Annual Report - Amazon Web ServicesReport+2006.pdf · For the year ended 30th June 2006 2005 %...

building the world’s leading recycling company . . .

2006

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CONTENTS

FiNaNCial Summary 1ChairmaN’S & ChiEF ExECuTivE’S rEviEw 2CEO quESTiONS & aNSwErS 6maNagiNg SuSTaiNabiliTy 8PEOPlE & PErFOrmaNCE 13bOard OF dirECTOrS 14COrPOraTE gOvErNaNCE STaTEmENT 16

FiNaNCial rEPOrT 19dirECTOrS’ rEPOrT 20FiNaNCial STaTEmENTS 37dirECTOrS’ dEClaraTiON 98iNdEPENdENT audiT rEPOrT 99audiTOr’S iNdEPENdENCE dEClaraTiON 101SharEhOldEr iNFOrmaTiON 102TEN yEar TrENd Summary 104maNagEmENT dirECTOry 105

SimsGroupLimited ABN69114838630

AnnuAl GenerAl MeetinGTheAnnualGeneralMeetingofSimsGroupLimitedwillbeheldintheJamesCookBallroom,HotelInter-Continental,117MacquarieStreet,Sydney,NSWonFriday17November2006at11:00am.ANoticeofMeetingandProxyFormareenclosedwiththisreport.

For the year ended 30th June 2006 2005 %(A$’000s) (A$’000s) change

TotalOperatingRevenue 3,754,509 2,565,603 +46

ProfitBeforeInterestandTax 301,912 289,613 +4

NetInterestExpense (16,313) (5,366) +204

TaxExpense (88,953) (87,216) +2

OperatingProfitafterTax 196,646 197,031 –

NetCashFlowsfromOperations 208,571 192,807 +8

EarningsperShare-basic 174.2c 216.3c -19

DividendsperShare 105.0c 160.0c -34

ReturnonShareholders’Equity 16.4% 38.1% -57

CurrentRatio 1.8:1 1.8:1 –

NetDebt (285,659) (52,938) +440

NetTangibleAssetBackingperShare $4.68 $4.22 +11

FiNaNCial Summary

CorporAte GoAlSims Group’s corporate goal is to grow itscore metal recycling business internationallywhile also developing an innovative recyclingsolutionsbusiness.

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2 ChairmaN’S & ChiEF ExECuTivE’S rEviEw

2006 was another very exciting year in the building of Sims group as the world’s leading recycling company.

Firstly, the Company recorded another strong financial result with profit after tax of $197 million, in line with last year’s then record profit. Sales revenue increased 46% to $3.8 billion, EbiTda was up 7% to $343 million and EbiT was $302 million, up 4%. The result was achieved through handling 7.6 million tonnes of material, up 52% on the previous year.

Secondly, on 31 October 2005, following the favourable vote by shareholders at the meetings held on 7 September, we successfully completed the merger of the former Sims group with the recycling operations of hugo Neu Corporation. Consequently, the results for the 2006 financial year include an eight month contribution from the hugo Neu businesses. we will talk more about the merger later in this review.

reSultS oVerVieW

TheincreaseinsalesrevenueduringtheyearwasprincipallyasaresultofthecontributionfromSimsHugoNeu,strongsalesvolumesandhighmetalprices,particularlynonferrousmetalprices.Wecongratulateallofourpeopleontheirefforts.Thetradingexcellenceandoperationaldisciplinedisplayedbyallofthemhadamarkedimpactontheresult.Thesecondhalf,whichsawearningsexceedthefirsthalfbyover$60million,or89%,wasparticularlystrong,aidedbyafullsixmonthcontributionfromSimsHugoNeuandverystrongnonferrousbasemetalprices.Finishedsteelpricesalsostrengthenedgloballyinthesecondhalfwhichbolsteredferrousscrappricesthroughouttheperiod.ThefourthquarterresultwasarecordfortheCompany,withearningsof$79million.

Onceagainallourglobalbusinessesdeliveredsolidresults,withourAustralianoperationsbeingthestandoutperformer,deliveringanEBITresultof$113million,inlinewiththatofthepreviousyear.OnthebackoftheHugoNeucontribution,our North American operation’s EBIT improved 31% to $124 million, while our European operation’s full year EBITdecreasedby10%to$54million,stillanadmirableresultconsideringthecompetitivepressuresfacedbyourUKmetalrecyclingdivision.EBITwasagainwellbalancedthroughouttheGroup’sglobaloperationswith41%attributabletotheAustralasianoperations,41%totheNorthAmericanoperationsand18%totheEuropeanoperations.

SimsGroupincreasednetoperatingandinvestmentcashflowsby$28millionto$106millionresultinginamodestNetDebt/(NetDebt+Equity)positionatyearendof19%.Thiswasdespitenetcapitalexpenditureof$74million.

Earningspershareat174.2centsweredown19%andthedirectorsdeterminedthatafinaldividendof60centspershare(51%franked)bepaid,providingshareholderswithafiscal2006totaldividendof105centspershare(49%franked),thesecondhighestintheCompany’shistory.AsaconsequenceoftheapplicationbytheCompanyofForeignConduitIncomeCredits,foreignshareholderswillberelievedofanywithholdingtaxontheunfrankedportionofthefinaldividendpaid.

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operAtionAl reSultSMetal recyclingTotal intake volumes were positively impacted by the eight month contribution from the Hugo Neu businesses, butotherwiseweredown6%year-on-year.Thiswaslargelyasaresultofareductionininternationalpigirontrading,withferrousyardtonnagefallingbyonly2%.Volumesofnonferrousbrokeragetonnesincreasedby33%,andtheintakeofprocessednonferroustonnesincreasedby7%.

TheGrouprecordeda163%year-on-year increase inEBIT fromthetradingofnonferrousmetals includingbrokerage(excludingmetalrecoveredfromshreddingoperations,knownasnonferrousshredderresidueor‘NFSR’)to$79million,onsalestonnesup19%.EBITfromourferrousoperations,includingNFSRandbrokerage,wasdown16%to$214million,althoughsalesofNFSRwereup24%to130,000tonnes.

InAustralia,thestrategicdriversofregionalcollectionprogramsandcitybasedindustrialservicescombinedtoproduceyetanotheryearofrecordintakevolumes.IntheUKwelaunchedourowninternetbasedend-of-lifevehiclecompliancescheme‘recycleyourcar.co.uk’.Thishasprovedtobeahugesuccessandboastsmoremembersthananyofthecompetingcompliance schemes. Not only does it provide access to source material for our shredders, it offers members of theschemetheopportunitytoworkwithSimsGroupinachievingtherecyclingtargetssetoutintheELVDirective.IntheUS,specialmentionshouldbemadeofouroperationsintheSouthEast.ThepurchaseoftheBayBridgebusinessinMay2004alongwiththeChaparralSteelagreementreachedamonthlatertoleaseitsshredderandsupplyitwithlowcosthighqualityshreddedmaterial,hasallowedustoprofitablygrowourvolumesinthisregionbeyondourexpectations.

Assets

North America58%

Australasia21%

Europe21%

Sales Revenue

North America46%

Australasia33%

Europe21%

EBIT

North America41%

Australasia41%

Europe18%

Assets

North America58%

Australasia21%

Europe21%

Sales Revenue

North America46%

Australasia33%

Europe21%

EBIT

North America41%

Australasia41%

Europe18%

Assets

North America58%

Australasia21%

Europe21%

Sales Revenue

North America46%

Australasia33%

Europe21%

EBIT

North America41%

Australasia41%

Europe18%

Preparing precious metal containing samples for analysis, Eindhoven Holland.

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recycling solutionsTheRecyclingSolutionsDivisioncontinuedtomakesoundprogress,recordingan89%increaseinEBITyear-on-year.Thisreflectedafullyear’scontributionfromSimsMirec, theDivision’sEuropeanE-Recyclingbusinessacquired inOctober2004,andaneightmonthcontributionfromtheNewYorkCitykerbsiderecyclingcontract,oneofthebusinessesacquiredthroughtheHugoNeumerger.Underthiscontract,currentlyaninterimarrangement,theCompanyhandlesalltheCityofNewYork’skerbsidepostconsumerrecyclables.Significantprogresswasmadetowardsconcludingthe20yearcontract,alreadyagreedinprinciple.Duringthisperiodofnegotiations,theCompanycontinuedtoupgradeitstechnicalcapabilitytobettersegregate,andprepareforshipment,thekerbsiderecyclablesreceived.

In theUK,oure-recyclingbusinesscontinued toposition itself favourably for the introductionof theWEEEDirective,nowdestinedforentryintoUKlawinJuly2007.Thelabellingofdiscardedcathoderaytube(CRT)containingequipmentas hazardous provided us with a new opportunity and we commissioned new de-manufacturing cells in Dumfries inScotland,ManchesterinEnglandandNewportinWalestotreatTV’sandmonitors,beforeshippingtheglasstubestoourDutchglassprocessingfacilityinEcht.OurEchtoperationhasitselfcommissionedanin-housedesignedautomaticglassseparationunitandisnowmarketingseparatedpanelandfunnelrawmaterialstotheCRTmanufacturingsector.

SimsTyreCycle,Australia’slargestcollectorandprocessorofusedvehicletyres,increasedrevenueby19%,onthebackof18%growththepreviousyear.Also inAustralia,SimsGroup’scomprehensiveITandelectronicsrecyclingbusinessSimsE-Recycling,inassociationwithCollex,completeditsfirstfullyearofoperation,exceedingexpectationsintermsofvolumesandprofitability,andexpandingitsnetworktobecometheonlye-wasterecyclerwithatruenationalcoverage.

TheGroup’sUSe-recyclingbusinessalsocontinued togrow,withourHayward,Californiaoperationmoving to largerpremises during the year. The Virginia de-manufacturing facility continues to procure flows, and has now quadrupledvolumessinceimplementingitse-recyclingstrategyinAugust2003.

SAFetY, HeAltH, enVironMent AnD CoMMunitY

TheGroup’ssafetyperformancesawaslightincreaseinitslosttimeinjuryfrequencyrate(LTIFR)asaresultofthesafetyperformanceattheacquiredHugoNeuoperations.OuroverallglobalLTIFRof5forourpreHugoNeuoperationswasthesameasthepreviousyear.Duringfiscal2007,theCompanywillfocusonimprovementswithintheHugoNeuoperationsandalsoonimprovingtheGroup’ssafetyperformanceasawhole.

ChairmaN’S & ChiEF ExECuTivE’S rEviEw

New mega shredder, Claremont New Jersey USA.

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In April this year, the Company launched its corporate sustainability reporting program. The issue of how a companyconductsitsbusiness,notjustfromafinancialpointofview,butalsowithregardtoitsmoralandethicalcommitmenttothecommunityatlarge,hasbecomeincreasinglyimportanttoshareholders,investors,governmentsandsocietyingeneral.Ourcommitmenttohealthandsafety,environmentandcommunityperformanceinconductingourbusinesshasalwaysbeenparamount,anditiswithgreatpleasurethatweintroduceourfirstsustainabilityreportwhichcanbefoundlaterinthisreport.Wewillcontinuetoexplorenewwaysinwhichwecanimproveourperformanceintheseimportantareas.

TheBoardalsoremainscommittedtoensuringSimsGroupmaintainsthehighestlevelofcorporategovernanceandcompliance.AsummaryoftheCompany’scorporategovernancepracticescanalsobefoundlaterinthisreport.

TheBoardcontinuedtosupporttheenhancementoftheGroup’shumanresourcesdevelopmentthroughaseriesoftargetedprogrammesandother initiatives.The importanceofouremployeesandthecontributiontheymadetotheGroup’ssuccesscannotbeunderstatedandtheBoardwouldliketoextenditscongratulationstoallpersonnelworldwidefortheireffortsinassistingintheintegrationoftheHugoNeuoperationsandhelpingtoachievethisyear’sresult.OfspecialmentionwastheCompanybeingnominatedasafinalistinthe‘BestGraduateIntakeProgram’categoryoftheprestigious2006AustralianHRAwards.

HuGo neu MerGer

As mentioned earlier in this Review, the merger with the operating entities of Hugo Neu was consummated on31October2005.Thiscreatedanewly listedSimsGroupLimitedontheAustralianStockExchangeinwhichthethenexistingSimsGroupshareholdersacquired74%ofthenewsharesandHugoNeuacquiredtheremaining.TheChairmanofHugoNeu,MrJohnNeu,andMrPaulVarello(aUSresidentnominatedbyHugoNeu)joinedthenewBoard.

TheperformanceofthebusinessesacquiredfromHugoNeuwassatisfactoryandaheadofforecastforthesecondhalf.TheferrousbusinessesonboththeWestandEastCoastsexperiencedtradingandcommercialenvironmentssimilartothoseexperiencedbySimsGroup’sexistingUSoperations.Ferrousmarketswerehighlycompetitiveandon theEastCoast, inparticular,marginwas influencedby the relative strengthof thedomesticmarket compared to internationalmarkets.WehavealreadyspokenoftheNewYorkCityRecyclingContract,whichperformedstronglyduringtheperiod.InMay,thenewmegashredderatClaremontNewJerseywascommissionedandisperformingwell.ThisenabledtheCompanytodecommissionitsQueens’shredderandprocessarisingsfrombothoperationsthroughasingleshredder,deliveringfurtheroperationalbenefits.Afurthernewmegashredder,currentlyunderconstructioninLosAngeles,isduetobecommissionedinOctober2006.

outlooK

Towardstheendofthe2006fiscalyear,ferrouspricessoftenedandfellaslowasUS$265C&FKorea.Buyingactivityinmostmarketsslowedintandemwithuncertaintyoverfuturefinishedsteelprices.Morerecently,theferrousmarkethasonceagainbeguntoturnupwardsandtherearepositivesignsofaresurgenceindemandinmostinternationalmarkets.Oceanfreightrateshave,however,escalated.

Assistedbycontinuinghighnonferrouspricesandprudentforwardferroussales,theCompanyisexpectingtodeliveranotherverystrongquarterinQ1fiscal2007which,althoughnotasstrongasthelastquarteroffiscal2006,isexpectedtoexceedtheCompany’sbudgetfortheperiod.

TheCompanycontinuestoevaluatepossibleacquisitionsinboththemetalrecyclingandRecyclingSolutionsdivisionsandremainsconfidentofclosinganumberofacquisitionsofvaryingsizebeforetheendofthecalendaryear.

paul Mazoudier Jeremy SutcliffeChairman GroupChiefExecutive

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Q. While not a record year, a fairly pleasing performance in fiscal 2006?

A. Yes it was. A second half rebound in metal prices allowed us tomatchlastyear’sstand-outrecordresultinearnings,ifnotearningspershare,terms.TheGrouprecordeditsbesteverquarterlyresultof$79millioninthethreemonthstoJune.Thesecondhalf,assistedbythecontributionfromtheHugoNeuoperations,alsobeatthefirsthalfbyover$60million.Whilepressureonferrousmarginswasanegativeforus,nonferrouspricessoaredinthesecondhalf.

Q. the major event this year was completion of the Hugo neu merger, wasn’t it?

A. Yes, without doubt. We consummated the merger on31October2005.IwouldliketothankmyfellowBoardmembersandthoseexecutivesonbothsidesofthemerger,plusallouradvisors,whoworkedreallyhardtogetthedealovertheline.

Alargeacquisitionsuchasthisdoestakesomebeddingdown,andwearecontinuingtoworkhardontheintegration.Atanoperationallevel, twonewmegashredders,one inNewJerseywhich isnowrunning,andone inLosAngeleswhich isnearingcompletion,willoffersignificantoperatingefficiencies.IamalsoveryencouragedbytheoutlookfortheNewYorkCityrecyclingcontract.

Q. Markets appeared to be very volatile last year?

A. Well non ferrous markets particularly were. For example, thealuminiumpriceontheLMEtradedbetweenaroundUS$1,700and$3,250pertonne,andthecopperpricebetweenaroundUS$3,600and$8,800pertonne.Infiscal2005,aluminiumonlytradedbetweenaroundUS$1,650and$2,000pertonne,andcopperbetweenaroundUS$2,700 and $3,700 per tonne. So you can see that commoditymarkets were far more volatile last year than the previous year!Ferrousscrapmarketswerenotasvolatilebutstill presentedourtraderswithmanychallenges,allofwhichtheymetadmirably.

Q. the recycling Solutions Division continued to impress?

A. Yes it did. The Division recorded an 89% increase in EBIT lastyear. This reflected a full year’s contribution from Sims Mirec,the Division’s European E-Recycling business headquartered inEindhoven, Holland, and which operates throughout the Beneluxcountries,Swedenand theUnitedKingdom;andaneightmonthcontributionfromtheNewYorkCitykerbsiderecyclingcontract.At11%ofGroupEBIT,theDivisionisstillrelativelysmallbutgrowingfast.ThisleavesusfeelingconfidentthattheDivisionwilldevelopintoamaterialprofitcontributorforSimsGroup.

CEO quESTiONS & aNSwErS

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Q. Any comments on the Company’s safety performance?

A. Ouroverallgloballosttimeinjuryfrequencyrateroseslightlylastyear.Ourfocusnextyearwillbetotransferourbestpracticesrightacrossthebusiness,includingournewlyacquiredHugoNeuoperations.Ofcourse, we will also be addressing ways of further improving ourunderlyingperformanceasawhole.

Q. there has been a lot said in the media about corporate social responsibility. How is Sims Group responding?

A. CSRiscertainlyoneofthechallengesfacedbymostorganisationstoday and has no ready-made, one-size-fits-all solution. While weconsider Sims Group to be very much a ‘green’ company already,perhaps we have not reported in the past as well as we couldhave.Thesegment following in thisannual report titled ‘ManagingSustainability’ is an attempt to highlight some of our existingachievements. Rest assured that we will continue to work hard inthisarea.

Q. What would you like to say to all your employees?

A. Yetagain,Iwouldliketocongratulateouremployeesaroundtheworldforanotherterrificeffortinachievingtheresultwedid.Theyshouldbejustifiablyproudoftheirachievements.Ourtradingpersonneldidagreatjob,andoperationallyweachievedrecordshredderproduction.Ongoing training in key areas such as health and safety, as wellas management development programs, has become a feature ofourhuman resourcesprogram.Ahighprioritycontinues tobe thenurturingoftraineesandnewgraduatescurrentlyintheCompany’straineeprogram.

Q. What are your priorities in the year ahead?

A. Obviously,ourfirstpriorityistocompletethebeddingdownoftheHugoNeumerger.Havingsaidthat,withourgearingratiostillverymuchundercontrolat19%,wedohaveconsiderablehead-roomtopursueacquisitionsandwehaveanumberoftargetsontheradarscreen, both in metals recycling and in our Recycling SolutionsDivision.Welookatunderlyingvalue,andassesshowanacquisitionmightfitinwithourlong-termgoals.Watchthisspace!

8 maNagiNg SuSTaiNabiliTy

TheKeyPerformanceIndicatorsselectedforthisreportaretakenfromtheglobalbenchmarkguidelineGlobal Reporting Initiative (GRI) 2002.

oVerVieW Safety, Health, environment and Community (SHeC)TheHugoNeumergerdoubledthesizeoftheCompany’soperationsintheUSandpresentedanidealopportunitytoreviewthemanagement framework for thegovernanceofSHEC issues throughoutSimsGroup.Consequently, theCompanyimplementedanewstructurewhichgivesgreaterregionalfocustoSHECissuesandprovidesfordynamiccause-and-effectmanagementdirectlylinkedtotheoperationalcontextinwhichthoseissuesarise.RegionalcommitteesconsistofrelevantSHECprofessionalsandmanagerswithmanyyearsoperationalexperienceinSHECmatters.ThisdirectlinktolinemanagementaccountabilityisanimportantfactorinembeddingSHECprinciplesintheorganisationasawayofdoingbusinesseveryday.

Regional committeesandboardsmeetquarterly to report, discussandgivedirectiononSHEC issues.AnexecutivecommitteeconsistingofregionalheadsreportstotheBoardSHECCommittee.MonthlySHECupdatesarealsoastandardpartofregionalandCompanyBoardpapers.

TheSimsGroupBoardisfirmlycommittedto,andsupports,SHECasanintegralpartofthewaytheCompanycarriesonbusiness.ThiscommitmentisformallyexpressedinaglobalSHECPolicyandarticulatedintheformalchartersunderwhicheachcommitteeoperates,aswellastheSHECstandardssetforeachregionaloperation.

Our Commitment

We are committed to integrating safety, health, environment and community considerations into the way we conduct our business.

We recognise that our continued growth and success will only be achieved through continual improvement of our SHEC program.

Our Support

To achieve our commitment, we will support and implement SHEC policy, Standards and management systems.

Our commitment to the continual improvement of SHEC in our business is supported by leadership, policy, planning, implementation, measurement, evaluation and management review.

Every individual is expected to promote and provide leadership on SHEC issues.

– Extract from the Sims Group Global SHEC Policy

Managing and measuring performanceAspartofSimsGroup’scommitmenttocorporatesustainabilityreporting,newsystemstocollectimportantinformationinkeyareascommencedinJuly2007.ThiswillallowtheCompanytomonitoritsperformanceandformthebaselinefromwhichitwillmeasureimprovementsandbenchmarkitselfagainstitscompetitorsglobally.

Key areas targeted for reporting in fiscal 2007

› EnergyUse› WaterUse› WasteGeneration› EmployeeRetention› EmployeeDiversity› KeyOH&Sindicators› IndustrialRelations› TrainingandDevelopment

Monitor testing prior to disassembly, Hayward California USA.

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SAFetY AnD HeAltH We are committed to providing a safe and healthy work environment. We believe that the safety of an individual comes before all other considerations.


OccupationalHealthandSafety(OH&S)isofprimaryimportanceineverythingSimsGroupdoes,andthesafetyandwelfareofitsemployeesisparamount.Internally,the visibility of this commitment was reinforced last year with the catch cry“SafetyisEverybody’sBusiness”.

Safety and health initiativesOvertheyears,severalinitiativeshavebeenintroducedtoreducethenumberof incidentsatSimsGroup’s facilities, resulting ina steady reduction in theLostTimeInjuryFrequencyRate(LTIFR)(calculatedasper1millionman-hoursworked)from21infiscal2001to6infiscal2006.Therewerenoprosecutionsduringtheyeararisingfromanylosttimeinjuries.Fromeveryincidentthereisanopportunitytolearnhowtoimprovemanagementprocesses.Consequently,the Company also tracks minor incidents and near misses, which forms animportantadditiontoitsriskassessmentandmitigationstrategies.

FromtheirinitialintroductioninAustralia,ObservationalBehaviourAudits(OBAs)arenowfullyintegratedthroughouttheCompany’sglobaloperations.InanOBAenvironment,supervisorsobserveemployeesduringoperations,complimentinggoodsafetybehaviourplusaddressingatriskbehaviour,withtheaimofchangingattitudes to methods of working. More than 6,000 OBAs were conductedthroughoutSimsGroupduringfiscal2006.

Safety audits are also conducted on a regular basis to monitor and report onissues that require addressing and/or may have impact on matters such asinsurance.Theseauditsareamixtureofexternal (includinginsurancecompanyaudits)andinternalaudits.Duringtheyear,theUSAconducted105nationalOH&Saudits,Australia76andEurope55,inadditiontolocalhazardsandchecklistauditscompletedatallsitesonaregularbasis.

Otherinitiativesincludesafetytraining,inductionprocesses,jobsafetyanalyses,toolbox talks and award schemes. Health and safety is also widely acceptedandintegratedintotheworkenvironmentviathejobspecificationsofallseniormanagement, operational employees and contractors. Since the merger withHugoNeu,acommitteeofthe4regionalOH&SmanagersintheUShasbeenestablishedtoco-ordinateefforts,shareinformation,anddevelopcommonbestpracticesandprograms.

Safety and health achievementsThe above initiatives have all contributed to the continual improvement in OH&S within Sims Group. For example, inthe Australian manufacturing division, the two Sims Aluminium facilities in Victoria achieved three and two years LTIfreerespectivelywithonealsorecordingtwoyearswithoutamedicallytreatedinjury.ThetwoSimsPlasticsfacilitiesinVictoriaandNSWachievedtwoyearsandoneyearLTIfreerespectively.IntheAustralianmetalrecyclingdivision,targetedreductionsofcombinedLTIandmedicallytreatedinjuriesrateswereexceededbyapleasing25%.IntheUS,theSimsHugoNeuNorthWestandSouthEastdivisionsbothrecordedanexcellentLTIfreeyear,asdidtheCompany’sjointventureCanadianoperations.InMay2006,SimsHugoNeuwaspraisedforfiveyearswithoutanLTIinitsoperationsatNewUnitedMotorManufacturing,Inc.TheUKoperationswereawarded“OverallWinnersSimsGroupBestPracticeProjects”and36employeesreceivedawardsfortheircommitmentto,andadvancementof,healthandsafetyovertheyear.

Lost time injuryfrequency rate

02 03 04 05 0601

21

14

11

8

56

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enVironMentWe are committed to the ecologically sound and sustainable use of resources and strive to operate in a manner which minimises waste, protects the environment and provides industry leadership.


resource recoverySimsGroup isaglobal leader in the recyclingof ferrousandnon ferrousmetals,plastics,paper, tyresandelectronicwaste.Lastyear,theCompany’scoremetalrecyclingoperationsprocessedover5.5milliontonnesofferrousmetalsandover280,000tonnesofnonferrousmetals.Justover130,000tonnesofmixednonferrousshredderresiduewerealsorecoveredfromtheCompany’sshreddingplants.Asmetalscanberecycled indefinitely, theseactivitiesdeliversocial,environmentalandeconomicbenefits.

SimsGroup’sRecyclingSolutionDivisionisalsoaddressingthegrowingsocialandenvironmentalconcernovertherisingvolumeofwastebeingdisposedofinlandfills.InAustralia,forexample,SimsTyreCycleplaced13,000tonnesofrecoveredproduct(rubberandsteel)intheAustralianmarketplaceduringtheyear.Keyapplicationsforproductsincludedbuildingconstruction,roadsurfacing,softfallsurfacing,andnewrubberandsteelproducts. Inadditiontorecoveredproducts,significantvolumesofusedtyresweredivertedfromlandfill tocivilengineeringandalternativefuelapplications.SimsE-Recycling,anotherAustraliandivision,inconjunctionwithCollex,workedwithmajorelectronicsmanufacturers,councilsandindividualbusinessestorecyclemorethan250,000electronicitems,fromcomputersandTV’stomobilephonesandDVDplayers,whichotherwisewouldhaveendedupinlandfill.

IntheUK,severalnewde-manufacturingcellshavebeencommissionedtotreatTV’sandmonitors,beforeshippingtheglasstubestotheCompany’sDutchglassprocessingfacilityinEchtwhichseparatesandmarketsseparatedpanelandfunnelrawmaterialstothecathoderaytubemanufacturingsector.TheCompany’sUKbasedtechnicalexcellenceteamhasalsointroducednewseparationequipmentinEindhoven,Hollandtoseparatemetalsandplasticsmoreefficientlyandisnowresearchingseparationequipmentforremovalofvaluableplasticsfromshredderwastestreams.

energy and greenhouse gasAsamajorrecycler,SimsGroupprovideslargeamountsofreusablematerialstoindustrialconsumers.Whenusedinsteadofrawmaterials,thiscreatessignificantenergysavingsresultinginloweremissionsandpollutionoftheatmosphere.TheenergysavingspertonneofrecycledandreconstitutedmaterialsascalculatedandpublishedbytheUSAEPAisdepictedinthefollowingtable:

examples of energy savings per tonne: › Aluminium95%› Copper85%› IronandSteel74%› Lead65%› Zinc64%› Paper64%› Plastics80%+

Inotherwords,theprocessingofscrapironandsteelfromsuchitemsasabandonedmotorvehicles,industrialoffcutsandobsoletehouseholdgoodstomakenewsteelresultsina74%savingsinenergy.Producingatonneofaluminiumfromvirginbauxiteoretakestheenergyequivalentof8.1metrictonnesofcoal,butfromrecycledscraptakesonly0.4metrictones,areductionof95percent.

Usingthetableabove,thetotalenergyindirectlysavedfromthescrapsteelhandledbySimsGroupinfiscal2006beingconvertedtosteelwasapproximately85.3PetaJoules,orenoughtopowerapproximately2.7millionhomes(overonethirdthenumberinAustralia)peryear.

maNagiNg SuSTaiNabiliTy

LMS Rochedale, Qld power generation facility.

11

Carbon Disclosure Project In 2006, Sims Group participated for the first time in the Carbon Disclosure Project (CDP4). This Project provides a secretariat for the world’s largest institutional investors to collaborate on the business implications of climate change through the monitoring of the performance of companies in this area.

While the use of secondary raw materials does save significant amounts of energy, the Company’s impact is through its consumption of electricity and fuel to produce and transport those materials.

For fiscal 2006, the global greenhouse footprint for Sims Group in respect of energy use was 224,242 tonnes of CO2 equivalent, the vast majority being as a result of electricity use from external sources. Full details of the Company’s submission to the CDP is available on the CDP4 website at www.cdproject.net.

Green energyIn Australia, Sims Group holds a 50% interest in Landfill Management Services (LMS), a producer of ‘green energy’ via the channelling of methane from landfills into power generators. LMS generates significant tradeable Renewable Energy Certificates (RECs) and Greenhouse Abatement Certificates (NGACs).

During fiscal 2006, the generation projects owned by LMS had a combined generating total of approximately 70,000 RECs and 170,000 NGACs, and generated enough power for over 10,000 homes twenty-four hours a day, seven days a week, for twenty years. Additionally, the greenhouse gas abatement from LMS projects last year has resulted in a reduction of over one million tonnes of carbon dioxide equivalent emissions to the atmosphere, providing a significant contribution to Australia’s efforts in reducing global warming.

Also during the year, LMS produced 372,230 tonnes of carbon credit offsets, more than 1.6 times the global emissions of Sims Group, and traded approximately 200,000 tonnes of them. While these credits are accumulated by LMS or sold to external parties, it may be possible in the future for the Company to utilise them to offset its own global emissions.

Sims Group is committed to the efficient use of energy in its manufacturing processes. As part of this commitment, an innovative energy audit process system will be trialled in fiscal 2007.

External management standardsSims Group has had in place an environmental management system since listing on the ASX in 1991. Fourteen of the Company’s global operational sites have since gone one-step further and attained ISO 14001 accreditation. Further, all Australian operations and seven of the Company’s 36 European operations have attained ISO 9000 accreditation.

In the USA, a number of operations are examining participation in the ISO program as well as a similar environmental accreditation scheme known as the Recycling Industry Operating Standard (RIOS), specifically designed by the Institute of Scrap Recycling Industries for scrap operations. Several other operations also hold a number of other environmental quality assurance programs such as Ford Q1.

In the UK, Manchester and Dumfries joined the Newport fridge plant in gaining the coveted ISO 14001 Environmental Management System for e-recycling, a certification already enjoyed by the Company’s mainland European Mirec operations. The fridge recycling centre is the world’s leading single site refrigerator destruction facility and is uniquely capable of safely treating the very largest of commercial refrigeration units in addition to 1,000,000 household fridges annually.

Energy use – Sims Group (F06)

GAS268,801 GJ

ELECTRICITY146,656 MWh

DIESEL19,332 Kl

PETROL10,492 Kl

12

environmental auditing and incidentsRefined over more than a decade, Sims Group has a rigid program of environmental audits. All yards are audited atleastoncea yearormore frequently if any trendofdeterioration isevidenced.Theenvironmental auditprogram is atwo-phaseapproach.Localmanagementfirstconductsaself-assessment,which is thencomparedtoan independentexternalaudit.Thisallowsforhighlevelassessment,notjustofanyphysicalproblemsbutalsoofmanagement’scapabilityinaddressingsuchissues.Fiscal2007willseefurtherdevelopmentofthistoolallowingongoingassessmentlinkedtocontinualimprovement.

However,SimsGroupisnotyeterrorfree.InAustralia,SimsPlasticswasfined$3,000forwaterpollution.TheEuropeanoperationsreceivedthreeimprovementnotices,eachofaminornature,andthreewarningletters,tworelatingtoconcernoverthepotentialforpollutionandoneforexceedingwastestorageapproval.IntheUSA,twolawsuitswerefiledagainstSimsHugoNeu,bothinrespectofallegedviolationofstormwaterpermits.Onewassettledbyconsentagreementbetweentheparties.AnoilspilloccurredinVirginia,butwascontainedandcleaned-upwithoutanyimpactontheenvironment.

environmental awards and initiativesIntheUK,SimsRecyclingSolutionswonacommendationintheprestigiousBusinessCommitmenttotheEnvironmentAwards for continuous improvement in operational efficiency, including a 300MWh reduction in energy usage at theNewportfridgeplant,equivalenttothesavingof148tonnesofcarbondioxideemissions.InAustralia,themetalrecyclingoperationatStMarys,NSWwasafinalistintheWesternSydneyIndustryawardsforoutstandingservice.

CoMMunitYWe aim to be respected corporate citizens by working constructively with our communities and other stakeholders.


SimsGroupworksconstructivelywiththecommunitiesinwhichitoperates,aswellaslocal,Stateandfederalgovernmentbodiesandauthorities.Itbelievesithasaresponsibilitytoassistintheeducationofcompanies,communitiesandindividualsinthebenefitsofrecycling.TheholdingofopendaysatseveralofitssitesduringtheyearpresentedanidealopportunityforpeopletospeaktotheCompany’sexpertsaboutrecycling.TheCompany’swebsiteisanothersourceofinformation,withmorethan360,000visitslastyear.

The Company’s expertise on how to reduce waste and increase recycling is also keenly sought by government andnon-governmentorganisations.SeveralofSimsGroup’sseniorexecutivesareactivemembersofmanytaskforcesandpanels around the world, including the core recycling organisations of Bureau International de la Recuperation (BIR),AustralianCouncilofRecyclers(ACOR)andtheInstituteofScrapRecyclingIndustries(ISRI).

