Sims Metal Management (the “Company”) will record a non-cash impairment charge related to goodwill and provides an update on underlying EBITDA (earnings before interest, tax, depreciation, goodwill impairment and amortisation) for the Fiscal 2012 half year results ended 31 December 2011.
In connection with applying AASB 136
Impairment of Assets
, the Company has determined to write off goodwill of $614 million in the half year results ended 31 December 2011 ($594 million after-tax). The impairment arose predominately within the North America segment and related to acquisitions and joint ventures made and accounted for prior to the end of Fiscal 2008. The Company attributes the impairment to the timing and valuation of previous significant and material acquisitions of traditional scrap metal recycling companies, particularly in North America, prior to the severe global economic downturn and U.S. recession that adversely impacted the traditional scrap metal recycling industry. The write down of goodwill, a non-cash item, will not impact the Company’s dividend policy, growth strategy across all regions and businesses, share buy-back plan, or its compliance with credit agreements.
The Company currently expects, subject to the completion of auditor review and board approval, that underlying EBITDA before goodwill impairment charges and other adverse atypical items (circa $15 million) to be circa $141 million compared to underlying EBITDA of $138 million in the prior corresponding period for Fiscal 2011. First half results were impacted by continued difficult operating conditions for the traditional metals business, particularly in North America, as previously advised at the Company’s Annual General Meeting (AGM) in November. These conditions adversely impacted operating margins and equity accounted profits of joint venture partners, particularly towards the end of the first half in the North America segment. Results in the first half for Australasia and Europe (excluding the U.K. traditional metals business) remained solid. Results for Sims Recycling Solutions were generally in line with the prior corresponding period. Also anticipated at the November AGM, scrap intake slowed towards the end of the first half for North America and Europe. Consolidated scrap intake and shipments for the first half of Fiscal 2012 were circa 7 million tonnes with only circa 3 million tonnes of that activity arising in the final three months of the first half.