SMS Finance

Sims Ltd’s UK scrap metal business sparks strategic review amid buyer interest

Sims Ltd (ASX:SGM), the scrap metal recycler, has received inquiries from potential buyers regarding its UK scrap metal business. The company initially announced a review of its UK operations during its annual results briefing and commentary in August. Yesterday, Sims informed the ASX that it had been approached by undisclosed parties interested in the business.

As a response to these inquiries, the company has decided to elevate the ongoing operational review to a comprehensive strategic review of the entire UK business, considering the possibility of retaining ownership or pursuing a partial or complete sale.

This marks the second review of its UK operations in 11 years, with the previous review conducted in July 2011. Back then, the decision was to restructure and retain the business. However, in 2013, Sims uncovered fraud within a part of its UK operations, resulting in a $60 million write-off.

In 2011, Sims operated a total of 42 metal recycling sites across the UK, including nine sites in the West Midlands acquired in May 2011 as part of the purchase of UK-based Dunn Brothers.

Sims clarified that the initial August review aimed to explore various strategies to enhance the UK Metal business’s performance and maximize returns for shareholders. Given the strategic importance of the UK Metal business in supplying high-quality scrap for low-carbon steel, copper, and aluminum production, and the expressions of interest from potential buyers, the company has decided to conduct a thorough strategic review.

The strategic review will encompass various value creation opportunities, including strategic partnerships, co-investment, and potential divestment transactions. To assist with the review, Sims has appointed Macquarie Capital.

Currently, the UK business comprises 28 facilities and four shredders, processing over 1.4 million tonnes of scrap metal annually. Sims emphasised that the review’s primary goal is to explore options for improving the business’s performance.

Sims faced challenges in all its businesses during the 2022-23 fiscal year, reporting significant decreases in contributions compared to the previous year. Revenue declined by 13%, trading margin dropped 15%, and statutory net profit after tax decreased by 70% to $181 million. Statutory EBIT fell by over 60% due to declining metal processing volumes and prices.

In particular, Sims cited “challenging conditions” and intense competition as reasons for an 85% decline in underlying EBIT for the UK business, dropping from $98.8 million in 2021-22 to $7.3 million.

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