Becauseofthediversityandextentofitsoperations,SimsGroup’spreferenceistosupportlocalinitiativesdirectlylinkedtothecommunitiesinwhichitoperates.Assuch,anumberof public school and youth programs, as well as variouscharitableevents,aresupported,bothinfinancialtermsandthroughsupportinlearningandeducationalinitiatives.

Duringtheyear,theCompanybecameamemberoftheAsia-PacificBusinessCoalitiononHIV/AIDS.

SimsGroupactivelysupportscommunityrecyclingeventsallaroundtheworld.Forexample,SimsE-RecyclinginAustraliacollectedfreemorethan50tonnesofTV’s,computersandotherredundantelectronicgearatacommunityeventheldduring theyear inBrisbane. InSydney, themetal recyclingdivision supplied approximately 850,000 baled aluminiumcanstoinvitedAmericanartistTommyPershallforhisexhibit‘Urban American in Australia’ in one of the largest freeoutdoorsculptureexhibitionsintheworld ‘Sculpture by the Sea, Bondi 2005’,viewedbymorethan400,000visitors.

maNagiNg SuSTaiNabiliTy

Sculpture by the sea, Bondi 2005

13

TheCompanyhasalwaysbeenastrongproponentofmovingcapablepeoplearoundtheorganisationbothdomesticallyandinternationallyandthishasbeendemonstratedwithanumberofemployeesrelocatingduringthepast12months.ThemergerwiththerecyclingoperationsofHugoNeuhasincreasedthenumberofopportunitiestoemployeesinrespectofinternalmovement,careerprogressionandsuccessionplanning.

The European divisions completed an executive developmentprogram over the previous 18 months. More than 30 seniormanagersparticipatedintheprogramwhichwasruninconjunctionwithAstonBusinessSchoolinBirmingham.

A capable and experienced workforce is one of the strengthsof theCompanyandanumberofserviceawards involving longservingemployeesaroundtheGroupwereheldduring theyear.Serviceofover20yearsisnotunusualandunderpinsthepassionemployeeshave in thebusiness. TheCompanyalso recognisesthatitneedstocontinuallybroadenanddevelopitsworkforceandhoneitssuccessionplans.Inordertoprovidebalanceandarangeofskills, theCompanyhas increaseditsrecruitmentofgraduatetraineesandnewmanagerswithexperienceoutsidetheindustry.StructuredgraduatetraineeprogramshavebeenimplementedinAustralia and the UK and will be introduced into the US duringfiscal 2007. Australia has produced a number of outstandingtraineeswhohavecompletedrotationaldevelopmentandarenow

performing in responsiblepositions.TheCompanywaspleasedwith the recognition it received recently,when itwasselectedasafinalistinthe2006AustralianHRAwards–BestGraduateIntakeProgramcategory.

PEOPlE & PErFOrmaNCE

Paul Wake (right) receiving major commendation award on behalf of Sims UK for its fridge recycling plant.

St Peters, Sydney team receiving award for over 5 years without a lost time injury.

14 bOard OF dirECTOrS

Paul Mazoudier

BA, LLB (Hons) (age 64) – Chairman 14,082 sharesChairman of the Company since 1999 and independent non-executivedirectorsince1991.ChairmanRemunerationCommitteeandNominationCommittee.MemberSafety,Health,Environment&CommunityCommitteeand Risk & Audit Committee. Formerly an executive director of SimsConsolidated (1974-79)andformerpartnerandNSWChairmanofMinterEllison,lawyers.DirectorofHPALLimited(since2000).

Jeremy Sutcliffe

LLB (Hons) (age 49) – Group Chief Executive 10,000 shares, 127,255 shares (held pursuant to Company’s Executive Long Term Incentive Plan), 119,913 performance rightsDirector since 1 March 2002. Member Safety, Health, Environment &CommunityCommittee,Finance&InvestmentCommitteeandNominationCommittee.VicePresidentandBoardmemberoftheFerrousDivisionoftheBureauof InternationalRecycling,memberof theAustralian InstituteofCompanyDirectors.JoinedtheCompanyin1990andhasheldvarioussenior executive positions in the Company including Chief Executive UKbeforeassumingthepositionofGroupChiefExecutiveon1March2002.ChairmanofSimsHugoNeuCorporationandSimsPacificMetalsLimited.

Ross Cunningham

B.Sc. (Metallurgy), MBA (age 61) 22,296 shares (held pursuant to Company’s Executive Long Term Incentive Plan), 29,978 performance rightsDirectorsince1984.MemberFinance&InvestmentCommittee.FellowoftheAustralianInstituteofCompanyDirectorsandMemberoftheFinancialExecutivesInstituteofAustralia.JoinedtheCompanyin1967andhasheldvariousseniorpositionsinAustraliaandSouthEastAsiaincludingGeneralManagerNSWandGeneralManagerFinance&Administration.IscurrentlyExecutive Director Group Finance and Strategy. Director of other SimsGroupLimitedsubsidiariesandassociatedcompanies.

Michael Feeney

B. Com (Marketing) (age 60) 25,504 shares Independent non-executive director since 1991. Chairman Risk & AuditCommittee.MemberRemunerationCommitteeandNominationCommittee.FormerlyFinanceandStrategyDirectorforPhilipMorris,ExecutiveDirectorStrategy and Corporate Affairs for Elders IXL and Executive DirectorCorporate Strategy of Elders Resources NZFP. Board member CollinsPartnersCorporateAdvisory.

15

Geoffrey Brunsdon

B.Com (age 48) 3,312 shares Independent non-executive director since 1999. Chairman Finance &Investment Committee and member Nomination Committee. Head ofInvestmentBanking,MerrillLynchAustralia.HeisaCharteredAccountant,aFellowoftheFinancialServicesInstituteofAustraliaandaFellowoftheAustralianInstituteofCompanyDirectors.ChairmanofINGPrivateEquityAccess Limited (since 2004). In the last 3 years was a director of INGManagementLimited(from2000to2005).

John Neu

BA, LLB (age 68) – Vice Chairman 32,263,924 sharesExecutive director since 31 October 2005. Member Safety, Health,Environment&CommunityCommittee,Finance& InvestmentCommitteeandNominationCommittee.GraduateofCornellUniversity,HarvardLawSchool,andHarvardBusinessSchool’sAdvancedManagementProgram.In1964,joinedHugoNeuCorporationandheldvariousmanagementandofficerpositionsbeforebeingappointedCEOin1985.OntheboardoftheLibertyHumaneSocietyandisactivelyinvolvedinanumberofcommunityand environmental organisations, including the New York/New JerseyBaykeeperandEdisonWetlandsAssociation.

Paul Varello

BCE (Civil Engineering) (age 62) Nil shares Independent non-executive director since 31 October 2005. Member Risk& Audit Committee and Remuneration Committee. President and CEO ofCommonwealth Engineering and Construction of Houston, Texas. PriortofoundingCommonwealth in2003,wasChairmanandCEOofAmericanRef-Fuel Company. In addition, spent 25 years in the engineering andconstructionindustry.Bachelor’sdegreeinCivilEngineeringfromVillanovaUniversity and a graduate of Harvard Business School’s AdvancedManagement Program. A registered professional engineer and a memberof the American Society of Civil Engineers and the American Institute ofChemicalEngineers.DirectorofthepubliclyheldRylandGroup,oneofthelargesthomebuildersintheUS.

Robert Every

B.Sc., PhD (Metallurgy) (age 61) 4,000 shares Independent non-executive director since 24 October 2005. ChairmanSafety,Health,Environment&CommunityCommitteeandmemberFinance&InvestmentCommittee.HeholdsaBachelorofSciencedegreeandaPhDinMetallurgy.HewasmostrecentlyManagingDirectorandChiefExecutiveOfficer of OneSteel Limited and Chairman of Steel and Tube HoldingsLimitedinNZand,beforethat,wasPresidentofBHPSteel.DirectorofIlukaResourcesLimited(since2004)andWesfarmersLimited(since2006).

Charles Copemanwasadirectorfromthebeginningofthefinancialyearuntilhisretirement(andsubsequentresignation)on18November2005.

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TheboardoftheCompanyconsidersthat,asat30June2006,theCompanywasincomplianceinallmaterialrespectswiththeASXCorporateGovernanceCouncil’sPrinciplesofGoodCorporateGovernanceandBestPracticeRecommendations(March2003)(the“ASXRecommendations”).

Thereare10keyprinciplesofcorporategovernancesetout in theASXRecommendations.Thoseprinciples,and theCompany’sresponsetothem,areasfollows:

prinCiple 1. lay solid foundations for management and oversightTheCompanyhasadoptedaBoardCharterwhichformalisesthefunctionsreservedtotheboardandthosedelegatedtomanagement.AcopyofthisdocumentisavailableforviewingbyvisitingthehomepageoftheCompany’swebsiteatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘BoardCharter’.

prinCiple 2. Structure the board to add valueTheboardhasadoptedspecificprinciplesinrelationtodirectors’independence.Thesestatethattobedeemedindependent,adirectormustbeanon-executivedirector(i.e.notbeamemberofmanagement)and:

› notbeasubstantialshareholderoftheCompanyoranofficerof,orotherwiseassociateddirectlywith,asubstantialshareholderoftheCompany;

› withinthelastthreeyearsnotbeenemployedinanexecutivecapacitybytheCompanyoracontrolledentity,orbeenadirectorafterceasingtoholdanysuchemployment;

› within the last threeyearsnotbeenaprincipalofamaterialprofessionaladviseroramaterialconsultant to theCompanyoracontrolledentity,oranemployeemateriallyassociatedwiththeserviceprovided;

› notbeenamaterialsupplierorcustomeroftheCompanyoracontrolledentity,oranofficeroforotherwiseassociateddirectlyorindirectlywithamaterialsupplierorcustomer;

› musthavenomaterialcontractualrelationshipwiththeCompanyoracontrolledentityotherthanasadirectoroftheCompany;

› notservedontheboardforaperiodwhichcould,orcouldreasonablybeperceivedto,materiallyinterferewiththedirector’sabilitytoactinthebestinterestsoftheCompany;

› befreefromanyinterestandanybusinessorotherrelationshipwhichcould,orcouldreasonablybeperceivedto,materiallyinterferewiththedirector’sabilitytoactinthebestinterestsoftheCompany.

Materiality for thepurposesof theseprinciples isdeterminedonbothquantitative andqualitativebases.Anamountofover5%ofannualturnoverofSimsGroupor5%oftheindividualdirector’snetworthisconsideredmaterial.Inaddition,atransactionofanyamount,orarelationship,isdeemedmaterialifknowledgeofitaffectstheshareholders’understandingofthedirector’sperformance.

Independentdirectorscompriseamajorityoftheboard.TheChairperson,MrPaulMazoudier,isanindependentdirector.TherolesofChairpersonandGroupChiefExecutivearenotexercisedbythesameindividual.Detailsofthemembersoftheboard,theirexperience,expertise,qualifications,termofofficeandindependentstatusaresetoutonpages14and15ofthisannualreport.

Directorshavetheright,inconnectionwiththeirdutiesandresponsibilities,toseekindependentadviceattheCompany’sexpense.PriorwrittenapprovaloftheChairpersonisrequired,whichwillnotbeunreasonablywithheld.

TheboardhasestablishedaNominationCommittee.ThenamesofNominationCommitteemembersandtheirattendanceat Nomination Committee meetings are set out on page 21 of this annual report. The Nomination Committee hasadoptedacharter.Acopyof thisdocument isavailableatwww.sims-group.com,clickingon ‘Corporate Governance’andthen ‘NominationCommitteeCharter’.Adescriptionoftheboard’sproceduresfor theselectionandappointmentofnewdirectors to theboardand theNominationCommittee’spolicyon theappointmentofdirectors isavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘NewDirectors’.

COrPOraTE gOvErNaNCE STaTEmENT

17

prinCiple 3. promote ethical and responsible decision-making and prinCiple 10. recognise the legitimate interests of stakeholdersThe Company has adopted a Code of Conduct and a policy on dealing in Sims Group securities. A copy of thesedocuments isavailableatwww.sims-group.com,clickingon ‘CorporateGovernance’andthen‘CodeofConduct’and‘SecuritiesTradingPolicy’respectively.

TheboardhasestablishedaFinance& Investment (“F& I”)Committee,whichoperates inaccordancewith itscharter.ThenamesofF&ICommitteemembersandtheirattendanceatF&ICommitteemeetingsaresetoutonpage21ofthisannualreport.

prinCiple 4. Safeguard integrity in financial reportingTheGroupChiefExecutiveandtheExecutiveDirectorGroupFinance&Strategyhavestated inwritingtotheboard inrespectofthefinancialyearended30June2006:

› thattheCompany’sfinancialreportspresentatrueandfairview,inallmaterialrespects,oftheCompany’sfinancialconditionandoperationalresultsandareinaccordancewithrelevantaccountingstandards;and

› thattheabovestatementisfoundedonasoundsystemofriskmanagementandinternalcomplianceandcontrolwhichimplementsthepoliciesadoptedbytheboardandthattheCompany’sriskmanagementandinternalcomplianceandcontrolsystemisoperatingefficientlyandeffectivelyinallmaterialrespects.

TheboardhasestablishedaRisk&Audit(“Audit”)Committee.ThenamesofAuditCommitteemembers,theirqualificationsandtheirattendanceatAuditCommitteemeetingsaresetoutonpage21ofthisannualreport.AllmembersoftheAuditCommitteeareindependentnon-executivedirectors.

TheAuditCommitteehasadoptedacharterand theCompanyhasadoptedapolicyandprocedures for theselectionandappointmentof theexternal auditor, and for the rotationofexternal audit engagementpartners.Acopyof thesedocumentsisavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘AuditCommitteeCharter’and‘ExternalAuditors’respectively.

prinCiple 5. Make timely and balanced disclosureTheCompanyhasadoptedaMarketDisclosurePolicyandprocedures forcompliance.Acopyof thesedocuments isavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘MarketDisclosurePolicy’.

prinCiple 6. respect the rights of shareholdersTheCompanyhasadoptedastatementoncommunicationswithshareholders.Acopyofthisdocumentisavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘ShareholdersCommunication’.

prinCiple 7. recognise and manage riskTheCompanyhasadoptedaRiskManagementPolicyandastatementoninternalcomplianceandcontrolsystems.Acopyofthesedocumentsisavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘RiskMgtPolicy&InternalControl’.

TheboardhasestablishedaSafety,Health,Environment&Community(“SHEC”)Committee,whichoperatesinaccordancewithitscharter.ThenamesofSHECCommitteemembersandtheirattendanceatSHECCommitteemeetingsaresetoutonpage21ofthisannualreport.

The directors have received and considered the annual control certification from the Group Chief Executive and theExecutiveDirectorGroupFinance&StrategyinaccordancewithPrinciple4relatingtofinancialrisks.DuetothegeographicspreadoftheGroup’soperationsandtheextensivedelegationofauthorityandresponsibilitygrantedtoseniorbusinessunitmanagement,theGroupChiefExecutiveandtheExecutiveDirectorGroupFinance&Strategy,whenattestingtotheadequacyoftheCompany’sriskmanagementandinternalcomplianceandcontrolsystem,relysignificantlyuponinternalauditandthecontrolcertificationreportsreceivedfromeachregionalchiefexecutiveregardingcompliancewiththevariousriskmanagement,complianceandinternalcontrolpoliciesandproceduresintheregionforwhicheachisresponsible.

18

prinCiple 8. encourage enhanced performanceTheCompanyhasadopteda statementdescribing theperformanceevaluationprocessof theboard, its committees,individualdirectorsandkeyexecutives.Acopyofthisdocumentisavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘PerformanceEvaluationProcess’.

AstheboardwasreconstitutedfollowingthemergeroftheCompanywiththeoperationsofHugoNeuCorporationinOctober2005,aperformanceevaluationoftheboardanditsmemberswasnotundertakenduringthefinancialyearended30June2006.

prinCiple 9. remunerate fairly and responsiblyThe board has established a Remuneration Committee. The names of Remuneration Committee members and theirattendanceatRemunerationCommitteemeetingsaresetoutonpage21ofthisannualreport.

TheRemunerationCommitteehasadoptedacharter.Acopyofthisdocumentisavailableatwww.sims-group.com,clickingon‘CorporateGovernance’andthen‘RemunerationCommitteeCharter’.

InformationontheCompany’sremunerationpoliciesissetoutonpages23to36ofthisannualreport.

COrPOraTE gOvErNaNCE STaTEmENT

Downstream operations, Claremont New Jersey USA.

Recycling facilites, Newport UK.

19FiNaNCial rEPOrT

dirECTOrS’ rEPOrT 20

iNCOmE STaTEmENTS 37

balaNCE ShEETS 38

STaTEmENTS OF rECOgNiSEd iNCOmE aNd ExPENSE 39

STaTEmENTS OF CaSh FlOwS 40

NOTES TO ThE FiNaNCial STaTEmENTS 1 Summary OF SigNiFiCaNT aCCOuNTiNg

POliCiES 41

2 FiNaNCial riSk maNagEmENT 49

3 rEvENuE 50

4 OThEr iNCOmE 50

5 ExPENSES 50

6 rEmuNEraTiON OF audiTOrS 51

7 iNCOmE Tax 52

8 rECEivablES 53

9 iNvENTOry 54

10 iNvESTmENTS aCCOuNTEd FOr uSiNg ThE EquiTy mEThOd 54

11 OThEr FiNaNCial aSSETS 54

12 PrOPErTy, PlaNT aNd EquiPmENT 54

13 dEFErrEd Tax aSSETS 56

14 iNTaNgiblES 57

15 PayablES 57

16 bOrrOwiNgS 58

17 Tax liabiliTiES 58

18 PrOviSiONS 59

19 rETirEmENT bENEFiT ObligaTiONS 59

20 CONTribuTEd EquiTy 63

21 STaTEmENTS OF ChaNgES iN EquiTy 64

22 rESErvES aNd rETaiNEd PrOFiTS 64

23 dividENdS 66

24 CONTiNgENT liabiliTiES 67

25 CaPiTal ExPENdiTurE COmmiTmENTS 67

26 lEaSE COmmiTmENTS 68

27 SharE OwNErShiP aNd OPTiON PlaNS 68

28 kEy maNagEmENT PErSONNEl diSClOSurES 70

29 SubSidiariES 75

30 iNvESTmENTS iN aSSOCiaTES 79

31 iNTErESTS iN jOiNT vENTurES 81

32 rElaTEd ParTy TraNSaCTiONS 82

33 SEgmENT rEPOrTiNg 83

34 EarNiNgS PEr SharE 85

35 CaSh FlOw iNFOrmaTiON 86

36 NON-CaSh iNvESTiNg aNd FiNaNCiNg aCTiviTiES 87

37 dErivaTivE FiNaNCial iNSTrumENTS 87

38 iNTErEST aNd CrEdiT riSk ExPOSurES aNd Fair valuES OF FiNaNCial aSSETS aNd liabiliTiES 90

39 ExPlaNaTiON OF TraNSiTiON TO auSTraliaN EquivalENTS TO iFrSs 91

40 CriTiCal aCCOuNTiNg ESTimaTES aNd judgEmENTS 96

41 NEw aCCOuNTiNg STaNdardS aNd urgENT iSSuES grOuP (uig) iNTErPrETaTiONS 97

dirECTOrS’ dEClaraTiON 98

iNdEPENdENT audiT rEPOrT 99

audiTOr’S iNdEPENdENCE dEClaraTiON 101

SharEhOldEr iNFOrmaTiON 102

TEN yEar TrENd Summary 104

maNagEmENT dirECTOry 105

20

Your directors present their report on the consolidated entity consisting of Sims Group Limited and the entities itcontrolledattheendof,orduring,theyearended30June2006.

DireCtorS AnD tHeir intereStS ThenamesofthedirectorsofSimsGroupLimited(“Company”)inofficeatthedateofthisreporttogetherwiththeirqualificationsandexperienceandrelevantinterestinthesharecapitaloftheCompanyorofarelatedbodycorporate,aresetoutonpages14and15ofthisannualreport.

CoMpAnY SeCretArYThe Group company secretary is Mr F M Moratti B.Com, LLB, MBA (Executive). Mr Moratti was appointed to thepositionofcompanysecretaryin1997.BeforejoiningtheCompanyheheldpositionsofassistantcompanysecretary/legalcounselinanumberofpubliclylistedcompaniesoveraperiodofsome12yearsandpriortothatworkedasasolicitorwithamajorlegalpractice.

prinCipAl ACtiVitieS DetailsoftheprincipalactivitiesoftheconsolidatedentityduringtheyearareaddressedintheChairman’sandGroupChiefExecutive’sReportonpages2to5ofthisannualreportandinthenotestothefinancialstatements.

trADinG reSultSTheconsolidatednetprofitoftheconsolidatedentityfortheyearwas$196.6million.

DiViDenDSThe financial 2005 year partly franked (60%) final dividend of 70 cents per share and partly franked (60%) specialdividendof20centspersharereferredtointhedirectors’reportdated26August2005werepaidon23September2005.Apartlyfranked(47%)interimdividendof45centsperordinaryshare(otherthanthosesharesheldbyHugoNeuCorporation)and15centsperordinaryshare(heldbyHugoNeuCorporation)forthefinancial2006yearwaspaidon13April2006.Sincetheendofthefinancialyearthedirectorshaverecommendedthepaymentofapartlyfranked(51%)finaldividendof60centsperfullypaidsharetobepaidon20October2006outofretainedprofitsat30June2006.

reVieW oF operAtionSAreviewoftheoperationsoftheconsolidatedentityduringtheyearandtheresultsofthoseoperationsaresetoutintheChairman’sandGroupChiefExecutive’sReportonpages2to5ofthisannualreport.

SiGniFiCAnt CHAnGeS in tHe StAte oF AFFAirSOther thanassetout following, thedirectorsarenotawareofanysignificantchange in thestateofaffairsof theCompanyduringthefinancialyearotherthanassetoutintheChairman’sandGroupChiefExecutive’sReportonpages2to5ofthisannualreport.

Hugo neu MergerOn31October2005theformerSimsGroupLimitedcompletedthemergerwithsubstantiallyallofthemetalrecyclingoperationsofHugoNeu,aUSrecycler(“Merger”).TheMergercreatedanewcompany,NewSimsGroup,whichlistedontheAustralianStockExchangeandbecame‘SimsGroupLimited’.

SuBSeQuent eVentSThedirectorsarenotawareofanymatterorcircumstancethathasarisensincetheendofthefinancialyearwhichwillsignificantlyaffect,ormaysignificantlyaffect,theoperationsoftheconsolidatedentity,theresultsofthoseoperationsorthestateofaffairsoftheconsolidatedentityinsubsequentfinancialyears.

liKelY DeVelopMentSInformationastothelikelydevelopmentsintheoperationsoftheconsolidatedentityissetoutintheChairman’sandGroupChiefExecutive’sReportonpages2to5ofthisannualreport.

dirECTOrS’ rEPOrT for the year ended 30 june 2006

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enVironMentAl reGulAtionTheCompanyhaslicencesandconsentsinplaceateachofitsoperatingsitesasprescribedbyenvironmentallawsandregulationsthatapplyineachrespectivelocation.Furtherinformationontheconsolidatedentity’sperformanceinrelationtoenvironmentalregulationissetoutonpages10to12ofthisannualreport.

DireCtorS’ MeetinGSThenumberofdirectors’meetingsandmeetingsofcommitteesofdirectorsheldduring the financialyearand thenumberofmeetingsattendedbyeachdirectorwere:

Board of Directors

Risk & Audit Committee

Safety, Health, Environment & Community

Committee

Remuneration Committee

Finance & Investment Committee

Nomination Committee

MeetingsHeld 13 7 4 8 2 3PaulMazoudier 13 61 4 8 - 3

GeoffreyBrunsdon 13 14 - - 2 -

JeremySutcliffe 13 - 4 55 2 3

RossCunningham 13 - - - 2 -

MichaelFeeney 12 7 - 7 - 3

JohnNeu 41 - 21 - 11 -

PaulVarello 41 51 - 21 - -

BobEvery 52 - 21 - 1 -

CharlesCopeman 93 23 23 - - -

1 appointed31October2005 2 appointed24October2005 3resigned18November20054 resigned25August2005 5 resigned31October2005

inSurAnCe oF oFFiCerSDuringtheyear,theCompanypaidapremiumof$252,429inrespectofacontractinsuringalldirectorsandexecutiveofficersoftheCompany(and/oranysubsidiarycompaniesinwhichitholdsgreaterthan50%ofthevotingshares),including directors in office at the date of this report and those who served on the board during the year, againstliabilitiesthatmayarisefromtheirpositionswithintheCompanyanditscontrolledentities,exceptwheretheliabilitiesariseoutofconductinvolvingalackofgoodfaith.Thedirectorshavenotincludeddetailsofthenatureoftheliabilitiescoveredassuchdisclosureisprohibitedunderthetermsofthecontract.

SHAre optionS GrAnteD to DireCtorS AnD releVAnt Group eXeCutiVeS 90,517and36,738sharesrespectivelyintheCompany’sExecutiveLongTermIncentivePlan(“LTIPlan”)wereissuedtoJLSutcliffeon22July2005and28July2006respectively.119,913performancerightswereissuedtoJLSutcliffeon6October2005.11,879and10,417sharesrespectivelyintheLTIPlanwereissuedtoRBCunninghamon22July2005and28July2006respectively.29,978performancerightswereissuedtoRBCunninghamon18November2005.9,427and8,185sharesrespectivelyintheLTIPlanwereissuedtoDRMcGreeon22July2005and28July2006respectively.79,634and3,877restrictedstockunitswereissuedtoCRJansenon1November2005and28July2006respectively.3,003and2,788performancerightswereissuedtoGDavyandWTBirdrespectivelyon28July2006.FurtherdetailsofthoseshareoptionsissuedduringthefinancialyearcanbefoundinsectionEoftheremunerationreportonpage34ofthisannualreport.

22

SHAreS unDer optionUnissuedordinarysharesoftheCompanyunderoptionatthedateofthisreportareasfollows:

LTI Plan shares

Date granted Expiry date Issue price Number under option22July2005 22July2010 $14.99 187,164

28July2006 28July2011 $18.73 131,545

Performance Rights

Date granted Expiry date Issue price Number under option6October2005 31October2010 Nil 119,913

18November2005 30June2008 Nil 29,978

28July2006 28July2009 Nil 16,359

Restricted Stock Units

Date granted Expiry date Issue price Number under option1November2005 30June2009 Nil 280,708

28July2006 30June2009 Nil 14,905

HoldersofsharespursuanttotheLTIPlanhavecertainrightsundertheirtermstoparticipateinshareissuesoftheCompany.NoholderofperformancerightsorrestrictedstockunitshasanyrightundertheirtermstoparticipateinanyothershareissueoftheCompanyoranyotherentity.

SHAreS iSSueD on tHe eXerCiSe oF optionS193,798ordinarysharesoftheformerSimsGroupLimitedwereissuedduringJuly2005atanissuepriceof$6.75eachasaresultoftheexerciseof193,798optionsissuedtotheGroupChiefExecutiveMrSutcliffeon28February2002pursuanttohisincentiveplanwiththeformerSimsGroupLimited.43,799ordinarysharesoftheCompanywereissuedon30June2006atnilconsiderationasaresultofthevestingofperformancerightsissuedtocertainemployeesoftheCompanyoritsrelatedbodiescorporateon1November2005pursuanttotheircontractswiththeCompanyoritsrelatedbodiescorporate.Nofurthershareshavebeenissuedsince30June2006.Noamountsareunpaidonanyoftheseshares.

non-AuDit SerViCeSTheCompanymaydecidetoemploytheauditor(PricewaterhouseCoopers)onassignmentsadditionaltotheirstatutoryaudit duties where the auditor’s expertise and experience with the Company and/or the consolidated entity areimportant.

Detailsoftheamountspaidorpayabletotheauditorforauditandnon-auditservicesprovidedduringtheyeararesetoutinnote6tothefinancialstatements.

TheBoardofdirectorshasconsideredthispositionand, inaccordancewithadvicereceivedfromtheBoardRisk&AuditCommittee, issatisfiedthattheprovisionofthenon-auditservicesiscompatiblewiththegeneralstandardofindependence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision ofnon-audit servicesby theauditor, assetout innote6 to the financial statements,didnotcompromise theauditorindependencerequirementsoftheCorporations Act 2001forthefollowingreasons:

› all non-audit services have been reviewed by the Risk & Audit Committee to ensure they do not impact theimpartialityandobjectivityoftheauditor

› noneoftheservicesunderminethegeneralprinciplesrelatingtoauditorindependenceassetoutinProfessionalStatementF1,includingreviewingorauditingtheauditor’sownwork,actinginamanagementoradecision-makingcapacityfortheCompany,actingasadvocatefortheCompanyorjointlysharingeconomicriskandrewards.

Acopyoftheauditor’sindependencedeclarationasrequiredundersection307CoftheCorporations Act 2001issetoutonpage101ofthisannualreport.


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rounDinG oF AMountS to neAreSt tHouSAnD DollArSTheamountsinthefinancialstatements,whereappropriateandunlessotherwisestated,havebeenroundedofftothenearestthousanddollarsinaccordancewithASICClassOrder98/100.

reMunerAtion reportScope of remuneration reportThisRemunerationReportoutlinestheremunerationarrangementsforSimsGroup’sdirectorsandseniorexecutivesinaccordancewiththerequirementsoftheCorporations Act 2001anditsRegulations.ItalsoprovidestheremunerationdisclosuresrequiredbyparagraphsAus25.4toAus25.7.2ofAccountingStandardAASB124Related Party DisclosureswhichhavebeenincludedintheRemunerationReportaspermittedbyRegulation2M.6.04.TheAASB124disclosuresinthisreporthavebeenaudited.

This reportoutlinesSimsGroup’sdirectors’andseniorexecutives’ remunerationarrangements,andcovers theKeyManagementPersonnel(“KMP”)includingthefivehighestpaidexecutivesoftheCompanyandGroup.Forthepurposesofthisreport,theterm“executives”encompassestheexecutivedirectorsandtheseniorexecutives.

Name Position Employer

non-executive directorsPKMazoudier Chairman SimsGroupLimited

JMFeeney Non-executivedirector SimsGroupLimited

GNBrunsdon Non-executivedirector SimsGroupLimited

CCopeman Non-executivedirector SimsGroupLimited

REvery Non-executivedirector SimsGroupLimited

PVarello Non-executivedirector SimsGroupLimited

executive directorsJLSutcliffe GroupChiefExecutive SimsGroupLimited

JNeu ExecutiveDirector&ViceChairman SimsHugoNeuCorporation

RBCunningham ExecutiveDirectorGroupFinance&Strategy SimsmetalServicesPtyLimited

other Key Management personnelCRJansen ChiefExecutiveSimsHugoNeu SimsHugoNeuCorporation

DRMcGree ManagingDirectorAustralia&NewZealand SimsmetalServicesPtyLimited

WTBird ManagingDirector–MetalsRecycling–UK SimsGroupUKHoldingsLimited

GDavy ManagingDirector–SimsRecyclingSolutions–Europe&NorthAmerica

SimsGroupUKHoldingsLimited

RRBrown GeneralManager–NZ SimsmetalIndustriesLimited

Theremunerationreportissetoutunderthefollowingmainheadings:A RemunerationCommitteeB ExecutiveremunerationC ServiceAgreementsD Non-executivedirectors’remunerationE Detailsofremunerationforfinancialyearending30June2006(andprioryear)F Additionalinformation

A. remuneration Committee (audited)role of the remuneration CommitteeThe roleof theRemunerationCommittee (“Committee”) is tosupportandadvise theBoardon the implementationandmaintenanceofremunerationpoliciesandframeworks.Thesepoliciesandframeworksaredesignedtomeetthecommercialneedsofthebusiness,whilstbeingtransparentandalignedwithshareholders’interests.TheCommittee’sactivitiesaregovernedbytermsofreference,availableontheSimsGroupwebsiteat:www.sims-group.com/global/governance/remuneration_committee.asp

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TheCommitteereviewsandmakesrecommendationstotheBoardfocusingon:› executiveremunerationpolicies› remunerationandincentiveperformancepackagesofexecutives› introductionandapplicationofequity-basedschemes› overseeingtheannualperformanceappraisalsoftheexecutivedirectors› executivesuccessionplanning› executiverecruitment,retentionandterminationpolicies› remunerationframeworkfornon-executivedirectors

Membership and meetingsIndependentnon-executivedirectorsMrMazoudier(Chairman),MrFeeneyandMrVarello(whojoinedtheBoardandCommitteeon31October2005)andexecutivedirectorJeremySutcliffe(whosteppeddownfromtheCommitteeon31October2005)weremembersoftheCommitteeduringtheyear.

TheCommitteemeteight timesduring theyear.Attendanceat thosemeetings is setoutonpage21of thisannualreport.

TheGroupChiefExecutive,theGroupGeneralManagerHumanResourcesandtheExecutiveDirectorGroupFinance&StrategyattendedCommitteemeetingsbyinvitationandassistedtheCommitteeinitsdeliberationsduringtheyear,exceptwheremattersassociatedwiththeirownremunerationwereconsidered.

Advisors The Committee draws on advice and data concerning remuneration matters from selected external sourceswhenappropriate.

