SIMS LIMITED — Annual Report 2016

Aug 24, 2016

Financial Results Full year ended 30 June 2016

25 August 2016

Agenda

• Results Overview Galdino Claro, Group CEO

• Financial Results Fred Knechtel, Group CFO

• Strategic Progress & Outlook Galdino Claro, Group CEO

Loading heavy melt scrap into a bulk carrier for deep-sea export in Providence, Rhode Island

Strengthening the business and improving returns

1. Successful rollout of business resetting actions

2. $137 million in controllable costs savings in FY16[1]

3. Sold or idled 29 underperforming facilities, lowered headcount by 12%, and reduced volume break-even point by a further 17% to 7.8 million tonnes

4. 2H FY16 earnings recovery assisted by internal initiatives

5. Underlying EBIT of $63 million in 2H FY16

6. Underlying return on capital of 5.5% in 2H FY16 and 11.0% in 4Q FY16

7. Strategic initiatives to deliver on FY18 return targets

8. Established internal initiatives now embedded into the business, with new initiatives expected to drive progressively stronger ROC in FY17 and FY18

9. Strong balance sheet and capital management

10. $131 million in operating cash flow and $242 million in net cash (at 30 June 2016)

11. Final dividend of 12.0 cents fully franked and 7.9 million shares repurchased

Resetting objectives

Actions accomplished during FY16

• Volume break-even point was reduced by a further 17% to 7.8 million tonnes

• Sold or idled 29 underperforming facilities

• North American Metals - Central Region restructure near complete

• E-Recycling US operational resetting commenced, expected completion 1H FY17

• Selected facility closures in ANZ and Europe Metals

Further progress in 1H FY17

• 8 facilities sold thus far in 1H FY17:

• Sale of North America Metals assets in Tennessee and Mississippi

• Sale of FE Mottram (UK based aerospace metals business)

• 5 small additional facilities pending sale or closure

42 facilities in total identified for resetting

Full year highlights

Sales Revenue $4,652 million

1H $2,412 million | 2H $2,240 million

Underlying[1] EBITDA $184 million

1H $61 million | 2H $123 million

Underlying[1] EBIT $58 million

1H ($5) million | 2H $63 million

Underlying[1] NPAT $38 million

1H ($18) million | 2H $56 million

Sales Volumes 8.55 million tonnes 1H 4.30 million | 2H 4.25 million

Net Cash $242 million As at 30 June 2016

Underlying[1] Return on Capital 2.6%

1H (0.4)% | 2H 5.5%

Full Year Dividends 22.0 cents 1H 10.0 cents | 2H 12.0 cents (unfranked) (100% franked)

Earnings by quarter

Underlying EBIT by Quarter

1Q FY16

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70 2.8
2.6
60
2.4
50
2.2
40
2.0
30
1.8
20
1.6
10
1.4
0
1.2
-10 1.0
Underlying EBIT Sales Volumes (RHS)
A$ million
million tonnes
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• The market weakened substantially in July, stabilised, and then fell again materially in mid-September

2Q FY16

• Resetting plan initiated to respond to lower volume environment by deeper cost cuts, excising marginal assets, and reconfiguring operations

3Q FY16

• Further market contraction in January offset by the initial benefits from resetting plan cost reductions

4Q FY16

• Mixture of lower costs, stronger sale volumes, and higher scrap prices led to the highest quarterly EBIT since FY11

Financial Results Fred Knechtel, Group CFO

Group financial performance

		A$ million				FY15			FY16		Chg %			�	Underlying EBIT of $58 million in FY16
		Sales Revenue				6,310.9			4,651.7		(26.3)				� 1H impacted by steep drop in prices an
		Underlying EBITDA1					262.5		184.4		(29.8)				volumes
		Depreciation & amortisation				(120.8)			(126.4)		4.6				� 2H recovery due to cost reductions and improved market conditions
		Underlying EBIT1					141.7		58.0		(59.1)			�	Significant items after tax largely relate
		Net Interest expense					(7.8)		(9.7)		24.4				impairment of the SA Recycling JV,
		Underlying tax expense Underlying NPAT1					(32.4) 101.5		(10.3) 38.0		(68.2) (62.6)				impairment of intangibles and business resetting actions
		Significant items (net)					8.4		(254.5)		-
		Statutory NPAT					109.9		(216.5)		-
	Underlying EBIT						141.7		58.0		(59.1)			�	Excluding facilities identified for resetti underlying EBIT was $87 million
	Facilities identified for resetting						(20.4)		(29.1)		-				� Majority of loss making operations iden resetting were within the North America Central Region
	Underlying EBIT excl. facilities identified for resetting						162.1		87.1		(46.3)

