Recycling group CMA Corporation today announced a $36.5 million operating loss for the half year, in line with guidance provided late last year.
Recycling group CMA Corporation today announced a $36.5 million operating loss for the half year, in line with guidance provided late last year.
The result compares to a $7.4 million net profit in the first half of FY08.
The global scrap recycling sector suffered its most tumultuous period ever in the December half, with dramatic and unprecedented falls in commodity prices and the liquidity crisis in financial markets putting a major squeeze on buyers of scrap, notably steel mills.
CMA's result was impacted by a pre-tax write down of $12.8 million in stock valuation due to a dramatic fall in commodity prices; a foreign exchange loss of $9.7 million due to cancelled sales contracts and the dishonouring of letters of credit, and $6.3 million in doubtful debt provisions due to slower payments from customers impacted by the global financial crisis.
Despite the impact on profitability, CMA's maintained revenue levels close to those of the previous year, with group revenue down just 3.5 per cent at $221.9 million.
CMA managing director Doug Rowe said the result was disappointing but it was impossible for CMA to buffer its business from the harsh external environment.
"It was very disappointing for our profitability to be hit so hard given the success we had achieved in building CMA's network of businesses through Australasia and into South-East Asia," said Mr Rowe.
"There has been a seismic shift in market conditions and CMA has taken substantial steps to put the business on a sound footing for working through the current downturn and positioning the group for a rebound when conditions improve."
During the December half, CMA secured an $11.25 million investment from global scrap metal recycling group Scholz through a Placement of 45 million shares at 25 cents per share. Post balance date, Scholz has committed to a further investment in CMA of $48.99 million, subject to the approval of shareholders at an Extraordinary General Meeting to be held in early April 2009, raising its holding to 42.18 per cent.
Approximately $35 million of the capital raised will be applied to debt reduction with the balance to be used for working capital.
"We are thrilled that Scholz has seen such significant value in our business," said Mr Rowe.
"Scholz will be a very important supporter of CMA in the months and years ahead, especially in maximising our returns from the significant investments we have made in our infrastructure and network."
During the December half, CMA acquired the assets of UK-based Meretec Limited, including the rights to the Meretec de-zincing recycling technology.
A Meretec recycling facility in Chicago and a new shredder at Ringwood, Victoria were both commissioned during the period and are expected to provide significant contributions to group earnings moving forward.
Positive developments expected in the second half include the commissioning of new shredders at Auckland, New Zealand and at St Mary's in New South Wales.
Mr Rowe said the Board expectation is that market conditions would improve during the second half of the 2009 calendar year and that the one-off occurrences experienced during the first half of FY09 would not re-occur.
"These are all one off events. We can't be certain that they won't re-occur, however we believe it is very unlikely," he said.
"We have undertaken a detailed review of our goodwill and other intangibles valuations, including our relatively small operations in the US, and we believe that based on the "Value in Use" methodology no write downs are required to be made at this point in time to goodwill or other intangibles." "However, that is not to say that in future if the world-wide demand and production does decline further it may require an impairment charge to be booked, going forward."
Mr Rowe said that given the turmoil in the financial markets, it was difficult to predict trading conditions in the second half of the 2009 financial year.
"Based on the uncertainty and volatility in the market at present, we are unable to provide guidance for the full year," he said.
"However, CMA is fundamentally a strong business and we are well positioned to rebound as soon as trading conditions improve."
