Lower Profits Recorded
Sims Lifecycle Services’ profits were dramatically reduced this past fiscal year attributable to significantly lower prices for used electronics in China, margin compression, and inflation. The firm recorded a total of $211 million in revenue in the 2023 fiscal year, signifying a dip of 0.5 percent compared to the prior period.
June 30th, 2023 marked the end of the fiscal year, and according to an official company report its EBIT (earnings before interest and taxes) dropped to just over $5 million. This resulted in a decrease of almost 50 percent when analyzed against the previous year.
SLS is the ITAD and data center decommissioning division of Sims Limited, and the firm did witness a marked improvement in its electronic resale numbers last year. However, during an August 14th conference call with investors, executives at Sims Limited commented that Chinese buyers weren’t willing to pay higher prices.
“The reality is that the Chinese recovery is slow and China is currently the main driver of the price SLS receives for resold units,” the chief financial officer for Sims Limited, Stephen Mikkelsen, stated on the August 14th call. “A recovery is not likely to occur until the end of this calendar year or early calendar 2024.”
SLS Shares Factors Behind Decreased Revenue
A presentation from SLS revealed that revenue had been lower than expected, which was mainly linked to China’s renewed COVID-19 lockdowns. This led to a drop, and consequently a slower recovery of resale prices. These factors, coupled with margin compression and inflationary pressures, culminated in diminished profits.
Although, amid a difficult market environment, SLS was able to report a considerable rise in the quantity of electronics it resold and reutilized during the financial year. Supply chain limitations along with delays in refresh rates from hyperscalers didn’t impact SLS, as the firm achieved a 41 percent improvement from 2.7 million units to 3.8 million units between this year and last.
Regarding employment, SLS reduced its workforce size dramatically over the past 12 months. On average, its staff count was 726 individuals, amounting to a decrease of 15 percent compared to 2022.
Optimism Overshadows Challenges
On the August 14th conference call, Mikkelsen conveyed that despite its current financial results, management still had confidence in the overall success of SLS.
“I think in our view, the long-term outlook or the medium-term look out for that market is good,” he stated. “Data centers are growing exponentially. They need repurposing recycling. We have a good position in that market. And you see our repurposed units grew by about 40-odd percent over that period.”
Mikkelsen was also quick to mention that SLS hasn’t had to dig into any funds during this difficult market. Yet, the business model remains contingent on an uptick in activity from China.
“The reality is that right now under the business operating model, it needs China to come out and grow some more,” he continued. “We haven’t seen a further deterioration. The prices are just, I guess, languishing [at] what we think is probably at the bottom of the market, and we’ll need China to recover.”
Survey Opened to Participants
As his retirement quickly approaches, Alistair Field, CEO of Sims Limited, recently discussed how the progression of AI is driving the requirement for computing power at data centers, a trend which works in SLS’ favor. Throughout the 2023 fiscal year, SLS represented a notable portion of Sims Limited’s earnings before interest and tax (EBIT) at 3 percent, as well as contributing to 4 percent of its sales revenue.
Iron Mountain, a leader in data center decommissioning and component resale arena, additionally noted that its economic performance was hindered owing to fluctuations in the Chinese market.
E-Scrap News and Compliance Standards conducted a survey of ITAD market conditions from the first quarter of 2023, and the results showed that many company leaders were facing similar pricing issues. However, they are hopeful that conditions will improve, which is why the second-quarter 2023 survey has been opened to participants for exclusive access to its insights.