• 1H impacted by steep drop in prices and volumes

• 2H recovery due to cost reductions and improved market conditions

• Significant items after tax largely relate to impairment of the SA Recycling JV, impairment of intangibles and business resetting actions

• Excluding facilities identified for resetting, underlying EBIT was $87 million

• Majority of loss making operations identified for resetting were within the North America Metals, Central Region

Business segment financial performance

Underlying EBIT (A$m)	1H	2H	FY16
North America Metals	(23.1)	25.4	2.3
ANZ Metals	14.0	25.7	39.7
Europe Metals	2.1	16.5	18.6
Global E-Recycling	(0.3)	7.9	7.6
EBIT impact facilities identified for resetting
North America Metals	(17.2)	(2.2)	(19.4)
ANZ Metals	-	(0.5)	(0.5)
Europe Metals	(2.5)	-	(2.5)
Global E-Recycling	(3.4)	(3.4)	(6.8)
Underlying EBIT excluding facilities identified for resetting
North America Metals	(5.9)	27.6	21.7
ANZ Metals	14.0	26.2	40.2
Europe Metals	4.6	16.5	21.1
Global E-Recycling	3.1	11.3	14.4

� Improved 2H FY16 underlying EBIT across all business segments

• NA Metals improved $49 million 2H over 1H

• Europe Metals 2H the strongest since FY08

• Facilities identified for resetting negatively impacted underlying EBIT by $29 million in FY16

• Identified facilities in North America and Europe Metals have now been sold or closed

• Closures of related facilities in US E-Recycling will take place over 1H FY17

• Total cash proceeds of $50 million expected in 1H FY17

• Net book value of related facilities $18 million

� Significant items related to resetting actions of $100 million (pre-tax)

• Fixed asset and lease impairments, yard closures & dilapidations, and redundancies

• $28 million for US SRS restructure taken in the second half

Substantially reduced controllable costs

Controllable Costs Reductions[1]

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(exchange rate adjusted)
$234 million in
controllable costs
reductions
-53
-45
-137
A$ million
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• $234 million in controllable cost reductions since the start of the strategic plan in FY14, in constant currency terms

• Headcount reduced by 26% since FY13

• Sustainably lower overhead costs

• Further controllable cost reductions in FY17 through the sale or closure of assets announced in 1H FY17 moving breakeven volume even lower

• Retained volume capacity across the business for when industry conditions improve

• Volume capacity of at least 12 million tonnes per annum

• Significant upside leverage on FY16 sales volumes of 8.6 million tonnes

• Cost structure to yield $40-$50 million of EBIT for every 500 thousand tonnes of additional sales volumes

Cash Flow Walk

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600
Cash Flow Walk
FY15 to FY16
500
-18
-109
400 184 15
-47
-60
300
-8
Additional $50 -20
-9
200 million expected in
137
1H FY17 339
314
242
100
0
Net Cash EBITDA Working Capital Proceeds Dividends Shares Net Interest Tax paid Other Net Cash
30 June capital expenditure from sale of paid repurchased 30 June
2015 assets 2016
A$ million
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Strong net cash supports reinvestment into business, while continuing to return capital to shareholders

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Capital Expenditure
Cash • Preservation of cash for future
Management working capital requirements
200
FY17F capex
180 $120-150 million
• 160
Ongoing maintenance, safety and
Sustaining
Environmental
140
Capex •
Technology and equipment
120
100
•
NFSR plant upgrade in New Jersey 80
Expansion •
NFSR plant installations in
60
Capex Kwinana & Chicago
• Zorba recovery initiatives 40
20
Capital • 22 cents in dividends for FY16 0
• 7.9 million shares repurchased,
Management with buyback ongoing
12
A$ million
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Strategic Progress & Outlook Galdino Claro, Group CEO

Committed to deliver ≥10% return on capital by FY18

Grow

• Strengthen supplier relationships

• Exploit local & global logistics

• � Operational excellence through

• �� Exit non-strategic businesses shared best practices � Reduce non-essential costs � Lead on product quality & service

• Market share growth through organic investment and patient selective acquisitions

• � Leverage emerging technologies in e-recycling across metals recycling operations

