading conditions that forced an asset write down.

The company's share price dropped by more than seven per cent on Thursday after a weak North American metals market forced a $614 million write down on acquisitions made before the global financial crisis.

The pre-tax impairment charge will be included in Sims' upcoming first half results and will put a major dent in bottom line net profit for the period.

The impairment charge, plus about $15 million in what Sims termed "adverse atypical items", is likely to cause a significant drop from the previous first half net profit of $49.3 million.

However, the charge was non-cash, meaning it would not affect the company's dividend policy, growth strategy, share buy-back plan and debt agreements, Sims said.

The company expects first half underlying earnings before interest, tax, depreciation and amortisation (EBITDA), which excludes impairment charges, to be around $141 million.

That would be a small improvement on the previous corresponding period's underlying EBITDA of $138 million.

Sims shares were down $1.06, or 6.95 per cent, at $14.20 on Thursday.

The impairment charge relates to goodwill, or the value of a business above the value of its assets, on acquisitions and joint ventures Sims made prior to July 2008, which was before the depths of the global financial crisis.

The recession in the United States since then has seriously affected the scrap metal recycling industry in North America, where just over half of Sims' earnings were made last financial year.

Sims said difficult trading conditions for its traditional metals business had affected its results for the six months to December 31.

Operating margins and profits in the North American operations have been hit, and more so in the latter months, Sims said.

Scrap intake in North America and Europe slowed in the three months to December but the performance of its Australian, Asian and European businesses had been solid, Sims said.

The company reports its first half results on February 17.

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