B. executive remuneration (audited)proposed review of remunerationInF06theCompanywasfocusedonintegratingtheacquiredHugoNeuCorporationrecyclingentitiesandSimsGroupbusinessesfromanoperationalandstrategicperspective.InF07theCompanywillreviewitsexecutiveremunerationapproach to ensure it supports the operational, strategic and structural changes made in the organisation duringF06. The revisedexecutive remuneration approach – for implementation in F08 –will bedesigned to support thebusinessdirection,becognisantofcorporategovernanceconsiderationsand,ultimately,beinthebestinterestsoftheCompany’sshareholders.Consequently,theGroupwillcontinuewiththeF06remunerationapproachthroughF07duringthisreviewperiod.

executive directors and other Key Management personnelTheKMP(asdefinedinAASB124Related Party Disclosures)ofSimsGroupLimitedincludestheexecutivedirectorsandtheotherKeyManagementPersonnel(“KMP”),eachnamedonpage23ofthisannualreport,whichincludesthe5highest-paidexecutivesoftheentity.Thesepersonnelhadtheauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroup,directlyorindirectly,duringthefinancialyear.AlloftheexecutivedirectorsandOtherKeyManagementPersonnelwereemployedforthedurationofF06withtheexceptionofMrJohnNeu,whojoinedtheCompanyon1November2005asaresultoftheMerger.

Current remuneration policyTheCommitteerecognisesthatSimsGroupoperatesinaglobalenvironmentandthattheCompany’sperformancedependsonthequalityofitspeople.TheCommitteeensuresthattheCompany’sexecutiverewardapproachsatisfiesthefollowingkeycriteriaforgoodrewardgovernancepractices:

› market-competitiverewardopportunitiesaredeliveredcommensuratewithemployeeduties,responsibilitiesandaccountabilities

› appropriatelystructuredtoattract,motivateandretainhighlyskilledpeople› rewardbasedondemandingfinancialandnon-financialperformancecriteriawithafocusondeliveringlong-term

valuecreationtoshareholders› simplicityandtransparency› alignmentwithshareholders’interests


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link between performance and rewardThe main business drivers that are within executives’ control and provide the inputs for managing and rewardingperformanceare:

› businessandmarketdevelopment› financialandriskmanagement› operationalexcellenceincludingsafety› peoplemanagement

To ensure focus on shareholdervalue,eachyeartheBoardreviewsand endorses the Sims Groupstrategicobjectives.

The alignment of executiveremuneration outcomes withthe performance of Sims Groupandtheindividual isakeypartofGroup business plans. Relevantperformance hurdles, agreedin advance of the allocation ofincentives, are a key elementin an appropriately structuredperformanceandincentiveplan.

From the Company’s strategicobjectives, priorities areestablished at a regional anddivisional level.Specificpersonalpriorities are then developedfor individual employees andincorporated into the annualperformance appraisal process,thusensuringalignmentbetweengoals at all Company levels andultimately with the objective ofenhancingshareholdervalue.

remuneration structureThe executive reward framework has three components. These remuneration components, and the factors thatdeterminethem,aresummarisedinthetablebelow:

Component Delivery mechanism

Variables determining reward

FixedRemuneration Annualsalary&benefits

Setwithreferencetomarketdataforrole,experienceandperformance

Short-termincentives Cash Businessandmarketdevelopmentobjectives

Financialtargets

PeopleandSafetytargets

Operationaltargets

Long-termincentives Equityorcash EarningsPerSharetargets

Thecombinationofthesecomponentscomprisesanexecutive’stotalreward.

Aligning individual performance to total shareholder value

SHAREHOLDER VALUE

CORPORATE GOAL & VALUES

BOARD EXPECTATIONS

SIMS GROUP STRATEGIC OBJECTIVES

REGIONAL & DIVISIONAL BUSINESS PLAN

INDIVIDUAL PERFORMANCE PRIORITIES

ALIG

NM

ENT

Figure1

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Mix of fixed and variable rewardTheframeworksetoutaboveprovidesamixoffixedandvariablerewardsandablendofshortandlong-termincentives.Theremunerationmixforexecutivesduringthefinancialyearisassetoutinthetablebelow:

Executive Fixed remuneration Short-term incentive Long-term incentive

JLSutcliffe 45% 32% 23%

JNeu* 100% - -

RBCunningham 48% 29% 23%

CRJansen 49% 37% 14%

DRMcGree 56% 28% 16%

WTBird 59% 29% 12%

GDavy 59% 29% 12%

RRBrown 69% 21% 10%

*ThetermsofMrNeu’sserviceagreementincludeabasesalaryandparticipationintheCompany’semployeepensionplans,welfarebenefitplansandtax-deferredsavingsplans.MrNeuwillbeaffordedtheopportunitytoearnacashbonusinrespectofeachcalendaryear,theamountofwhich,ifany,shallbedeterminedbytheBoardinitssolediscretionintheeventofexceptionalperformance.

Total Fixed Remuneration PackageFixedremunerationisstructuredasatotalemploymentcostpackage,andanexecutive’spackageisreviewedannually.Asalaryincreasebudget,guidedbyforecastsavailablefrompublicsalarysurveys,isapprovedbytheCommitteeeachyear.Anexecutive’spayisalsoreviewedonpromotion.Eachreviewtakesintoaccounttheexecutive’sexperienceandtenureandtheexecutive’sperformanceduringtheyear.

Therearenoguaranteedpackageincreasesincludedinexecutives’serviceagreements(setoutinSectionC)withtheexceptionofMrSutcliffe,whowill receive, inyears2006and2007, theGroupbasepercentagesalary increase forAustralianemployees.

BenefitsExecutivesreceivebenefitsconsistentwithmarketpracticeintheircountryaspartoftheirindividualfixedremunerationpackage. These benefits may include superannuation, car allowances, expatriate allowances or maintained motorvehicleandmedicalbenefits.

Variable rewardTheCompanybelievesthat itsvariable rewardapproachshouldbemanagedasawhole,notasdiscreteelements.Consequently,theCompanyhasdesignedits incentiveplanstofocusexecutivesonbothsingleyearandmulti-yearperformanceacrossperformancemetricswhich,together,supportshareholdervalueenhancement.

Short-term incentivesFollowingtheMerger,nochangesweremadetotheshort-termincentive(“STI”)programsalreadyinplaceforbothSimsGroupandHugoNeuCorporationforthedurationofthefinancialyearended30June2006.

Sims Group STIAllexecutives,withtheexceptionofMrNeu,participatedintheSimsGroupSTI.

UndertheSimsGroup’sSTI,participatingexecutives(“STIParticipants”)mayreceiveacashbonuspaymentannually(“STIBonus”),baseduponperformancerelativetocertainperformancehurdles.

Ascorecardapproachisutilised.STIParticipantsneedtomeetminimumperformancehurdletargetswhicharerelatedtobusinessandmarketdevelopment,growth,financial,peopleandsafety,andoperationaltargets.

ThemainperformancemeasurerelatestofinancialtargetsbasedonProfitBeforeIncomeandTax(“PBIT”)returnonmonthlyaveragecontrolledcapitalemployed(“ROCCE”).TheROCCEtargetsarebasedontheSTIParticipant’sbusinessunitorinthecaseofaParticipantwithgroupresponsibilities,targetsarebasedontheconsolidatedentity.SimsGroupbelievethatROCCEisanappropriatemetricfortheSTIduetothefactthatthemetalandrecyclingsolutionsbusinessisavolatileandcyclicalindustrywhosemarginsaresignificantlyinfluencedbyglobalandregionalsupplyanddemandbalances.Itisacapital-intensiveindustrywhoseassetbaseisconstantlyinastateofrenewalandreinvestment.By


27

rewardingexecutivesforROCCEperformance,theSTIreinforcessoundcapitalinvestmentstrategies,conservationofworkingcapitalandexcellenceinoperationalexecutiontomaximiseearnings.TheCommitteedeterminesannuallytheminimumpercentageROCCEwhichtheSTIParticipants’businessunitortheconsolidatedentitymustachieveinthefollowingyearbeforeanSTIParticipantiseligibletoreceiveanSTIBonusbasedonthiscriterion.TheCompanyhasnotdisclosedactualROCCEtargetsgivencommercialsensitivities.

Other performance hurdles relate to the STI Participant achieving certain specified personal objectives which arerelevant tomeeting theCompany’sbusinessobjectives.Personalobjectivesmaybe related tometricssuchas theachievementofsafetytargets,marketgrowth,improvedproductionrates,costcontainmentandcompletionoffocusedtraininganddevelopmentplans.TheCompanybelievesthattheseperformancemeasures,giventhecascadingeffectofshareholdervalueandthecorporategoalstodetermineindividualgoalsillustratedinFigure1,areconsistentwithachievingtheCompany’sannualtargets.AnSTIParticipantwillonlybeeligibletoreceivethatportionofhisorherSTIBonuslinkedtomeetinghisorherpersonalobjectivesiftheconsolidatedentityachievesaminimumlevelofROCCEinaparticularfinancialyear.AnSTIParticipantwillnotbeeligibletoreceiveanyformofSTIBonusifheorshedoesnotobtainatleastan“achieve”ratingonhisorherpersonalprioritiesforthatparticularfinancialyear.

In accordance with the Committee’s terms of reference, at the end of the financial year the Committee will beprovidedwithallappropriateperformanceinformationrelatingtoeachexecutive,Companyandbusinessunitfinancialstatements,andwillmakeadeterminationastotheextentthattheperformancecriteriaapplicabletoeachexecutivehavebeenmet.

IfanSTIParticipantterminatesemploymentwithSimsGrouppriortotheendofthefinancialyearaproratabonuspaymentmaybeconsidered,atthediscretionoftheGroupChiefExecutive.AnypaymentwillonlybemadeaftertheCommitteehasapprovedbonuspaymentsforthatfinancialyear.

Hugo Neu Corporation STINoneoftheidentifiedKMPexecutivesparticipatedinthelegacyHugoNeuCorporationSTIbonusprogram,applicabletoformeremployeesofHugoNeuCorporation.

long-term and retention incentive plansIntheinterestsoftheCompany,shareholders,andcontinuityofbusiness,theCompanyoperateslong-termandretentionincentiveplansdesignedtoencourageperformanceandretentionofkeyexecutives.TheLTIPlan, thePerformanceRightsandRestrictedStockUnitPlanshaveacontinuousservicecriteriaandtheCompanyhasselectedEPSastheappropriatemetricdueto the importanceofstableunderlyingearningsgrowthtogeneratevaluefor investors.ThedilutedmeasurementofEPSwasselectedastheCompanybelievesthisprovidesthemostappropriatereflectionofthevalueofearningstoshareholders.

long-term incentive plan

Purpose of planTheCompanyoperatesalong-termincentiveplan(“LTIPlan”)forexecutiveswithmorethan12monthsservice(includingtheexecutivedirectorswiththeexceptionofMrNeu)(“LTIParticipants”).TheLTIPlanisintendedtolinktherewardsofexecutivestothelong-termperformanceofSimsGroupandthereturnsgeneratedforshareholders.Additionally,theLTIPlanisdesignedtoencourageexecutiveretention.

AllexecutivesotherthanMrNeucurrentlyparticipateintheLTIPlan.

Structure of planForparticipantswhojoinedtheLTIPlaninF03:

› TheLTIPlan,introducedinF03,wastheCompany’sfirststructuredapproachtolong-termincentives.Forthoseparticipants who have been in the LTI Plan since its inception in F03, the Company believed that, given theindustry’scyclicalnature,thoseindividuals’effortsshouldberecognisedoveranincreasingtimeframe.Asaresultthegrantstothoseindividualshavehada3year(initialgrant),4year(F06grant)anda5year(mostrecentgrantinF07)performanceperiod.

› Awardsweregrantedon22July2005andvestedoneyearlater.Performancewasmeasuredoverthefour-yearperiodfromF02(baseyear)toF06.Australianparticipantscouldelecttoreceiveawardsascashorequity.Equitywasstructuredasanon-recourseloanprovidedtotheparticipanttopurchasesharesinSimsGroup.Theloanisrequiredtoberepaidwithin5yearsofgrant.Overseasparticipantsreceivedtheirawardsascash.

› Afurtherannualaward(structuredinasimilarmannertothe22July2005award)wasgrantedon28July2006andwillvestoneyearlater.Performancewillbemeasuredoverthefive-yearperiodfromF02(baseyear)toF07.

› FuturegrantstotheseindividualswillbedeterminedaspartoftheCompany’sreviewofexecutiveremuneration(discussedearlier).

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ForparticipantswhojoinedtheLTIPlaninF06:› Awardsweregrantedon22July2005andvestafterthreeyears.Performanceismeasuredoverthethree-year

periodfromF05(baseyear)toF08.› Additionalawardsweregrantedon28July2006andvestafterthreeyears.Performanceismeasuredoverthe

three-yearperiodfromF06(baseyear)toF09.› Australian participants’ awards are structured as a non-recourse loan provided to the participant to purchase

sharesinSimsGroup.› Overseasparticipantsawardsarestructuredascash.However,itisintendedthat,fromF07alloverseasparticipants’

whojoinedtheLTIPlaninF06(orsubsequentyears)willhave100%equity-basedlong-termincentiveawards.InthecaseofUKparticipants,theawardswillbeintheformofPerformanceRights.InthecaseofUSparticipantstheawardswillbeintheformofRestrictedStockUnits.

Itisintended,subjecttotheoutcomeoftheprogramreview,thattheLTIPlanwillbecome100%equity-basedforallparticipantsfromnolaterthanF09.

TheAustralianequityawardsarecurrentlystructuredasanon-recourseloantoallowtheparticipantstopurchaseSimsGroupshares.TheCompanybelievesthatsharesareanappropriateincentivetofocustheperformanceoftheexecutiveonthelong-termviabilityoftheCompany.Further,theloanshareplanstructureisatax-effectiveapproachforachievingthisaim.

Potential rewardThepotential rewardunder theLTIPlan iscalculatedbasedonapre-determinedpercentageof fixedremuneration,dependingontheseniorityoftheLTIParticipant.InrespectoftheF06grants,MrSutcliffeandMrCunninghameachreceivedagrantwithanequivalentvalueof50%oftheirfixedremuneration.Theotherexecutiveseachreceivedagrantwithanequivalentvaluerangingfrom15%–30%oftheirfixedremuneration.

Forthegrantsdisclosedabove,wheretheparticipantcouldelectwhethertoreceivecashorequity,iftherewardasapercentageoffixedremunerationwasincreasedfromtheprioryear,anyincreasewasrequiredtobetakenasequity.

Performance measureTheperformancemeasurefortheplanisdilutedEarningsPerShare(“EPS”).DilutedEPSisdefinedasnetprofitaftertaxdividedbytheweightedaveragenumberofordinarysharesandoptionsonissue.Vestingisdeterminedasfollows:

EPS Growth (compound p.a. growth) Percent of award vesting<5% Nil

5% 50%

5%–10% Straight-linevestingbetween50%and100%

10% 100%

Attheendoftherespectiveperformanceperiod,inlinewiththeCommittee’stermsofreference,theCommitteewillreviewtheCompany’sfinancialperformanceandmakeanassessmentastowhatextenttheperformanceconditionhasbeenmet.Iftheperformanceconditionisnotmetattheendoftherespectiveperformanceperiodthentheawardwilllapse.

TheCompanyselectedEPSastheappropriatemetricfortheLTIPlanduetotheimportanceofstableunderlyingearningsgrowthtogeneratevalueforinvestors.The diluted measurement of EPS was selected as the Company believes thisprovidesthemostappropriatereflectionofthevalueofearningstoshareholders.Additionally, the combination of the STI’s focus on operational excellence andrigorouscapitalmanagementwiththeLTI’smulti-yearfocusonearningsgrowthprovidesasoundbasisforshareholdervalueenhancement.

In addition to the EPS performance condition, a participant must also remainin theGroup’semployat the timeof vesting (other than in thecaseof specialcircumstancesdefinedintheLTIPlanrules).


02 03 04 05 06

54

82

123

216

174

Earnings per shareCents

EPSgrowth2002to2006Years2002,2003,2004aspresentedatrightarecalculatedonanAGAAPbasis.

Years2005and2006arecalculatedonanAIFRSbasis.

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option planA ‘CEOPlan’ existed for thegrantingofoptionsoverunissuedordinary shares in theparent entity toMrSutcliffe.OptionsundertheCEOPlanweregrantedfornoconsideration.Thisplanwassuspendedduringthefinancialyear2003andreplacedbytheLTIPlan.

Underthefore-mentionedCEOPlan,MrSutcliffewas issued193,798optionstoacquireshares intheformerSimsGroupLimitedon28February2002whichwereexercisablefrom28February2005andexpiredon28March2007.Thefairvalueoftheseoptionsatthedateofthegrantwas$1.30asderivedbyapplyingtheBlack-Scholesoptionspricingmodel.Duringthefinancialyear,alloftheseoptionsheldbyMrSutcliffewereexercisedatapriceof$6.75.Theweightedaveragesharepriceatthedateofexercise,being8July2005,was$14.35.

performance rights planAttheExtraordinaryGeneralMeetingoftheformerSimsGroupLimitedheldon8September2005,shareholdersvotedinfavourofagrantofPerformanceRights (effectivelyshareoptionswithazeroexerciseprice) toMrSutcliffe.Thedetailsofthegrantareasfollows:

› Awardwasgrantedon6October2005;› Astheplanhasbeendesignedtoencourageretentionandperformanceitisstructuredinfivetranches:20%vestson

eachof31October2006(Tranche1),2007(Tranche2),2008(Tranche3),2009(Tranche4)and2010(Tranche5);› Tranche1issatisfiedifMrSutcliffeisintheemployoftheCompanyatthevestingdate.TheCommitteeconcluded

thataserviceconditionwasappropriateforTranche1toencouragehimtostaywith,andassistintheintegrationofthemergedentity.Theremainingfourtrancheshavecontinuousserviceandperformancemeasuredovertheperiodfrom6October2006totherespectivevestingdate;

› TheCommitteereviewedandconsideredtheperformanceconditionsatthetimeofgrantandsubsequentlysetacompoundEPSgrowthtargetofequallingorexceeding8%perannumandbyusingtheannualisedEPSonafullydilutedbasisfortheperiod6October2005to31October2006asthebaseline;

› Due to the cyclical nature of the metal recycling industry, the Committeedeemed it appropriate to allow theinterimtranchesoftheawardtoberetested.Fortranches2,3and4,iftheperformancehurdleisnotsatisfied,thetranchewillberetestedattheendofthesubsequentperiod;and

› IfcompoundEPSgrowthasat31October2009equalsorexceeds12%perannum,allTranche5shareswillvestatthattime.

AttheAnnualGeneralMeetingoftheCompanyheldon18November2005,shareholdersvotedinfavourofagrantofPerformanceRightstoMrCunningham.Thedetailsofthegrantareasfollows:

› Awardwasgrantedon18November2005;› TheplanforMrCunninghamwasalsodesignedtoencourageretentionandperformanceandisalsostructuredin

tranches:50%vestson30June2007(Tranche1)and50%vestson30June2008(Tranche2);› Foreachtrancheperformanceismeasuredovertheperiodfrom1July2006totherespectivevestingdate;› TheCommitteereviewedthebusinessplanandperformanceconditionsatthetimeofgrantandsetacompound

EPSgrowthtargetofequallingorexceeding8%perannumandbyusingtheannualisedEPSonafullydilutedbasisfortheperiod1July2005to30June2006asthebaseline;

› Asmentionedabove,duetothecyclicalnatureofthemetalrecyclingindustrytheCommitteedeemeditappropriatetoallowthefirsttranchesoftheawardtoberetested.ForTranche1,iftheperformancehurdleisnotsatisfied,thetranchewillberetestedattheendofthesubsequentperiod;and

› ToreceivethevestedawardsMrCunninghammustbeintheGroup’semployattheapplicablevestingdate.

Performance measureTheperformancemeasurefortherightsplanisdilutedEPS.Vestingisdeterminedasfollows:


=or>8% 100%

Attheendoftherespectiveperformanceperiod,inlinewiththeCommittee’stermsofreference,theCommitteewillreviewtheCompany’sfinancialperformanceandmakeanassessmentastowhatextenttheperformanceconditionhasbeenmet.Iftheperformanceconditionisnotmetattheendoftherespectiveperformanceperiodtheawardwill,subjecttoitsabilitytoberetested,lapse.

30

restricted stock units planIntheinterestsoftheCompany,shareholders,andcontinuityofbusiness,MrJansenwasawardedagrantofRestrictedStockUnits(effectivelyshareoptionswithazeroexerciseprice)asaresultoftheMerger.Thedetailsofthegrantareasfollows:

› Awardwasgrantedon1November2005;and› TheplanforMrJansenwasdesignedtoencourageretentionandperformanceandisalsostructuredintranches:

25%vestedon30June2006(Tranche1)and25%veston30June2007(Tranche2)withbothtranchessubjecttoContinuousService throughsuchdate.TheCommitteeconcluded that in the interestsofcontinuityand toencourageMrJansentostaywith,andassistintheintegrationof,themergedbusiness,thataserviceconditionwasappropriateforTranches1and2;25%veston30June2008(Tranche3),andtheremaining25%veston30June2009(Tranche4),if,oneachvestingdates,MrJansenhasbeeninContinuousServicethroughsuchdateandperformanceconditionsofacompoundEPSgrowthtargetofequallingorexceeding8%perannumhasbeenachievedandbyusingtheannualisedEPSonafullydilutedbasisfortheperiod1November2005to30June2006asthebaseline.

Performance measureTheperformancemeasurefortheplanisdilutedEPS.Vestingisdeterminedasfollows:


=or>8% 100%

Attheendoftherespectiveperformanceperiod,inlinewiththeCommittee’stermsofreference,theCommitteewillreviewtheCompany’sfinancialperformanceandmakeanassessmentastowhatextenttheperformanceconditionhasbeenmet.Iftheperformanceconditionisnotmetattheendoftherespectiveperformanceperiodtheawardwilllapse.

Detailsofperformance rights, restrictedstockunits andshares in theCompanyprovidedas remuneration toeachdirectorandtheKeyManagementPersonneloftheGrouparesetoutinnotes27and28tothefinancialstatements.

Share trading philosophySims Group does not permit executives to purchase financial instruments to protect the value of any unvestedincentiveawards.

C Service Agreements (audited) Remuneration and other terms of employment for the Group Chief Executive, the Vice Chairman, the ManagingDirector–Metals Recycling–UK and the Managing Director–Sims Recycling Solutions-Europe & North America areformalisedinemploymentagreements.

J l Sutcliffe, Group Chief executiveTermsofemploymentagreement–agreementdated5September2005fora5yeartermcommencingontheeffectivedateoftheMerger(31October2005).Inyears2006and2007remunerationwillbesubjecttoreviewwithanyincreasesconsistentwiththeGroup’sapprovedaveragesalaryincreasebudgetforAustralianemployees.NeithertheCompanynorMrSutcliffemayterminatetheemploymentagreementduringthefirst2yearsfrom31October2005.Thereafter,employment may be terminated by either party by providing 12 months’ notice, provided that the Company mayterminateMrSutcliffe’semploymentatanytimeforCause.IfemploymentisterminatedbytheCompanyafterthefirst2yearsfollowingtheStartDateoftheMergerforanyreasonotherthanCause,theCompanymayprovide,inlieuofnotice,apaymentequaltothecurrentPackage,plusanyadditionalsuperannuationcontributionrequiredtomakeMrSutcliffe’ssuperannuationbenefitequivalenttothebenefithewouldhavereceivedhadMrSutclifferemainedintheemploymentwiththeCompanyforthewholeofthenoticeperiod.

J neu, executive Director & Vice ChairmanTermofagreement–agreementdated24June2005foraninitialtermof3yearsfrom1November2005.RemunerationreviewedbytheboardofdirectorsofSimsHugoNeuCorporationfromtimetotime.MrNeuisentitledtothepaymentofa terminationbenefiton terminationby theemployerwithoutCause,orMrNeu’s termination forGoodReason,equaltotheBaseSalaryfortheunexpiredportionofthetermoftheAgreementor12monthsBaseSalary,whicheveristhegreater.

r B Cunningham, executive Director, Group Finance & StrategyTerm of agreement – no term specified. Remuneration is reviewed annually by the Committee. Mr Cunningham isentitledtothepaymentofaterminationbenefitonterminationbytheemployer,otherthanforgrossmisconduct,equalto12monthstotalremuneration.MrCunninghamisalsoentitledtoaretentionpaymentequivalentto6monthstotal


31

annualremunerationifheremainsintheemployoftheemployer6monthsafteratakeoveroftheCompany(orifheisterminatedwithin6monthsofsuchatakeover).Intheeventofredundancy,heisentitledtothepaymentofabenefitequaltoaminimumof6monthsandamaximumof18monthsremunerationdependinguponyearsofservice.InthecaseofMrCunningham’sresignationfromtheemployoftheemployer,3monthspriornoticethereofmustbeprovidedtotheemployercompany.

C r Jansen, Chief executive, Sims Hugo neuTermofagreementdated10June2005foraninitial3yearsecondmentperiodtotheUS.RemunerationisreviewedannuallybytheCommittee.MrJansenisentitledtothepaymentofaterminationbenefitonterminationbytheemployer,other than for gross misconduct, equal to 12 months total remuneration. Mr Jansen is also entitled to a retentionpaymentequivalentto6monthstotalannualremunerationifheremainsintheemployoftheemployer6monthsafteratakeoveroftheCompany(orifheisterminatedwithin6monthsofsuchatakeover).Intheeventofredundancy,heisentitledtothepaymentofabenefitequaltoaminimumof6monthsandamaximumof18monthsremunerationdependinguponyearsofservice.InthecaseofMrJansen’sresignationfromtheemployoftheemployer,3monthspriornoticethereofmustbeprovidedtotheemployercompany.

D r McGree, Managing Director – Australia & new Zealand Termofagreement–notermspecified.RemunerationisreviewedannuallybytheRemunerationCommittee.MrMcGreeisentitledtothepaymentofaterminationbenefitonterminationbytheemployer,otherthanforgrossmisconduct,equalto12monthstotalremuneration.MrMcGreeisalsoentitledtoaretentionpaymentequivalentto6monthstotalannualremunerationifheremainsintheemployoftheemployer6monthsafteratakeoveroftheCompany(orifheisterminatedwithin6monthsofsuchatakeover).Intheeventofredundancy,heisentitledtothepaymentofabenefitequaltoaminimumof6monthsandamaximumof18monthsremunerationdependinguponyearsofservice.InthecaseofMrMcGree’sresignationfromtheemployoftheemployer,3monthspriornoticethereofmustbeprovidedtotheemployercompany.

W t Bird, Managing Director – Metals recycling – uKTerm of agreement – agreement dated 4 July 2003. No term specified. Remuneration is reviewed annually by theRemunerationCommittee.MrBirdisentitledtothepaymentofaterminationbenefitonterminationbytheemployer,otherthanforgrossmisconduct,equalto12monthstotalremuneration.Intheeventofredundancy,heisentitledtothepaymentofabenefitequaltoaminimumof6monthsandamaximumof18monthsremunerationdependinguponyearsofservice.InthecaseofMrBird’sresignationfromtheemployoftheemployer,3monthspriornoticethereofmustbeprovidedtotheemployercompany.

G Davy, Managing Director – Sims recycling Solutions – europe & north AmericaTermofagreement–notermspecified.RemunerationisreviewedannuallybytheRemunerationCommittee.MrDavyisentitledtothepaymentofaterminationbenefitonterminationbytheemployer,otherthanforgrossmisconduct,equalto6monthssalary.Intheeventofredundancy,heisentitledtothepaymentofabenefitaccordingtoyearsofserviceandageofemployeeatdateofredundancy(subjecttoamaximumpaymentequalto21.5monthssalary).InthecaseofMrDavy’sresignationfromtheemployoftheemployer,6monthspriornoticethereofmustbeprovidedtotheemployercompany.

r Brown, General Manager new ZealandTerminationagreementdated12December2005andterminatingon3July2006.MrBrownisentitledtoreceivearedundancypaymentequalto18monthstotalannualremuneration.

D non-executive directors’ (‘neDs’) remuneration (audited)NEDfeesreflectthedemandswhicharemadeon,andtheresponsibilitiesof,thenon-executivedirectors.

NEDsreceiveanannualfee,paidmonthly,fortheirservices.Non-executivedirectorsdonotreceiveadditionalfeesforservingonestablishedBoardcommittees.

Basefeesaresetwithinthemaximumamountapprovedbyshareholdersfromtimetotime.ThecurrentNEDfeepoolis$1millionandwasapprovedon8September2005attheExtraordinaryGeneralMeetingoftheformerSimsGroupLimited.

NEDs’feesarereviewedannually,consideringpubliclyavailableinformationinrespectoftheleveloffeesthatarepaidtodirectorsofotherpubliclylistedcompanieswithasimilarmarketcapitalisationandanychangestonon-executivedirectorrolesandresponsibilitiesovertheyear.

TheCompany’snon-executivedirectors’RetirementAllowanceSchemewasdiscontinuedeffective30June2006.Theaccrued amounts in respect of the three non-executive directors who still participated (Messrs Mazoudier, FeeneyandBrunsdon)werefrozenandwillbeindexedat5%perannumuntilpayment.ThefeespaidtoMessrsMazoudier,FeeneyandBrunsdonwereincreasedby33.3%,effective1July2006,tocompensatethemfortheirdiscontinuanceofparticipationintheRetirementAllowanceScheme.

32

e. Details of remuneration for financial year ending 30 June 2006 (and prior year) (audited)

DetailsoftheremunerationofthedirectorsandtheotherKeyManagementPersonneloftheCompanyissetoutinthefollowingtables.SiMS Group liMiteD - remuneration of directors and Key Management personnel - 30 June 2006

Short-term employee benefitsLong-term

benefitsPost employment

Share-based payments

Total

Cash Salary &

Fees

Non-monetary benefits

Other short-term

benefits

Accruals

Pension/Super-

annuation

Term-ination

Benefits

Retire- ment

BenefitsLTI

Shares

Options/Rights/


STI Bonus

Annual Leave

Long Service Leave

LTI Bonus

$ $ $ $ $ $ $ $ $ $ $ $ $

Directors Pk mazoudier Chairman(non-executive) 201,932 - - - - - - 18,174 - 62,898 - - 283,004

JNeu*ExecutiveDirector 446,768 11,403 - - - - - - - - - - 458,171

RLEvery**Director(non-executive) 82,471 - 20,617 - - - - 9,278 - - - - 112,366

PJVarello*Director(non-executive) 89,893 - 22,473 - - - - - - - - - 112,366

GNBrunsdonDirector(non-executive) 92,780 - - - - - - 8,350 - 33,203 - - 134,333

ACCopeman#Director(non-executive) 35,248 - - - - - - - - 9,718 - - 44,966

JMFeeneyDirector(non-executive) 92,780 - - - - - - 8,350 - 26,670 - - 127,800

JLSutcliffeDirector&GroupChiefExecutive 1,161,331 12,584 - 925,425 188,673 167,117 202,500 176,085 - - 503,275 300,451 3,637,441

RBCunninghamExecutiveDirectorGroupFinance&Strategy 496,716 31,029 - 372,060 (1,873) 7,887 248,040 92,355 - - 66,047 - 1,312,261

total remuneration - Directors 2,699,919 55,016 43,090 1,297,485 186,800 175,004 450,540 312,592 - 132,489 569,322 300,451 6,222,708

Key Management personnel CRJansen###ChiefExecutiveSimsHugoNeu 558,139 13,000 130,626 439,619 19,016 14,277 201,045 80,075 - - - 445,302 1,901,099

DRMcGreeManagingDirectorAustralia&NewZealand 417,390 1,000 - 242,728 378 8,329 98,420 73,291 - - 52,414 - 893,950

WTBirdManagingDirector-MetalsRecycling-UK 388,987 36,020 9,510 234,530 - - 97,164 68,070 - - - - 834,281

GDavyManagingDirector-SimsRecyclingSolutions-Europe&NorthAmerica 388,987 36,020 9,510 240,481 - - 97,164 68,070 - - - - 840,232

RRBrown##GeneralManager-NZ 273,573 - 10,000 96,434 (42,940) 8,800 48,217 47,875 591,125 - - - 1,033,084

total remuneration - Key Management personnel 2,027,076 86,040 159,646 1,253,792 (23,546) 31,406 542,010 337,381 591,125 - 52,414 445,302 5,502,646

* Appointed31/10/2005Amountin‘Othershort-termbenefits’representspaymentforservicesprovidedbeforeappointmentfinalised** Appointed24/10/2005Amountin‘Othershort-termbenefits’representspaymentforservicesprovidedbeforeappointmentfinalised# Retired18/11/2005## Retired03/07/06### MrJansenreceivesalivingawayfromhomeallowancewhilstonUSSecondmentincludedin‘Othershort-termbenefits’


33

SiMS Group liMiteD - remuneration of directors and Key Management personnel - 30 June 2005

Short-term employee benefits Long-term

benefits Post employment

Share-based

paymentsTotal

Cash Salary & Fees

Non-monetary benefits

Other short-term

benefitsSTI

BonusAnnual Leave

Long Service Leave

LTI Bonus

Pension/Super-

annuationRetirement

Benefits Options

$ $ $ $ $ $ $ $ $ $ $

Directors PKMazoudierChairman(non-executive) 183,573 - - - - - - 16,522 95,937 - 296,032

GNBrunsdonDirector(non-executive) 84,345 - - - - - - 7,591 35,347 - 127,283

ACCopemanDirector(non-executive) 84,345 - - - - - - - 42,818 - 127,163

JMFeeneyDirector(non-executive) 84,345 - - - - - - 7,591 42,818 - 134,754

JLSutcliffe*Director&GroupChiefExecutive 668,630 70,500 - 1,095,000 8,275 11,253 306,464 110,870 - 736,539 3,007,531

RBCunningham*ExecutiveDirectorGroupFinance&Strategy 466,483 36,116 - 454,332 31,571 27,287 190,056 87,955 - - 1,293,800

total remuneration - Directors 1,571,721 106,616 - 1,549,332 39,846 38,540 496,520 230,529 216,920 736,539 4,986,563

Key Management personnel CRJansen*PresidentUSA&AsiaPacific 418,054 35,751 - 494,388 12,494 22,229 109,217 75,495 - - 1,167,628

DRMcGreeGroupExecutiveGeneralManager-Australasia 372,375 28,394 - 230,274 40,692 23,958 90,604 70,135 - - 856,432

WTBirdManagingDirector-MetalsRecycling-UK 337,700 - - 189,998 - - 66,868 50,845 - - 645,411

GDavyManagingDirector-SimsRecyclingSolutions-Europe&NorthAmerica 337,700 - - 191,359 - - 66,868 50,845 - - 646,772

RRBrownGeneralManager-NZ 263,051 - - 72,635 1,811 3,755 37,303 46,034 - - 424,589

total remuneration - Key Management personnel 1,728,880 64,145 - 1,178,654 54,997 49,942 370,860 293,354 - - 3,740,832

* Following thesuccessfulmergerofSimsGroupandHugoNeuCorporation,specialbonusamountsof$500,000,$100,000and$250,000werepaid toMrSutcliffe,MrCunninghamandMrJansenrespectively.