Lowering costs and volume break-even, providing for higher earnings and improved return on capital

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14
Break-even volume
12 further reduced Lowering break-even
point further to drive
higher returns, at
10
current volumes
8
6
4
>10%
2 2.2% 4.6% 5.5% (0.4%) 5.5% ROC
ROC ROC ROC ROC ROC
0
FY13 FY14 FY15 1H FY16 2H FY16 FY18
(target)
Sales Volumes Volume break-even (EBIT)
Sales volumes (million tonnes)
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Substantial pipeline of internal initiatives over FY17-FY18

	FY17	FY18
Streamline Initiatives
	- Sale of assets in Mississippi and Tennessee (complete) - Sale of FE Mottram (complete) - Closure of Chicago Stainless (complete) - E-Recycling US restructure (in progress)
EBIT impact (A$m)	$20 to $25 million	-
Optimise Initiatives
	- MRP installation in Kwinana - Chicago rail connection - Claremont terminal dredging - Zorba de-commoditisation pilot - Overhead cost redesign	- MRP upgrade in New Jersey - MRP installation in Chicago - Municipal recycling expansion - Avonmouth, UK site upgrade
EBIT impact (A$m)	$20 to $25 million	$50 to $70 million
Total Initiatives	$40 to $50 million	$50 to $70 million

Conclusion & Outlook

1. Substantial reductions in costs and break-even volume point during FY16

• $137 million in controllable cost reductions (on a constant currency basis)

• Volume break-even point lowered to 7.8 million tonnes

2. Earnings leverage to higher volumes proven in 4Q FY16

• $63 million in underlying EBIT in the fourth quarter on annualised volumes of 9.3 million tonnes

• 11.0% return on capital in 4Q FY16

3. Strong balance sheet with net cash of $242 million

• Supporting capex reinvestment in FY17, dividends, and share buyback

4. Improved market conditions

• Overall improved market conditions compared to six months ago

• Remain mindful of continued macro economic and political uncertainties

5. Pipeline of internal initiatives

• Expected FY17 return on capital to be a step towards our FY18 return on capital target of 10% or higher

Appendix

Easing competition from Chinese steel exports to Turkey

Turkey Steel Imports From China

• China’s exports of steel to Turkey have receded to 2014 levels

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600 0
50
500
100
400
150
300 200
250
200
300
100
350
0 400
China steel exports to Turkey Heavy melt scrap (RHS)
thousand tonnes HMS US$ / tonne
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• Lower imports of semi-finished steel are supporting increased demand and prices for ferrous scrap

• China announced intentions to reduce annual steelmaking capacity by 100 to 150 million tonnes

• Implied capacity reduction of circa 10 to 15%

• Large scale mergers of major Chinese steel makers reported to be considered

• Large scale consolidation would assist capacity rationalisation efforts

Metal recycling industry beginning to rationalise

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US Industry-wide
Metals Recycling Closures
35
30
25
20
15
10
Active US Shredders
300
275
250
225
200
175
150
# of facilities
# active US shredders
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• Over 160 reported closures of metals recycling facilities since the start of 2015

• Consolidation taking place through bankruptcies, indefinite idling, consolidations and voluntary exits

• Pace of closures has increased in 2016

• Number of active metal shredders in the US has been in decline since 2012

North America Metals

A$m	FY15	FY16	Chg %
Sales Revenue	3,416.5	2,352.6	(31.1)
Statutory EBITDA	86.7	53.5	(38.3)
Underlying EBITDA	80.7	75.7	(6.2)
Depreciation	55.9	61.7	10.4
Amortisation	13.0	11.7	(10.0)
Statutory EBIT	17.8	(145.8)	-
Underlying EBIT	11.8	2.3	(80.5)
Assets	1,335.0	1,145.0	(14.2)
Intake Volumes (000's)	6,885	5,760	(16.3)
Sales Volumes (000's)	7,018	5,772	(17.8)
Employees	2,129	1,884	(11.5)

Australia & New Zealand Metals

A$m	FY15	FY16	Chg %
Sales Revenue	1,053.3	743.6	(29.4)
Statutory EBITDA	85.0	58.0	(31.7)
Underlying EBITDA	86.9	66.6	(23.4)
Depreciation	26.6	26.0	(2.3)
Amortisation	1.1	0.9	(18.2)
Statutory EBIT	57.3	31.1	(45.7)
Underlying EBIT	59.2	39.7	(32.9)
Assets	463.3	481.7	4.0
Intake Volumes (000's)	1,848	1,485	(19.6)
Sales Volumes (000's)	1,874	1,418	(24.3)
Employees	813	712	(12.4)

