SIMS LIMITED — Interim / Quarterly Report 2017

Feb 14, 2017

Financial Results Half year ended 31 December 2016

15 February 2017

Agenda

• Results Overview Galdino Claro, Group CEO

• Financial Results Fred Knechtel, Group CFO

• Strategic Progress & Outlook Galdino Claro, Group CEO

Inspecting the metal shredder in Kwinana, Western Australia

Business improvements driving higher earnings

Continued improvement in 1H FY17 earnings and return on capital

• Underlying EBIT of $77 million

• Underlying NPAT of $60 million

• Underlying Return on Capital of 6.8%[1]

Strategic initiatives on track to deliver on FY18 return targets

• Sales volume break-even point reduced 9% to 7.0 million tonnes per annum

• Capex spending budgeted to support range of value-adding high-return projects

Strong balance sheet and capital management

• $311 million in net cash as at 31 December 2016

• Interim dividend of 20 cents fully franked and 1.4 million shares repurchased in 1H FY17, with the buyback renewed for a further 12 months

1H FY17 highlights

Sales Revenue $2,385 million

1H FY16 2H FY16 $2,412 million $2,240 million

Underlying[1] EBITDA $133 million

1H $61 million | 2H $123 million1H FY16 2H FY16 $61 million $123 million

Underlying[1] EBIT $77 million

1H ($5) million | 2H $63 million1H FY16 2H FY16 ($5) million $63 million Underlying[1] NPAT $60 million 1H ($18) million | 2H $56 million1H FY16 2H FY16 ($18) million $56 million

Sales Volumes

4.36 million tonnes

1H 4.30 million | 2H 4.25 million1H FY16 2H FY16 4.30 million 4.25 million

Net Cash $311 million (31 Dec 2016)

As at 30 June 2016(30 June 2016) 2H FY16 $242 million $2,240 million

Return on Capital[1] 6.8%

1H (0.4)% | 2H 5.5%1H FY16 2H FY16 (0.4)% 5.5%

Interim Dividend

20 cents (100% franked) 1H FY16 2H FY16 10 cents (unfranked) 12 cents (100% franked)

Higher earnings delivered on lower volumes

Underlying EBIT by Quarter

1Q FY17

• Ferrous prices and volumes fell 24% and 11% respectively over 4Q FY16

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70
2.6
60
2.4
50
2.2
40
2.0
30
1.8
20
Similar EBIT
1.6
10
on lower volumes
0 1.4
-10 1.2
Underlying EBIT Sales Volumes (RHS)
A$ million
million tonnes
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• Underlying EBIT decrease relates to lower volumes

• Gains from streamline actions drove a material improvement in underlying EBIT over the prior year

2Q FY17

• Ferrous prices and volumes rose 14% and 10% respectively over 1Q FY17

• Similar underlying EBIT to 4Q FY15, when volumes were 16% higher

Financial Results Fred Knechtel, Group CFO

Group financial performance

A$m	1H FY16	2H FY16	1H FY17
Sales revenue	2,412.2	2,239.5	2,384.7
Statutory EBITDA	(11.0)	94.0	153.3
Underlying EBITDA	61.4	123.0	132.9
Statutory EBIT	(249.3)	33.8	97.4
Underlying EBIT	(4.8)	62.8	77.0
Statutory NPAT	(250.1)	33.6	80.0
Significant items	(232.3)	(22.2)	20.0
Underlying NPAT	(17.8)	55.8	60.0
Statutory EPS (dilutive)	(121.9)	15.1	40.2
Underlying EPS (dilutive)	(8.7)	27.3	30.1
Dividend per share (cents)	10.0	12.0	20.0

• Sales revenue was 6% above 2H FY16 due to higher volumes and non-ferrous prices

• Underlying EBITDA up 8% over 2H FY16 due to streamline actions, higher volumes and metal margins

• Underlying EBIT of $77 million includes a $5 million adverse impact from exchange rates

• Effective tax rate of 13% due to utilisation of US and UK deferred tax assets

• Underlying NPAT of $60 million, up 8% over 2H FY16

• Significant items after tax largely attributed to a gain on sale of non-core real estate

• Underlying EPS of 30 cents was 10% above 2H FY16 due to higher earnings and share buyback accretion

• Dividend of 20 cents, the largest since FY11

• 6.8% underlying Return on Capital, the highest since start of the five-year strategic plan

