SIMS LIMITED — Annual Report 2015

Aug 20, 2015

Financial Results Full year ended 30 June 2015

Galdino Claro, Group CEO Fred Knechtel, Group CFO 21 August 2015

Financial Results

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Sales Revenue Sales Tonnes
$6,311m 10.5Mt
Underlying EBITDA [1] Net Cash
$263m $314m
Underlying EBIT [1] Statutory EBIT
$142m $145m
Underlying NPAT [1] Statutory NPAT
$102m $110m
Underlying EPS [1 (diluted)] FY15 Dividends
49.2c 29.0c 16.0c (interim) & 13.0c (final)
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Higher earnings despite lower sales volume

Strong growth from Europe Metals and E-Recycling

Underlying EBIT of $142m

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160
6
38
140
8 -9
0
120
100
-20
80
142
60 119 119
40
20
0
FY14 1 North Europe ANZ Global E- Discontinued Other FY15 2
Underlying America Metals Metals Recycling operations Underlying
EBIT Metals EBIT
A$ million
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• Within North America Metals, EBIT in the West Coast and East Coast Regions improved by $16 million during FY15

• Significant earnings improvement in the East and West was offset by extremely challenging competitive conditions in the North America Central Region

• Global E-Recycling EBIT increased $38m driven by streamlining actions and improved results in Europe and the US

• Europe Metals EBIT increased $8m due to increased operating efficiencies and lower costs, offsetting a 1% reduction in volumes

• ANZ Metals EBIT decreased $20m due to 9% lower volumes and gross margin contraction related to lagging material cost in a decreasing price environment

Improvement in Europe, North America and Global E-Recycling offset ANZ decline

Strategic Plan Progress

			Streamline		Optimise		Grow
FY15	Progress	Initial Streamline completed:			�Established Project		�Acquired three small
		�	Closure of e-recycling		Management Office (PMO) to		businesses in North America
			operations in UK & Canada		drive strategy implementation		& ANZ Metals
		�	Closure of downtown		�Rollout of supplier analysis		�Stage one expansion of a new
			Chicago corporate office		platform in North America		shredder & yard in Western
		�	Restructure & reduction of		�Improved intake quality control		Australia
			regional overhead costs in		standards		�Opened new e-recycling
			North America Metals		�Enhancements to non-ferrous		facility in Norway
					shred recovery systems
FY16	Objectives	New Streamline initiatives:			• Improve supply chain and		• E-recycling growth across
		• Align operating costs to better			logistics efficiency		asset management & emerging
		match market activity			• Optimise downstream non-		markets
		• Streamline operating assets			ferrous recovery technology		• Grow non-ferrous market share
		• Reduce SG&A support costs			• Further enhance and embed		in North America Metals
					the ‘pull’ model of sales and		• Investments in new non-ferrous
					inventory control		MRP plants in North America
							and ANZ Metals
			Driving earnings growth through internal initiatives

Earnings Growth & Target

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11%
Return on
350 Capital
10%
300
8%
250
Grow
5.5%
200
Optimise 6%
4.6%
321
150
Streamline
4%
2.3%
100
142
2%
119
50
67
0 0%
1
FY13 FY14 FY15 FY18
Underlying EBIT Series2Return on CapitalReturn on CapitalReturn on Capital Target
FY18 targets reviewed, realistic, and reconfirmed
Return on Capital
Underlying EBIT (A$m)
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Financial & Segment Performance

Fred Knechtel , Group CFO

Internal initiatives driving higher margins

EBIT Bridge

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180
160 6
38
2
140
-15
-111
120
28
100
75 $44 million total benefit across the
80 global electronics recycling operations
139 142
60 119
40
$103 million benefit from internal
20 initiatives across the global metals
recycling operations
0
1 2
FY14 Volumes Gross Margin Fixed Costs E-Recycling Losses from Other FX FY15
discontinued
operations
Metals Recycling Electronics Recycling
A$ million
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Significant direct benefit from internal initiatives on gross margins and fixed costs
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Gross Margin Management