Europe Metals

A$m	FY15	FY16	Chg %
Sales Revenue	1,036.6	759.1	(26.8)
Statutory EBITDA	38.0	(15.7)	-
Underlying EBITDA	37.1	32.4	(12.7)
Depreciation	12.5	13.8	10.4
Amortisation	-	-	-
Statutory EBIT	25.5	(29.7)	-
Underlying EBIT	24.6	18.6	(24.4)
Assets	258.3	245.2	(5.1)
Intake Volumes (000's)	1,582	1,420	(10.2)
Sales Volumes (000's)	1,589	1,361	(14.3)
Employees	704	612	(13.1)

Global E-Recycling

A$m	FY15	FY16	Chg %
Sales Revenue	795.0	792.7	(0.3)
Statutory EBITDA	53.0	(2.6)	-
Underlying EBITDA	55.2	19.2	(65.2)
Depreciation	10.6	11.2	5.7
Amortisation	0.6	0.4	(33.3)
Statutory EBIT	41.8	(60.2)	-
Underlying EBIT	44.0	7.6	(82.7)
Assets	473.3	447.9	(5.4)
Employees	1,703	1,471	(13.6)

FY16 income tax expense considerations

A$m	Loss Before Tax	Income Tax Benefit	Effective Tax %
Statutory Result	(225.2)	(8.7)	3.9%
Reconciling items:
Deferred tax assets not recognised		(17.2)
Non-deductible impairment charge		(41.5)
Underlying Results	(225.2)	(67.4)	29.9%

Significant items by region – FY16

FY16 (A$m)	NA Metals	ANZ Metals	Europe Metals	Global **E-Recycling **	Unallocated	Pre-Tax Total	After-Tax Total
Goodwill impairment	-	-	0.2	43.1	-	43.3	34.2
Other intangible asset impairment	6.8	-	-	2.9	-	9.7	8.6
Impairment of investment in joint venture	119.1	-	-	-	-	119.1	119.1
Fixed asset impairment	15.8	1.6	8.9	5.5	-	31.8	29.5
Lease settlements/onerous leases	0.2	0.5	34.5	9.3	-	44.5	41.7
Net expense relating to yard closure/dilapidations	0.3	4.3	3.6	5.7	-	13.9	11.4
Redundancies	4.5	2.2	1.1	1.3	0.7	9.8	8.6
Settlement of disputes with 3rd parties	1.4	-	-	-	-	1.4	1.4
Significant Items for FY16	148.1	8.6	48.3	67.8	0.7	273.5	254.5

Significant items by region – FY15

FY15 (A$m)	NA Metals	ANZ Metals	Europe Metals	Global **E-Recycling **	Unallocated	Pre-Tax Total	After-Tax Total
Reversal of an impairment of loan receivable	(0.6)	-	-	-	-	(0.6)	(0.6)
Net impact from investments in associates	-	-	-	-	(2.8)	(2.8)	(2.8)
Net reversal relating to yard closure/dilapidations	-	-	(1.6)	3.0	-	1.4	1.4
Multi-employer pension liability	(5.9)	-	-	-	-	(5.9)	(5.9)
Redundancies	0.5	1.9	0.7	(1.6)	2.5	4.0	2.7
Lease settlements/ onerous leases	-	-	-	(5.9)	-	(5.9)	(5.9)
Tax asset reversal	-	-	-	-	-	-	(3.9)
Underlying losses from discontinued operations	-	-	-	6.0	-	6.0	6.6

Financial Summary - Group

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16
Group Results
Sales Revenue	7,453	8,847	9,036	7,193	7,129	6,311	4,652
Underlying EBITDA	379	414	253	190	242	263	184
Underlying EBIT	235	283	123	67	119	142	58
Underlying NPAT	127	182	74	17	69	102	38
Underlying EPS (cents)	65	88	36	8	34	49	19
Dividend (cents)	33	47	20	0	10	29	22
Balance Sheet
Total Assets	4,233	4,167	3,509	2,917	2,649	2,882	2,571
Total Liabilities	959	1,256	1,225	988	816	769	738
Total Equity	3,274	2,912	2,284	1,929	1,834	2,113	1,833
Net Cash (Net Debt)	15	-126	-292	-154	42	314	242
Cash Flows
Operating Cash Flow	-48	159	290	297	210	298	131
Capital Expenditure	-121	-143	-161	-149	-64	-95	-109
Free Cash Flow	-168	16	129	148	146	203	22
NOPAT	165	198	86	47	83	99	41
Total Capital	3,259	3,038	2,576	2,083	1,792	1,799	1,590
ROC2 (%)	5.0%	6.5%	3.3%	2.3%	4.6%	5.5%	2.6%