• Statutory return on capital of 10.7%

Business segment financial performance

		Underlying EBIT (A$m)		1H FY16		2H FY16		1H FY17
		North America Metals		(23.1)		25.4		30.7
		ANZ Metals		14.0		25.7		25.9
		Europe Metals		2.1		16.5		15.8
		Global E-Recycling		(0.3)		7.9		11.1
		Corporate & Unallocated		2.5		(12.7)		(6.5)
		Underlying EBIT		(4.8)		62.8		77.0
		Sales volumes(‘000 tonnes)		1H FY16		2H FY16		1H FY17
		North America Metals		2,990		2,782		2,735
		ANZ Metals		700		718		862
		Europe Metals		609		752		763
		Sales volumes		4,299		4,252		4,360
		Intake volumes(‘000 tonnes)		1H FY16		2H FY16		1H FY17
		North America Metals		2,900		2,860		2,614
		ANZ Metals		766		719		781
		Europe Metals		673		747		730
		Intake volumes		4,339		4,326		4,125

• North America Metals underlying EBIT of $31 million

• Earnings improvement in each sub-region

• ANZ Metals underlying EBIT of $26 million

• Reduced operational costs

• Higher sales volumes

• Europe Metals underlying EBIT of $16 million

• Constant currency underlying EBIT of $20 million

• E-Recycling underlying EBIT of $11 million

• Strong performance in Continental Europe

• Sales volumes improved 3% over 2H FY16

• Equivalent operation sales volumes, excluding divested facilities in North America Metals, improved 4%

Substantially reduced volume break-even point

Volume break even reduction

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11.9
12 41% reduction in
sales volume
break-even
10
8
7.0
6
4
2
0
Break-even sales volumes (million tonnes)
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• Sales volume break-even point further lowered to 7.0 million, improving business stability and increasing earnings leverage to higher future sale volume conditions

• Retained volume capacity across the business when industry conditions improve

• Volume capacity of at least 12 million tonnes per annum

• Significant upside leverage on annualised 1H FY17 sales volumes of 8.7 million tonnes

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

Cash flow from earnings driving strong free cash flow

		A$m		1H FY16		2H FY16		1H FY17			�	Operating cash flow of $114 million driven by:
		Underlying EBITDA		61.4		123.0		132.9				- Higher underlying EBITDA
		Change in working capital		103.3		(111.0)		23.2				- $23 million working capital release
		Interest and tax		(0.8)		(0.2)		(17.4)				- 35% decrease in physical inventory
		Other non-cash items		(24.7)		(19.7)		(24.7)				- Partially offset by higher tax payments
		Operating cash flow		139.2		(7.9)		114.0			�	Capex of $68 million, up 54% from 1H FY16
		Capital expenditure		(44.2)		(64.7)		(67.9)				- Supporting expansion as well as maintenance,
		Proceeds from asset sales		4.0		9.7		55.5				safety and environmental initiatives
		Other cash flow from investing		0.1		(0.6)		0.1			�	$56 million in proceeds from asset
		Free cash flow Dividends paid Share buy-back		99.1 (26.7) (10.8)		(63.5) (20.1) (49.4)		101.7 (23.7) (13.4)			�	dispositions, mostly relating to sale of non- core Central Region assets Free cash flow of $102 million
		Other cash flow from financing		(8.1)		3.6		4.1			�	$24 million paid out in dividends
		Cash flow		53.5		(129.4)		68.7			�	$13 million distributed through the share buy-
												back program

Strategic Progress & Outlook Galdino Claro, Group CEO

Committed to deliver target 10% return on capital in FY18

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Grow
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Optimise � Market share retention
� Adaptive market positioning to
capitalise on growth markets
Streamline �
� Strengthen core drivers of Enter adjacent markets and
leverage competitive strengths
profitability across:
� 1) Supplier Relationships � New lines of business
�
� Exit non-strategic businesses � 2) Logistics
� Reduce non-essential costs � 3) Operational excellence
� 4) Sales and product quality
In progress
New initiatives over FY17-FY18
Complete
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Improving return on capital through internal actions

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10.0%
10%
9%
8%
6.8%
7%
6%
5.5%
5% 4.6%
4%
3% 2.6%
2.3%
2%
1%
0%
FY13 FY14 FY15 FY16 1H 1 target
FY17 FY18
Return on Capital
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Substantial pipeline of internal initiatives over FY17-FY18