• Internal initiatives have driven gross margin improvement of $47/t since the start of the strategic plan

• Margins expanded through:

• Raw material source control

• Metal yield & quality improvements

• Leveraging Global Trade network

• Margins defended through:

• ‘Pull forward’ sales system to minimise open inventory risks

• Rapid adjustments to raw material intake prices

Gross Margin Trend[1]

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700 150
Start of 5 year plan
650 140
130
600
120
550
110
500
100
450
90
400
80
350 70
300 60
Raw material expenses / t
Revenue / t
Margin / t (RHS)
A$ / sales tonne A$ margin / tonne
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Gross margins expanded despite falling commodity prices

Ferrous prices impacting intake volumes

• Long-term a relationship exists between ferrous scrap intake and ferrous scrap prices (inflation adjusted)

• Across the US, UK, and Australia & New Zealand, higher ferrous prices tend to lead to higher volumes

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ANZ ferrous volumes
kg/ per capita US$/t
180 600
160
500
140
120 400
100
300
80
60 200
40
100
20
0 0
ferrous consumpton ferrous export HMS price, inflation adjusted
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US ferrous volumes UK ferrous volumes
kg/ per capita US$/t kg/ per capita US$/t
300 450 180 600
400 160
250 500
350 140
200 300 120 400
250 100
150 300
200 80
100 150 60 200
100 40
50 100
50 20
0 0 0 0
ferrous consumption ferrous export HMS price, inflation adjusted ferrous consumption ferrous export HMS price, inflation adjusted
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Lower commodity prices subdues the outlook for intake volumesXYZ

Earnings by Quarter

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FY15 underlying EBIT by Quarter
60
50
40
2
30
20
10
1
0
FY15 1Q FY15 2Q FY15 3Q FY15 4Q
A$ million
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• FY15 earnings negatively impacted by 3Q commodity price decline and severe weather in North America

• During 3Q the 24% drop in ferrous scrap prices and the severe winter weather, led to reduced group volumes of 18% vs the prior quarter and 17% vs the prior year

• Strong 4Q earnings recovery through continued application in internal initiatives and stabilisation in external market conditions

Strong 4Q earnings recovery following atypical 3Q conditions

North America Metals

A$m	FY15	FY14	Chg %
Sales Revenue	3,416.5	3,995.7	(14.5)
Statutory EBITDA	86.7	60.2	44.0
Underlying EBITDA	80.7	74.5	8.3
Depreciation	55.9	48.3	15.7
Amortisation	13.0	14.5	(10.3)
Statutory EBIT	17.8	(2.8)	NMF
Underlying EBIT	11.8	11.7	0.9
Assets	1,335.0	1,284.9	3.9
Intake Volumes (000's)	6,885	8,181	(15.8)
Sales Volumes (000's)	7,018	8,152	(13.9)
Employees	2,129	2,243	(5.1)

Performance

• Improved earnings over the prior year, despite 14% lower sales volume and competitive market conditions

• As conditions stabilised in the 4[th] quarter, earnings improved meaningfully

• Underlying EBIT from the East and West regions improved by $16 million over prior year, partially offset by challenges in the Central region

• Higher gross margins achieved through disciplined inventory management, reduced operating costs, and increased metallic yields

• Improved results from New England expansion and New York Municipal Recycling Contract

Strategic Progress

• Streamlined regional corporate overhead costs and realignment to more agile three region management structure

• Reduced inbound trucking costs and increased utilisation of rail on outbound transport

• Completed full rollout of supplier analysis platform across the North America Metals platform

Higher earnings despite lower volumes and market headwinds

Australia & New Zealand Metals

A$m	FY15	FY14	Chg %
Sales Revenue	1,053.3	1,187.8	(11.3)
Statutory EBITDA	85.0	108.8	(21.9)
Underlying EBITDA	86.9	106.9	(18.7)
Depreciation	26.6	26.7	(0.4)
Amortisation	1.1	1.0	10.0
Statutory EBIT	57.3	81.1	(29.3)
Underlying EBIT	59.2	79.2	(25.3)
Assets	463.3	446.8	3.7
Intake Volumes (000's)	1,848	2,009	(8.0)
Sales Volumes (000's)	1,874	2,054	(8.8)
Employees	813	830	(2.0)