Financial Summary – Segment

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16
Sales Revenue
North America Metals	4,834	5,782	5,773	4,256	3,996	3,417	2,353
ANZ Metals	1,126	1,300	1,190	1,047	1,188	1,053	744
Europe Metals	783	954	1,056	935	1,063	1,037	759
Global E-Recycling	622	750	982	937	868	795	793
Unallocated	88	61	35	18	14	9	3
Total	7,453	8,847	9,036	7,193	7,129	6,311	4,652
Underlying EBITDA
North America Metals	182	175	51	94	75	81	76
ANZ Metals	83	107	80	72	107	87	67
Europe Metals	25	28	15	-2	29	37	32
Global E-Recycling	87	112	92	24	20	55	19
Unallocated	2	-8	15	2	11	3	-10
Total	379	414	253	190	242	263	184
Underlying EBITDA Margin (%)
North America Metals	3.8%	3.0%	0.9%	2.2%	1.9%	2.4%	3.2%
ANZ Metals	7.4%	8.2%	6.7%	6.9%	9.0%	8.3%	9.0%
Europe Metals	3.2%	2.9%	1.4%	-0.2%	2.7%	3.6%	4.3%
Global E-Recycling	14.0%	14.9%	9.4%	2.6%	2.3%	6.9%	2.4%
Total	5.1%	4.7%	2.8%	2.7%	3.4%	4.2%	4.2%

Financial Summary – Segment (cont.)

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16
Sales tonnes (‘000)
North America Metals	9,906	10,964	11,080	9,377	8,152	7,018	5,772
ANZ Metals	1,578	1,764	1,765	1,764	2,054	1,874	1,418
Europe Metals	1,394	1,466	1,651	1,645	1,609	1,589	1,361
Total	12,878	14,194	14,496	12,786	11,815	10,481	8,551
Underlying EBIT
North America Metals	92.7	99.6	-18.7	32.8	11.7	11.8	2.3
ANZ Metals	62.4	86.1	56.3	46.9	79.2	59.2	39.7
Europe Metals	15.8	18.8	4.1	-14.0	16.5	24.6	18.6
Total	170.9	204.5	41.7	65.7	107.4	95.6	60.6
EBIT / tonne (A$/t)
North America Metals	9.36	9.08	-1.69	3.50	1.44	1.68	0.40
ANZ Metals	39.54	48.81	31.90	26.59	38.56	31.59	27.93
Europe Metals	11.33	12.82	2.48	-8.51	10.25	15.48	13.74
Total	13.27	14.41	2.88	5.14	9.09	9.12	7.09

Financial Summary – Segment (cont.)

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16
Sales tonnes (‘000)
Ferrous Trading	9,068	10,115	10,320	9,396	9,331	8,325	6,768
Ferrous Brokerage	3,264	3,518	3,597	2,840	1,918	1,617	1,307
Non Ferrous	565	571	586	550	566	539	476
Total	12,897	14,204	14,503	12,786	11,815	10,481	8,551
Sales Revenue
Ferrous Metals	5,071	6,144	6,259	4,817	4,801	4,068	2,703
Non Ferrous Metals	1,526	1,724	1,657	1,353	1,361	1,342	1,055
Global E-Recycling	622	750	982	937	868	795	793
Secondary processing & other	234	229	138	86	99	106	101
Total	7,453	8,847	9,036	7,193	7,129	6,311	4,562

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Metals Recycling Global Footprint
Europe Metals
North America Metals
Australia & New Zealand Metals
Australia
New Zealand
Metal Shredder / Key Metals Recycling facility
Metal Shredder (50% JV owned)
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Electronics Recycling Global Footprint
Europe, Africa, and Middle East
UAE
Europe
North America
South Africa
United States
Asia Pacific
India
Singapore
Australia
New Zealand
Electronics Recycling facility
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Disclaimer

The material contained in this document is a presentation of information about the Group’s activities current at the date of the presentation, 25 August 2016. 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.