Fraud forces Sims' write-down
FRAUD cases continue to roil the management of large Australian companies with the latest involving Sims Metal, which has disclosed $60 million of write-downs after "control failures and potential fraudulent conduct" in the UK, with the prospect that the full extent of any losses may increase.
The company has refused to clarify whether a police investigation is under way or whether any staff have been sacked or stood down following the uncovering of the activities.
Sims said the $60 million write-down is a preliminary figure, with further details of the write-down and any associated asset goodwill write-offs to be disclosed when December-half figures are released next month.
The frauds occurred at the two UK recycling plants of Long Marston, which is south of Birmingham, and at the Newport plant, which is located between Cardiff and Bristol and has one of the largest industrial shredders in the world.
A special board committee headed by chairman Geoff Brundsdon has been established to run an investigation, which has already begun.
"The situation has arisen in the context of control failures and potential fraudulent conduct by local and regional plant management responsible for technology and downstream processing systems in the UK," it said.
Investors reacted warily to the news, pushing the shares to an intra-day low of $9.32 and closing down 50¢ at $9.48 and wiping out all of its recent gains.
"Investors are in two camps towards Sims," one analyst, who did not wish to be named, said.
"There are those who are happy to hold the stock and wait for the upturn in the US and those who see this as just another reason not to hold the stock.
"A lot of people aren't concerned about this incident specifically, given that the metals game can have some 'rough trade', but there are concerns about what else could emerge."
The disclosure comes just a month after Sims issued a profit warning due to sluggish trading conditions, which prompted a 20 per cent reduction to between $110 million and $120 million in its forecast for December half earnings before interest, tax, depreciation and amortisation.
It cited "continued challenging market conditions" for the write-down.
Following that earnings downgrade, Bank of America slapped an "underperform" rating on Sims shares. The bank warned that the low barriers of entry to the scrap metal business combined with the move by an increasing number of electric arc steel furnaces to lift their recycling purchases to boost margins, which has squeezed the position of the larger recyclers such as Sims, has the potential to squeeze margins further.
Sims' head of European and UK operations, Graham Davy, received cash bonuses of $244,274 for 2011-12, on top of a fixed remuneration of $583,821. The bonuses stemmed from the success of the group's operations on the Continent, rather than the UK, where write-downs were booked.