Performance

• Profitability impacted by falling commodity prices, leading to lower volumes and margin compression

• Lower ferrous prices reduced intake flow from more remote regional material

• Legacy supply agreements, unique to ANZ Metals, applied additional margin pressure due to lagging pricing features in a falling sales price environment

• Earnings meaningfully recovered as commodity prices and market conditions stabilised in the 4[th] quarter

Strategic Progress

• Stage one of the Western Australia expansion of a new mid-size shredder substantially complete

• Stage two of the Western Australia expansion to commence in FY16, including the construction of an advanced off-line non-ferrous metal separation plant

• Alistair Field hired as Managing Director of ANZ Metals, replacing Darron McGree who will remain in an advisory role until the end of FY16

Sharp commodity price fall impacted near-term performance

Europe Metals

		A$m		FY15		FY14		Chg %			Performance
		Sales Revenue Statutory EBITDA		1,036.6 38.0		1,063.5 29.0		(2.5) 31.0			� �	Considerable lift in underlying earnings due to higher gross margins and lower operating expenses Gross margins boosted by improved metallic yields
		Underlying EBITDA Depreciation		37.1 12.5		29.2 12.7		27.1 (1.6)			�	across the region’s three shredders Improved operational performance more than offset lower sales volumes
		Amortisation Statutory EBIT		- 25.5		- 16.3		- 56.4			Strategic Progress � Lowering transport costs by increased load utilisation to decrease the overall size of the trucking fleet
		Underlying EBIT		24.6		16.5		49.1			�	Reducing waste volumes and expenses per tonne, through innovative separation and segmentation of
		Assets		258.3		253.3		2.0				material types to limit fees for disposal
		Intake Volumes (000's)		1,598		1,593		0.3			�	Implementing further metal recovery technologies and enhancements which are expected to deliver
												additional benefit in FY16
		Sales Volumes (000's)		1,589		1,609		(1.2)
		Employees		704		634		11.0

Gains driven by attention to process improvement

Global E-Recycling

A$m	FY15	FY14	Chg %
Consolidated Operations1
Underlying EBITDA	49.5	20.2	145.0
Underlying EBIT	38.0	0.0	NMF
Discontinued Operations
Underlying EBITDA	(5.7)	(10.7)	46.7
Underlying EBIT	(6.0)	(17.1)	(64.9)
Continuing Operations2
Sales Revenue	795.0	759.8	4.6
Underlying EBITDA	55.2	30.9	78.6
Depreciation	10.6	11.1	(4.5)
Amortisation	0.6	2.7	(77.8)
Underlying EBIT	44.0	17.1	157.3
Assets	473.3	428.7	10.4
Employees	1,703	1,829	(6.9)

Performance

• Underlying EBIT and margins the highest in three years, driven by streamline and optimisation actions

• Reduced statutory losses from discontinued operations in the UK and Canada

• Stronger performance in Continental Europe related to improved volume and material recovery rates

• Early stage growth across asset management service offerings and emerging markets

• Transition towards a higher value added service based model for global clients will enhance margins, growth, and earnings stability

Strategic Progress

• Streamline actions to close loss making operations in the UK and Canada now complete

• Optimise initiatives in the US underway to lower operating costs and recalibrate the operating model

• Expansion of Scandinavia operations for WEEE recycling in Norway and Singapore facility for asset management

E-Recycling transitioning to a higher value added service based model

Cash Flows

Cash Flow Bridge (A$m) 450 127 400 298 350 19 -48 1 300 16 -53 250 -6 -95 200 316 150 296 100 50 57 0 Cash and cash Net Cash Capital Proceeds from Payments for Sale of CTG Net Dividends Paid Other (net) Effects of Cash and cash equivalents inflows from Expenditures Sale of Fixed acquisitions equity and Repayments / Exchange rate equivalents (30 June 2014) Operating Assets bond Borrowings changes (30 June 2015) Activities