	1H FY17		2H FY17		FY18
Streamline Initiatives
	- Completion of asset sale in the central region✓ - Closure of stainless steel operations✓ - US e-recycling resetting✓
Optimise Initiatives
	- Claremont terminal dredging✓		- MRP installation in Kwinana - Chicago rail connection - Zorba de-commoditisation pilot - Overhead cost redesign phase 1		- MRP in New Jersey - MRP in Chicago - Municipal recycling expansion - Avonmouth, UK upgrade - Overhead cost redesign phase 2
Annualised EBIT	$154 million	+	$20 to $25 million1	+	$50 to $70 million1

Internal initiatives anticipated to deliver an additional $70 million to $95 million in EBIT benefits over the 1H FY17 run rate

Conclusion & outlook

1H FY17 Highlights

• Completed sale and closure of underperforming non-core assets

• Volume break-even of 7.0 million tonnes, the lowest since the start of five-year strategic plan

• Underlying EBIT of $77 million, a turnaround from a $5 million loss in the prior corresponding period

• Underlying Return on Capital of 6.8% was the highest since FY11

• Interim dividend of 20 cents is the highest since FY11

External market conditions improving, but still volatile

• Steel exports from China have been declining, supporting demand from global EAF steelmakers

• Global demand for steel expected to improve ex-China in 2017

• Ferrous supply-demand dynamics now rebalanced, with medium-term potential for higher prices

Appendix

Declining steel exports from China, lifting ferrous demand

China Steel Exports vs Ferrous Scrap Price

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12 400
11 350
10 300
9 250
8 200
7 150
6 100
5 50
4 0
China steel exports Heavy melt scrap (RHS)
HMS US$ / tonne
Million tonnes (monthly)
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• China’s exports of steel have been declining since mid-2016

• China’s annual steel exports have fallen 8% since July 2016

• Lower exports are supporting higher steel production outside China, and increased demand and prices for ferrous scrap

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

• 2016 reduction target of 45 million tonnes appears on track

• Total implied capacity reduction of ~10% to 15%

Metal recycling industry beginning to rationalise

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US Industry-wide
Metals Recycling Closures
35
30
25
20
15
10
5
0
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 increased in early 2016

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

Group Profit & Loss

A$m	1H FY16	1H FY17	Chg %
Sales revenue	2,412.2	2,384.7	(1.1)
Statutory EBITDA	(11.0)	153.3	NMF
Underlying EBITDA	61.4	132.9	116.4
Statutory EBIT	(249.3)	97.4	NMF
Underlying EBIT	(4.8)	77.0	NMF
Net Interest expense	(5.8)	(5.0)	13.8
Statutory tax (expense)/benefit	5.0	(12.4)	NMF
Underlying tax (expense)/benefit	(7.2)	(12.0)	(66.7)
Statutory NPAT	(250.1)	80.0	NMF
Significant items	(232.3)	20.0	NMF
Underlying NPAT	(17.8)	60.0	NMF
Statutory EPS (dilutive)	(121.9)	40.2	NMF
Underlying EPS (dilutive)	(8.7)	30.1	NMF
Dividend per share (cents)	10.0	20.0	100.0

North America Metals

A$m	1H FY16	1H FY17	Chg %
Sales Revenue	1,235.6	1,111.0	(10.1)
Statutory EBITDA	(2.3)	81.4	NMF
Underlying EBITDA	15.9	61.7	288.1
Depreciation	32.2	26.6	(17.4)
Amortisation	6.8	4.4	(35.3)
Statutory EBIT	(167.2)	50.4	NMF
Underlying EBIT	(23.1)	30.7	NMF
Assets	1,086.8	1,202.8	10.7
Intake Volumes (000's)	2,900	2,614	(9.9)
Sales Volumes (000's)	2,990	2,735	(8.5)
Employees	1,898	1,683	(11.3)

Australia & New Zealand Metals

A$m	1H FY16	1H FY17	Chg %
Sales Revenue	377.5	491.6	30.2
Statutory EBITDA	23.1	39.5	71.0
Underlying EBITDA	27.7	39.9	44.0
Depreciation	13.1	13.8	5.3
Amortisation	0.6	0.2	(66.7)
Statutory EBIT	9.4	25.5	171.3
Underlying EBIT	14.0	25.9	85.0
Assets	479.8	534.1	11.3
Intake Volumes (000's)	766	781	2.0
Sales Volumes (000's)	700	862	23.1
Employees	729	701	(3.8)

Europe Metals

A$m	1H FY16	1H FY17	Chg %
Sales Revenue	372.3	414.9	11.4
Statutory EBITDA	(40.5)	22.1	NMF
Underlying EBITDA	9.2	22.1	140.2
Depreciation	7.1	6.3	(11.3)
Amortisation	0.0	0.0	-
Statutory EBIT	(47.8)	15.8	NMF
Underlying EBIT	2.1	15.8	652.4
Assets	218.7	256.0	17.1
Intake Volumes (000's)	673	730	8.5
Sales Volumes (000's)	609	763	25.3
Employees	579	642	10.9

Global E-Recycling

A$m	1H FY16	1H FY17	Chg %
Sales Revenue	426.8	353.9	(17.1)
Statutory EBITDA	5.8	17.0	193.1
Underlying EBITDA	5.7	15.4	170.2
Depreciation	5.7	4.3	(24.6)
Amortisation	0.3	0.0	(100.0)
Statutory EBIT	(46.2)	12.7	NMF
Underlying EBIT	(0.3)	11.1	NMF
Assets	433.3	392.5	(9.4)
Employees	1,639	1,428	(12.9)

Corporate & Unallocated

A$m	1H FY16	1H FY17	Chg %
Sales Revenue	0.0	13.3	NMF
Statutory EBITDA	2.9	(6.7)	NMF
Underlying EBITDA	2.9	(6.2)	NMF
Depreciation	0.4	0.3	(25.0)
Amortisation	0.0	0.0	-
Statutory EBIT	2.5	(7.0)	NMF
Underlying EBIT	2.5	(6.5)	NMF
Assets	348.9	270.7	(22.4)
Employees	75	85	13.3

1H FY17 income tax expense considerations

A$m	Profit Before Tax	Income Tax Expense	Effective Tax %
Statutory Result	92.4	12.4	13.4%
Reconciling items:
Deferred tax assets not recognized		(0.4)
Recognition of previously unrecognised tax losses		15.6
Underlying Results		27.6	29.9%

Significant items by region – 1H FY17

1H FY17 (A$m)	NA Metals	ANZ Metals	Europe Metals	Global **E-Recycling **	Unallocated	Pre-Tax Total	After-Tax Total
Reversal of fixed asset impairment	(0.9)	-	-	(1.4)	-	(2.3)	(1.8)
Gain on sale of property	(24.3)	-	-	-	-	(24.3)	(24.3)
Yard closure costs and dilapidation provisions	1.8	0.2	-	-	-	2.0	2.0
Redundancies	2.5	0.1	-	0.1	0.5	3.2	3.1
Net expenses relating to lease settlements / onerous leases	0.2	0.1	-	(0.3)	-	-	-
Other	1.0	-	-	-	-	1.0	1.0
Significant Items for 1H FY17	(19.7)	0.4	-	(1.6)	0.5	(20.4)	(20.0)

Significant items by region – 1H FY16

1H 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	14.4	1.5	8.6	0.8	-	25.3	24.6
Lease settlements/onerous leases	0.2	0.9	36.5	-	-	37.6	37.3
Redundancies	3.2	2.0	1.0	-	-	6.2	5.6
Yard closure costs and dilapidation provisions	0.4	0.2	3.6	(0.9)	-	3.3	2.9
Significant Items for 1H FY16	144.1	4.6	49.9	45.9	-	244.5	232.3

Financial summary - Group

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16		1H FY16	1H FY17
Group Results
Sales Revenue	7,453	8,847	9,036	7,193	7,129	6,311	4,652		2,412	2,385
Underlying EBITDA	379	414	253	190	242	263	184		61	133
Underlying EBIT	235	283	123	67	119	142	58		-5	77
Underlying NPAT	127	182	74	17	69	102	38		-18	60
Underlying EPS (cents)	65	88	36	8	34	49	19		-9	30
Dividend (cents)	33	47	20	0	10	29	22		10	20
Balance Sheet
Total Assets	4,233	4,167	3,509	2,917	2,649	2,882	2,571		2,567	2,656
Total Liabilities	959	1,256	1,225	988	816	769	738		672	762
Total Equity	3,274	2,912	2,284	1,929	1,834	2,113	1,833		1,895	1,894
Net Cash (Net Debt)	15	-126	-292	-154	42	314	242		373	311
Cash Flows
Operating Cash Flow	-48	159	290	297	210	298	131		139	114
Capital Expenditure	-121	-143	-161	-149	-64	-95	-109		-44	-68
Free Cash Flow1	-168	16	129	148	146	203	22		95	46
NOPAT	165	198	86	47	83	99	41		-3	54
Total Capital	3,259	3,038	2,576	2,083	1,792	1,799	1,590		1,523	1,583
ROC2 (%)	5.0%	6.5%	3.3%	2.3%	4.6%	5.5%	2.6%		-0.4%	6.8%

