report

CMA Corporation (ASX:CMV) indicated part of its strategy for navigating CMA through the difficult financial markets was to align with major industry players. The agreement with Transpacific Corporaton (ASX:TPI) which was signed last year has been of benefit to CMA.

More recently, CMA announced an agreement with global scrap metal recycler and trader of Germany, Scholz AG, one of the world's largest scrap metal recycler and traders. As part of the agreement, Scholz will acquire 45 million CMA shares at 25 cents per share, injecting $11.25 million into the Group.

Managing Director Doug Rowe said, "CMA is emerging as one of Australia’s largest metal recycling groups in Australia. We also have a network of operations throughout New Zealand, Asia and the US."

CMA's main activities are the processing and recycling of ferrous/non-ferrous metals and can be divided into three main categories:

1. CMA Contracting - focuses on industrial demolition and site clearance and provides the recycling business with valuable metal recycling opportunities.
2. CMA Ecocycle - the only licensed Australian company able to process and recycle mercury contained material such as fluorescent globes, dental amalgam, catalyst and silver bearing ores – what will be one of the fastest growing divisions of our group.
3. Meretec - The technology that again shows the way our group differentiates ourselves from those of our competitors by using environmentally friendly technologies to value add.

CMA’s metal recycling business performed well during the 2007/08 year, contributing 94% of group revenue which is up 133% from last year. For the year, CMA sold 748,767 tonnes of ferrous scrap and 62,119 tonnes of non-ferrous scrap - both considerable increases on the year before. CMA’s demolition and contracting arm performed in line with expectations contributing $32 million. This was not as high as last year but we’re expecting a stronger performance in 2009 as we bid for large metal niche demolition contracts.

Outlook for 2009

Doug Rowe said, CMA has had a "pretty tough start to 2009. The global financial crisis has had a huge impact on trading conditions in all countries. We’ve seen a dramatic fall in commodities prices over the past 4 months and a massive slowdown in demand for scrap. These are conditions neither I nor any of my colleagues have seen before. Metal prices have fallen across the full range of commodities, but it’s the extent of the fall and the short period over which that has happened that has surprised the market.

“The sudden drop in scrap steel prices has been deeper and more severe than anyone could have forecast. The speed with which it has happened is extraordinary.” Mr. Rowe said he expected the market to stabilise later in the financial year and is looking forward to a stronger second half. “CMA fundamentally remains strong and the company is well positioned to re-bound having a strong foundation and management team in place,” he said.

The result is that "we expect our first half of 2009 to be well down on last year. The Board of CMA is most likely expecting a loss which will have a number of significant “one off” write-downs."


CMA's response to market turbulence

CMA has a program in place for managing debtors and changed conditions by reduced staffing levels where required and amalgamated yards. Managing cash and reducing operating costs was a priority and cancelled Capex and further developed shared services. Well placed to recover when markets stabilise.

Placement to Scholz AG

“Scholz is one of the world’s largest scrap companies with operations throughout Europe, US, Mexico and China and is an extremely prestigious company for us to be aligned with,” said Mr Rowe.

One of the benefits "we see is gaining access to Scholz’s network of operations throughout Europe, China and the US and its extensive client base. We also have plans to work cooperatively in rolling out the Meretec technology throughout Germany to take advantage of the significant, large amounts of coated scrap steel both there and in the United States."

Scholz is has over scrap metal 500 sites. Scholz is a privately held group which was founded in 1872. Turnover is around €3.5 billion per annum. Scholz has a strong position in Germany and the Czech Republic, with operations in Eastern Europe, Morocco, USA, Mexico and China and employs over 3,500 people.