Strong cash flow supports internal investments and returns to shareholders

Free Cash Flow and Net Cash

• Strong operational cash flow

• Consistent positive free cash flow after capex

• Net cash balance sheet position due to strength of operational cash flows

• Strong balance sheet provides business stability and financial flexibility

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Free Cash Flow [1]
250
203
200
148 146
150 129
100
50
0
FY12 FY13 FY14 FY15
Net Cash [2]
400
314
300
200
100 42
0
-100
-200
-154
-300
-292
-400
FY12 FY13 FY14 FY15
A$ million
A$ million
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Consistent strong operational cash flow

Capital Management

• Net cash of $314 million as of 30 June 2015

• •Ongoing maintenance to sustain high performing operations

• •Renewal of obsolete technology and equipment

• Final dividend of 13 cents, fully franked

• •Maintain and improve environmental and safety standards at our facilities

• Shareholder wealth creation through the right balance of business investment and capital management

• •Invest in organic & acquisitive growth

• •FY16 capex includes phase two Kwinana expansion in ANZ Metals

• •Capital spending to support Optimisation and Growth targets

• Balance sheet well positioned for expansionary opportunities

• FY16 capex expected to be between $120 to $130 million

Capital Management

• •Dividend payout policy of 45% to 55% of net profit after tax

• •Potential for share buybacks or special dividends

Strong balance sheet provides growth and capital management options

Return on Capital Focus

Return on Capital Trend

Net Operating Profit After Tax (NOPAT)

• Improve gross margin per tonne

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3,500 7%
Start of 5 year plan
3,000 6%
2,500 5%
2,000 4%
1,500 3%
1,000 2%
500 1%
0 0%
Total Capital NOPAT ROC
A$ million
Return on Capital
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• Increase tax structure efficiency

• Optimise operating assets & variablisation of fixed cost base

Capital

• Improve working capital turnover:

• Shorter production cycles

• Efficient inventory management

• Improved AR & AP terms

• Disciplined capex investment

• Leasing vs buying

• Net Present Value analysis

• Optimise operating assets & variablisation of fixed cost base

Fixed cost variablisation will improve return on capital at lower volumes

Summary & Outlook

Galdino Claro , Group CEO

Summary & Outlook

• Continued underlying NPAT growth in FY15, with underlying EBIT now more than double since the start of the five year strategic plan

• FY18 earnings targets reviewed and reconfirmed to be achievable in full

• Near-term external market conditions still challenging due to China exports, low commodity prices subduing scrap metal collection rates, and continued high competition among metals recyclers

• Despite external headwinds, due to the internal strategic initiatives, we anticipate continued underlying EBIT improvement in FY16

Appendix

FY15 income tax expense considerations

A$ million	Profit Before Tax	Income Tax	Effective Tax %
Statutory Result	137.0	27.2	19.9%
Reconciling items:
Utilisation of previously unrecognised losses		8.0
Other one-time tax benefits		4.2
Underlying Results	137.0	39.4	28.8%

Financial Summary - Group

A$ million	FY10	FY11	FY12	FY13	FY14	FY151
Group Results
Sales Revenue	7,453	8,847	9,036	7,193	7,129	6,311
Underlying EBITDA	379	414	253	190	242	263
Underlying EBIT	235	283	123	67	119	142
Underlying NPAT	127	182	74	17	69	102
Underlying EPS (cents)	65	88	36	8	34	49
Dividend (cents)	33	47	20	0	10	29
Balance Sheet
Total Assets	4,233	4,167	3,509	2,917	2,649	2,882
Total Liabilities	959	1,256	1,225	988	816	769
Total Equity	3,274	2,912	2,284	1,929	1,834	2,113
Net Cash (Net Debt)	15	-126	-292	-154	42	314
Cash Flows
Operating Cash Flow	-48	159	290	297	210	298
Capital Expenditure	-121	-143	-161	-149	-64	-95
Free Cash Flow	-168	16	129	148	146	203
NOPAT	165	198	86	47	83	99
Total Capital	3,259	3,038	2,576	2,083	1,792	1,799
ROC2 (%)	5.0%	6.5%	3.3%	2.3%	4.6%	5.5%

