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sims metal management LIMITE D annual report 2012 RI GHt. noW. sims metal management LIMITED annual report 2012 f inancial summary For the year ended 30 June 2012 $9.0b 2% ($521m) 371% (253¢) 372% 20¢ 57% t otal revenue LOSS after tax loss per share d ividends per share s ims metal management is a global, unified full-service recycling company focused on providing efficient end-of-life solutions for obsolete, post-consumer and post-industrial metal and electronic products. our assets are concentrated in key sourcing regions with access to premier global markets. we will increase shareholder value by driving towards a total shareholder return in the top quartile of our peer group in the coming years. we are committed to a zero harm workplace, being exemplary community members, being good stewards of the environment and employing the best, brightest and most diverse workforce in the industry providing the foundation for our success. contents Financial Summary 1 Directors’ Declaration 120 Chairman’s and Group Chief Executive Officer’s Review 2 Independent Auditor’s Report 121 Annual Sustainability Report 8 Auditor’s Independence Declaration 122 Corporate Governance Statement 24 Annual Financial Report Extracts 123 Financial Report 33 Shareholder Information 127 Board of Directors 34 Five Year Trend Summary 128 Directors’ Report 36 Corporate Directory IBC Financial Statements 60 ABN 69 114 838 630 1 c hairman’s and group chief executive officer’s review In extremely volatile and challenging markets, As any safety expert will tell you, there will be economic contraction in the UK and Europe, slowing times when you begin to plateau after years of growth in China and anaemic growth in the US, extraordinary progress. demand for commodities weakened and, more In order to return to our downward trend of relevantly to Sims Metal Management, generation of workplace accidents, we must reaffirm our scrap metal slowed. However, our 6,600 employees Company-wide commitment to safety at every level were able to once again remain steadfast and in the Journey towards an accident-free workplace. focused on those matters within their control. We continued to pursue strategies during fiscal 2012 Safety remains one of our top priorities as we to improve our operations and competitive position begin fiscal 2013. and, while we currently are not where we would like to be in terms of profitability, we are well placed SUSTAINABILITY regardless of whether this current macro-economic As recyclers, we believe that operating in a environment persists or economies improve and sustainable, environmentally responsible manner better operating circumstances prevail. and being profitable are not mutually exclusive propositions. We continued our deep commitment During fiscal 2012, we generated circa $290 million to Corporate Social Responsibility in fiscal 2012. cash flow from operations, enabling us to continue to implement our growth plans via strategic As testament to our success on the sustainability acquisitions, introduce innovative proprietary front, the Company was recently nominated, for technology into our core businesses, pay a modest the first time, as an Index Component in the Dow dividend and, as of this writing, repurchase nearly Jones Sustainability World Index (DJSWI). While we four million shares of our own stock. In fact, over have been a participant in previous years under the the past four fiscal years, we have invested nearly Australian/New Zealand index, this is the first time $1 billion into growing, improving and positioning that the Company has been nominated among its our business for whatever the future may hold – global peers. Dow Jones recognised, in particular, an economic rebound, more of the same muddling matters such as our leadership on risk and crisis conditions or worse – and we will prepare for, management, innovation, climate strategy and and endeavour to produce, respectable results eco-efficiency, as well as health and safety in any scenario. During fiscal 2012, we completed leadership and talent attraction and retention, 13 acquisitions, 11 in metals recycling and two among several other factors. in electronics recycling, and made our first In addition to joining the DJSWI, the Company significant investment into the People’s Republic was included, for the fourth year in a row, on the of China (PRC). We will continue to evaluate new Global Top 100 Most Sustainable Corporations investment opportunities during fiscal 2013. list at the Davos World Economic Forum. We were honoured to again receive this distinction, SAFETY which recognises companies that consistently We are proud of being a safety leader in the metals demonstrate superior positioning and performance and electronics recycling industry and our goal on environmental, social and governance issues is to be a safety leader across all industries. The relative to their industry peers. We moved up an Journey, as we call it internally, has always been impressive 52 spots in the rankings