Fraud probe at Sims' UK plants
The company has refused to clarify if a police investigation is under way, or if any staff have been sacked or stood down since the activities were revealed.
Sims said the $60 million write-down was a preliminary figure, with more details of the write-down and any associated asset goodwill write-offs to be disclosed when its December half-year figures are released next month.
The fraudulent activity occurred at two of its recycling plants in Britain: at Long Marston, south of Birmingham, and at Newport, between Cardiff and Bristol, which has one of the world biggest industrial metal shredders.
The matter is already being investigated by a board committee, headed by the chairman, Geoff Brundsdon.
"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," the committee said.
Investors reacted warily to the news, pushing the shares to an intraday low of $9.32 and closing 50¢ lower at $9.48, wiping out its recent gains. "Investors are in two camps towards Sims," said one analyst, who did not wish to be named.
"There are those who are happy to hold the stock and wait for the US upturn, 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 a month after Sims issued a profit warning due to sluggish trading conditions, which prompted a 20 per cent drop, to between $110 million and $120 million in its forecast for the December half earnings before interest, tax, depreciation and amortisation.
At the time Sims blamed "continued challenging market conditions" for the write-down.
After that earnings downgrade, the Bank of America slapped an "underperform" rating on Sims's shares, pointing to the low barriers of entry to the scrap metal business, combined with moves by a rising number of electric arc steel furnaces to increase their own recycling purchases to improve margins.
This had squeezed the position of the larger recyclers such as Sims and had the potential to squeeze margins even more, the bank warned clients.
The head of Sims's European operations, which includes Britain, Graham Davy, was paid cash bonuses totalling $244,274 for 2011-12, on top of a fixed remuneration of $583,821. The bonuses were in recognition of the success of the group's European operations, rather than its British businesses.
The most recent large fraud involving a public company was an admission by a manager with Leighton that he had stolen $20.7 million from the company.
Frequently Asked Questions about this Article…
Sims Metal disclosed a preliminary $60 million write-down after identifying control failures and 'potential fraudulent conduct' at two of its UK recycling plants. A board committee has been set up to investigate the matter.
The company disclosed a preliminary $60 million write-down. Sims said more details of the write-down and any related goodwill or asset write-offs will be disclosed with its December half-year figures next month, so the eventual total could change.
The fraudulent activity occurred at two UK plants: Long Marston (south of Birmingham) and Newport (between Cardiff and Bristol). The Newport site includes one of the world's largest industrial metal shredders.
Sims has refused to clarify whether a police investigation is under way or whether any staff have been sacked or stood down since the activities were revealed.
Investors reacted warily: shares hit an intraday low of $9.32 and closed 50¢ lower at $9.48, wiping out recent gains as some investors became more cautious about holding the stock.
Yes. A month earlier Sims issued a profit warning citing sluggish trading conditions, cutting its December half EBITDA forecast by about 20% to $110–$120 million. Bank of America also gave Sims an 'underperform' rating, citing low barriers to entry in the scrap metal business and rising in-house recycling purchases by electric arc furnaces that could squeeze margins.
A board committee headed by chairman Geoff Brundsdon is investigating. The committee said the situation arose from control failures and potential fraudulent conduct by local and regional plant management responsible for technology and downstream processing systems in the UK.
Investors should watch Sims' upcoming December half-year results for full details of the write-down and any goodwill or asset write-offs, any further disclosures from the board committee, and management commentary on controls and the potential scale of losses. The company’s earlier profit warning and external analyst views about margin pressure are also relevant context.
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