Financial Summary – Segment

A$ million	FY10	FY11	FY12	FY13	FY14	FY151
Sales Revenue
North America Metals	4,834	5,782	5,773	4,256	3,996	3,417
ANZ Metals	1,126	1,300	1,190	1,047	1,188	1,053
Europe Metals	783	954	1,056	935	1,063	1,037
Global E-Recycling	622	750	982	937	868	795
Unallocated	88	61	35	18	14	9
Total	7,453	8,847	9,036	7,193	7,129	6,311
Underlying EBITDA
North America Metals	182	175	51	94	75	81
ANZ Metals	83	107	80	72	107	87
Europe Metals	25	28	15	-2	29	37
Global E-Recycling	87	112	92	24	20	55
Unallocated	2	-8	15	2	11	3
Total	379	414	253	190	242	263
EBITDA Margin (%)
North America Metals	3.8%	3.0%	0.9%	2.2%	1.9%	2.4%
ANZ Metals	7.4%	8.2%	6.7%	6.9%	9.0%	8.3%
Europe Metals	3.2%	2.9%	1.4%	-0.2%	2.7%	3.6%
Global E-Recycling	14.0%	14.9%	9.4%	2.6%	2.3%	6.9%
Total	5.1%	4.7%	2.8%	2.7%	3.4%	4.2%

Financial Summary – Segment (cont.)

A$ million	FY10	FY11	FY12	FY13	FY14	FY15
Sales tonnes (‘000)
North America Metals	9,906	10,964	11,080	9,377	8,152	7,018
ANZ Metals	1,578	1,764	1,765	1,764	2,054	1,874
Europe Metals	1,394	1,466	1,651	1,645	1,609	1,589
Total	12,878	14,194	14,496	12,786	11,815	10,481
Underlying EBIT
North America Metals	92.7	99.6	-18.7	32.8	11.7	11.8
ANZ Metals	62.4	86.1	56.3	46.9	79.2	59.2
Europe Metals	15.8	18.8	4.1	-14.0	16.5	24.6
Total	170.9	204.5	41.7	65.7	107.4	95.6
EBIT / tonne (A$/t)
North America Metals	9.36	9.08	-1.69	3.50	1.44	1.68
ANZ Metals	39.54	48.81	31.90	26.59	38.56	31.59
Europe Metals	11.33	12.82	2.48	-8.51	10.25	15.48
Total	13.27	14.41	2.88	5.14	9.09	9.12

Financial Summary – Segment (cont.)

A$ million	FY10	FY11	FY12	FY13	FY14	FY151
Sales tonnes (‘000)
Ferrous Trading	9,068	10,115	10,320	9,396	9,331	8,325
Ferrous Brokerage	3,264	3,518	3,597	2,840	1,918	1,617
Non Ferrous	565	571	586	550	566	539
Total	12,897	14,204	14,503	12,786	11,815	10,481
Sales Revenue
Ferrous Metals	5,071	6,144	6,259	4,817	4,801	4,068
Non Ferrous Metals	1,526	1,724	1,657	1,353	1,361	1,342
Global E-Recycling	622	750	982	937	868	795
Secondary processing & other	234	229	138	86	99	106
Total	7,453	8,847	9,036	7,193	7,129	6,311

Disclaimer

The material contained in this document is a presentation of information about the Group’s activities current at the date of the presentation, 20 August 2015. It is provided in summary form and does not purport to be complete. It should be read in conjunction with the Group’s periodic reporting and other announcements lodged with the Australian Securities Exchange (ASX).

To the extent that this document may contain forward-looking statements, such statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release.

This document is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor.