Eco Investor September 2015

Core Securities

Sims Result Well Received

Sims Metal Management saw its share price jump $1.71 or 18 per cent when it announced a solid profit for 2014-5 of $110 million, reversing the prior loss of $89 million.

In its key North American market, the company said metal volumes continue to decline due to falling commodity prices, abnormally-severe winter weather, and weaker end-market demand. But more broadly, the underlying drivers for scrap generation are positive with new light vehicle sales near 10 year highs, consumer confidence back to pre-crisis levels, and early indications that wage growth is beginning to improve, which with time should lead to higher supply from obsolete consumer materials. Construction spending also continues to recover which increases volumes from building and demolition activity.

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Sims' global e-recycling business contributed revenue of $795 million or 12 per cent of the company's total revenue of $6.3 billion. The company said the volume outlook for electronics recycling is strong. It gave an interesting summary of the market, quoting a UN Report that electronic scrap generation is continuing to increase dramatically.

"The report estimates 41.8 million tonnes of end-of-life electronics (e-waste) were generated globally in 2014. The ewaste generated in 2014 contained an estimated 16.5 million tonnes of iron, 1.9 million tonnes of copper, and 300 tonnes of gold (equal to 11 per cent of the world's total 2013 gold production), as well as silver, aluminium, palladium, plastic and other resources with a combined estimated value of US$52 billion.

"Yet only a small portion was collected for recycling or reuse in an environmentally sound manner. In total, less than one-sixth is estimated to have been properly recycled or made available for reuse, according to the report's authors.

"Generation of e-scrap is expected to increase given the continued growth of electronic components in all manner of consumer items. However, the economics of recycling such material remains dependent on the effectiveness of government-based collection and recycling programs, as well as the commodity prices of embedded material."

Sims is expecting the segment to grow. Its underlying earnings (EBIT), excluding discontinued operations in the UK and Canada, rose from $17 million to $44 million, driven by better performance from continental Europe and the US. More growth is expected from optimization initiatives and as the business transitions to what Sims says is a higher value added and higher margin service based model.

On its overall outlook, Sims said that "Despite the external headwinds, due to the internal strategic initiatives, we anticipate continued underlying EBIT improvement in FY16." (ASX: SGM)

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