FRAUD continues to roil the management of large Australian companies, this time with Sims Metal disclosing $60 million in write-downs after "control failures and potential fraudulent conduct" in Britain, with the prospect that the full extent of any losses may worsen.
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.