to become our highest priority and we know that, beyond 11th in the world. the moral imperative, it has a direct correlation on productivity and efficiency, which, in turn, Sims Metal Management remains committed to increases shareholder value. the voluntary disclosure of its key sustainability performance for all stakeholders. We task all During fiscal 2012, we continued our dedication to divisions with making yearly improvements in the the safety of our facilities and operations. In fiscal areas of safety, environmental management, 2012, while our Lost Time Injury Frequency Rate energy and water use reduction, carbon emissions, rose slightly from 2.7 to 2.8, our Medical Treated waste generation, and the many other components Incident Frequency Rate continued to decline, that together form the basis of the Company’s from 12.4 to 11.1 year-on-year. Further, we saw efforts to become one of the world’s most a significant decline in the injury severity rate, or sustainable businesses. m ore information on our Lost Time Severity Rate (LTSR), down to 149.3 from commitment to safety and sustainability can be 216.3 year-on-year, an all-time low. To put this into found in this report under the heading ‘annual context, we had an LTSR of 574.8 in fiscal 2010. sustainability report’. 2 Daniel W. Dienst, Geoffrey N. Brunsdon, Group Chief Chairman Executive Officer FISCAL 2012 FINANCIAL RESULTS OPERATIONAL results Our fiscal 2012 financial results reflect the impact NORTH AmERICA of numerous significant items and charges as Our North America Metals business was unable the Company was once again affected by the to build intake volume in fiscal 2012 as the US continuing economic malaise caused by the economy continued to suffer from, reluctant global financial crisis. Our sales revenue in the consumers who continue to focus on deleveraging, fiscal year increased 2% to $9 billion and our weak housing starts and patchy industrial scrap intake and shipments were 14.4 million production. Demand in our key ferrous markets was tonnes and 14.5 million tonnes, respectively, a generally inconsistent and weak. In response, we slight increase on the previous year, even as set about further reducing our costs by flattening we battled continued anaemic scrap generation. our management structure and reducing our Due to the difficult financial environment, the workforce in the second half. This restructuring Company wrote-off $614 million ($594 million is expected to reduce controllable expenses by after-tax) of goodwill, the bulk of which arose at approximately $4 million per month during fiscal the time of the acquisition of Metal Management 2013. We continue to work on taking costs out of Inc. for scrip in March 2008, before the onset of our business and redeploying capital to improve our the global financial crisis. returns to offset margin compression and align our resources to scrap flows with more attractive At the end of the fiscal 2012 year, we had net debt margins. Fiscal 2012 also marked the completion of $292 million, which represented 11% of total of the initial rollout and implementation of our capital. This favourable capitalisation position, proprietary downstream non-ferrous recovery even as we expanded into China with a significant technology in North America. investment, is attributable to our strong cash flow from operations of circa $290 million. Our Sims Recycling Solutions, or SRS, electronics recycling business in North America once again The Directors determined that a final dividend of performed well, achieving solid results in this $0.10 per share (unfranked) be paid 19 October important and rapidly expanding market, despite 2012. The dividends for fiscal 2012, including the a degradation of underlying commodity prices. interim dividend of $0.10 per share, represented During fiscal 2012, we commenced the second a payout ratio of more than 56% of net profit phase of our Ontario electronics line that will before the non-cash impairment charges related be completed in early fiscal 2013, allowing us to to goodwill. Also, in October 2011, the Company process electronic scrap at the same facility established an on-market share buy-back program that contains our automated mechanical and repurchased three million shares pursuant TV recycling line. We continue to evaluate to it during fiscal 2012 for a total cost of circa growth opportunities for our North American $39 million, representing an average cost of SRS business as evidenced by our recent $12.67 per share. acquisition of E-Structors, Inc. si mS mETAl mANAGEmENT lImITED annual report 2012 3 c hairman’s and group chief executive officer’s REVIEW CONTINUED Sales revenue was in line with the prior During fiscal 2012, we enhanced our position in this corresponding period at $6 billion and statutory important region by continuing to expand through earnings before interest and tax (EBIT) was a successful deployment of technology and careful loss of $616 million. Underlying EBIT was circa integration of bolt-on acquisitions while watching $1 million.