Financial summary – Segment

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16		1H FY16	1H FY17
Sales Revenue
North America Metals	4,834	5,782	5,773	4,256	3,996	3,417	2,353		1,236	1,111
ANZ Metals	1,126	1,300	1,190	1,047	1,188	1,053	744		377	492
Europe Metals	783	954	1,056	935	1,063	1,037	759		372	415
Global E-Recycling	622	750	982	937	868	795	793		427	354
Unallocated	88	61	35	18	14	9	3		0	13
Total	7,453	8,847	9,036	7,193	7,129	6,311	4,652		2,412	2,385
Underlying EBITDA
North America Metals	182	175	51	94	75	81	76		16	62
ANZ Metals	83	107	80	72	107	87	67		28	40
Europe Metals	25	28	15	-2	29	37	32		9	22
Global E-Recycling	87	112	92	24	20	55	19		6	15
Unallocated	2	-8	15	2	11	3	-10		2	-6
Total	379	414	253	190	242	263	184		61	133
Underlying EBITDA Margin (%)
North America Metals	3.8%	3.0%	0.9%	2.2%	1.9%	2.4%	3.2%		1.3%	5.6%
ANZ Metals	7.4%	8.2%	6.7%	6.9%	9.0%	8.3%	9.0%		7.4%	8.1%
Europe Metals	3.2%	2.9%	1.4%	-0.2%	2.7%	3.6%	4.3%		2.4%	5.3%
Global E-Recycling	14.0%	14.9%	9.4%	2.6%	2.3%	6.9%	2.4%		1.4%	4.2%
Total	5.1%	4.7%	2.8%	2.7%	3.4%	4.2%	4.2%		2.5%	5.6%

Financial summary – Segment (cont.)

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16		1H FY16	1H FY17
Sales tonnes (‘000)
North America Metals	9,906	10,964	11,080	9,377	8,152	7,018	5,772		2,990	2,735
ANZ Metals	1,578	1,764	1,765	1,764	2,054	1,874	1,418		700	862
Europe Metals	1,394	1,466	1,651	1,645	1,609	1,589	1,361		609	763
Total	12,878	14,194	14,496	12,786	11,815	10,481	8,551		4,299	4,360
Underlying EBIT
North America Metals	92.7	99.6	-18.7	32.8	11.7	11.8	2.3		-23.1	30.7
ANZ Metals	62.4	86.1	56.3	46.9	79.2	59.2	39.7		14.0	25.9
Europe Metals	15.8	18.8	4.1	-14.0	16.5	24.6	18.6		2.1	15.8
Total	170.9	204.5	41.7	65.7	107.4	95.6	60.6		-7.0	72.4
EBIT / tonne (A$/t)
North America Metals	9.36	9.08	-1.69	3.50	1.44	1.68	0.40		-7.73	11.22
ANZ Metals	39.54	48.81	31.90	26.59	38.56	31.59	27.93		20.00	30.05
Europe Metals	11.33	12.82	2.48	-8.51	10.25	15.48	13.74		3.45	20.71
Total	13.27	14.41	2.88	5.14	9.09	9.12	7.09		-1.63	16.61

Financial summary – Segment (cont.)

A$m	FY10	FY11	FY12	FY13	FY14	FY15	FY16		1H FY16	1H FY17
Sales tonnes (‘000)
Ferrous Trading	9,068	10,115	10,320	9,396	9,331	8,325	6,768		3,361	3,505
Ferrous Brokerage	3,264	3,518	3,597	2,840	1,918	1,617	1,307		688	628
Non Ferrous	565	571	586	550	566	539	476		250	227
Total	12,897	14,204	14,503	12,786	11,815	10,481	8,551		4,299	4,360
Sales Revenue
Ferrous Metals	5,071	6,144	6,259	4,817	4,801	4,068	2,703		1,354	1,462
Non Ferrous Metals	1,526	1,724	1,657	1,353	1,361	1,342	1,055		577	525
Global E-Recycling	622	750	982	937	868	795	793		427	354
Secondary processing & other	234	229	138	86	99	106	101		54	44
Total	7,453	8,847	9,036	7,193	7,129	6,311	4,652		2,412	2,385

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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, 15 February 2017. 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.

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