34

Share-based compensationThetermsandconditionsofeachgrantofoptions,rights,orRSUsaffectingremunerationintheprevious,thisorfuturereportingperiodsareasfollows:Employee Share Plan

Grant date Expiry date Exercise price Value per share at grant date ($)

Date exercisable

1July2005 30June2010 Nil 5.56 30June2006

1July2005 30June2010 Nil 6.04 30June2008

Name Number of LTI shares granted during the year

Number of LTI shares vested during the year

2006 2005 2006 2005

DirectorsJSutcliffe 90,517 Nil Nil Nil

RCunningham 11,879 Nil Nil Nil

Other Key Management PersonnelDMcGree 9,427 Nil Nil Nil

Performance Rights

Grant date Expiry date Exercise price Value per right at grant date ($)

Date exercisable

6October2005

JSutcliffe

31October2010 Nil 14.18 20%after31October2006;20%after31October2007;20%after31October2008;20%after31October2009;20%after31October2010

18November2005

RCunningham

30June2008 Nil 14.81 50%after30June2007;

50%after30June2008

Name Number of Rights granted during the year

Number of Rights vested during the year

2006 2005 2006 2005

DirectorsJSutcliffe 119,913 Nil Nil Nil

RCunningham 29,978 Nil Nil Nil


Grant date Expiry date Exercise price Value per right at grant date ($) Date exercisable1November2005 30June2009 Nil 14.72 25%after30June2006;

25%after30June2007;25%after30June2008;25%after30June2009

Name Number of RSUs granted during the year

Number of RSUs vested during the year

2006 2005 2006 2005Key Management PersonnelCRJansen 79,634 Nil 19,909 Nil


35

F. Additional information (unaudited)Theaggregatelevelofexecutiverewardtakesintoaccounttheperformanceoftheconsolidatedentityoveranumberofyears,withgreateremphasisgiventothecurrentandprioryear.Overthepast5years,theconsolidatedentity’sprofitfromordinaryactivitiesafterincometaxhasgrownatapproximately39%perannumonaverage.Shareholderwealth(excludingtheeffect,whichwasnotconsideredmaterial,oftheCompany’sbuy-backofsharesinthefinancial2004year)hasgrownatapproximately36%perannumonaverageduringthepast5years.Theaggregatedaverageremuneration(excluding‘abnormal’payments)oftheGroupChiefExecutive,theExecutiveDirectorGroupFinance&Strategy,andthecountryheadsofAustralia,UnitedKingdom,andtheUnitedStates,hasgrownatapproximately17%perannumonaverageduringthepast5years.

Analysis of short-term incentive entitlements for the year

Short-term incentive entitlements 2006

Maximum that could be earned % of Total Fixed Remuneration

% Payable of maximum that could be earned

% Forfeited

DirectorsJSutcliffe 70.0 97.9 2.1

RCunningham 60.0 100.0 -

Other Key Management PersonnelCRJansen 75.0 87.5 12.5

DMcGree 50.0 98.7 1.3

WTBird 50.0 96.6 3.4

GDavy 50.0 99.0 1.0

RBrown 30.0 100.0 -

36

Analysis of long-term and retention incentive entitlements for the year

Name

Cash LTI Shares Financial year in which

LTI share grant vests

Value yet to vest Rights/RSUs Financial year in which rights/RSUs grant vests

Value yet to vest

% Payable

% Forfeited

% Vested

% Forfeited

Min (1) $

Max (2) $

% Vested

% Forfeited

Min (1) $

Max (3) $

DirectorsJ Sutcliffe 100.0 - nil - 2007 nil 503,275 - - 2007

2008200920102011

nilnilnilnilnil

340,079340,079340,079340,079340,051

R Cunningham 100.0 - nil - 2007 nil 66,047 - - 20072008

nilnil

221,987221,987

Other Key Management Personnel

C R Jansen 100.0 - - - - - - 25.0 - 200720082009

nilnilnil

293,060 293,060293,031

D McGree 100.0 - nil - 2007 nil 52,414 - - - - -

W T Bird 100.0 - - - - - - - - - - -

G Davy 100.0 - - - - - - - - - - -

R Brown 100.0 - - - - - - - - - - -

(1)TheminimumvalueofLTIShares,PerformanceRightsandRSUsyettovestis$nilastheperformancecriteriamaynotbemetandconsequentlytheShare,RightorRSUmaynotvest.

(2)ThemaximumvalueoftheLTISharesthatareyettovestisnotdeterminableasitdependsonthemarketpriceofsharesoftheCompanyontheAustralianStockExchangeatthedatetheshareisexercised.Themaximumvaluespresentedaboverepresenttheweightedfairvalueofsharesgrantedatgrantdate.Fairvaluehasbeendeterminedwithreferencetoadividendyieldof5.5%p.a.,expectedvestingdatesandanassessmentoftheprobabilityofachievementofcontinuousserviceandnon-marketperformancecriteria.ReferNote27,NotestoFinancialStatements.

(3)ThemaximumvalueofPerformanceRightsandRSUsyettovestisnotdeterminableasitdependsonthemarketpriceofsharesoftheCompanyontheAustralianStockExchangeatthedatetheRightorRSUisexercised.ThemaximumvaluespresentedaboverepresenttheweightedfairvalueofPerformanceRightsorRSUsgrantedatgrantdate.Fairvaluehasbeendeterminedwithreferencetoadividendyieldof5.5%p.a.,expectedvestingdatesandanassessmentoftheprobabilityofachievementofcontinuousserviceandnon-marketperformancecriteria.

For and on behalf of the board:


Sydney1September2006


37

Consolidated Parent entity2006 2005 2006

Notes $’000 $’000 $’000

Revenue from continuing operations 3 3,754,509 2,565,603 47,617

Otherincome 4 2,105 5,243 - Rawmaterialsandchangesininventoriesoffinishedgoods (2,471,870) (1,625,441) - Freightexpense (373,153) (249,701) - Employeebenefitsexpense (238,386) (191,606) (1,271)Depreciationandamortisationexpense 5 (41,505) (32,784) - Repairsandmaintenanceexpense (92,415) (64,862) - Otherexpensesfromordinaryactivities (238,200) (118,997) - Financecosts 5 (18,360) (5,834) - Shareofnetprofitofassociatesaccountedforusingtheequitymethod 30 2,874 2,626 -

Profit before income tax 285,599 284,247 46,346

Incometax(expense)/benefit 7 (88,953) (87,216) 76

Profit attributable to members of Sims Group Limited 196,646 197,031 46,422

Cents CentsBasicearningspershare 34 174.2 216.3Dilutedearningspershare 34 173.7 216.1

Refernote39(2)forreconciliationofthe2005incomestatementbetweenpreviousAGAAPandAIFRSincludingtheimpactonbasicanddilutedearningspersharefortheyearended30June2005.

The above income statements should be read in conjunction with the accompanying notes.

37iNCOmE STaTEmENTS for the year ended 30 june 2006

38


Notes $’000 $’000 $’000ASSETSCurrent assetsCashandcashequivalents 35 15,800 46,008 -Receivables 8 356,019 214,194 12,428 Inventories 9 333,187 150,956 -Derivativefinancialinstruments 37 903 - -

705,909 411,158 12,428 Non-currentassetsclassifiedasheldforsale–landandbuildings 12 5,733 - -Total current assets 711,642 411,158 12,428

Non-current assetsReceivables 8 - 5,794 -Investmentsaccountedforusingtheequitymethod 10 21,761 10,272 -Otherfinancialassets 11 - - 2,507,184 Property,plantandequipment 12 590,668 337,687 -Deferredtaxassets 13 34,693 23,416 -Intangibleassets 14 579,075 110,002 -Total non-current assets 1,226,197 487,171 2,507,184

Total assets 1,937,839 898,329 2,519,612

LIABILITIESCurrent liabilitiesPayables 15 341,752 182,469 12,568 Derivativefinancialinstruments 37 1,263 - -Currenttaxliabilities 17 22,343 31,627 12,352 Provisions 18 20,881 15,476 -Total current liabilities 386,239 229,572 24,920

Non-current liabilitiesPayables 15 - - 390,963 Borrowings 16 301,459 98,946 -Deferredtaxliabilities 17 28,744 20,534 -Provisions 18 19,782 9,628 -Retirementbenefitobligations 19 4,830 22,193 -

Total non-current liabilities 354,815 151,301 390,963

Total liabilities 741,654 380,873 415,883

Net assets 1,196,785 517,456 2,103,729

EQUITYContributedequity 20 780,108 220,665 2,100,764 Reserves 22 77,589 26,039 2,524 Retainedprofits 22 339,088 270,752 441

Total equity 21 1,196,785 517,456 2,103,729

Refernote39(1)(B)forreconciliationofthebalancesheetfortheyearended30June2005betweenpreviousAGAAPandAIFRS.

The above balance sheet should be read in conjunction with the accompanying notes.

balaNCE ShEETSas at 30 june 2006

39


Notes $’000 $’000 $’000

Definedbenefitplanactuarialgain/(loss)(netoftax) 22 3,869 (5,117) -

Gainonrevaluationoflandandbuildings(netoftax) 22 27,465 27,876 -

Changesinfairvalueofcashflowhedges(netoftax) 22 383 - -

Exchangedifferencesontranslationofforeignoperations 22 17,764 (24,699) -

Net income recognised directly in equity 49,481 (1,940) -

Profit for the year 196,646 197,031 46,422

Total recognised income and expense for the year 246,127 195,091 46,422

The above statements of recognised income and expense should be read in conjunction with the accompanying notes.

STaTEmENTS OF rECOgNiSEd iNCOmE aNd ExPENSEfor the year ended 30 june 2006

40


Notes $’000 $’000 $’000Cash flows from operating activitiesReceiptsfromcustomers(inclusiveofgoodsandservicestax) 3,732,075 2,682,485 -Paymentstosuppliersandemployees(inclusiveofgoodsandservicestax) (3,412,100) (2,400,591) -

319,975 281,894 -Interestreceived 2,047 468 -Interestpaid (18,360) (5,834) -Dividendsreceived - - 30,963 Incometaxespaid (95,091) (83,721) -

Net cash inflow from operating activities 35 208,571 192,807 30,963

Cash flows from investing activitiesPaymentsforproperty,plantandequipment (76,481) (62,502) -Loansadvancedtoassociates - (2,027) -Paymentsforsubsidiariesandbusinesses 29 (28,515) (54,694) -Proceedsfromsaleofproperty,plantandequipment 2,021 4,081 -

Net cash outflow from investing activities (102,975) (115,142) -

Cash flows from financing activitiesProceedsfromborrowings 337,801 178,705 -Repaymentofborrowings (363,988) (112,096) -Proceedsfromissueofshares 1,309 - -Dividendspaid (113,292) (118,412) (30,963)

Net cash outflow from financing activities (138,170) (51,803) (30,963)

Net (decrease)/increase in cash held (32,574) 25,862 -

Cash at the beginning of the financial year 46,008 20,107 -Effectsofexchangeratechangesoncashandcashequivalents 2,366 39 -

Cash at the end of the financial year 35 15,800 46,008 -

The above statements of cash flows should be read in read in conjunction with the accompanying notes.

STaTEmENTS OF CaSh FlOwSfor the year ended 30 june 2006

41

1 SuMMArY oF SiGniFiCAnt ACCountinG poliCieS

Theprincipalaccountingpoliciesadoptedinthepreparationofthefinancialreportaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.ThefinancialreportincludesseparatefinancialstatementsforSimsGroupLimitedasanindividualentityandtheconsolidatedentityconsistingofSimsGroupLimitedanditssubsidiaries.

(a) Basis of preparation ThisgeneralpurposefinancialreporthasbeenpreparedinaccordancewithAustralianequivalentstoInternationalFinancialReportingStandards(AIFRS),otherauthoritativepronouncementsoftheAustralianAccountingStandardsBoard,UrgentIssuesGroupInterpretationsandtheCorporationsAct2001.SimsGroupLimitedwasincorporatedon20June2005andistheparentcompany.Thefinancialyearoftheparentcompanyinthesefinancialstatementscoverstheperiodfrom20June2005to30June2006.Nocomparativefiguresexistfortheparentcompany.UnderthetermsofaschemeofarrangemententeredintobetweenSimsGroupLimitedandSimsGroupAustraliaHoldingsLimited(formerlyknownasSimsGroupLimited)on31October2005,theshareholdersinSimsGroupAustraliaHoldingsLimitedexchangedtheirsharesinthatentityforthesharesinSimsGroupLimited.UnderthetermsofAASB3Business Combinations,SimsGroupAustraliaHoldingsLimitedwasdeemedtobetheacquirerinthisbusinesscombination.ThistransactionhasthereforebeenaccountedforasareverseacquisitionunderAASB3.AccordinglytheconsolidatedfinancialstatementsofSimsGroupLimitedhavebeenpreparedasacontinuationoftheconsolidatedfinancialstatementsofSimsGroupAustraliaHoldingsLimited.SimsGroupAustraliaHoldingsLimited,asthedeemedacquirer,hasacquisitionaccountedforSimsGroupLimitedasat31October2005.ThecomparativeinformationpresentedintheconsolidatedfinancialstatementsisthatofSimsGroupAustraliaHoldingsLimited.

Compliance with IFRSsAustralianAccountingStandardsincludeAIFRSs.CompliancewithAIFRsensuresthattheconsolidatedfinancialstatementsandnotesofSimsGroupLimitedcomplywithInternationalFinancialReportingStandards(IFRSs).TheparententityfinancialstatementsandnotesalsocomplywithIFRSsexceptthatithaselectedtoapplythereliefprovidedtoparententitiesinrespectofcertaindisclosurerequirementscontainedinAASB132FinancialInstruments:PresentationandDisclosure.

Application of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards ThesefinancialstatementsarethefirstSimsGroupLimitedfinancialstatementstobepreparedinaccordancewithAIFRS.AASB1First-timeAdoptionofAustralianEquivalentstoInternationalFinancialReportingStandardshasbeenappliedinpreparingthesefinancialstatements.

Until30June2005thefinancialstatementshadbeenpreparedinaccordancewithpreviousAustralianGenerallyAcceptedAccountingPrinciples(AGAAP).AGAAPdifferincertainrespectsfromAIFRS.WhenpreparingSimsGroupLimited2006financialstatements,managementhasamendedcertainaccounting,valuationandconsolidationmethodsappliedinthepreviousAGAAPfinancialstatementstocomplywithAIFRS.Withtheexceptionoffinancialinstruments,thecomparativefigureswererestatedtoreflecttheseadjustments.TheexemptionavailableunderAASB1toonlyapplyAASB132FinancialInstruments:DisclosureandPresentationandAASB139FinancialInstruments:RecognitionandMeasurementfrom1July2005wastaken.ReconciliationsanddescriptionsoftheeffectoftransitionfrompreviousAGAAPtoAIFRSontheGroup’sequityanditsnetincomearegiveninnote39.

Historical cost convention Thesefinancialstatementshavebeenpreparedunderthehistoricalcostconvention,asmodifiedbytherevaluationofavailable-for-salefinancialassets,financialassetsandliabilities(includingderivativeinstruments)atfairvaluethroughprofitorlossandcertainclassesofproperty,plantandequipment.

(b) principles of consolidation

(i) Subsidiaries TheconsolidatedfinancialstatementsincorporatetheassetsandliabilitiesofallsubsidiariesofSimsGroupLimited(‘’company’’or‘’parententity’’)asat30June2006andtheresultsofallsubsidiariesfortheyearthenended.SimsGroupLimitedanditssubsidiariestogetherarereferredtointhisfinancialreportastheGrouportheconsolidatedentity.SubsidiariesareallthoseentitiesoverwhichtheGrouphasthepowertogovernthefinancialandoperatingpolicies,generallyaccompanyingashareholdingofmorethanone-halfofthevotingrights.TheexistenceandeffectofpotentialvotingrightsthatarecurrentlyexercisableorconvertibleareconsideredwhenassessingwhethertheGroupcontrolsanotherentity.SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheGroup.Theyarede-consolidatedfromthedatethatcontrolceases.ThepurchasemethodofaccountingisusedtoaccountfortheacquisitionofsubsidiariesbytheGroup(refertonote1(i)).Intercompanytransactions,balancesandunrealisedgainsontransactionsbetweenGroupcompaniesareeliminated.Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceoftheimpairmentoftheassettransferred.AccountingpoliciesofsubsidiarieshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.

(ii) Associates AssociatesareallentitiesoverwhichtheGrouphassignificantinfluencebutnotcontrol,generallyaccompanyingashareholdingofbetween20%and50%ofthevotingrights.Investmentsinassociatesareaccountedforintheinvestorentities’financialstatementsusingthecostmethodandintheconsolidatedfinancialstatementsusingtheequitymethodofaccounting,

NOTES TO ThE FiNaNCial STaTEmENTSfor the year ended 30 june 2006

42

1 SuMMArY oF SiGniFiCAnt ACCountinG poliCieS (CONTINUED)

afterinitiallybeingrecognisedatcost.TheGroup’sinvestmentinassociatesincludesgoodwill(netofanyaccumulatedimpairmentloss)identifiedonacquisition(refernote30).

TheGroup’sshareofitsassociates’post-acquisitionprofitsorlossesisrecognisedintheincomestatement,anditsshareofpost-acquisitionmovementsinreservesisrecognisedinreserves.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestment.Dividendsreceivablefromassociatesarerecognisedintheparententity’sincomestatement,whileintheconsolidatedfinancialstatementstheyreducethecarryingamountoftheinvestment.

WhentheGroup’sshareoflossesinanassociateequalsorexceedsitsinterestintheassociate,includinganyotherunsecuredreceivables,theGroupdoesnotrecognisefurtherlosses,unlessithasincurredobligationsormadepaymentsonbehalfoftheassociate.

UnrealisedgainsontransactionsbetweentheGroupanditsassociatesareeliminatedtotheextentoftheGroup’sinterestintheassociates.Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentoftheassettransferred.AccountingpoliciesofassociateshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.

(iii) Joint ventures Unincorporatedjointventureoperations

Theproportionateinterestsintheassets,liabilities,incomeandexpensesofjointventureoperationshavebeenincorporatedinthefinancialstatementsundertheappropriateheadings.Detailsofthejointventuresaresetoutinnote31.

(c) Segment reporting Abusinesssegmentisagroupofassetsandoperationsengagedinprovidingproductsorservicesthataresubjecttorisksandreturnsthataredifferenttothoseofotherbusinesssegments.Ageographicalsegmentisengagedinprovidingproductsorserviceswithinaparticulareconomicenvironmentandissubjecttorisksandreturnsthataredifferentfromthoseofsegmentsoperatinginothereconomicenvironments.

(d) Foreign currency translation

(i) Functional and presentation currency ItemsincludedinthefinancialstatementsofeachoftheGroup’sentitiesaremeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(“thefunctionalcurrency”).TheconsolidatedfinancialstatementsarepresentedinAustraliandollars,whichisSimsGroupLimited’sfunctionalandpresentationcurrency.

(ii) Transactions and balances Foreigncurrencytransactionsaretranslatedintothefunctionalcurrencyusingtheexchangeratesprevailingatthedatesofthetransactions.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesarerecognisedintheincomestatement,exceptwhendeferredinequityasqualifyingcashflowhedgesandqualifyingnetinvestmenthedges.Translationdifferencesonnon-monetaryitems,suchasequitiesheldatfairvaluethroughprofitorloss,arereportedaspartofthefairvaluegainorloss.Translationdifferencesonnon-monetaryitems,suchasequitiesclassifiedasavailable-for-salefinancialassets,areincludedinthefairvaluereserveinequity.

(iii) Group companies TheresultsandfinancialpositionofalltheGroupentities(noneofwhichhasthecurrencyofahyperinflationaryeconomy)thathaveafunctionalcurrencydifferentfromthepresentationcurrencyaretranslatedintothepresentationcurrencyasfollows:›assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateatthedateofthatbalancesheet;

›incomeandexpensesforeachincomestatementaretranslatedataverageexchangerates(unlessthisisnotareasonableapproximationofthecumulativeeffectoftheratesprevailingonthetransactiondates,inwhichcaseincomeandexpensesaretranslatedatthedatesofthetransactions);and

›allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.

Onconsolidation,exchangedifferencesarisingfromthetranslationofanynetinvestmentinforeignentities,andofborrowingsandothercurrencyinstrumentsdesignatedashedgesofsuchinvestments,aretakentoshareholders’equity.Whenaforeignoperationissoldorborrowingsrepaid,aproportionateshareofsuchexchangedifferencesisrecognisedintheincomestatementaspartofthegainorlossonsale.Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.

(e) revenue recognition Salesrevenuerepresentsrevenueearnedfromthesaleoftheconsolidatedentity’sproducts,netofreturns,tradeallowancesanddutiesandtaxespaid.Salesrevenueisrecognisedwhenthegoodshavebeendespatchedtoacustomerpursuanttoasalesorderandassociatedriskshavepassedtothecarrierorcustomer.Servicerevenueprincipallyrepresentsrevenueearnedfromthecollectionofend-of-lifepostconsumerproductsforthepurposeofproductrecycling.Servicerevenueisrecognisedwhentheserviceshavebeenprovided.Servicerevenuereceivedinadvanceoftheservicebeingrenderedisdeferred.


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(f) Government grants GrantsfromthegovernmentarerecognisedattheirfairvaluewherethereisareasonableassurancethatthegrantwillbereceivedandtheGroupwillcomplywithallattachedconditions.Governmentgrantsrelatingtocostsaredeferredandrecognisedintheincomestatementovertheperiodnecessarytomatchthemwiththecoststhattheyareintendedtocompensate.Governmentgrantsrelatingtothepurchaseofproperty,plantandequipmentareincludedincurrentliabilitiesasdeferredincomeandarecreditedtotheincomestatementonastraightlinebasisovertheexpectedlivesoftherelatedassetstowhichthegrantrelate.

(g) income tax Theincometaxexpenseorrevenuefortheperiodisthetaxpayableonthecurrentperiod’staxableincomebasedonthenationalincometaxrateforeachjurisdictionadjustedbychangesindeferredtaxassetsandliabilitiesattributabletotemporarydifferencesbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements,andtounusedtaxlosses.Deferredtaxassetsandliabilitiesarerecognisedfortemporarydifferencesatthetaxratesexpectedtoapplywhentheassetsarerecoveredorliabilitiesaresettled,basedonthosetaxrateswhichareenactedorsubstantivelyenactedforeachjurisdiction.Therelevanttaxratesareappliedtothecumulativeamountsofdeductibleandtaxabletemporarydifferencestomeasurethedeferredtaxassetorliability.Anexceptionismadeforcertaintemporarydifferencesarisingfromtheinitialrecognitionofanassetoraliability.Nodeferredtaxassetorliabilityisrecognisedinrelationtothesetemporarydifferencesiftheyaroseinatransaction,otherthanabusinesscombination,thatatthetimeofthetransactiondidnotaffecteitheraccountingprofitortaxableprofitorloss.Deferredtaxassetsarerecognisedfordeductibletemporarydifferencesandunusedtaxlossesonlyifitisprobablethatfuturetaxableamountswillbeavailabletoutilisethosetemporarydifferencesandlosses.Deferredtaxliabilitiesandassetsarenotrecognisedfortemporarydifferencesbetweenthecarryingamountandtaxbasesofinvestmentsinsubsidiarieswheretheparententityisabletocontrolthetimingofthereversalofthetemporarydifferencesanditisprobablethatthedifferenceswillnotreverseintheforeseeablefuture.Currentanddeferredtaxbalancesattributabletoamountsrecogniseddirectlyinequityarealsorecogniseddirectlyinequity.ThetaxconsolidatedgroupformedundertherelevantAustraliantaxconsolidationlegislationofSimsGroupAustraliaHoldingsLimitedanditswhollyownedAustraliansubsidiarieshasceasedtoexistfollowingtheschemeofarrangementon31October2005.IthasformedanewtaxconsolidatedgroupunderwhichSimsGroupLimitedhasbeentheheadentityfrom1stNovember2005.TheAustralianTaxationOfficehasyettobenotifiedofthisdecision.Asaconsequence

thetaxvaluesofcertainassetsofentitiesinthenewconsolidatedgrouphasbeenreset.Theeffectofremeasuringthedeferredtaxbalancestoreflecttheimpactofresettingthetaxvalueofassetshasbeenbroughttoaccountinthecurrentfinancialperiod.Theheadentity,SimsGroupLimited,andthesubsidiariesinthetaxconsolidatedgroupcontinuetoaccountfortheirowncurrentanddeferredtaxamounts.Thesetaxamountsaremeasuredasifeachentityinthetaxconsolidatedgroupcontinuestobeastandalonetaxpayerinitsownright.Inadditiontoitsowncurrentanddeferredtaxamounts,SimsGroupLimitedalsorecognisesthecurrenttaxliabilities(orassets)arisingfromsubsidiariesinthetaxconsolidatedgroup.Assetsorliabilitiesarisingundertaxfundingagreementswiththetaxconsolidatedentitiesarerecognisedasamountsreceivablefromorpayabletootherentitiesinthegroup.Detailsaboutthetaxfundingagreementaredisclosedinnote7.Anydifferencebetweentheamountsassumedandamountsreceivableorpayableunderthetaxfundingagreementarerecognisedasacontributionto(ordistributionfrom)wholly-ownedtaxconsolidatedentities.

(h) leases Leasesofproperty,plantandequipmentwheretheGrouphasassumedsubstantiallyalltherisksandrewardsofownershipareclassifiedasfinanceleases.Financeleasesarecapitalisedatthelease’sinceptionatthelowerofthefairvalueoftheleasedpropertyandthepresentvalueoftheminimumleasepayments.Thecorrespondingrentalobligations,netoffinancecharges,areincludedinotherlongtermpayables.Eachleasepaymentisallocatedbetweentheliabilityandfinancechargessoastoachieveaconstantrateonthefinancebalanceoutstanding.Theinterestelementofthefinancecostischargedtotheincomestatementovertheleaseperiodsoastoproduceaconstantperiodicrateofinterestontheremainingbalanceoftheliabilityforeachperiod.Theproperty,plantandequipmentacquiredunderfinanceleasesisdepreciatedovertheshorteroftheasset’susefullifeandtheleaseterm.Leasesinwhichasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases.Paymentsmadeunderoperatingleases(netofanyincentivesreceivedfromthelessor)arechargedtotheincomestatementonastraight-linebasisovertheperiodofthelease.Leaseincomefromoperatingleasesisrecognisedinincomeonastraight-linebasisovertheleaseterm.

(i) Acquisition of assets Thepurchasemethodofaccountingisusedtoaccountforallacquisitionsofassets(includingbusinesscombinations)regardlessofwhetherequityinstrumentsorotherassetsareacquired.Costismeasuredasthefairvalueoftheassetsgiven,sharesissuedorliabilitiesincurredorassumedatthedateofexchangepluscostsdirectlyattributabletotheacquisition.Whereequityinstrumentsareissuedinanacquisition,thevalueoftheinstrumentsistheirpublishedmarketpriceasatthedateofexchangeunless,inrarecircumstances,itcanbedemonstratedthatthepublishedpriceatthedate

44


ofexchangeisanunreliableindicatoroffairvalueandthatotherevidenceandvaluationmethodsprovideamorereliablemeasureoffairvalue.Transactioncostsarisingontheissueofequityinstrumentsarerecogniseddirectlyinequity.Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate,irrespectiveoftheextentofanyminorityinterest.TheexcessofthecostofacquisitionoverthefairvalueoftheGroup’sshareoftheidentifiablenetassetsacquiredisrecordedasgoodwill(refertonote1(s)).Ifthecostofacquisitionislessthanthefairvalueofthenetassetsofthesubsidiaryacquired,thedifferenceisrecogniseddirectlyintheincomestatement,butonlyafterareassessmentoftheidentificationandmeasurementofthenetassetsacquired.Wheresettlementofanypartofcashconsiderationisdeferred,theamountspayableinthefuturearediscountedtotheirpresentvalueasatthedateofexchange.Thediscountrateusedistheentity’sincrementalborrowingrate,beingtherateatwhichasimilarborrowingcouldbeobtainedfromanindependentfinancierundercomparabletermsandconditions.

(j) impairment of assets Goodwillistestedannuallyforimpairment.Otherassetsarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedfortheamountbywhichtheasset’scarryingamountexceedsitsrecoverableamount.Therecoverableamountisthehigherofanasset’sfairvaluelesscoststosell,andvalueinuse.Forthepurposesofassessingimpairment,assetsaregroupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashflows(cashgeneratingunits).

(k) Cash and cash equivalents Cashandcashequivalentsincludescashonhand,depositsheldatcallwithfinancialinstitutions,othershort-term,highlyliquidinvestmentswithoriginalmaturitiesofthreemonthsorlessthatarereadilyconvertibletoknownamountsofcashandwhicharesubjecttoaninsignificantriskofchangesinvalue,andbankoverdrafts.Bankoverdraftsareshownwithinborrowingsincurrentliabilitiesonthebalancesheetwheretheyarerepayableondemand.

(l) trade receivables Tradereceivablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcost,lessprovisionfordoubtfuldebts.Tradereceivablesaredueforsettlementnomorethan90daysfromthedateofrecognition.Collectibilityoftradereceivablesisreviewedonanongoingbasis.Debtswhichareknowntobeuncollectablearewrittenoff.AprovisionfordoubtfulreceivablesisestablishedwhenthereisobjectiveevidencethattheGroupwillnotbeabletocollectallamountsdueaccordingtotheoriginaltermsofreceivables.Theamountofthe

provisionisthedifferencebetweentheasset’scarryingamountandtheestimatedfuturecashflows.Theamountoftheprovisionisrecognisedintheincomestatement.

(m) inventories Rawmaterialsandstores,workinprogressandfinishedgoodsarestatedatthelowerofcostandnetrealisablevalue.Costcomprisesdirectmaterials,directlabourandanappropriateproportionofvariableandfixedoverheadexpenditure,thelatterbeingallocatedonthebasisofnormaloperatingcapacity.Costsareassignedtoindividualitemsofinventoryonthebasisoffirst-infirst-outorweightedaveragecosts.Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusinesslesstheestimatedcostsofcompletionandtheestimatedcostsnecessarytomakethesale.

(n) Maintenance and repairs Plantoftheconsolidatedentityisrequiredtobeoverhauledonaregularbasis.Overhaulsaremanagedaspartofanongoingmajorplantcyclicalmaintenanceprogram.Thecostsofthismaintenancearechargedasexpensesasincurred,exceptwheretheyrelatetothereplacementofacomponentofanasset,inwhichcasethecostsarecapitalisedanddepreciatedinaccordancewithnote1(r).Otherroutineoperatingmaintenance,repairandminorrenewalcostsarealsochargedasexpensesasincurred.

(o) investments and other financial assets

From 1 July 2004 to 30 June 2005 TheGrouphastakentheexemptionavailableunderAASB1toapplyAASB132andAASB139onlyfrom1July2005.TheGrouphasappliedpreviousAGAAPtothecomparativeinformationonfinancialinstrumentswithinthescopeofAASB132andAASB139.ForfurtherinformationonpreviousAGAAPrefertotheannualreportfortheyearended30June2005.

Adjustments on transition date: 1 July 2005 ThenatureofthemainadjustmentstomakethisinformationcomplywithAASB132andAASB139arethat,withtheexceptionofheld-to-maturityinvestmentsandloansandreceivableswhicharemeasuredatamortisedcost(referbelow),fairvalueisthemeasurementbasis.Changesinfairvalueareeithertakentotheincomestatementoranequityreserve(referbelow).Atthedateoftransition(1July2005)changestocarryingamountsaretakentoretainedearningsorreserves.

From 1 July 2005 TheGroupclassifiesitsinvestmentsinthefollowingcategories:financialassetsatfairvaluethroughprofitorloss,loansandreceivables,held-to-maturityinvestments,andavailable-for-salefinancialassets.Theclassificationdependsonthepurposeforwhichtheinvestmentswereacquired.Managementdeterminestheclassificationofitsinvestmentsatinitialrecognitionand,inthecaseofheld-to-maturityassets,re-evaluatesthisdesignationateachreportingdate.


45


(i) Financial assets at fair value through profit or loss

Thiscategoryhastwosub-categories:financialassetsheldfortradingandderivativesdesignatedatfairvaluethroughprofitorlossoninitialrecognition.Afinancialassetisclassifiedasheldfortradingifacquiredprincipallyforthepurposeofsellingintheshorttermorifsodesignatedbymanagement.Thepolicyofmanagementistodesignateafinancialassetasheldfortradingifthereexiststhepossibilityitwillbesoldintheshorttermandtheassetissubjecttofrequentchangesinfairvalue.Derivativesaredesignatedatfairvaluethroughprofitandlossunlesstheyaredesignatedashedges.Assetsinthiscategoryareclassifiedascurrentassetsiftheyareeitherheldfortradingorareexpectedtoberealisedwithin12monthsofthebalancesheetdate.

(ii) Loans and receivables Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.TheyarisewhentheGroupprovidesmoney,goodsorservicesdirectlytoadebtorwithnointentionofsellingthereceivable.Theyareincludedincurrentassets,exceptforthosewithmaturitiesgreaterthan12monthsafterthebalancesheetdatewhichareclassifiedasnon-currentassets.Loansandreceivablesareincludedinreceivablesinthebalancesheet.

(iii) Held-to-maturity investments Held-to-maturityinvestmentsarenon-derivativefinancialassetswithfixedordeterminablepaymentsandfixedmaturitiesthattheGroup’smanagementhasthepositiveintentionandabilitytoholdtomaturity.

(iv) Available-for-sale financial assets Available-for-salefinancialassets,comprisingprincipallymarketableequitysecurities,arenon-derivativesthatareeitherdesignatedinthiscategoryornotclassifiedinanyoftheothercategories.Theyareincludedinnon-currentassetsunlessmanagementintendstodisposeoftheinvestmentwithin12monthsofthebalancesheetdate.Purchasesandsalesofinvestmentsarerecognisedontrade-datebeingthedateonwhichtheGroupcommitstopurchaseorselltheasset.Investmentsareinitiallyrecognisedatfairvalueplustransactioncostsforallfinancialassetsnotcarriedatfairvaluethroughprofitorloss.FinancialassetsarederecognisedwhentherightstoreceivecashflowsfromthefinancialassetshaveexpiredorhavebeentransferredandtheGrouphastransferredsubstantiallyalltherisksandrewardsofownership.Available-for-salefinancialassetsandfinancialassetsatfairvaluethroughprofitandlossaresubsequentlycarriedatfairvalue.Loansandreceivablesandheld-to-maturityinvestmentsarecarriedatamortisedcostusingtheeffectiveinterestmethod.Realisedandunrealisedgainsandlossesarisingfromchangesinthefairvalueofthe‘financialassetsatfairvaluethroughprofitorloss’categoryareincludedintheincomestatementintheperiodinwhichtheyarise.Unrealisedgainsandlossesarisingfromchangesinthefairvalueofnon-monetary

securitiesclassifiedasavailable-for-salearerecognisedinequityintheavailable-for-saleinvestmentsrevaluationreserve.Whensecuritiesclassifiedasavailable-for-salearesoldorimpaired,theaccumulatedfairvalueadjustmentsareincludedintheincomestatementasgainsandlossesfrominvestmentsecurities.Thefairvaluesofquotedinvestmentsarebasedoncurrentbidprices.Ifthemarketforafinancialassetisnotactive(andforunlistedsecurities),theGroupestablishesfairvaluebyusingvaluationtechniques.Theseincludereferencetothefairvaluesofrecentarm’slengthtransactions,involvingthesameinstrumentsorotherinstrumentsthataresubstantiallythesame,discountedcashflowanalysis,andoptionpricingmodelsrefinedtoreflecttheissuer’sspecificcircumstances.TheGroupassessesateachbalancedatewhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.Inthecaseofequitysecuritiesclassifiedasavailableforsale,asignificantorprolongeddeclineinthefairvalueofasecuritybelowitscostisconsideredindeterminingwhetherthesecurityisimpaired.Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativeloss–measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedinprofitandloss–isremovedfromequityandrecognisedintheincomestatement.Impairmentlossesrecognisedintheincomestatementonequityinstrumentsarenotreversedthroughtheincomestatement.

(p) Derivatives

From 1 July 2004 to 30 June 2005 TheGrouphastakentheexemptionavailableunderAASB1toapplyAASB132andAASB139from1July2005.TheGrouphasappliedpreviousAGAAPinthecomparativeinformationonfinancialinstrumentswithinthescopeofAASB132andAASB139.ForfurtherinformationonpreviousAGAAPrefertotheannualreportfortheyearended30June2005.

Adjustments on transition date: 1 July 2005 ThenatureofthemainadjustmentstomakethisinformationcomplywithAASB132andAASB139arethatderivativesaremeasuredonafairvaluebasis.Changesinfairvalueareeithertakentotheincomestatementoranequityreserve(referbelow).Atthedateoftransition(1July2005)changesinthecarryingamountsofderivativesaretakentoretainedearningsorreserves,dependingonwhetherthecriteriaforhedgeaccountingaresatisfiedatthetransitiondate.

From 1 July 2005 Derivativesareinitiallyrecognisedatfairvalueonthedateaderivativecontractisenteredintoandaresubsequentlyremeasuredtotheirfairvalue.Themethodofrecognisingtheresultinggainorlossdependsonwhetherthederivativeisdesignatedasahedginginstrument,andifso,thenatureoftheitembeinghedged.TheGroupdesignatescertainderivativesaseither:(1)hedgesofthefairvalueofrecognisedassetsorliabilitiesorafirmcommitment(fairvaluehedge);or(2)hedgesofhighlyprobableforecasttransactions(cashflowhedges).

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TheGroupdocumentsattheinceptionofthetransactiontherelationshipbetweenhedginginstrumentsandhedgeditems,aswellasitsriskmanagementobjectiveandstrategyforundertakingvarioushedgetransactions.TheGroupalsodocumentsitsassessment,bothathedgeinceptionandonanongoingbasis,ofwhetherthederivativesthatareusedinhedgingtransactionshavebeenandwillcontinuetobehighlyeffectiveinoffsettingchangesinfairvaluesorcashflowsofhedgeditems.

(i) Fair value hedge Changesinthefairvalueofderivativesthataredesignatedandqualifyasfairvaluehedgesarerecordedintheincomestatement,togetherwithanychangesinthefairvalueofthe hedged asset or liability that are attributable to thehedgedrisk.

(ii) Cash flow hedge Theeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesarerecognisedinequityinthehedgingreserve.Thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyintheincomestatement.Amountsaccumulatedinequityarerecycledintheincomestatementintheperiodswhenthehedgeditemaffectsprofitorloss(forinstancewhentheforecastsalethatishedgedtakesplace).However,whentheforecasttransactionthatishedgedresultsintherecognitionofanon-financialasset(forexample,inventory)oranon-financialliability,thegainsandlossespreviouslydeferredinequityaretransferredfromequityandincludedinthemeasurementoftheinitialcostorcarryingamountoftheassetorliability.Whenahedginginstrumentexpiresorissoldorterminated,orwhenahedgenolongermeetsthecriteriaforhedgeaccounting,anycumulativegainorlossexistinginequityatthattimeremainsinequityandisrecognisedwhentheforecasttransactionisultimatelyrecognisedintheincomestatement.Whenaforecasttransactionisnolongerexpectedtooccur,thecumulativegainorlossthatwasreportedinequityisimmediatelytransferredtotheincomestatement.

(iii) Derivatives that do not qualify for hedge accounting

Certainderivativeinstrumentsdonotqualifyforhedgeaccounting.Changesinthefairvalueofanyderivativeinstrumentthatdoesnotqualifyforhedgeaccountingarerecognisedimmediatelyintheincomestatement.

(q) Fair value estimation Thefairvalueoffinancialassetsandfinancialliabilitiesmustbeestimatedforrecognitionandmeasurementorfordisclosurepurposes.Thefairvalueoffinancialinstrumentstradedinactivemarkets(suchaspubliclytradedderivatives,andtradingandavailable-for-salesecurities)isbasedonquotedmarketpricesatthebalancesheetdate.ThequotedmarketpriceusedforfinancialassetsheldbytheGroupisthecurrentbidprice;theappropriatequotedmarketpriceforfinancialliabilitiesisthecurrentaskprice.Thefairvalueoffinancialinstrumentsthatarenot

tradedinanactivemarket(forexample,over-the-counterderivatives)isdeterminedusingvaluationtechniques.TheGroupusesavarietyofmethodsandmakesassumptionsthatarebasedonmarketconditionsexistingateachbalancedate.Quotedmarketpricesordealerquotesforsimilarinstrumentsareusedforlong-termdebtinstrumentsheld.Othertechniques,suchasestimateddiscountedcashflows,areusedtodeterminefairvaluefortheremainingfinancialinstruments.Thefairvalueofinterest-rateswapsiscalculatedasthepresentvalueoftheestimatedfuturecashflows.Thefairvalueofforwardexchangecontractsisdeterminedusingforwardexchangemarketratesatthebalancesheetdate.Thenominalvaluelessestimatedcreditadjustmentsoftradereceivablesandpayablesisassumedtoapproximatetheirfairvalues.ThefairvalueoffinancialliabilitiesfordisclosurepurposesisestimatedbydiscountingthefuturecontractualcashflowsatthecurrentmarketinterestratethatisavailabletotheGroupforsimilarfinancialinstruments.Thefairvalueofproperty,plantandequipmentisdeterminedassetoutinnote1(r).

(r) property, plant and equipment Land,buildingsandleaseholdimprovementsareshownatfairvalue,basedonperiodic,butatleasttriennial,valuationsbyexternalindependentvaluers,lesssubsequentdepreciationforbuildingsandleaseholdimprovements.Fairvaluerepresentstheamountsforwhichtheassetscouldbeexchangedbetweenwillingpartiesinanarmslengthtransaction,basedoncurrentpricesinanactivemarketforsimilarpropertiesinthesamelocationandcondition.Anyaccumulateddepreciationatthedateofrevaluationiseliminatedagainstthegrosscarryingamountoftheassetandthenetamountisrestatedtotherevaluedamountoftheasset.Allotherproperty,plantandequipmentisstatedathistoricalcostlessdepreciation.Historicalcostincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheitems.Costmayalsoincludetransfersfromequityofanygains/lossesonqualifyingcashflowhedgesofforeigncurrencypurchasesofproperty,plantandequipment.Subsequentcostsareincludedintheasset’scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheGroupandthecostoftheitemcanbemeasuredreliably.Allotherrepairsandmaintenancearechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.Increasesinthecarryingamountsarisingonrevaluationoflandandbuildingsarecreditedtotheassetrevaluationreserveinshareholders’equity.Totheextentthattheincreasereversesadecreasepreviouslyrecognisedinprofitorloss,theincreaseisfirstrecognisedinprofitandloss.Decreasesthatreversepreviousincreasesofthesameassetarefirstchargedagainstrevaluationreservesdirectlyinequitytotheextentoftheremainingreserveattributabletotheasset;allotherdecreasesarechargedtotheincomestatement.Landisnotdepreciated.Depreciationonotherassetsiscalculatedusingthestraightlinemethodtoallocatetheircostorrevaluedamounts,netoftheirresidualvalues,overtheirestimatedusefullives,asfollows:


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Buildings 25–40yearsPlantandequipment 3–14years

Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachbalancesheetdate.Anasset’scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset’scarryingamountisgreaterthanitsestimatedrecoverableamount(note1(j)).Gainsandlossesondisposalsaredeterminedbycomparingproceedswithcarryingamounts.Theseareincludedintheincomestatement.Whenrevaluedassetsaresold,itisGrouppolicytotransfertheamountsincludedinotherreservesinrespectofthoseassetstoretainedearnings.

(s) intangible assets

(i) Goodwill GoodwillrepresentstheexcessofthecostofanacquisitionoverthefairvalueoftheGroup’sshareofthenetidentifiableassetsoftheacquiredsubsidiary/associateatthedateofacquisition.Goodwillonacquisitionofsubsidiariesisincludedinintangibleassets.Goodwillonacquisitionofassociatesisincludedininvestmentsinassociates.Goodwillacquiredinbusinesscombinationsisnotamortised.Instead,goodwillisreviewedforimpairmentannually,ormorefrequentlyifeventsorchangesincircumstancesindicatethatitmightbeimpaired,andiscarriedatcostlessaccumulatedimpairmentlosses.Gainsandlossesonthedisposalofanentityincludethecarryingamountofgoodwillrelatingtotheentitysold.Goodwillisallocatedtocash-generatingunitsforthepurposeofimpairmenttesting.

(t) trade and other payables TheseamountsrepresentliabilitiesforgoodsandservicesprovidedtotheGrouppriortotheendoffinancialyearwhichareunpaid.Theamountsareunsecuredandareusuallypaidwithin30daysofrecognition.

(u) Borrowings Borrowingsareinitiallyrecognisedatfairvalue,netoftransactioncostsincurred.Borrowingsaresubsequentlymeasuredatamortisedcost.Anydifferencebetweentheproceeds(netoftransactioncosts)andtheredemptionamountisrecognisedintheincomestatementovertheperiodoftheborrowingsusingtheeffectiveinterestmethod.Borrowingsareclassifiedasnon-currentliabilities.

(v) Borrowing costs Borrowingcostsincurredfortheconstructionofanyqualifyingassetarecapitalisedduringtheperiodoftimethatisrequiredtocompleteandpreparetheassetforitsintendeduseorsale.Otherborrowingcostsareexpensed.Thecapitalisationrateusedtodeterminetheamountofborrowingcoststobecapitalisedistheweightedaverageinterestrateapplicabletotheentity’soutstandingborrowingsduringtheyear.Therewerenointerestcostscapitalisedfortheconstructionofanyqualifyingassetduringtheyear.

(w) provisions ProvisionsarerecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamounthasbeenreliablyestimated.Provisionsarenotrecognisedforfutureoperatinglosses.Wherethereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequiredinsettlementisdeterminedbyconsideringtheclassofobligationsasawhole.Aprovisionisrecognisedevenifthelikelihoodofanoutflowwithrespecttoanyoneitemincludedinthesameclassofobligationsmaybesmall.

(x) employee benefits SimsGrouphasmadeanelectioninaccordancewithsubsection334(5)oftheCorporations ActtoadoptAASB119Employee Benefits (January 2006)whichwillapplytothefinancialyearended30June2006.

(i) Wages and salaries, annual leave and sick leave Liabilitiesforwagesandsalaries,includingnon-monetarybenefits,annualleaveandaccumulatingsickleaveexpectedtobesettledwithin12monthsofthereportingdatearerecognisedinotherpayablesinrespectofemployees’servicesuptothereportingdateandaremeasuredattheamountsexpectedtobepaidwhentheliabilitiesaresettled.Liabilitiesfornon-accumulatingsickleavearerecognisedwhentheleaveistakenandmeasuredattheratespaidorpayable.

(ii) Long service leave Theliabilityforlongserviceleaveisrecognisedintheprovisionforemployeebenefitsandmeasuredasthepresentvalueofexpectedfuturepaymentstobemadeinrespectofservicesprovidedbyemployeesuptothereportingdate.Considerationisgiventoexpectedfuturewageandsalarylevels,experienceofemployeedeparturesandperiodsofservice.Expectedfuturepaymentsarediscountedusingmarketyieldsatthereportingdateonnationalgovernmentbondswithtermstomaturityandcurrencythatmatch,ascloselyaspossible,theestimatedfuturecashoutflows.

(iii) Retirement benefit obligations AllemployeesoftheGroupareentitledtobenefitsonretirement,disabilityordeathfromtheGroup’ssuperannuationplans.TheGrouphasadefinedbenefitsectionandadefinedcontributionsectionwithinitsplans.Thedefinedbenefitsectionprovidesdefinedlumpsumbenefitsbasedonyearsofserviceandfinalaveragesalary.ThedefinedcontributionsectionreceivesfixedcontributionsfromGroupcompaniesandtheGroup’slegalorconstructiveobligationislimitedtothosecontributions.Aliabilityorassetinrespectofdefinedbenefitsuperannuationplansisrecognisedinthebalancesheet,andismeasuredasthepresentvalueofthedefinedbenefitobligationatthereportingdateplusunrecognisedactuarialgains(lessunrecognisedactuariallosses)lessthefairvalueofthesuperannuationfund’sassetsatthatdateandanyunrecognisedpastservicecost.Thepresentvalueofthedefinedbenefitobligationisbasedonexpectedfuturepaymentswhicharisefrommembershipofthefundtothereportingdate,calculatedannuallybyindependentactuariesusing

48


theprojectedunitcreditmethod.Considerationisgiventoexpectedfuturewageandsalarylevels,experienceofemployeedeparturesandperiodsofservice.Expectedfuturepaymentsarediscountedusingmarketyieldsatthereportingdateonnationalgovernmentbondswithtermstomaturityandcurrencythatmatch,ascloselyaspossible,theestimatedfuturecashoutflows.Actuarialgainsandlossesarisingfromexperienceadjustmentsandchangesinactuarialassumptionsarechargedorcreditedtoequity.Pastservicecostsarerecognisedimmediatelyinincome,unlessthechangestothesuperannuationfundareconditionalontheemployeesremaininginserviceforaspecifiedperiodoftime(thevestingperiod).Inthiscase,thepastservicecostsareamortisedonastraight-linebasisoverthevestingperiod.Futuretaxesthatarefundedbytheentityandarepartoftheprovisionoftheexistingbenefitobligation(e.g.taxesoninvestmentincomeandemployercontributions)aretakenintoaccountinmeasuringthenetliabilityorasset.Contributionstothedefinedcontributionfundarerecognisedasanexpenseastheybecomepayable.Prepaidcontributionsarerecognisedasanassettotheextentthatacashrefundorareductioninthefuturepaymentsisavailable.

(iv) Share-based payments Share-basedcompensationbenefitsareprovidedtoemployeesviatheSimsGroupEmployeeOptionPlanandanemployeesharescheme.

Share options granted before 7 November 2002 and/or vested before 1 January 2005 Noexpenseisrecognisedinrespectoftheoptionsorsharesissuedtoemployeesfornilconsideration.Sharesissuedfollowingtheexerciseofoptionsarerecognisedatthattimeandtheproceedsreceivedallocatedtosharecapital.

Share options granted after 7 November 2002 and vested after 1 January 2005 ThefairvalueofoptionsgrantedundertheSimsGroupEmployeeOptionPlanisrecognisedasanemployeebenefitexpensewithacorrespondingincreaseinequity.Thefairvalueismeasuredatgrantdateandrecognisedovertheperiodduringwhichemployeesbecomeunconditionallyentitledtotheoptions.ThefairvalueatgrantdateisindependentlydeterminedusingaBlack-Scholesoptionpricingmodelthattakesintoaccounttheexerciseprice,thetermoftheoption,thevestingandperformancecriteria,theimpactofdilution,thenon-tradeablenatureoftheoption,thesharepriceatgrantdateandexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyieldandtherisk-freeinterestrateforthetermoftheoption.Thefairvalueoftheoptionsgrantedexcludestheimpactofanynon-marketvestingconditions(forexample,profitabilityandsalesgrowthtargets).Non-marketvestingconditionsareincludedinassumptionsaboutthenumberofoptionsthatareexpectedtobecomeexercisable.Ateachbalancesheetdate,theentityrevisesitsestimate

ofthenumberofoptionsthatareexpectedtobecomeexercisable.Theemployeebenefitexpenserecognisedeachperiodtakesintoaccountthemostrecentestimate.Upontheexerciseofoptions,thebalanceoftheshare-basedpaymentsreserverelatingtothoseoptionsistransferredtosharecapital.Themarketvalueofsharesissuedtoemployeesfornocashconsiderationundertheemployeeshareschemeisrecognisedasanemployeebenefitsexpensewithacorrespondingincreaseinequitywhentheemployeesbecomeentitledtotheshares.

(v) Profit-sharing and bonus plans TheGrouprecognisesaliabilityandanexpenseforbonusesandprofit-sharingbasedonaformulathattakesintoconsiderationtheprofitattributabletothecompany’sshareholdersaftercertainadjustments.TheGrouprecognisesaprovisionwherecontractuallyobligedtodosoorwherethereisapastpracticethathascreatedaconstructiveobligation.

(y) Contributed equity Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofnewsharesoroptionsareshowninequityasadeduction,netoftax,fromtheproceeds.

(z) Dividends Provisionismadefortheamountofanydividenddeterminedordeclaredonorbeforetheendoftheyearbutnotdistributedatbalancedate.

(aa) earnings per share

(i) Basic earnings per share Basicearningspershareiscalculatedbydividingtheprofitattributabletoequityholdersofthecompany,excludinganycostsofservicingequityotherthanordinaryshares,bytheweightedaveragenumberofordinarysharesoutstandingduringtheyear,adjustedforbonuselementsinordinarysharesissuedduringtheyear.

(ii) Diluted earnings per share Dilutedearningspershareadjuststhefiguresusedinthedeterminationofbasicearningspersharetotakeintoaccounttheafterincometaxeffectofinterestandotherfinancingcostsassociatedwithdilutivepotentialordinarysharesandtheweightedaveragenumberofsharesassumedtohavebeenissuedfornoconsiderationinrelationtodilutivepotentialordinaryshares.

(ab) Financial instrument transaction costs TheGrouphastakentheexemptionavailableunderAASB1toapplyAASB132andAASB139from1July2005.TheGrouphasappliedpreviousAustralianGAAP(AGAAP)inthecomparativeinformationonfinancialinstrumentswithinthescopeofAASB132andAASB139.UnderpreviousAGAAPtransactioncostswereexcludedfromtheamountsdisclosedinthefinancialstatements.UnderAIFRSsuchcostsareincludedinthecarryingamounts.AtthedateoftransitiontoAASB132andAASB139theadjustmenttocarryingamountsfortheGroupwasimmaterial.


49


(ac) Business combinations TheGrouphaselectedtoapplytheexemptioninAASB1First-time Adoption of Australian Equivalents to International Financial Reporting Standards nottoapply AASB 3 Business Combinationsretrospectivelytopastbusinesscombinations(businesscombinationsthatoccurredbeforethedateoftransitiontoAIFRS).

(ad) rounding of amounts ThecompanyisofakindreferredtoinClassorder98/0100,issuedbytheAustralianSecuritiesandInvestmentsCommission,relatingtothe‘’roundingoff’’ofamountsinthefinancialreport.AmountsinthefinancialreporthavebeenroundedoffinaccordancewiththatClassOrdertothenearestthousanddollars,orincertaincases,thenearestdollar.

2 FinAnCiAl riSK MAnAGeMent TheGroup’sactivitiesexposeittoavarietyoffinancialrisks:marketrisk(includingcurrencyrisk,fairvalueinterestrateriskandpricerisk),creditrisk,liquidityriskandcashflowinterestraterisk.TheGroup’soverallriskmanagementprogramrecognisestheunpredictabilityoffinancialmarketsandseekstominimisepotentialadverseeffectsonthefinancialperformanceoftheGroup.TheGroupusesderivativefinancialinstrumentssuchasforeignexchangecontracts,commodityhedgesandinterestrateswapstohedgecertainriskexposures.RiskmanagementiscarriedoutbytheGroup’streasuryofficerspersuanttopoliciesapprovedbytheBoardofDirectors.Treasuryidentifies,evaluatesandhedgesfinancialrisksinclosecooperationwiththeoperatingunits.TheBoardprovideswrittenprinciplesforoverallriskmanagement,aswellaswrittenpoliciescoveringspecificareas,suchasmitigatingforeignexchange,commoditypricerisk,interestrateandcreditrisks,useofderivativefinancialinstrumentsandinvestingexcessliquidity.

(a) Market risk

(i) Foreign exchange risk Foreignexchangeriskariseswhenfuturecommercialtransactionsandrecognisedassetsandliabilitiesaredenominatedinacurrencythatisnottheentity’sfunctionalcurrency.TheGroupoperatesinternationallyandisexposedtoforeignexchangeriskarisingfromcurrencyexposuresto

theUSDollar,BritishPoundSterling,EuroandNewZealandDollars.Forwardcontracts,transactedbyTreasury,areusedtomanageforeignexchangerisk.Treasuryisresponsibleformanagingexposuresineachforeigncurrencybyusingexternalforwardcurrencycontracts.TheGroup’sriskmanagementpolicyistohedgeanticipatedtransactionsinforeigncurrenciesforperiodsupto12months.Projectedsalesqualifyas“highlyprobable”forecasttransactionsforhedgeaccountingpurposes.

(ii) Price risk TheGroupisexposedtocommoditypricerisk.Thisarisesfromtheholdingofinventorywhichisrecordedinaccordancewithaccountingpolicysetoutinnote1(m).TheGroup’sriskmanagementpolicyistohedgeasandwhenitisdeemedappropriate,theinventoriesofcopper,nickelandnickelalloycommoditiesbytheuseofcommodityhedgecontracts.

(iii) Fair value interest rate risk Referto(d)below.

(b) Credit risk TheGrouphasnosignificantconcentrationsofcreditrisk.TheGrouphaspoliciesinplacetoensurethatsalesofproductsandservicesaremadetocustomerswithanacceptablecredithistory.Derivativecounterpartiesandcashtransactionsarelimitedtohighcreditqualityfinancialinstitutions.

(c) liquidity risk Prudentliquidityriskmanagementimpliesmaintainingsufficientcashandcashequivalents,theavailabilityoffundingthroughanadequateamountofcommittedcreditfacilitiesandtheabilitytoclose-outmarketpositions.Duetothedynamicnatureoftheunderlyingbusinesses,Treasuryaimsatmaintainingflexibilityinfundingbykeepingcommittedcreditlinesavailable.

(d) Cash flow and fair value interest rate risk AstheGrouphasnosignificantinterest-bearingassets,theGroup’sincomeandoperatingcashflowsaresubstantiallyindependentofchangesinmarketinterestrates.TheGroup’sinterest-rateriskarisesfromlong-termborrowings.BorrowingsissuedatvariableratesexposetheGrouptocashflowinterest-raterisk.BorrowingsissuedatfixedratesexposetheGrouptofairvalueinterest-raterisk.TheGrouphasnotenteredintofloatingtofixedinterestrateswapsduringthefinancialyear.

50

Consolidated Parent entity2006 2005 2006$’000 $’000 $’000

3 reVenueSalesrevenueSaleofgoods 3,605,135 2,478,694 - Services 147,272 86,353 -

3,752,407 2,565,047 -

OtherrevenueInterest 2,047 468 - Dividends - - 46,600 Managementfees - - 1,017 Rents 55 88 -

2,102 556 47,617

3,754,509 2,565,603 47,617

4 otHer inCoMeNetgainondisposalofproperty,plantandequipment - 2,794 - Insurancerecovery 107 518 - Netrevaluationlossesreversedintheprofitandloss 1,188 1,917 - Netforeignexchangegains - 14 - Governmentgrants 810 - -

2,105 5,243 -

5 eXpenSeSProfit before income tax includes the following specific expenses:Depreciation

Buildings 2,815 1,954 - Plantandequipment 35,984 29,588 -

Totaldepreciation 38,799 31,542 -

AmortisationLeaseholdimprovements 2,706 1,242 -

Totaldepreciationandamortisation 41,505 32,784 -

Interestandfinancechargespaid/payable 18,360 5,834 - Netlossondisposalofproperty,plantandequipment 705 - - Rentalexpensesrelatingtooperatingleases 20,395 11,036 - Netforeignexchangelosses 34 - - Definedcontributionsuperannuationexpense 4,448 4,032 - Researchanddevelopment 1,380 1,078 -


51


$ $ $

6 reMunerAtion oF AuDitorSAssurance Services

1. Audit servicesFeespaidandpayabletoPricewaterhouseCoopersAustralianFirm

AuditandreviewoffinancialreportsandotherworkundertheCorporationsAct2001 432,000 342,500 -

FeespaidtorelatedpracticesofPricewaterhouseCoopersAustralianFirm

Auditandreviewoffinancialreports 693,635 381,540 -

Total remuneration for audit services 1,125,635 724,040 -

2. Other Assurance servicesFeespaidandpayabletoPricewaterhouseCoopersAustralianFirm

Otherauditrelatedservices 125,500 - - Duediligenceservices 120,676 1,368,122 -


Duediligenceservices - 749,202 -

Total remuneration for other assurance services 246,176 2,117,324 -

Total remuneration for assurance services 1,371,811 2,841,364 -

Taxation services

FeespaidandpayabletoPricewaterhouseCoopersAustralianFirm

Taxcomplianceservicesincludingreviewofcompanyincometaxreturns 175,300 67,787 -

Taxadviceonacquisitions - 7,400 - Taxconsultingandadvice 270,039 29,550 -


Taxcomplianceservicesincludingreviewofcompanyincometaxreturns 11,584 27,039 -

Total remuneration for taxation services 456,923 131,776 -

FeespaidtoauditorsotherthanPricewaterhouseCoopersoritsrelatedpractices

AuditandreviewofthefinancialreportsofjointventuresandotherentitiesintheconsolidatedentityandotherworkundertheCorporationsAct2001 18,353 25,445 -

ItisSimsGroupLimited’spolicytoemployPricewaterhouseCoopersonassignmentsadditionaltotheirstatutoryauditwherePricewaterhouseCoopers’expertiseandexperiencewithSimsGroupLimitedareimportant.Theseassignmentsareprincipallyfortaxadviceandduediligenceonacquisitions,orwherePricewaterhouseCoopersareawardedassignmentsonacompetitivebasis.

52


7 inCoMe tAX (a) Income tax expense

Currenttax 80,271 87,445 (76)Deferredtax 9,821 2,011 - (Over)/underprovisioninprioryears (1,139) (2,240) -

88,953 87,216 (76)

(b) Numerical reconciliation of income tax expense to prima facie tax payable

TaxattheAustraliantaxrateof30%(2005:30%) 85,680 85,274 13,904 Taxeffectofpermanentdifferences:Non-deductibleamortisationanddepreciation (134) (357) - Expensesnotallowable 903 1,830 - Researchanddevelopment (90) - - Non-assessableincome 373) (556) - Lossesnottaxeffected 33 - - Dividendreceivedfromsubsidiaries - - (13,980) Extraterritorialincometaxcredit (3,102) (984) - Shareofnetprofitofassociates (862) (788) -

Incometaxadjustedforpermanentdifferences 82,055 84,419 (76) Differenceinoverseastaxrates 8,739 6,659 - Utilisationofgrouplossesnotpreviouslyrecognised (702) (1,622) -(Over)/underprovisioninprioryears (1,139) (2,240) -

Incometaxexpense/(benefit) 88,953 87,216 (76)

(c) Amounts recognised directly in equity

Aggregatecurrentanddeferredtaxarisinginthereportingperiodandnotrecognisedinnetprofitorlossbutdirectlydebitedorcreditedtoequity

NetdeferredtaxArisingonequitymovementsinthecurrentperiod 6,937 11,344 - AdjustmentsonformationofthenewAustraliantaxconsolidatedgroup (9,552) - -

(2,615) 11,344 -

(d) Tax losses

Unusedtaxlossesforwhichnodeferredtaxassethasbeenrecognised 6,539 8,588 -

Potentialtaxbenefit@30% 1,962 2,576 -


53

7 inCoMe tAX (CONTINUED)

Tax consolidation legislation ThetaxconsolidatedgroupformedundertherelevanttaxconsolidationlegislationofSimsGroupAustraliaHoldingsLimited and its wholly-owned Australian subsidiaries has ceased to exist following the scheme of arrangement on31October2005.AnewtaxconsolidatedgroupunderwhichSimsGroupLimitedistheheadentitywasformedon1November2005.TheAustralianTaxationOfficehasyettobenotifiedofthisdecision.Asaconsequencethetaxvaluesofcertainassetsofentitiesinthenewconsolidatedgroupwillbereset.Theeffectofremeasuringthedeferredtaxbalancestoreflecttheimpactofresettingthetaxvalueofassetshasbeenbroughttoaccountinthecurrentfinancialperiod.Theaccountingpolicyinrelationtothetaxconsolidationlegislationissetoutinnote1(g).

Theentitiesinthenewtaxconsolidatedgrouphaveenteredintoataxsharingandfundingagreement.Underthetermsofthisagreement,thewholly-ownedentitiesreimburseSimsGroupLimitedinfullforanycurrenttaxpayablebySimsGroupLimitedarisinginrespectoftheiractivities.Thereimbursementsarepayableatthesametimeastheassociatedincome tax liability falls due and has therefore been recognised as a current tax-related receivable by Sims GroupLimited.Thetaxsharingagreementisalsoavalidagreementunderthetaxconsolidationlegislationandlimitsthejointandseveralliabilityofthewholly-ownedentitiesinthecaseofadefaultbySimsGroupLimited.


8 reCeiVABleS Current Tradereceivables 307,266 176,537 - Provisionfordoubtfulreceivables (3,051) (2,055) -

304,215 174,482 - Otherreceivablesanddeferredexpenses 31,559 28,212 - Prepayments 20,245 11,500 - Nettax-relatedamountsreceivablefromsubsidiaries - - 12,428

356,019 214,194 12,428

Non-current Otherreceivablesanddeferredexpenses - 5,794 -

- 5,794 -

Furtherinformationrelatingtorelatedpartiesanddirectorsissetoutinnote32anddetailsofinterestrates,creditriskandfairvaluesissetoutinnote38.

(a) Bad and doubtful trade receivables TheGrouphasrecognisedalossof$0.986m(2005:$1.630m)inrespectofbadanddoubtfultradereceivablesduringtheyearended30June2006.Thelosshasbeenincludedin‘otherexpenses’intheincomestatement.

(b) Other receivables TheseamountsgenerallyarisefromtransactionsoutsidetheusualoperatingactivitiesoftheGroup.Interestmaybechargedatcommercialrateswherethetermsofrepaymentexceedsixmonths.Collateralisnotnormallyobtained.

(c) Net tax-related amounts receivable from subsidiaries Refertonote7fordetailsabouttaxsharingandcompensationagreements.

54


9 inVentorY Rawmaterialsatnetrealisablevalue 97,770 61,284 - Storesandsparepartsatnetrealisablevalue 22,036 12,706 - Finishedgoodsatnetrealisablevalue 213,381 76,966 -

333,187 150,956 -

(a) Inventory expense

Inventoriesrecognisedasexpenseduringtheyearamountedto: 2,553,257 1,698,053 -

Write-downsofinventoriestonetrealisablevaluerecognisedasanexpenseandincludedin‘rawmaterialsandconsumablesused’intheincomestatementduringtheyearamountedto: 297 3,873 -

10 inVeStMentS ACCounteD For uSinG tHe eQuitY MetHoD

Sharesinassociates(note30) 21,761 10,272 -

11 otHer FinAnCiAl ASSetS Other (non-traded) investments

Sharesinsubsidiaries(note29) - - 2,507,184

12 propertY, plAnt AnD eQuipMent Freehold land

Fairvalue 228,803 111,057 -

Buildings

Fairvalue 65,923 47,367 -

Leasehold improvements

Fairvalue 27,438 15,961 -

Plant and equipmentCost 499,228 367,639 - Accumulateddepreciation (308,934) (217,230) -

190,294 150,409 -

Capital work in progress – cost 78,210 12,893 -

590,668 337,687 -

Non-current assets classified as held for sale – land and buildings

Land 1,310 - -Buildings 4,423 - -

5,733 - -


55

12 propertY, plAnt AnD eQuipMent (CONTINUED) Landandbuildingswhichareclassifiedasheldforsalepursuanttoasignedsalescontactarecarriedatfairvaluenetofsellingcosts.Thesaleoftheseisexpectedtobecompletedduringthenextfinancialyear.Noprofitisexpectedtoariseonthesale.

Valuations of freehold land, buildings and leasehold improvements Thevaluationbasisofland,buildingandleaseholdimprovementsisfairvaluebeingtheamountsforwhichtheassetscouldbeexchangedbetweenwillingpartiesinanarmslengthtransaction,basedoncurrentpricesinanactivemarketfor similar properties in the same location and condition. The 2006 valuations were made by the directors as at30June2006.Thedirectors’assessmentofthevaluationswasbasedonacombinationofindependentvaluerreportsandappraisals, recent transactionpricesand localmarketknowledge.The30June2005valuationswerebasedonindependentassessments.


Carrying amounts that would have been recognised if land and buildings were stated at cost

Freehold land

Cost 91,350 69,125 -

Buildings including leasehold improvements Cost 132,013 49,567 - Accumulateddepreciation (42,845) (12,005) -

89,168 37,562 -

FreeholdLand Buildings

LeaseholdImprove-ments

Plant&Equipment

CapitalWorkInProgress Total

Reconciliation of movements – 2006 $’000 $’000 $’000 $’000 $’000 $’000

Consolidated Openingnetbookamountat1July2005 111,057 47,367 15,961 150,409 12,893 337,687Additions 2,021 7,931 2,797 42,796 20,936 76,481Disposals - (1,093) - (1,633) - (2,726)Classifiedasheldforsaleortransfers (1,188) (4,613) 231 3,251 (3,414) (5,733)Depreciation/amortisationexpense(note5) - (2,815) (2,706) (35,984) - (41,505)

Acquisitionduetopurchaseofsubsidiariesandbusinesses 102,303 8,077 10,852 28,549 48,026 197,807Revaluationincrementsrecognisedinassetrevaluationreserve(note22) 13,097 9,989 - - - 23,086Revaluationlossesreversedintheprofitandlossaccount 1,188 - - - - 1,188Foreigncurrencyexchangedifferences 325 1,080 303 2,906 (231) 4,383

Closingnetbookamountat30June2006 228,803 65,923 27,438 190,294 78,210 590,668

56

12 propertY, plAnt AnD eQuipMent (CONTINUED)

FreeholdLand Buildings

LeaseholdImprove-ments

Plant&Equipment

CapitalWorkInProgress Total

Reconciliation of movements – 2005 $’000 $’000 $’000 $’000 $’000 $’000

Consolidated Openingnetbookamountat1July2004 69,185 31,748 8,124 137,697 15,001 261,755Additions 357 2,262 6,158 38,283 14,833 61,893Disposals (800) - - (487) - (1,287)Transfers 324 4,881 3,298 8,068 (16,571) -Depreciation/amortisationexpense(note5) - (1,954) (1,242) (29,588) - (32,784)Acquisitionduetopurchaseofsubsidiariesandbusinesses 8,735 6,911 - 6,556 - 22,202Write-offassetsinajointventure - - - (1,371) (54) (1,425)Revaluationincrementsrecognisedinassetrevaluationreserve(note22) 35,641 5,312 257 - - 41,210Revaluationlossesreversedintheprofitandloss 1,337 580 - - - 1,917Foreigncurrencyexchangedifferences (3,722) (2,373) (634) (8,749) (316) (15,794)

Closingnetbookamountat30June2005 111,057 47,367 15,961 150,409 12,893 337,687


13 DeFerreD tAX ASSetSNon-currentThebalancecomprisestemporarydifferencesattributedto:Amounts recognised in profit or lossDoubtfuldebts 3,382 617 -Accruedexpenses 660 4,063 -Property,plantandequipment 2,935 3,311 -Provisions 12,007 7,637 -Retirementbenefitobligations 3,059 5,002 -Other 12,424 796 -

34,467 21,426 -

Amounts recognised directly in equityRetirementbenefitobligations (62) 1,990 -Cashflowhedges 288 - -

Netdeferredtaxassets 34,693 23,416 -

Movements:Openingbalanceat1July 23,416 18,953 -ChangeonadoptionofAASB132andAASB139(note1) 195 - -Credited/(charged)totheincomestatement(note7) (3,021) (1,088) -Credited/(charged)toequity(note22) (1,959) 1,990 -Acquisitionofsubsidiary(note29) 16,062 3,561 -

Closingbalanceasat30June 34,693 23,416 -


57


14 intAnGiBleSGoodwill 579,075 110,002 -

(a) Reconciliation of consolidated movements

Openingnetbookamountat1July 110,002 73,360 -Additions - 27 -Acquisitionduetopurchaseofsubsidiariesandbusinesses(note29) 459,244 46,258 -Foreigncurrencyexchangedifferences 9,829 (9,643) -Closingnetbookamountat30June 579,075 110,002 -

(b) Impairment test for goodwill

GoodwillisallocatedtotheGroup’scashgeneratingunits(CGU’s)identifiedaccordingtocountryofoperation.Asegment-levelsummaryofthegoodwillallocationispresentedbelow.

Australia 8,290 8,290 -NorthAmerica 486,102 20,897 -Europe 84,195 80,266 -NewZealand 488 549 -

579,075 110,002 -

The recoverable amount of all CGUs is determined based on value in-use calculations. These calculations use afive–year cash flow projection based on the 2007 financial budget approved by management plus an extrapolatedfour–yearforecast.Eachofthefouryears’forecastisbasedontheaverageofthepreviousfiveyears’actualresults(2002-2006)andthe2007financialbudgetusinganilgrowthrate.Aterminalvalueisincludedinthefinalyearofthecashflowcalculationusinganearningsmultipleappropriatetotheindustry.Thecashflowsarediscountedusinganafter tax weighted average cost of capital of 12%. The key assumptions used by management relate to expectedcommoditypricesandforecastsalesvolumesofkeyproductsforthenext12months.Theseassumptionsreflectpastexperience.Themethodandkeyassumptionsarethesameasusedintheprecedingyear.


15 pAYABleSCurrentTradecreditors 243,931 136,894 -Othercreditors 90,697 37,891 12,568Deferredincome 7,124 7,684 -

341,752 182,469 12,568

Non-current

Amountspayabletosubsidiaries - - 390,963

58


16 BorroWinGSNon-current (unsecured)Bankloans 301,459 98,946 -

Unsecured bank loans are subject to guarantees/crossguaranteesand indemnities(asappropriate)fromtheparententityandsomeofitssubsidiaries.Furtherinformationrelatingtointerestratesandfairvaluesissetoutinnote38.

Financing arrangementsEntitiesintheconsolidatedgrouphaveaccesstothefollowingcreditstandbyarrangements:

Unsecuredglobalmulti-currency/multi-optionloanfacilities 628,307 379,269 -Amountofcreditunused 326,848 278,178 -

Unsecuredglobalmulti-currency/multi-optionloanfacilitiesareprovidedbyanumberoftheGroup’sbankers.Theloanfacilitiesaresubjecttoannualreviewsandhavematurityprofilesofbetween1and3years.

17 tAX liABilitieSCurrent IncomeTax 22,343 31,627 12,352

Non-currentDeferredincometaxThebalancecomprisestemporarydifferencesattributableto:

Amounts recognised in profit or lossPrepayments 673 715 -Inventories 1,716 1,695 -Depreciation 11,449 3,047 -Other 5,951 1,743 -

19,789 7,200 -

Amounts recognised directly in equity

Revaluationofpropertyplantandequipment 8,955 13,334 -

Netdeferredtaxliability 28,744 20,534 -

Movements:Openingbalanceat1July 20,534 6,277 -Charged/(credited)totheincomestatement(note7) 6,800 923 -Charged/(credited)toequity(note22) (4,379) 13,334 -

Acquisitionofsubsidiary(note29) 5,789 - -

Closingbalanceasat30June 28,744 20,534 -


59


18 proViSionSCurrentEmployeeentitlements 17,907 14,266 -Other 2,974 1,210 -

20,881 15,476 -

Non-currentEmployeeentitlements 9,236 9,207 -Environmentalcompliance 10,546 421 -

19,782 9,628 -

Movements in provisions

Movementsineachclassofprovisionduringthefinancialyeararesetoutbelow.

Current Non-current

EmployeeEntitlements

$’000Other$’000

EnvironmentalCompliance

$’000

EmployeeEntitlements

$’000

Consolidated – 2006Carryingamountatstartofyear 14,266 1,210 421 9,207Reclassifications 45 - 1,340 71Additionalprovisionsrecognised/(writtenback) 13,487 5,349 - 893Payments (11,085) (3,586) - (932)Purchaseofsubsidiary 1,156 - 8,790 -Foreigncurrencyexchangedifferences 38 1 98 (3)

Carryingamountatendofyear 17,907 2,974 10,649 9,236

OthercurrentprovisionsincludeestimatesofclaimsagainstSimsGroupLimitedinrelationtostevedoringdelaysandmaterialqualityforferrousexports.Theseclaimsareexpectedtobesettledinthenextfinancialyear.Theenvironmentalcomplianceprovisionisanestimateofcostsforpropertyremediationthatwillberequiredinthefuture.Itisnotexpectedthatthesecostswillbeincurredinthenextfinancialyear.

19 retireMent BeneFit oBliGAtionS(a) Superannuation plansAll employees of the Group are entitled to receive benefits from the Group’s superannuation plans on retirement,disabilityordeath.ThreeoftheGroup’splanseachhaveadefinedbenefitsection.Thedefinedbenefitsectionsprovidelumpsumbenefitsbasedonyearsofserviceandfinalaveragesalary.AllotherplansreceivefixedcontributionsfromGroupcompaniesandtheGroup’slegalorconstructiveobligationislimitedtothosecontributions.

Thefollowingsetsoutdetailsinrespectofthedefinedbenefitssectionsonly.

60


19 retireMent BeneFit oBliGAtionS (CONTINUED)

(b) Balance sheet amountsTheamountsrecognisedinthebalancesheetaredeterminedasfollows:

Presentvalueofthedefinedbenefitobligation 87,062 82,913 -

Fairvalueofdefinedbenefitplanassets (82,424) (61,439) -

Netliabilitybeforeadjustmentforcontributionstax 4,638 21,474 -Adjustmentforcontributionstax 192 719 -

Net liability in the balance sheet 4,830 22,193 -

TheGrouphasnolegalobligationtosettlethisliabilitywitheitheranimmediatecontributionoradditionalone-offcontributions.TheGroupintendstocontributetothedefinedbenefitsectionoftheplansatpercentageratesofsalariesinlinewiththeactuaries’latestrecommendationsassetoutinnote19(g).

(c) Categories of plan assetsThemajorcategoriesofplanassetsareasfollows:

Cash 1,120 2,338 -Equityinstruments 38,080 32,159 -Debtinstruments 20,881 11,048 -Property 10,822 5,021 -Otherassets 11,521 10,873 -

82,424 61,439 -

(d) reconciliationsReconciliation of the present value of the defined benefit obligation, which is partly funded:

Balanceatthebeginningoftheyear 82,913 57,964 -Currentservicecost 3,168 2,244 -Interestcost 3,866 3,036 -Actuarialgainsandlosses (2,602) 9,687 -Benefitspaid (1,756) (2,460) -Contributionspaidbymembers 377 316 -Acquiredinbusinesscombinations - 15,297 -Foreigncurrencyexchangedifferences 1,096 (3,171) -

Balanceattheendoftheyear 87,062 82,913 -

Reconciliation of the fair value of plan assets:

Balanceatthebeginningoftheyear 61,439 45,433 -Expectedreturnonplanassets 4,472 3,277 -Actuarialgainsandlosses 3,319 2,580 -ContributionsbyGroupcompanies 13,677 3,820 -Contributionspaidbymembers 536 496 -Benefitspaid (1,756) (2,460) -Acquiredinbusinesscombinations - 10,417 -Foreigncurrencyexchangedifferences 737 (2,124) -

Balanceattheendoftheyear 82,424 61,439 -


61



(e) Amounts recognised in income statementCurrentservicecost 3,168 2,244 -Interestcost 3,866 3,036 -Expectedreturnonplanassets (4,472) (3,277) -

Totalincludedinemployeebenefitsexpense 2,562 2,003 -

Actualreturnonplanassets 7,791 5,857 -

(f) principal actuarial assumptionsTheprincipalactuarialassumptionsused(expressedasweightedaverages)wereasfollows:

Consolidated2006 2005

AustraliaDiscountrate 4.8% 4.3%Expectedreturnonplanassets 8.0% 8.0%Futuresalaryincreases 5.0% 5.0%

United KingdomDiscountrate 5.0% 5.8%Expectedreturnonplanassets 5.7% 6.5%Futuresalaryincreases 4.3% 4.5%

EuropeDiscountrate 4.5% 4.0%Expectedreturnonplanassets 4.5% 4.0%Futuresalaryincreases 3.0% 3.0%

Theexpectedrateofreturnonplanassetshasbeenbasedonhistoricalandfutureexpectationsofreturnsforeachofthemajorcategoriesofassetclassesaswellastheexpectedandactualallocationofplanassetstothesemajorcategories.Thisbasisresultedintheselectionoftheweightedaveragereturnsofplanassetsforeachofthedefinedbydefinedbenefitplansassetoutabove.

(g) employer ContributionsEmployercontributionstothedefinedbenefitsectionoftheplansarebasedonrecommendationsbytheplans’actuary.Actuarialassessmentsaremadeatnomorethanoneyearlyintervals,andthelastsuchassessmentwasmadeasat30June2006.

AustraliaTheobjectiveoffundingistoensurethatthebenefitentitlementsofmembersandotherbeneficiariesarefullyfundedbythetimetheybecomepayable.Toachievethisobjective,theactuarieshaveadoptedamethodoffundingbenefitsknownas theaggregate fundingmethod.This fundingmethodseeks tohavebenefits fundedbymeansofa totalcontributionwhichisexpectedtobeaconstantpercentageofmembers’salariesovertheirworkinglifetimes.Usingthefundingmethoddescribedaboveandparticularactuarialassumptionsastotheplan’sfutureexperience(asdetailedbelow),theactuaryrecommendedintheirreviewasat30June2006,acontributionamountthatwouldbesufficienttomeetthecompany’sobligationstothedefinedbenefitscheme.TotalemployercontributionsexpectedtobepaidbyGroupcompaniesfortheyearending30June2007are$1.794m(parententity:$Nil).ThiscontributionhasbeenadoptedbytheGroupandrepresentsanincreaseof1.24%oftheGroup’scontributionsfromthatpreviouslyused.

62


(g) employer Contributions Australia(continued)

Theeconomicassumptionsusedbytheactuariestomakethefundingrecommendations(dependingonthefund)werealongterminvestmentearningrateof8.0%p.a(netoffeesandtaxes),asalaryincreaserateof5.0%p.atogetherwithanagerelatedpromotionalscale,andaninflationrateof4.8%p.a.

united KingdomTheobjectiveoffundingistoensurethatthebenefitentitlementsofmembersandotherbeneficiariesarefullyfundedbythetimetheybecomepayable.Toachievethisobjective, theactuaryhasadoptedamethodof fundingbenefitsknownastheattainedagemethod.Thisseekstohavefuturebenefitaccrualfundedbymeansofacontributionwhichisexpectedtobeaconstantpercentageofmembers’salariesovertheirworkinglifetimes.Usingthefundingmethoddescribedaboveandparticularactuarialassumptionsastotheplan’sfutureexperience(asdetailedbelow),employercontributionshavebeenpaidattherateof35.7%ofmembers’totalpensionableearningslessmembercontributionsfollowingcompletionofthe2003actuarialvaluation.Followinganinformalreviewcarriedoutbythecompany’sactuarialadvisersasat6April2005,anadditionalemployercontributionof$9.590mwaspaidinOctober2005inordertoeliminatetheplan’sshortfall.Totalemployercontributionsexpectedtobepaidfortheyearending30June2007areapproximately$1.678m.Theeconomicassumptionsusedbytheactuaryforfundingpurposesusedtomakethefundingrecommendationswerealongterminvestmentreturnof6.5%p.a.asalaryincreaserateof4%p.a.andaninflationrateof2.5%p.a.

europeTheobjectiveoffundingistoensurethatthebenefitentitlementsofmembersandotherbeneficiariesarefullyfundedbythetimetheybecomepayable.Toachievethisobjective, theactuaryhasadoptedamethodof fundingbenefitsknownastheattainedagemethod.Thisseekstohavefuturebenefitaccrualfundedbymeansofacontributionwhichisexpectedtobeaconstantpercentageofmembers’salariesovertheirworkinglifetimes.Usingthefundingmethoddescribedaboveandparticularactuarialassumptionsastotheplan’sfutureexperience(asdetailedbelow),theactuaryrecommendedintheirreviewasat30June2006,acontributionamountthatwouldbesufficienttomeetthecompany’sobligationstothedefinedbenefitscheme.TotalemployercontributionsexpectedtobepaidbyGroupcompaniesfortheyearending30June2007areapproximately$0.4m.Theeconomicassumptionsusedbytheactuaryforfundingpurposesusedtomakethefundingrecommendationswerealongterminvestmentreturnof4.0%p.a.asalaryincreaserateof3.0%p.a.andaninflationrateof4.0%p.a.


(h) Historical summaryDefinedbenefitplanobligation 87,062 82,913 -Planassets (82,424) (61,439) -Adjustmentforcontributionstax 192 719 -

Deficit 4,830 22,193 -

Experienceadjustmentsarisingonplanliabilities (2,602) 9,687 -Experienceadjustmentsarisingonplanassets (3,319) (2,580) -

Informationforyearspriorto2005isnotavailable.


63


20 ContriButeD eQuitY(i) Share capitalOrdinaryshares–fullypaid 780,108 220,665 2,100,764

Movement in ordinary share capital – fully paid

Number of shares issued by :

Equity carrying amount $’000

Date

Sims Group Australia Holdings Limited

Sims Group Limited

Issue price

$ Consolidated Parent

Balanceatthebeginningofthefinancialyear 91,086,086 - - 220,665 -

IssuedonexerciseofoptionsundertheOptionPlan(note27(ii))

8July2005 193,798 - 6.75 1,309 -

SharesexchangedunderSchemeofArrangement 91,279,884

IssuedonincorporationofSimsGroupLimited

20June2005 1

IssuedinexchangeforsharesinSimsGroupAustraliaHoldingsLimited*

31October2005 91,279,884 16.90 - 1,542,630

IssuedonacquisitionofHugoNeuCorporationoperations*

31October2005 32,137,071 16.90 543,117 543,117

Issuedunderthedividendreinvestmentplan

13April2006 856,529 17.49 15,017 15,017

Issuedonexerciseofrestrictedstockunits(note27(iii))

30June2006 43,799 - - -

Balance at the end of the financial year for accounting purposes 124,317,284 780,108 2,100,764

IssueofordinarysharesundertheSimsGroupEmployeeSharePlandeemedtobeoptionsforaccountingpurposes(note27(i))

22July2005 187,164

Balance at the end of the financial year per share register 124,504,448

ordinary sharesOrdinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company inproportiontothenumberofsharesheld.Votingrightsattachingtotheordinarysharesare,onashowofhands,onevoteforeverypersonpresentasamember,proxy,attorneyorrepresentativethereofand,onapoll,onevotepershareforeverymemberpresentinpersonorbyproxy,attorneyorrepresentative.Duringtheyearended30June2005therewasnochangeinthesharecapitaloftheCompany.*FairvalueofsharesissuedbasedonSimsGroupLimitedclosingsharepriceof$16.90onthedateofissue

(31October2005).

(ii) options including ordinary shares deemed to be options noted above661,562optionsoverordinarysharesweregrantedduringthefinancialyear.237,597optionswereexercisedduringtheyear.Thenumberofoptionsoutstandingattheendofthefinancialyearwas617,763(2005–193,798).Furtherdetailsonoptionsaresetoutinnote27(vi).WiththeexceptionofthesharesissuedundertheSimsGroupEmployeeSharePlan,optionscarrynovotingrights.

64


Notes $’000 $’000 $’000

21 StAteMentS oF CHAnGeS in eQuitYTotal equity at the beginning of the financial year 517,456 440,777 -AdjustmentonadoptionofAASB132andAASB139,netoftaxto:

Retainedprofits 22 (455) - -

Restated total equity at the beginning of the financial year 517,001 440,777 -Totalrecognisedincomeandexpensefortheyear 246,127 195,091 46,422Transactionswithequityholdersintheircapacityasequityholders:

Dividendsprovidedfororpaid 23 (128,310) (118,412) (45,981)Shareownershipandoptionplanexpense 27(v) 2,524 - 2,524Issueofordinaryshares,netoftransactioncosts 20 559,443 - 2,100,764

Total equity at the end of the financial year 1,196,785 517,456 2,103,729

22 reSerVeS AnD retAineD proFitSReserves

Assetrevaluationreserve 77,635 50,170 -

Share-basedpaymentsreserve 2,524 - 2,524

Cashflowhedgingreserve (72) - -

Definedbenefitsreserve (1,248) (5,117) -

Foreigncurrencytranslationreserve (1,250) (19,014) -

77,589 26,039 2,524

Movementsinreserveswere:

Asset revaluation reserve

Balance1July 50,170 22,294 -Incrementonrevaluationofland,buildingsandleaseholdimprovements 23,086 41,210 -

Deferredtaxoncurrentyearmovements (5,173) (13,334) -DeferredtaxadjustmentsonformationofthenewAustraliantaxconsolidatedgroup 9,552 - -

Balance30June 77,635 50,170 -

Share-based payments reserve

Balance1July - - -Shareownershipandoptionplanexpense(note27(v)) 2,524 - 2,524

Balance30June 2,524 - 2,524

Cash flow hedging reserve

Balance1July - - -AdjustmentonadoptionofAASB132andAASB139,netoftax(note39) (455) - -

Revaluation (360) - -

Deferredtaxonrevaluation 288 - -

Transfertonetprofit–gross 650 - -

Deferredtaxontransfertonetprofit (195) - -

Balance30June (72) - -


65


22 reSerVeS AnD retAineD proFitS (CONTINUED)

Defined benefits fund reserve

Balance1July (5,117) - -Actuarialgains/(losses) 5,921 (7,107) -Deferredtaxonactuarialgains/(losses) (2,052) 1,990 -

Balance30June (1,248) (5,117) -

Foreign currency translation reserve

Balance1July (19,014) 5,685 -Currencyexchangedifferencesarisingduringtheyear 17,764 (24,699) -

Balance30June (1,250) (19,014) -

Asset revaluation reserveTheproperty,plantandequipmentrevaluationreserveisusedtorecordincrementsanddecrementsontherevaluationofnon-currentassets,asdescribedinnote1(r).Thebalancestandingtothecreditofthereservemaybeusedtosatisfythedistributionofbonusshares to shareholdersand isonly available for thepaymentof cashdividends in limitedcircumstancesaspermittedbylaw.

Share-based payments reserveTheshare-basedpaymentsreserveisusedtorecognisethefairvalueofoptionsissuedbutnotexercised.

Cash flow hedging reserveThehedgingreserveisusedtorecordgainsorlossesonahedginginstrumentinacashflowhedgethatarerecogniseddirectly inequity,asdescribedinnote1(p).Amountsarerecognisedinprofitandlosswhentheassociatedhedgedtransactionaffectsprofitandloss.

Defined benefits fund reserveThedefinedbenefitsfundreserveisusedtorecognisetheunrealisedactuarialgainsandlossesarisingfromthevaluationofdefinedbenefitretirementobligations.

Foreign currency translation reserveExchangedifferencesarisingontranslationoftheforeigncontrolledentityaretakentotheforeigncurrencytranslationreserve,asdescribedinnote1(d).Thereserveisrecognisedinprofitandlosswhenthenetinvestmentisdisposedof.


Retained profitsRetainedprofitsatthebeginningofthefinancialyear 270,752 192,133 -NetprofitattributabletomembersofSimsGroupLimited 196,646 197,031 46,422Dividendspaid(note23) (128,310) (118,412) (45,981)

Retainedprofitsattheendofthefinancialyear 339,088 270,752 441

66


23 DiViDenDSOrdinary sharesFinaldividendfortheyearended30June2005paidat70cpershareplusanadditionalspecialdividendof20cpersharebothfrankedat60%basedontaxpaidat30%(2004:Finaldividendfortheyearended30June2004paidat60cpersharefrankedat48%basedontaxpaidat30%) 82,329 54,652 -

Interimdividendfortheyearended30June2006paidat45centsperfullypaidordinaryshare,frankedat47%basedontaxpaidat30%(2005:70centsperfullypaidordinaryshare,frankedat54%basedontaxpaidat30%)toshareholders(excludingHugoNeuCorporation)andaninterimdividendof15centsperfullypaidordinaryshare,frankedat47%basedontaxpaidat30%(2005:nil)toHugoNeuCorporation. 45,981 63,760 45,981

Totaldividendspaid 128,310 118,412 45,981

Dividends not recognised at year end

Sinceyearendthedirectorshavedeterminedthepaymentofafinaldividendof60cperfullypaidordinaryshare,frankedat51%basedontaxpaidat30%.Theaggregateamountoftheproposeddividendexpectedtobepaidon20October2006outofconsolidatedretainedprofitsat30June2006,butnotrecognisedasaliabilityatyearend. 74,702 82,329 74,702

Franked DividendsThefrankedportionofdividendsdeterminedafter30June2006willbefrankedoutofexistingfrankingcreditsoroutoffrankingcreditsarisingfromthepaymentofincometaxintheyearending30June2007.

Frankingcreditsavailableforthesubsequentfinancialyear(basedontaxrateof30%) 22,777 21,239 22,777

Theaboveamountsrepresentthebalancesofthefrankingaccountsasattheendofthefinancialyear,adjustedfor:

(a)frankingcreditsthatwillarisefromthepaymentofincometaxpayableasattheendofthefinancialyear(b)frankingdebitsthatwillarisefromthepaymentofdividendsrecognisedasaliabilityasatthereportingdate,and(c)frankingcreditsthatwillarisefromthereceiptofdividendsrecognisedasreceivablesatthereportingdate.Theimpactonthefrankingaccountofthedividenddeterminedbythedirectorssinceyearend,butnotrecognisedasaliabilityatyearend,willbeareductioninthefrankingaccountof$16.3m(2005:$21.2m).


67


24 ContinGent liABilitieS

Detailsandestimatedmaximumamountsofcontingentliabilities(forwhichnoamountsarerecognisedinthefinancialstatements)arisinginrespectof:

GuaranteesTheparententity,itssubsidiaries,itsjointventureoperationsanditsassociatedcompanieshavegivenanumberofguaranteesinrespectoftheperformanceofcontractsandworkerscompensationinsuranceenteredintointheordinarycourseofbusiness. 8,309 1,207 -

SubsidiariesUnderthetermsofaDeedofCrossGuaranteeenteredintoinaccordancewithASICClassOrder98/1418(asamendedbyClassOrders98/2107,00/0321,01/1087,02/0248and02/1017)theparententityhasundertakentomeetanyshortfallwhichmightariseonthewindingupofcontrolledentitieswhicharepartytothedeedasdescribedinnote29.Thecontrolledentitiesarenotinliquidationandthereisnoindicationthattheywillbewoundup.

25 CApitAl eXpenDiture CoMMitMentSTotalcapitalexpenditurecontractedforatthebalancedatebutnotrecognisedinthefinancialstatementsandpayablenotlaterthanoneyear–fortheacquisitionofplantandequipment 11,313 2,822 -–fortheacquisitionoflandandbuildings 68 - -

11,381 2,822 -

Commitmentsincludedaboverelatingtojointventureoperationsandassociatecompanies–fortheacquisitionofplantandequipment 301 271 -–fortheacquisitionoflandandbuildings 68 - -

369 271 -

TheaboveamountsincludeSimsGroup’sshareofjointventuresandequityaccountedassociates.

68


26 leASe CoMMitMentS

Commitmentsinrelationtoleasescontractedforatbalancedatebutnotrecognisedasliabilities,payable:Notlaterthanoneyear 30,736 21,071 -Laterthanone,butnotlaterthanfiveyears 79,810 54,699 -Laterthanfiveyears 61,247 34,806 -

171,793 110,576 -

Representing:Cancellableoperatingleases 2,710 4,103 -Non-cancellableoperatingleases 169,083 106,473 -

171,793 110,576 -

Commitmentsforminimumleasepaymentsinrelationtonon-cancellableoperatingleasesarepayableasfollows:Notlaterthanoneyear 29,493 18,982 -Laterthanone,butnotlaterthanfiveyears 78,343 52,689 -Laterthanfiveyears 61,247 34,802 -

169,083 106,473 -

TheaboveamountsincludeSimsGroup’sshareofjointventuresandequityaccountedassociates.

27 SHAre oWnerSHip AnD option plAnS

(i) employee share planThe Executive Long Term Incentive Plan (‘LTI Plan’) has been established to encourage employees to share in theownership of the Company, in order to promote the long-term success of the Company as a goal shared by theemployees. Offers of shares under the Plan are at the discretion of the parent Company and have been made toAustralianbasedemployeesinthefinancialyear2006.TheparentCompanyprovidesfinancialassistanceintheformofasharesecurednon-interestbearingemployeeloan.TheloanisrepayableinfullwithinfiveyearsafterthefinancialassistanceisprovidedorsuchlongerperiodandinsuchamannerastheCompanymaydetermine.Thebeneficialownershipoftheseshareswillvestwithemployeesinlinewithachievementofcontinuousserviceandnon-marketbasedperformancecriteria.Thecontinuousservicecriterionismetifthe‘Participant’isintheemployoftheCompanyatvesting.Periodsofcontinuousservicevaryaccordingtothevestingperiodsofthesharesthathavebeenofferedwhilenon-marketbasedperformancecriteriaaresatisfiediftheaverageannualcompoundgrowthinthedilutedearningspershareoftheCompanyofbetween5%and10%isachievedoverperiodswhichvarybetweenthreeandfiveyears.Thereisnorewardiflessthan5%EPSgrowthisachieved.Holdersofthesharesareentitledtodividendsoverthetermoftherelevantvestingperiod.Duringtheperiod,$2,085,588(2005:$Nil)wasadvancedtoparticipatingemployeestoenablethemtoacquire187,164shares(2005:Nil)at$14.99,being0.15%oftheissuedcapitaloftheformerparententity(SimsGroupAustraliaHoldingsLimited ‘SGHAL’). The acquisition price of these shares was based on the five-day weighted average price of thatcompany’ssharesleadinguptothedateofissuebeing22July2005.AsaconsequenceoftheSchemeofArrangemententeredintoon31October2005,allsharesinSGHALwereexchangedinfullforsharesinthenewlegalparententity,SimsGroupLimited.Consequently,theamountsreceivablefromemployeeshavebeenassignedtoSimsGroupLimitedinfull.Thesesharesaredeemedtobeshareoptionsratherthanissuedsharecapitalforaccountingpurposes(referNote20(i)).UnderAASB2Share Based Payment,theweightedaveragefairvalueoftheseinstrumentsamountedto$5.56eachatgrantdateforexecutiveswhocommencedintheLTIPlaninthefinancialyear2003,and$6.04forexecutiveswhocommencedintheLTIPlaninfinancialyear2006.FairvaluehasbeendeterminedbyusingtheMonte-CarloBinomialOptionsPricingModel.Inputsinthemodelincludeexpectedvolatilityof25%p.a.therelevantvestingperiod,adividendyieldof5.5%p.a.ariskfreerateof5.22%p.a.andanassessmentoftheprobabilityofachievementofcontinuousserviceandnon-marketbasedperformancecriteria.


69

27 SHAre oWnerSHip AnD option plAnS (CONTINUED)

(ii) option planA‘CEOPlan’existedforthegrantingofoptionsoverunissuedordinarysharesintheparententitytoMrSutcliffe,theGroupChiefExecutive.OptionsundertheCEOPlanweregrantedfornoconsideration.ThisPlanwassuspendedduringthefinancialyear2003andreplacedbytheLTIPlan.MrSutcliffewas issued193,798options toacquireshares inSGHALon28February2002whichwereexercisablefrom28February2005andexpiredon28March2007.Thefairvalueoftheseoptionsatthedateofgrantwas$1.30asderivedbyapplyingtheBlack-Scholesoptionspricingmodel.Duringthefinancialyear,alloftheseoptionsheldbyMr Sutcliffe were exercised at a price of $6.75. The weighted average share price at the date of exercise being8July2005,was$14.35.Theamountreceivedontheexerciseofoptionsisrecognisedasissuedcapitalatthedateofissueoftheshares.NoexpenseisrecognisedinrespectoftheseoptionsasdescribedatNote1(x)(iv).

(iii) restricted stock unitsDuringtheperiod,theCompanygrantedRestrictedStockUnits(‘RSUs’)toselectNorthAmericanexecutives.AnRSUprovidestheexecutivewithacontractualrighttoacquireoneordinaryshareinSimsGroupLimitedfornilconsideration.RSUsvestbasedonacombinationofachievementofcontinuousserviceandnon-marketbasedperformancecriteria.Continuousservicerangesfrom8months(from1November2005)to3yearsand8months(untilJune2009)whileperformancecriteriainvolvetheachievementofathree-yearearningspersharecompoundannualgrowthratesof8%onSimGroupLimitedsharesforperiodsupto30June2009.HoldersoftheRSUarenotentitledtodividendsoverthetermoftherelevantvestingperiod.RSUsaregrantedfornoconsiderationandvestoverdatesrangingfrom30June2006to30June2009.Theweightedaverage fair value of RSUs granted amounted to $14.72 each at grant date. Fair value has been determined withreferencetoadividendyieldof5.5%p.a,expectedvestingdatesandanassessmentoftheprobabilityofachievementof continuous service and non-market based performance criteria. The number of RSUs issued was based upon aCompanysharepriceof$16.68beingthepriceapplicableatthedatetheRSUsweregranted.SetoutbelowisasummaryofRSUsintheCompany:

GrantDate

Balanceatstartofthe

year

Grantedduring

theyear

Exercisedduring

theyear

Forfeitedduring

theyear

Balanceatendoftheyear

Exercisableatendoftheyear

1November2005 - 324,507 (43,799) - 280,708 -

(iv) performance rightsDuringtheperiod,theCompanygrantedperformancerightstoboththeGroupChiefExecutiveandExecutiveDirector–GroupFinanceandStrategy.AperformancerightisacontractualrighttoacquireanordinaryshareinSimsGroupLimitedfornilconsideration.Theseperformancerightsvestbasedontheachievementofbothcontinuousserviceandnon-marketbasedperformancecriteria.Continuousservicecoversperiodsextendingto31October2010fortheGroupChiefExecutiveand30June2008 for theExecutiveDirector –GroupFinanceandStrategy.Thenon-marketbasedperformancecriteriaaremeasuredwithreferencetoatargetearningspersharecompoundannualgrowthrateof8%onSimGroupLimitedsharesforperiodsupto31October2010fortheGroupChiefExecutiveand30June2008fortheExecutiveDirector–GroupFinanceandStrategy,subjecttoperiodicretesting.Thetotalnumberofperformancerightsgrantedduringtheperiodamountedto149,891allofwhichremainedoutstandingasatperiodend.Theearliestvestingdateforperformancerightsis31October2006.Theweightedaveragefairvalueofperformancerightsgrantedamountedto$14.18inrespectoftheGroupChiefExecutiveand$14.81inrespectoftheExecutiveDirector–GroupFinanceandStrategy.Fairvaluehasbeendeterminedwithreferencetoadividendyieldof5.5% p.a, expected vesting dates and an assessment of the probability of achievement of continuous service andnon-marketbasedperformancecriteria.

70


27 SHAre oWnerSHip AnD option plAnS (CONTINUED)

(v) effect of share based payments on profit and lossTotalexpensesarisingfromshare-basedpaymenttransactionsrecognised during the period as part of employee benefitexpensewereasfollows:Sharesissuedundertheemployeeshareplan 886 - -RSUsissued 1,350 - -Performancerightsissued 288 - -

2,524 - -

(vi) Summary of share ownership and option plan grants

Balanceatstartoftheyear

Grantedduring

theyear

Exercisedduring

theyear

Forfeitedduring

theyear


Exercisableatendoftheyear

Employeeshareplan - 187,164 - - 187,164 -Optionplan 193,798 - (193,798) - - -Restrictedstockunits - 324,507 (43,799) - 280,708 -Performancerights - 149,891 - - 149,891 -

193,798 661,562 (237,597) - 617,763 -

28 KeY MAnAGeMent perSonnel DiSCloSureS

(a) DirectorsThefollowingpersonsweredirectorsofSimsGroupLimitedduringthefinancialyear:

(i) Chairman – non-executivePMazoudier

(ii) Executive directorsJNeu,ViceChairman(appointed31October2005)JLSutcliffe,GroupChiefExecutiveRBCunningham,ExecutiveDirector–GroupFinanceandStrategy

(iii) Non-executive directorsGNBrunsdonACCopeman(retired18November2005)BEvery(appointed24October2005)JMFeeneyPVarello(appointed31October2005)


71

28 KeY MAnAGeMent perSonnel DiSCloSureS (CONTINUED)

(b) other key management personnelThefollowingpersonsalsohadtheauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesoftheGroup,directlyorindirecty,duringthefinancialyear:

Name Position

CRJansen ChiefExecutive–SimsHugoNeu

DRMcGree ManagingDirector–Australia&NewZealand

WTBird ManagingDirector–MetalsRecycling–UK

GDavy ManagingDirector–SimsRecyclingSolutions–Europe&NorthAmerica

RRBrown GeneralManager–NZ(Retired3July2006)


(c) Key management personnel compensation

Short-termbenefits 7,759,652 6,294,191 1,270,987Long-termbenefits 1,198,960 955,862 -Post-employmentbenefits 1,373,587 740,803 -Sharebasedpayments 1,367,489 736,539 -

11,699,688 8,727,395 1,270,987

ThecompanyhastakenadvantageofthereliefprovidedbyASICClassOrder06/50andhastransferredthedetailedremunerationdisclosurestothedirectors’report.

(d) equity instrument disclosures relating to key management personnel

(i) Options provided as remuneration and shares issued on exercise of such optionsDetailsofoptionsprovidedasremunerationandsharesissuedontheexerciseofsuchoptions,togetherwithtermsandconditionsoftheoptions,canbefoundintheremunerationreport.

72

28 KeY MAnAGeMent perSonnel DiSCloSureS(CONTINUED)

(d) equity instrument disclosures relating to key management personnel (continued)

(ii) Option holdingsThenumbersofoptionsoverordinarysharesinthecompanyheldduringthefinancialyearbyeachdirectorofSimsGroupLimitedandotherkeymanagementpersonnel,includingtheirpersonallyrelatedparties,aresetoutbelow.

2006 Name


Grantedduringtheyearas

compensation

Exercisedduringthe

year

Otherchangesduring

theyear


Vestedandexercisableat

endoftheyear

Directors of Sims Group LimitedPKMazoudier - - - - - -JNeu(appointed31October2005) - - - - - -JLSutcliffe

Option plan 193,798 - (193,798) - - -Employee share plan - 90,517 - - 90,517 -Performance rights - 119,913 - - 119,913 -

RBCunninghamEmployee share plan - 11,879 - - 11,879 -Performance rights - 29,978 - - 29,978 -

GNBrunsdon - - - - - -ACCopeman(retired18November2005) - - - - - -BEvery(appointed24October2005) - - - - - -JMFeeney - - - - - -PVarello(appointed31October2005) - - - - - -

193,798 252,287 (193,798) - 252,287 -

Other key management personnel of the GroupCRJansen

Restricted stock units - 79,634 (19,909) - 59,725 -DRMcGree

Employee share plan - 9,427 - - 9,427 -WTBird - - - - - -GDavy - - - - - -RRBrown - - - - - - - 89,061 (19,909) - 69,152 -

Nootherdirectororkeymanagementpersonnelheld,wasgrantedorexercisedanyoptions.


73

28 KeY MAnAGeMent perSonnel DiSCloSureS(CONTINUED)


(ii) Option holdings (continued)

2005 Name


Grantedduringtheyearas

compensation

Exercisedduringthe

year

Otherchangesduring

theyear


Vestedandexercisableatendoftheyear

Directors of Sims Group LimitedPKMazoudier - - - - - -JLSutcliffe

Option plan 193,798 - - - 193,798 193,798RBCunningham - - - - - -GNBrunsdon - - - - - -ACCopeman - - - - - -JMFeeney - - - - - -

193,798 - - - 193,798 193,798

Other key management personnel of the GroupCRJansen - - - - - -DRMcGree - - - - - -WTBird - - - - - -GDavy - - - - - -RRBrown - - - - - -

- - - - - -

Nootherdirectororkeymanagementpersonnelheld,wasgrantedorexercisedanyoptions.

(iii) Share holdingsThenumbersofsharesinthecompanyduringthefinancialyearbyeachdirectorofSimsGroupLimitedandotherkeymanagementpersonneloftheGroup,includingtheirpersonallyrelatedparties,aresetoutbelow.Therewerenosharesgrantedduringthereportingperiodascompensation.

2006 Name


Receivedduringtheyearonthe

exerciseofoptions

Otherchanges

duringtheyear


Directors of Sims Group LimitedPKMazoudier 14,082 - - 14,082JNeu,ViceChairman(appointed31October2005) - - 32,263,924 32,263,924JLSutcliffe 2,000 193,798 (95,281) 100,517RBCunningham - - 11,879 11,879GNBrunsdon 3,250 - 62 3,312ACCopeman(retired18November2005) 7,791 - (7,791) -BEvery(appointed24October2005) - - 4,000 4,000JMFeeney 25,504 - - 25,504PVarello(appointed31October2005) - - - -

52,627 193,798 32,176,793 32,423,218

Theshares issuedtoJNeuformedpartoftheconsiderationpaidforthepurchasebySimsGroupLimitedoftherecyclingoperationsinNorthAmericafromHugoNeuCorporation.

74

28 KeY MAnAGeMent perSonnel DiSCloSureS (CONTINUED)


(iii) Share holdings (continued)

2006 Name



exerciseofoptions

Otherchangesduring

theyear


Other key management personnel of the GroupCRJansen - 19,909 - 19,909DRMcGree - - 9,427 9,427WTBird - - - -GDavy - - - -RRBrown - - - -

- 19,909 9,427 29,336

2005 Name



exerciseofoptions

Otherchangesduring

theyear


Directors of Sims Group LimitedPKMazoudier 14,082 - - 14,082JLSutcliffe 2,000 - - 2,000RBCunningham 43,000 - (43,000) -GNBrunsdon 3,250 - - 3,250ACCopeman 7,791 - - 7,791JMFeeney 25,504 - - 25,504

95,627 - (43,000) 52,627

Other key management personnel of the GroupCRJansen - - - -DRMcGree - - - -WTBird - - - -GDavy - - - -RRBrown - - - -

- - - -

(e) other transactions with key management personnelTransactionsenteredintowithdirectorsofSimsGroupLimitedandotherkeymanagementpersonneloftheGroup,includingtheirpersonallyrelatedpartiesareatnormalcommercialterms.DuringtheyearJMFeeneyandGNBrundsonwerepaid$15,000and$40,000respectivelyfortheassistancetheygaveinconnectionwiththeHugoNeuacquisitionduediligence.EntitiesassociatedwithJNeuwerepaidorareentitledtoreceiveinterestamountingto$600,000onthebalanceoutstandingofthepurchaseconsiderationrelatingtotheHugoNeumerger.


75

29 SuBSiDiArieS Country of Equity Name of entity incorporation holding

(Indentationindicatesownershiprelationship) 2006 2005 % %Sims Group Limited

SimsGroupAustraliaHoldingsLimited(i) Australia 100 100PNGRecyclingLimited PNG 100 100SimsAluminiumPtyLimited(i) Australia 100 100SimsE-RecyclingPtyLimited Australia 90 100SimsGroupCanadaHoldingsLimited Canada 100 100SimsTyrecyclePropertiesPtyLimited Australia 100 100SimsTyrecyclePtyLimited(i) Australia 100 100SimsmetalFinanceLimited(iv) Australia - 100SimsmetalHoldingsPtyLimited Australia 100 100

SimsAsiaHoldingsLimited HongKong 100 100SimsEnergyPtyLimited Australia 100 100SimsGroupUSACorporation USA 100 100SimsIndustrialPtyLimited Australia 100 100

SimsmetalIndustriesLimited NewZealand 100 100SimsmetalServicesPtyLimited(i) Australia 100 100

SimsManufacturingPtyLimited Australia 100 100SimsmetalExecutiveStaffSuperannuationPtyLimited Australia 100 100

UniversalInspectionandTestingCompanyPtyLimited Australia 100 100SimsmetalStaffEquityPtyLimited Australia 100 100

SimsGroupUKHoldingsLimited UK 100 100SimsGroupUKIntermediateHoldingsLimited UK 100 100

SimsGroupUKLimited UK 100 100MirecAB Sweden 100 100MirecBV Netherlands 100 100

DeValkGlasBV(iv) Netherlands - 100LimburgGlasBV(iv) Netherlands - 100

ICRBusinessBV(iv) Netherlands - 100MirecNV Belgium 100 100

MirecLimited UK 100 100MirecAssetManagementGroupLimited UK 100 100

MirecAssetManagementLimited UK 100 100FrazierEuropeLimited UK 100 100

Lot1CoUKLimited UK 100 100SimsmetalUK(Glos)Limited UK 100 100SimsmetalUK(Northern)Limited UK 100 100SimsmetalUK(Reclamation)Limited UK 100 100SimsmetalUK(SouthEast)Limited UK 100 100

BlackbusheMetals(Western)Limited UK 100 100SimsmetalUK(Fraser)Limited UK 100 100

SimsmetalUK(Elliott)Limited UK 100 100SimsmetalUK(SouthWest)Limited UK 100 100SimsmetalUK(WessexHoldings)Limited(iv) UK - 100SimsmetalUK(Wessex)Limited UK 100 100SKStainlessLimited UK 100 100UnitedCastingsLimited UK 100 100

SimsmetalUK(Midwest)Limited UK 100 100SimsmetalUK(Southern)Limited UK 100 100SimsmetalUKPensionTrusteesLimited UK 100 100SimsmetalUKRecyclingLimited UK 100 100

SimsHugoNeuCorporation USA 100 -SHNCoLLC(ii) USA 100 -

HNWRecyclingLLC(ii) USA 100 -

76

29 SuBSiDiArieS (CONTINUED) Country of Equity Name of entity incorporation holding

(Indentationindicatesownershiprelationship) 2006 2005 % %

Sims Group LimitedHNERecyclingLLC(ii) USA 100 -

AlamedaStreetMetalCorp(ii)(v) USA 100 -DoverBargeCompany(ii)(vi) USA 100 -NorthCarolinaRecyclingLLC(ii)(v) USA 100 -NorthCarolinaResourceConservationLLC(ii)(v) USA 100 -PacificBulkLoadingInc(ii)(v) USA 100 -PacificIndustrialMetalCorp(ii)(v) USA 100 -SimsHugoNeuEast(ii)(iii)(v) USA 100 -

SchiaboLarovoCompanyLLC(ii) USA 100 -SchiaboLarovoARLLC(ii) USA 100 -

SimsHugoNeuWest(ii)(iii)(v) USA 100 -EtiwandaDevelopmentLLC(ii) USA 100 -

SimsHugoNeuGlobalTradeLLC(ii) USA 100 -HNSScrapCorporation(ii) USA 100 -

(i) ThesesubsidiariesandtheCompanyarepartiestoaDeedofCrossGuaranteeunderwhicheachentityguaranteesthedebtsoftheothers.Byenteringintothedeed,thewholly-ownedentitieshavebeenrelievedfromtherequirementtoprepareafinancialreportanddirectors’reportunderClassOrder98/1418(asamendedbyClassOrders98/2017,00/0321,01/1087,02/0248and02/1017)issuedbytheAustralianSecurities&InvestmentsCommission.TheaboveentitiesrepresentaClosedGroupandanExtendedClosedGroupforthepurposesoftheClassOrder.

(ii) Thesesubsidiarieswereacquiredduringtheyear.(iii) Thesesubsidiariesaregeneralpartnerships.(iv) Thesesubsidiarieswerede-registeredorliquidatedduringtheyear.(v) Thesesubsidiariesare50%ownedbyHNWRecyclingLLCand50%ownedbyHNERecyclingLLC.(vi) Thissubsidiaryisowned33.3%eachbySimsHugoNeuEast,HNERecyclingLLCandHNWRecyclingLLC.Thevotingpowerheldineachsubsidiaryisproportionatetotheequityholdings.

Subsidiaries and businesses acquired during the year ended 30 June 2005:On5October2004SimsGroupUKLimitedpurchasedtheissuedcapitaloftheMirecGroupofCompaniesfor$55.961m.Thebusinessrecyclesandrecoversawiderangeofelectrical,electronicandITequipmentandoperatesdedicatedplantsfortherecyclingofcathoderaytubesfromTVandcomputermonitorsandforthe‘assetmanagement’ofreuseableequipmentandcomponents.ItoperatesbusinessesthroughouttheBeneluxcountries,SwedenandtheUnitedKingdom.

On30May2005SimsGroupAustraliaHoldingsLimitedpurchasedan‘e-waste’businessfromVolantePtyLimitedfor$157,000.Thefeeforservicerecyclingbusinesswillresultintherecoveryofmetals,circuitboardsplasticsandCRTglass.

Subsidiaries and businesses acquired during the year ended 30 June 2006:On31October2005SimsGroupLimitedacquiredsubstantiallyalloftherecyclingoperationsofHugoNeuCorporationfor$587.6million.Theconsiderationgivencomprised32,137,071ordinaryshares inSimsGroupLimitedwitha fairvalueof$543.1mandthebalancepaid/payableincash.Theoperatingresultsofthenewlyacquiredsubsidiarieshavebeenincludedintheconsolidatedincomesincethedateofacquisition.

Theacquiredbusinessescontributednetprofitaftertaxof$31.5mtotheGroupfortheperiod1November2005to30June2006.Consolidatedrevenueandnetprofitbeforetaxoftheacquiredbusinessesfortheperiod1July2005to30June2006,asiftheacquisitionhadoccurredatthebeginningofthisperiod,areunavailableastheacquiredentitydidnotprepareconsolidatedaccounts.Forthesamereasontheamountsrecognisedbythevendorimmediatelybeforeacquisitionforeachclassofassetandliabilityarenotavailable.

Theacquisitionamountsintheparentcompanyshownundertheheadingofinvestmentsinthetablebelow,comprisethesharesacquiredintheformerHugoNeuoperationsasdescribedabove($587.6m),100%ofthesharesinSimsGroupAustraliaHoldingsLimitedasaconsequenceofthegrouprestructureasdescribedinnote1(a)($1,542.6m)andtheacquisitionofSimsGroupUKHoldingsLimitedfromSimsGroupAustraliaHoldingsLimitedfor$377.0mon29June2006.


77

29 SuBSiDiArieS (CONTINUED)

Fair value of assets and liabilities as at acquisition datesThe2006amountssetoutinthetablebelowreflectprovisionalfairvaluesofassetsandliabilitiesacquiredandgoodwillatacquisitiondate.Inparticular,thedeterminationoftheamountofthedeferredtaxassetsandliabilitieshasnotbeenfinalisedbecausethisisdependentonthevendorfinalisingcertainaspectsofitstaxaffairs.TheprovisionalamountsrepresentSimsGroupLimitedmanagement’sbestestimatesofthedeferredtaxamounts.Howeveritispossiblethat,whenthedatarequiredtofinalisethetaxpositionatacquisitionisprovidedbythevendor,adjustmentsmayberequiredtothedeferredtaxamountswithacorrespondingadjustmenttothegoodwillarisingonacquisition.


Cash 3,354 1,424 -Receivables 138,171 8,243 -Prepayments 5,278 2,136 -Inventories 78,094 3,785 -Property,plant&equipment 197,807 22,202 -Deferredtaxasset 16,062 3,561 -Investments - - 2,507,184Tradeandothercreditors (68,296) (26,337) -Bankloans (226,425) - -Deferredtaxliability (5,789) - -Employeeentitlementprovisions (1,156) (274) -Retirementbenefitobligation - (4,880) -Environmentalprovision (8,790) - -

Net assets of entity 128,310 9,860 2,507,184Goodwillonacquisition 459,244 46,258 -

Consideration paid 587,554 56,118 2,507,184

Consideration paidSharesissued(note20) 543,117 - 2,085,747Balanceofpurchaseconsiderationpaidtovendor 13,459 56,118 -Balanceofpurchaseconsiderationpayabletovendor 12,568 - 12,568BalanceofpurchaseconsiderationpayabletosubsidiaryreSimsGroupUKHoldingsLimitedacquisition - - 377,000BalanceofpurchaseconsiderationpayabletosubsidiaryreHugoNeuoperationsacquisition - - 13,459

Totalconsiderationpayable/paidtovendor 569,144 56,118 2,488,774Directcostsrelatingtotheacquisition 18,410 - 18,410

587,554 56,118 2,507,184

Outflow of cash to acquire subsidiaries and businesses, net of cash acquiredConsiderationpaid 587,554 56,118 2,507,184Less:Non-cashconsideration–sharesissued (543,117) - (2,085,747)Less:Non-cashconsideration–subsidiarycompanyfinanced - - (408,869)Less:Amountspayable (12,568) - (12,568)Less:Cashacquired (3,354) (1,424) -Net cash outflow 28,515 54,694 -

78


Thegoodwillisattributabletoseveralfactorsincluding;sitelocations,synergiesexistingintheoperationsacquired,andtheassembledworkforcewhichtogethercontributetothehighprofitabilityoftheacquiredbusinesses.Sims Group Limited, Sims Group Australia Holdings Limited, Sims Aluminium Pty Limited, Simsmetal Services PtyLimitedandSimsTyrecyclePtyLimitedarepartiestoadeedofcrossguaranteeunderwhicheachcompanyguaranteesthedebtsoftheothers.Byenteringthedeed,thewholly-ownedentitieshavebeenrelievedfromtherequirementstoprepareafinancial reportanddirectors’ reportunderClassOrder98/1418(asamended) issuedbytheAustralianSecuritiesandInvestmentsCommission.

(a) Condensed consolidated income statement and summary of movements in consolidated retained profitsTheabovecompaniesrepresenta‘ClosedGroup’forthepurposesoftheClassOrder.AstherearenootherpartiestotheDeedofCrossGuaranteethatarecontrolledbySimsGroupLimited,theyalsorepresentthe‘ExtendedClosedGroup’.

Setoutbelowisacondensedconsolidatedincomestatementandasummaryofmovementsinconsolidatedretainedprofitsfortheyearended30June2006oftheClosedGroup.

Consolidated2006 $’000

2005$’000

Condensed income statementProfit before income tax 186,923 152,071Incometaxexpense (30,473) (33,594)

Profit for the year 156,450 118,477

Summary of movements in consolidated retained profitsRetained profits at the beginning of the financial year 43,686 43,621Profitfortheyear 156,450 118,477Dividendsprovidedfororpaid (128,310) (118,412)

Retained profits at the end of the financial year 71,826 43,686

(b) Condensed balance sheetSetoutbelowisaconsolidatedbalancesheetasat30June2006oftheClosedGroup.

Current assetsCashandcashequivalents 778 946Receivables 99,645 89,693Inventories 100,682 74,897Derivativefinancialinstruments 585 -

Totalcurrentassets 201,690 165,536

Non-current assetsReceivables - 265Otherfinancialassets 789,002 194,103Property,plantandequipment 90,715 84,358Deferredtaxassets 5,334 4,307Intangibleassets 8,158 8,156

Totalnon-currentassets 893,209 291,189

Total assets 1,094,899 456,725

Current liabilitiesPayables 160,063 96,834Derivativefinancialinstruments 200 -Currenttaxliabilities 15,077 25,638Provisions 10,340 12,379

Totalcurrentliabilities 185,680 134,851


79

Consolidated2006 $’000

2005$’000


(b) Condensed balance sheet (continued)

Non-current liabilitiesBorrowings 32,121 36,770Deferredtaxliabilities 1,656 3,534Provisions 9,413 9,085Retirementbenefitobligations 1,288 4,786

Totalnon-currentliabilities 44,478 54,175

Total liabilities 230,158 189,026

Net assets 864,741 267,699

EquityContributedequity 780,108 220,665Reserves 12,807 3,348Retainedprofits 71,826 43,686

Total equity 864,741 267,699

30 inVeStMentS in ASSoCiAteS(a) Carrying amountsInformationrelatingtotheassociatesissetoutbelow.

Name of AssociatePrincipal Activity

Country of Incorporation Ownership Interest

Consolidated carrying amount $’000

Parent entity carrying amount

$’0002006 2005 2006 2005 2006

RichmondSteelRecyclingLimited

MetalRecycling Canada 50.0% 50.0% 11,730 9,131 -

LandfillManagementServicesPtyLimited

LandfillGasManagement Australia 50.0% 25.0% 9,549 626 -

AustralianRefinedAlloysPtyLimited

MetalRecycling Australia 50.0% 50.0% - - -

AustralianRefinedAlloysSalesPtyLimited


ExtrudedMetals(NewZealand)Limited

MetalRecycling NZ 33.0% 33.0% - - -

SimsPacificMetalsLimited

MetalRecycling NZ 50.0% 50.0% 482 515 -

ConsolidatedExtrusionsPtyLimited


ConsolidatedExtrusions(Management)PtyLimited


21,761 10,272 -

80

Consolidated carrying amount

$’000

Parent entity

carrying amount

$’0002006 2005 2006

30 inVeStMentS in ASSoCiAteS (CONTINUED)

(b) Movements in carrying amountsCarryingamountatthebeginningofthefinancialyear 10,272 7,821 -Acquiredduringtheyearonconversionofconvertiblenotes 8,000 - -Shareofprofitsafterincometax 2,874 2,626 -Foreigncurrencytranslationreserve 615 (175) -

Carryingamountattheendofthefinancialyear 21,761 10,272 -

(c) Share of associates’ profits or lossesProfitbeforeincometax 4,164 3,961 -Incometaxexpense (1,290) (1,335) -

Profitafterincometax 2,874 2,626 -

Group’s share of:Assets$’000

Liabilities$’000

Revenues$’000

Profit$’000

(d) Summarised financial information of associates2006RichmondSteelRecyclingLimited 14,434 2,197 29,172 1,717LandfillManagementServicesPtyLimited 15,586 9,422 5,849 1,157AustralianRefinedAlloysPtyLimited 796 788 17,523 -AustralianRefinedAlloysSalesPtyLimited - - 31,454 -ExtrudedMetals(NewZealand)Limited - - - -SimsPacificMetalsLimited - - - -ConsolidatedExtrusionsPtyLimited - - - -ConsolidatedExtrusions(Management)PtyLimited - - - -

30,816 12,407 83,998 2,874

2005RichmondSteelRecyclingLimited 10,597 1,321 25,645 2,347LandfillManagementServicesPtyLimited 5,444 4,808 1,900 279AustralianRefinedAlloysPtyLimited 1,165 1,152 16,597 -AustralianRefinedAlloysSalesPtyLimited - - 27,691 -ExtrudedMetals(NewZealand)Limited - - - -SimsPacificMetalsLimited - - - -ConsolidatedExtrusionsPtyLimited - - - -ConsolidatedExtrusions(Management)PtyLimited - - - -

17,206 7,281 71,833 2,626

Theconsolidatedentity’sshareoftheassociates’contingentliabilitiesandcapitalexpenditurecommitmentsisincludedinnotes24and25.


81

31 intereStS in Joint VentureSTheconsolidatedentityhasthefollowinginterestsinjointventureoperations:› 50%interestintheAustralianRefinedAlloysunincorporatedjointventure,theprincipalactivityofwhichisthe

productionoflead,leadalloysandrelatedproducts.› 50%interestintheNewZealandbasedSimsPacificMetalsunincorporatedjointventure,theprincipalactivity

ofwhichistheprocessingandsaleofferrousandnon-ferroussecondaryrawmaterials.› 50%interestintheUKbasedEndofLifeVehicleInformationSystemsjointventurewhichdoesnottradeat

present.› 33.3%interestintheConsolidatedExtrusionsunincorporatedjointventure,theprincipalactivityofwhichisthe

productionandsaleofextrudedbrassandcopperproducts.

Theconsolidatedentity’sinterestinassetsemployedinthejointventuresisincludedinthebalancesheetsundertheclassificationsshownbelow:


Current assetsCashassets 2,258 1,746 -Receivables 10,821 20,339 -Inventories 4,527 9,622 -Deferredtaxassets 1,037 2,122Non-currentassetsclassifiedasheldforsale–landandbuildings 5,733 - -

Non-current assetsProperty,plantandequipment 7,173 8,953 -Goodwill 296 300 -

Total assets 31,845 43,082 -

Current liabilitiesPayables 7,788 10,166 -Currenttaxliabilities 3,051 5,161Provisions 1,493 802 -

Non-current liabilitiesProvisions 212 531 -

Total liabilities 12,544 16,660 -

Share of net assets employed in joint ventures 19,301 26,422 -

Theconsolidatedentity’sshareofjointventurecontingentliabilitiesandcapitalexpenditurecommitmentsisincludedinnotes24and25.

82

32 relAteD pArtY trAnSACtionS(a) parent entityTheparententityoftheconsolidatedgroupisSimsGroupLimited.

(b) SubsidiariesInterestsheldinsubsidiariesaresetoutinnote29.

(c) Key management personnelDisclosuresrelatingtokeymanagementpersonnelaresetoutinnote28.

(d) transactions with related partiesThefollowingtransactionsoccurredwithrelatedparties:


TaxconsolidationlegislationCurrenttaxpayableassumedfromwholly-ownedtaxconsolidationentities - - 12,428

DividendrevenueReceivedfromsubsidiaries - - 46,600

ManagementfeeReceivedfromsubsidiaries - - 1,017

SuperannuationcontributionsContributionstosuperannuationfundsonbehalfofemployees 18,437 5,810 -

(e) outstanding balances arising from transactions with related entities

Thefollowingbalancesareoutstandingatthereportingdateinrelationtotransactionswithrelatedparties:Currentreceivables(taxfundingagreement)

Subsidiaries - - 12,428Currentpayables(balanceofpurchasecostsofsubsidiaries)

Directorrelatedentities 12,568 - 12,568Noprovision fordoubtfuldebtshavebeen raised in relationto any outstanding balances, and no expense has beenrecognised in respect of bad or doubtful debts due fromrelatedparties.

(f) loans to from/related partiesLoansfromsubsidiaries

Beginningoftheyear - - -Loansadvanced - - 390,963Loanrepaymentsreceived - - -Endofyear - - 390,963

LoanstoassociatesBeginningoftheyear 8,000 6,000 -Loansadvanced - 2,000 -Convertiblenotesconvertedtoequity (8,000) - -Endofyear - 8,000 -

Noprovisionfordoubtfuldebtshavebeenraisedinrelationtoanyoutstandingbalances,andnoexpensehasbeenrecognisedinrespectofbadordoubtfuldebtsduefromrelatedparties.

(g) terms and conditionsThetermsandconditionsofthetaxfundingagreementaresetoutinnote7.Loansfromsubsidiariesbearinterestatcommercialrates.Allothertransactionsweremadeonnormalcommercialtermsandconditionsandatmarketrates.


83

33 SeGMent reportinGGeographical segmentsThemajorgeographicalareasofoperationareasfollows:

› Australia–comprisingAustraliaandPapuaNewGuinea› NorthAmerica–comprisingtheUnitedStatesofAmericaandCanada› NewZealand› Europe–comprisingUnitedKingdom,Sweden,HollandandDenmark

Business segmentsTheconsolidatedentityoperatespredominantlyinthesecondarymetalrecyclingindustry.Itscorebusinessinvolves:› Ferroussecondaryrecycling–comprisingthecollection,processingandtradingofironandsteelsecondaryraw

material.› Non-ferroussecondaryrecycling–comprisingthecollection,processingandtradingofothermetalalloysand

residues,principallyaluminium,lead,copper,zincandnickelbearingmaterials.› Secondary processing – comprising value added processes involving the melting, refining and ingoting of

certain non-ferrous metals, the production of extruded products and the reclamation and reprocessing ofplastics.

› Recyclingsolutions–comprising theprovisionofenvironmentally responsiblesolutions to thedisposalofpostconsumerproducts.Itoffersfeeforservicebusinessopportunitiesintheenvironmentallyresponsiblerecyclingofnegativevaluematerialsincludingrefrigerators,electricalandelectronicequipment,andtyres.

primary reporting – geographical segments2006

AustraliaNorth

AmericaNew

Zealand Europe

Inter-segmenteliminations/unallocated Consolidated

$’000 $’000 $’000 $’000 $’000 $’000

Salestoexternalcustomers(note(a)) 1,145,667 1,735,204 79,033 792,503 - 3,752,407Intersegmentsales(note(b)) 1,273 - - - (1,273) -

Totalsalesrevenue 1,146,940 1,735,204 79,033 792,503 (1,273) 3,752,407

Shareofnetprofitsofassociates 1,350 1,524 - - - 2,874Otherrevenue/income 931 1,106 65 - - 2,102

Total segment revenue/income 1,149,221 1,737,834 79,098 792,503 (1,273) 3,757,383

Segmentresult 109,276 114,706 10,796 50,821 - 285,599

Unallocatedrevenuelessunallocatedexpenses -

Profitbeforeincometax 285,599Incometaxexpense (88,953)

Profit for the year 196,646

Segment and Total Assets 376,408 1,126,863 26,092 408,476 - 1,937,839

Segment and Total Liabilities 162,920 366,795 12,763 198,576 - 741,054

Investmentinassociates 9,549 11,730 482 - - 21,761

Acquisitionsofproperty,plantandequipment,intangiblesandothernon-currentsegmentassets 26,587 240,792 833 13,285 - 281,497

Depreciationandamortisationexpense 12,497 14,397 1,336 13,275 - 41,505

Impairmentofgoodwill - - - - - -

Impairmentoftradereceivables 253 - 37 696 - 986

Othernon-cashexpenses 10,820 10,476 230 1,823 - 23,349

84

33 SeGMent reportinG (CONTINUED)

primary reporting – geographical segments (continued)2005

AustraliaNorth

AmericaNew

Zealand Europe

Inter-segmenteliminations/unallocated Consolidated

$’000 $’000 $’000 $’000 $’000 $’000

Salestoexternalcustomers(note(a)) 1,157,628 582,956 83,839 740,624 - 2,565,047

Intersegmentsales(note(b)) 579 - - - (579) -

Totalsalesrevenue 1,158,207 582,956 83,839 740,624 (579) 2,565,047

Shareofnetprofitsofassociates 344 2,282 - - - 2,626Otherrevenue/income 312 178 66 - - 556

Total segment revenue 1,158,863 585,416 83,905 740,624 (579) 2,568,229

Segmentresult 105,067 99,540 14,054 65,586 - 284,247

Unallocatedrevenuelessunallocatedexpenses -

Profitbeforeincometax 284,247

Incometaxexpense (87,216)

Profit for the year 197,031

Segment and Total Assets 365,268 178,697 23,276 331,088 - 898,329

Segment and Total Liabilities 179,230 15,740 14,148 171,755 - 380,873

Investmentinassociates 627 9,130 515 - - 10,272

Acquisitionsofproperty,plantandequipment,intangiblesandothernon-currentsegmentassets 26,895 15,452 1,390 38,351 - 82,088

Depreciationandamortisationexpense 11,675 7,549 1,259 12,301 - 32,784

Impairmentofgoodwill - - - - - -

Impairmentofinventories 2,794 863 216 - - 3,873

Impairmentoftradereceivables 1,617 - 1 12 - 1,630

Othernon-cashexpenses 12,381 1,468 217 (1,031) - 13,035

Note(a)SalestoexternalcustomersThesegmentreportingaboveisbasedongeographicallocationofassetsandrevenuesasreportedbythesegmentrecording thesale.Ananalysisof revenuesallocatedby thegeographical locationofexternalcustomers issetoutbelow.

2006 2005 $’000 $’000

Australia 459,239 576,122NewZealand 42,650 46,667NorthAmerica 528,746 243,803Europe 816,264 564,289AsiaincludingChina,Malaysia,Indiaetc 1,848,080 1,134,166MiddleEast 57,428 -

3,752,407 2,565,047


85

33 SeGMent reportinG (CONTINUED)

primary reporting – geographical segments (continued)

Note(b)Intersegmentsales

Segmentrevenues,expensesandresultsincludetransfersbetweensegments.Suchtransfersarepricedonan“arm’s-lengthbasis”andareeliminatedonconsolidation.

Secondary reporting – business segments

Segment revenues from sales to

external customers Segment Assets

Acquisitions of property, plant and equipment, intangibles and other non-current segment

assets 2006 2005 2006 2005 2006 2005 $’000 $’000 $’000 $’000 $’000 $’000

Ferrousmetalrecycling 2,259,112 1,598,441 1,124,108 520,483 199,398 58,147Non-ferrousmetalrecycling 1,082,681 625,532 338,725 156,836 29,146 8,499Secondaryprocessing 240,034 239,058 181,572 84,071 10,327 3,012RecyclingSolutions 170,580 102,016 293,434 136,939 42,626 12,430

3,752,407 2,565,047 1,937,839 898,329 281,497 82,088

Consolidated 2006 2005

34 eArninGS per SHAre Cents Per share

Basicearningspershare 174.2 216.3

Dilutedearningspershare 173.7 216.1

$’000 $’000

Earningsusedincalculatingbasicanddilutedearningspershare 196,646 197,031

Number of Shares

WeightedaveragenumberofordinarysharesusedasthedenominatorincalculatingbasicearningspershareAdjustmentsforcalculationofdilutedearningspershare

112,856,555 91,086,086

Options,includingordinarysharesissuedundertheSimsGroupEmployeeShareSchemedeemedtobeoptionsforaccountingpurposes 336,281 93,519

Weightedaveragenumberofordinarysharesandpotentialordinarysharesusedasthedenominatorincalculatingdilutedearningspershare 113,192,836 91,179,605

Theweightedaveragenumberofconvertedpotentialordinarysharesincludedinthecalculationofdilutedearningspershareamountedto 192,321 -

86

Consolidated Parent entity 2006 2005 2006

$’000 $’000 $’000

35 CASH FloW inForMAtion(i) Reconciliation of cashCashattheendofthefinancialyearasshowninthestatementsofcashflowsisreconciledtotherelateditemsinthestatementsoffinancialpositionasfollows:

Cashatbankandonhand 10,637 1,567 -Shorttermdeposits 5,163 44,441 - Cash and cash equivalents 15,800 46,008 -

Detailsofinterestratesandfairvaluesaresetoutinnote38.

(ii) Reconciliation of profit after income tax expense to net cash inflow from operating activities

Profitfortheyear 196,646 197,031 46,422 Depreciationandamortisationofproperty,plantandequipment 41,505 32,784 - Netloss/(profit)ondisposalofnon-currentassets 705 (2,794) -Write-downofassetsinajointventure - 2,043 - Revaluationlossesreversedintheprofitandloss (1,188) (1,917) -Non-cashemployeebenefitsexpense 2,524 - -Shareofprofitsofassociatesnotreceivedasdividends (2,874) (2,626) -Dividendre-investmentplan - - -Changeinoperatingassetsandliabilities,netofeffectsofacquisitionsanddisposalsofentities:

(Increase)/decreaseintradeandotherdebtors 4,186 (9,940) (12,428) (Increase)/decreaseininventories (104,137) 8 - (Increase)/decreaseinprepayments 8,538 (962) - Increaseinprovisions (10,593) 1,524 - Increaseinincometaxpayable (9,284) 4,090 12,352 Increaseindeferredtaxes 5,102 2,348 - Increase/(decrease)inaccountspayableandothercreditors 77,441 (28,782) (15,383)

Net cash inflow from operating activities 208,571 192,807 30,963


87

Consolidated Parent entity

2006 $’000

2005$’000

2006 $’000

36 non-CASH inVeStinG AnD FinAnCinG ACtiVitieS

Acquisition of subsidiaries 543,117 - 2,494,616

On31October2005SimsGroupLimitedacquiredsubstantiallyalloftherecyclingoperationsofHugoNeuCorporationfor$587.6million.Theconsiderationgivencomprised32,137,071ordinarysharesinSimsGroupLimitedwithafairvalueof$543.1mandthebalancepaid/payableincash.Thenon-cashacquisitionamountsintheparentcompanyalsoincludesharesexchangedfor100%ofthesharesinSimsGroupAustraliaHoldingsLimitedasaconsequenceofthegrouprestructureasdescribedinnote1(a)andnote29($1,542.6m),anintra-groupfundingof$377.0minrespectofitsacquisitionofSimsGroupUKHoldingsLimitedfromSimsGroupAustraliaHoldingsLimitedandanintra-groupfundingof$44.4mofthebalanceoftheacquisitionconsiderationfortheformerHugoNeuoperations.

Acquisition of Landfill Management Services 8,000 - -

On1January2006SimsGroupAustraliaHoldingsLimitedacquiredanadditional25%interestinanassociatedcompany,LandfillManagementServicesPtyLimited,ontheconversiontosharesof$8.0mconvertiblenotesheldintheassociatedcompany.Dividend payment 15,017 - 15,017

Dividendsettledbyissueofsharesunderthedividendreinvestmentplan.

37 DeriVAtiVe FinAnCiAl inStruMentSCurrent assetsForwardforeignexchangecontracts-cashflowhedges 882 - - Commodity-cashflowhedges 21 - - 903 - -Current liabilitiesForwardforeignexchangecontracts-cashflowhedges 69 - - Commodity-cashflowhedges 1,194 - - 1,263 - -

(a) transition to AASB 132 and AASB 139TheGrouphastakentheexemptionavailableunderAASB1First Time Adoption of Australian Equivalents to International Reporting StandardstoapplyAASB132Financial Instruments: Disclosure and PresentationandAASB139Financial Instruments: Recognition and Measurementfrom1July2005.Atthedateoftransitiontothesestandards,1July2005,anetadjustmentfortheGroupof$455,000decreaseinnetassetswasrecognisedrepresentingareclassificationofforeigncurrencycashflowlossesof$650,000fromdeferredexpensestoequityandtherecognitionofadeferredtaxassetrelatingtotheselossesof$195,000whichwascreditedtoequity.

(b) instruments used by the GroupTheGroupispartytoderivativefinancialinstrumentsinthenormalcourseofbusinessinordertohedgeexposuretocurrencyfluctuationsinforeignexchangeratesandcommoditypricesinaccordancewiththeGroup’sfinancialriskmanagementpolicies.

88

37 DeriVAtiVe FinAnCiAl inStruMentS (CONTINUED)

(b) instruments used by the Group (continued)

(i) Forward exchange contracts – cash flow hedgesTheconsolidatedentityenters into forward foreignexchangecontracts tobuyandsellspecificamountsofvariousforeigncurrenciesinthefutureatpre-determinedexchangerates.Thecontractsareenteredintotohedgecontractedpurchaseandsalecommitmentsdenominatedinforeigncurrencies.

Thesecontractsarehedginghighlyprobableforecastedtransactionsfortheensuringfinancialyear.Thecontractsaretimedtomaturewhenmoniesfromtheforecastedsalesofscrapmetalarescheduledtobereceivedorwhenpaymentforpurchasesisscheduledtobemade.

Thecashflowsareexpectedtooccuratvariousdatesuptooneyearfromthebalancedate.Atbalancedate,thedetailsoftheoutstandingcontractsare:


2006 $’000

2005$’000

2006 $’000

BuyAUD,SellUSD

Upto12months-atratesaveragingAUDtoUSD

2006:0.7350(2005:0.7591) 47,617 21,076 -

BuyNZD,SellUSD

Upto12months-atratesaveragingNZDtoUSD

2006:0.6032(2005:0.6961) 9,543 2,637 -

BuyEUR,SellUSD

Upto12months-atratesaveragingEURtoUSD

2006:1.2797(2005:1.2238) 434 1,425 -

BuyNZD,SellAUD

Upto12months-atratesaveragingAUDtoNZD

2006:Nil(2005:1.0721) - 2,798 -

BuyGBP,SellUSD

Upto12months-atratesaveragingGBPtoUSD

2006:1.8338(2005:1.8414) 71,488 51,322 -

BuyGBP,SellEUR

Upto12months-atratesaveragingGBPtoEUR

2006:1.4544(2005:1.4555) 33,019 10,652 -

BuyUSD,SellGBP

Upto12months-atratesaveragingGBPtoUSD

2006:1.8131(2005:1.8139) 3,227 4,329 -

BuyEUR,SellGBP

Upto12months-atratesaveragingGBPtoEUR

2006:1.4514(2005:1.4618) 716 705 -

BuySEK,SellUSD

Upto12months-atratesaveragingUSDtoSEK

2006:0.1376(2005:Nil) 79 - -


89

37 DeriVAtiVe FinAnCiAl inStruMentS (CONTINUED)

(b) instruments used by the Group (continued)

(ii) Forward commodity contracts - cash flow hedges

Theconsolidatedentityentersintoforwardcommoditycontractstobuyandsellspecificamountsofvariousmetalcommoditiesinthefutureatpre-determinedrates.Thecommoditycontractsareenteredintotohedgecontractedpurchaseandsaleofmetalcommoditycommitmentsdenominatedinforeigncurrencies.

Thesettlementdates,dollaramountstobereceivedandcontractualexchangeratesoftheconsolidatedentity’soutstandingcommoditycontractsatbalancedateare:


2006 $’000

2005$’000

2006 $’000

Buy25metrictonnesLMECopperGradeAUpto12months-atratesaveragingUS$6,700permetrictonne(2005:Nil) 225 - -

Sell150metrictonnesLMECopperGradeAUpto12months-atratesaveragingUS$6,690permetrictonne(2005:Nil) 1,351 - -

Sell240metrictonnesLMENickelUpto12months-atratesaveragingUS$18,250permetrictonne(2005:Nil) 5,895 - -

(c) Credit risk exposuresCreditriskarisesfromthepotentialfailureofcounterpartiestomeettheirobligationsundertherespectivecontractsatmaturity.Itarisesfromamountsreceivablefromunrealisedgainsonderivativefinancialinstruments.

Receivablerecognisedatbalancedatefromforwardforeigncurrencyandcommoditycontractsfortheyearended30June2006 903 - -

90

38 intereSt AnD CreDit riSK eXpoSureS AnD FAir VAlueS oF FinAnCiAl ASSetS AnD liABilitieS

(a) Interest rate risk exposuresTheconsolidatedentity’sexposuretointerestrateriskarisespredominantlyfromassetsandliabilitiesbearingvariableinterestratesastheconsolidatedentityintendstoholdfixedrateassetsandliabilitiestomaturity.Theeffectiveweightedaverageinterestrateforeachclassoffinancialassetsandfinancialliabilitiesisasfollows.

Fixedinterestmaturingin:

2006 Note

Weightedaverage

interestrate

Floatinginterestrate

$’000

1yearorless$’000

Over1to5years$’000

Morethan5years$’000

Non-interestbearing$’000

Total$’000

Financial assetsCashanddeposits 35 4.3% 15,800 - - - - 15,800Receivables-current 8 - - - - - 356,019 356,019Receivables-non-current 8 - - - - - - -

15,800 - - - 356,019 371,819

Financial liabilitiesPayables-current 15 - - - - - 341,752 341,752Payables-non-current 15 - - - - - - -Bankoverdraftsandloans 16 5.8% 301,459 - - - - 301,459

301,459 - - - 341,752 643,211

Fixedinterestmaturingin:

2005 Note

Weightedaverage

interestrate

Floatinginterestrate

$’000

1yearorless$’000

Over1to5years$’000

Morethan5years$’000

Non-interestbearing$’000

Total$’000

Financial assetsCashanddeposits 35 2.2% 46,008 - - - - 46,008Receivables-current 8 - - - - - 214,194 214,194Receivables-non-current 8 - - - - - 5,794 5,794 46,008 - - - 219,988 265,996

Financial liabilitiesPayables-current 15 - - - - - 182,469 182,469Payables-non-current 15 - - - - - - -Bankoverdraftsandloans 16 5.0% 98,946 - - - - 98,946 98,946 - - - 182,469 281,415

(b) Credit riskThereisnoconcentrationofcreditriskwithrespecttocurrentandnon-currentreceivables,astheGrouphasalargenumberofcustomers,internationallydispersed.Refernote2formoreinformationontheriskmanagementoftheGroup.Themaximumcreditriskissetoutinthetableabove.

(c) Fair valuesThefairvalueoffinancialassetsandliabilitiesoftheconsolidatedentitywhichhavebeenrecognisedonthebalancesheet,isrepresentedbytheircarryingamounts.


91

39 eXplAnAtion oF trAnSition to AuStrAliAn eQuiVAlentS to iFrSs(1) Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles

(AGAAP) to equity under Australian equivalents to IFRSs (AIFRS)

(A) At the date of transition to AIFRS: 1 July 2004 Consolidated Parent entity

Notes

Previous AGAAP $’000

Effect of transition to

AIFRS $’000

AIFRS $’000


Effect of transition to AIFRS

$’000AIFRS $’000

ASSETSCurrent assetsCashandcashequivalents 20,107 - 20,107 - - -Receivables 182,397 8,489 190,886 - - -Inventories 147,676 - 147,676 - - -Other-reclassifiedtoreceivables 8,489 (8,489) - - - -Derivativefinancialinstruments - - - - - -

Total current assets 358,669 - 358,669 - - -

Non-current assetsReceivables 5,908 - 5,908 - - -Investmentsaccountedforusingtheequitymethod 7,821 - 7,821 - - -Otherfinancialassets - - - - - -Property,plantandequipment 261,755 - 261,755 - - -Deferredtaxassets (g) 13,645 5,308 18,953 - - -Intangibleassets 73,360 - 73,360 - - -

Total non-current assets 362,489 5,308 367,797 - - -

Total assets 721,158 5,308 726,466 - - -

LIABILITIESCurrent liabilitiesPayables 179,475 - 179,475 - - -Interestbearingliabilities 1,100 - 1,100 - - -Derivativefinancialinstruments - - - - - -Currenttaxliabilities 26,924 - 26,924 - - -Provisions 10,128 - 10,128 - - -

Total current liabilities 217,627 - 217,627 - - -

Non-current liabilitiesInterestbearingliabilities 36,950 - 36,950 - - -Deferredtaxliabilities 6,277 - 6,277 - -Provisions 11,736 - 11,736 - - -Retirementbenefitobligations (d) - 13,099 13,099 - - -

Total non-current liabilities 54,963 13,099 68,062 - - -

Total liabilities 272,590 13,099 285,689 - - -

Net assets 448,568 (7,791) 440,777 - - -

EQUITYContributedequity 220,665 - 220,665 - - -Reserves (c) 17,620 10,359 27,979 - - -Retainedprofits (h) 210,283 (18,150) 192,133 - - -

Total equity 448,568 (7,791) 440,777 - - -

92

39 eXplAnAtion oF trAnSition to AuStrAliAn eQuiVAlentS to iFrSs (CONTINUED)1 Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles

(AGAAP) to equity under Australian equivalents to IFRSs (AIFRS)

(B) At the end of the last reporting period under previous AGAAP: 30 June 2005


Notes



AIFRS $’000

AIFRS $’000



$’000AIFRS $’000

ASSETSCurrent assetsCashandcashequivalents 46,008 - 46,008 - - -Receivables 202,694 11,500 214,194 - - -Inventories 150,956 - 150,956 - - -Other-reclassifiedtoreceivables 11,500 (11,500) - - - -Derivativefinancialinstruments - - - - - -

Total current assets 411,158 - 411,158 - - -

Non-current assetsReceivables 5,794 - 5,794 - - -Investmentsaccountedforusingtheequitymethod 10,272 - 10,272 - - -Otherfinancialassets - - - - - -Property,plantandequipment 337,687 - 337,687 - - -Deferredtaxassets (g) 15,046 8,370 23,416 - - -Intangibleassets (b),(c),(d) 99,781 10,221 110,002 - - -

Total non-current assets 468,580 18,591 487,171 - - -

Total assets 879,738 18,591 898,329 - - -

LIABILITIESCurrent liabilitiesPayables 182,469 - 182,469 - - -Interestbearingliabilities - - - - - -Derivativefinancialinstruments - - - - - -Currenttaxliabilities 31,627 - 31,627 - - -Provisions 15,476 - 15,476 - - -

Total current liabilities 229,572 - 229,572 - - -

Non-current liabilitiesInterestbearingliabilities 98,946 - 98,946 - - -Deferredtaxliabilities (g) 6,127 14,407 20,534 - - -Provisions 9,628 - 9,628 - - -Retirementbenefitobligations (d) - 22,193 22,193 - - -

Total non-current liabilities 114,701 36,600 151,301 - - -

Total liabilities 344,273 36,600 380,873 - - -

Net assets 535,465 (18,009) 517,456 - - -

EQUITYContributedequity 220,665 - 220,665 - - -Reserves (c),(d) 35,065 (9,026) 26,039 - - -Retainedprofits (h) 279,735 (8,983) 270,752 - - -

Total equity 535,465 (18,009) 517,456 - - -


93

39 eXplAnAtion oF trAnSition to AuStrAliAn eQuiVAlentS to iFrSs (CONTINUED)

(2) Reconciliation of profit under previous AGAAP to profit under Australian equivalents to IFRSs (AIFRS)

Reconciliation of profit for the year ended 30 June 2005


Notes



AIFRS $’000

AIFRS $’000



$’000AIFRS $’000

Revenue (a) 2,570,202 (4,599) 2,565,603 - - -

Otherincome (a), (c) - 5,243 5,243 - - -

Rawmaterialsandfinishedgoodsincludedincostofsales (1,625,441) - (1,625,441) - - -Freightexpense (249,701) - (249,701) - - -Employeebenefitsexpense (d) (193,240) 1,634 (191,606) - - -Depreciationandamortisationexpense (32,784) - (32,784) - - -Amortisationofintangibles (b) (5,976) 5,976 - - - -Repairsandmaintenanceexpense (64,862) - (64,862) - - -Otherexpensesfromordinaryactivities (a) (120,270) 1,273 (118,997) - - -Borrowingcostsexpense (5,834) - (5,834) - - -Shareofnetprofitofassociatesaccountedforusingtheequitymethod 2,626 - 2,626 - - -

Profit before income tax 274,720 9,527 284,247 - - -

Incometaxexpense (d) (86,856) (360) (87,216) - - -

Profit attributable to members of Sims Group Limited 187,864 9,167 197,031 - - -

Cents CentsBasicearningspershare 206.3 216.3Dilutedearningspershare 206.0 216.1

(3) Adjustments on transition to AASB132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement: 1 July 2005

Detailsoftheadjustmentsmadeontransitionaresetoutinnote39(4)(e).

94

39 eXplAnAtion oF trAnSition to AuStrAliAn eQuiVAlentS to iFrSs (CONTINUED)(4) Notes to the reconciliations

(a) Revenue and other income disclosures in relation to the sale of non-current assets, insurance proceeds and net foreign currency gains

UnderAFIRS,theincomerecognisedinrelationtothesaleofnon-currentassetsisthenetgainonthesale.ThisisincontrasttothecurrentAustralianGAAPtreatmentunderwhichthegrossproceedsfromthesalearerecognisedasrevenue,andthecarryingamountoftheassetsoldisrecognisedasanexpense.Insuranceproceedspreviouslyincludedinrevenuehavebeenreclassifiedasotherincomeandnetforeigncurrencygainshavebeenreclassifiedtootherincomefromotherexpensesfromoperatingactivities.Theeffectofthisis:

(i) At 1 July 2004FortheGroupthereisnoeffect.

(ii) At 30 June 2005FortheGroupthereisnoeffect.

(iii) For the year ended 30 June 2005FortheGrouptherehasbeenadecreaseof$4.081minrevenue,adecreaseinthecarryingamountofnon-currentassetssolddisclosedasanexpenseintheincomestatementof$1.287mandanincreaseinotherincomeof$2.794mrelatingtoassetsales.FortheGrouptherehasbeenadecreaseof$0.518minrevenuerelatingtoinsuranceproceedsandanincreaseinotherincomeof$0.518m.FortheGrouptherehasbeenanincreaseof$0.014minotherincomerelatingtoforeigncurrencyexchangegainsandanincreaseonotherexpensesof$0.014m.

(b) Intangible assets - goodwillUnderAASB3Business Combinations,amortisationofgoodwillisprohibited,andisreplacedbyannualimpairmenttestingfocusingonthecashflowsoftherelatedcashgeneratingunit.Thishasresultedinachangetothecurrentaccountingpolicy,underwhichgoodwillisamortisedonastraightlinebasisovertheperiod.Theeffectofthisis:

(i) At 1 July 2004FortheGroupthereisnoeffect.

(ii) At 30 June 2005FortheGrouptherehasbeenanincreaseinintangibleassetsof$5.976mandanincreaseinretainedprofitsof$5.976m.

(iii) For the year ended 30 June 2005FortheGroupamortisationexpensehasdecreasedby$5.976mwithnoassociatedincometaxexpenseeffect.

(c) Property, Plant and EquipmentOnapplyingthefairvalueapproachunderAASB116Property,PlantandEquipment,anitemofproperty,plantandequipmentwhosefairvaluecanbemeasuredreliablyshallbecarriedatarevaluedamount,beingitsfairvalueatthedateoftherevaluationlessanysubsequentaccumulateddepreciationandsubsequentaccumulatedimpairmentlosses.Revaluationsshallbemadewithsufficientregularitytoensurethatthecarryingamountdoesnotdiffermateriallyfromthatwhichwouldbedeterminedusingfairvalueatthereportingdate.Ifanasset’scarryingamountisincreasedasaresultofarevaluation,theincreaseshallbecrediteddirectlytoequityundertheheadingofrevaluationreserve.However,theincreaseshallberecognisedinprofitorlosstotheextentthatitreversesarevaluationdecreaseofthesameassetpreviouslyrecognisedinprofitorloss.Ifanasset’scarryingamountisdecreasedasaresultofarevaluation,thedecreaseshallberecognisedinprofitorloss.However,thedecreaseshallbedebiteddirectlytoequityundertheheadingofrevaluationreservetotheextentofanycreditbalanceexistingintherevaluationreserveinrespectofthatasset.Thishasresultedinachangetothepreviousaccountingpolicy,underwhichanydevaluationofanitemofpropertyplantandequipmentwouldbeoff-setagainstarevaluationofassetsinthesameclass.Theeffectofthisis:

(i) At 1 July 2004FortheGrouptherehasbeenanincreaseintheassetrevaluationreserveof$10.359m,anincreaseindeferredtaxassetsof$1.378m,adecreaseinretainedearningsafterincometaxof$8.981mbeingthetotalwrite-downofassetsforwhichtherewasnocorrespondingassetrevaluationreserve.


95

39 eXplAnAtion oF trAnSition to AuStrAliAn eQuiVAlentS to iFrSs (CONTINUED) (4) Notes to the reconciliations (continued)

(c) Property, Plant and Equipment (continued)

(ii) At 30 June 2005FortheGrouptherehasbeenadecreaseintheassetrevaluationreserveof$4.892m,anincreaseindeferredtaxliabilitiesof$14.407m,anincreaseindeferredtaxassetsof$1,378m,andanincreaseingoodwillof$1.073m.Therewasalsoadecreaseinretainedearningsafterincometaxof$7.064mbeingthetotalwrite-downofassetsforwhichtherewasnocorrespondingassetrevaluationreserve.

(iii) For the year ended 30 June 2005FortheGrouptherehasbeenaincreaseof$1.917minotherincomefromordinaryactivitiesrelatingtothereversalofrevaluationlossespreviouslychargedtotheprofitandlossaccountandacorrespondingdecreaseintherevaluationreserve.

(d) Retirement benefit obligationsSimsGroupLimitedisthesponsorofanumberofsuperannuationplanswithadefinedbenefitsectionandadefinedcontributionsection.UnderpreviousAGAAP,cumulativeactuarialgainsandlossesonthedefinedbenefitsectionwerenotrecognisedonthebalancesheet.Atthedateoftransitionaliabilityisrecognisedintheprovisionforemployeebenefits.Itismeasuredasthedifferencebetweenthepresentvalueoftheemployees’accruedbenefitsatthatdateandthenetmarketvalueofthesuperannuationfund’sassetsatthatdate.Theeffectofthisis:

(i) At 1 July 2004FortheGrouptherehasbeenanincreaseinretirementbenefitobligationsof$13.099m,anincreaseindeferredtaxassetsof$3.930mandadecreaseinretainedearningsof$9.169m.

(ii) At 30 June 2005FortheGrouptherehasbeenanincreaseinretirementbenefitobligationsof$22.193m,anincreaseindeferredtaxassetsof$6.992m,anincreaseingoodwillof$3.172mandecreaseindefinedbenefitfundreserveof$5.117m,anincreaseinforeigncurrencyexchangereservesof$0.983mandadecreaseinretainedearningsof$7.895m.

(iii) For the year ended 30 June 2005Theemployeebenefitsexpensefortheyearhasdecreasedby$1.634mandtaxexpenseincreasedby$0.360m.

(e) Financial instrumentsThegrouphastakenadvantageoftheexemptionavailableunderAASB1toapplyAASB132Financial Instruments: Disclosure and PresentationandAASB139Financial Instruments: Recognition and Measurementonlyfrom1July2005.ThisallowsthegrouptoapplypreviousAustralianGAAPtothecomparativeinformationoffinancialinstrumentswithinthescopeofAASB132andAASB139forthe30June2006financialreport.Asaresultoftheapplicationoftheexemptionreferredtoabove,therewouldhavebeennoadjustmenttoclassificationormeasurementofcashflowhedgesfromtheapplicationofAIFRSduringtheyearended30June2005.Changesinclassificationandmeasurementisrecognisedfrom1July2005asaresultoftheexemption.Anadjustmentof$0.455mwaschargedtoreservesbeingthenetoftaxeffectofrecognisingthefairvalueofderivativesat1July2005.

(f) Equity-based Compensation BenefitsUnderAASB2Share-based Payment,from1July2004thegroupisrequiredtorecogniseanexpenseforoptionsthatwereissuedtoemployeesafter7November2002butwhichhadnotvestedby1January2005.ThishasresultedinachangetothepreviousAGAAPaccountingpolicyunderwhichnoexpensewasrecognisedforequity-basedcompensation.IfthepolicyrequiredbyAASB2hadbeenappliedduringtheyearended30June2005,therewouldhavebeennoeffectonthefinancialstatementsasnooptionswereissuedtoanyemployeeafter7November2002.

(g) Deferred Tax Asset/LiabilityUnderpreviousAGAAPincometaxexpensewascalculatedbyreferencetotheaccountingprofitafterallowingforpermanentdifferences.Deferredtaxwasnotrecognisedinrelationtoamountsrecogniseddirectlyinequity.TheadoptionofAIFRShasresultedinachangeinaccountingpolicy.TheapplicationofAASB112IncomeTaxeshasresultedintherecognitionofdeferredtaxliabilitiesonrevaluationsofnon-currentassetsandactuarialgainsandlossesonretirementbenefitobligationstakendirecttothedefinedbenefitsfundreserve.

96

39 eXplAnAtion oF trAnSition to AuStrAliAn eQuiVAlentS to iFrSs (CONTINUED)(4) Notes to the reconciliations (continued)

(g) Deferred Tax Asset/Liability(continued)

(i) At 1 July 2004 and at 30 June 2005Theeffectsonthedeferredtaxasset/liabilityoftheadoptionofAIFRSareasfollows:


30 June

2005 1July2004

30 June 2005

1July2004

Notes $’000 $’000 $’000 $’000

Revaluationofnon-depreciableassets (c) 14,407 - - -

Increaseindeferredtaxliability 14,407 - - -

Revaluationofnon-depreciableassets (c) 1,378 1,378 - -

Retirementbenefitobligations (d) 6,992 3,930 - -

Increaseindeferredtaxassets 8,370 5,308 - -

(h) Retained earnings

Theeffectonretainedearningsofthechangessetoutaboveareasfollows:

Goodwillamortisationreversed (b) 5,976 - - -

Assetrevaluationlossestransferredtoretainedearnings(netoftax) (c) (8,981) (8,981) - -

Reversalofassetrevaluationlossespreviouslychargedtoprofitandloss (c) 1,917 - - -

Retirementbenefitobligations (d) (7,895) (9,169) - -

Totaladjustment (8,983) (18,150) - -

40 CritiCAl ACCountinG eStiMAteS AnD JuDGeMentSEstimatesandjudgementsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatmayhaveafinancialimpactontheentityandthatarebelievedtobereasonableunderthecircumstances.

Critical accounting estimates and assumptions

TheGroupmakesestimatesandassumptionsconcerningthefuture.Theresultingaccountingestimateswill,bydefinition,seldomequaltherelatedactualresults.Theestimatesandassumptionsthathaveasignificantriskofcausingmaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow.

Estimated impairment of goodwillTheGrouptestsannuallywhethergoodwillhassufferedanyimpairment,inaccordancewiththeaccountingpolicystatedinnote1(s).Therecoverableamountsofcash-generatingunitshavebeendeterminedbasedonvalue-in-usecalculations.Thesecalculationsrequiretheuseofassumptions.Refertonote14fordetailsoftheseassumptionsandthepotentialimpactofchangestotheseassumptions.


97

41 neW ACCountinG StAnDArDS AnD urGent iSSueS Group (uiG) interpretAtionS

CertainnewaccountingstandardsandUIGinterpretationshavebeenpublishedthatarenotmandatoryfor30June2006reportingperiods.TheseareconsideredtohavenilorminimalimpactwhenappliedbytheGroup.Thefollowingisalistofaccountingstandards(AASB)andUIGsissuedbutnotyeteffective.

AASB

AASB7–FinancialInstruments:Disclosures–ThisStandardappliestoannualreportingperiodsbeginningonorafter1January2007.AASB2004-3–AmendmentstoAustralianAccountingStandards–WhenanentityearlyadoptsAASB119asissuedinDecember2004forannualreportingperiodsbeginningonorafter1January2005,thisStandardisalsoappliedforthatearlierperiod.AASB2005-3–AmendmentstoAustralianAccountingStandards[AASB119]–ThisStandardmakesamendmentstoAASB119EmployeeBenefits(issuedinJuly2004)andAASB119EmployeeBenefits(revisedinDecember2004).AASB2005-4–AmendmentstoAustralianAccountingStandards[AASB139,AASB132,AASB1,AASB1023&AASB1038]–ThisStandardappliestoannualreportingperiodsbeginningonorafter1January2006.AASB2005-5–AmendmentstoAustralianAccountingStandards[AASB1&AASB139]–ThisStandardappliestoannualreportingperiodsbeginningonorafter1January2006.AASB2005-6–AmendmentstoAustralianAccountingStandards[AASB3]–ThisStandardappliestoannualreportingperiodsbeginningonorafter1January2006.AASB2005-10–AmendmentstoAustralianAccountingStandards[AASB132,AASB101,AASB114,AASB117,AASB133,AASB139,AASB1,AASB4,AASB1023&AASB1038]–ThisStandardappliestoannualreportingperiodsbeginningonorafter1January2007.

uiG

Interpretation4-DeterminingWhetheranArrangementContainsaLease.ThisInterpretationappliestoannualreportingperiodsbeginningonorafter1January2006.Interpretation5-RightstoInterestsArisingfromDecommissioning,RestorationandEnvironmentalRehabilitationFunds.ThisInterpretationappliestoannualreportingperiodsbeginningonorafter1January2006.UIGInterpretation6-LiabilitiesarisingfromParticipatinginaSpecificMarket–WasteElectricalandElectronicEquipment.ThisInterpretationappliestoannualreportingperiodsbeginningonorafter1December2005.

98 dirECTOrS’ dEClaraTiON

Inthedirectors’opinion:

(a) Thefinancialstatementsandnotessetoutonpages37to97areinaccordancewiththeCorporations Act 2001,including:

(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatoryprofessionalreportingrequirements;and

(ii) givingatrueandfairviewoftheCompany’sandconsolidatedentity’sfinancialpositionasat30June2006andofitsperformance,asrepresentedbytheresultsoftheiroperationsandtheircashflows,forthefinancialyearendedonthatdate;and

(b) thereare reasonablegrounds tobelieve that theCompanywillbeable topay itsdebtsasandwhen theybecomedueandpayable;and

(c) theauditedremunerationdisclosures/tablessetoutonpages23to34ofthedirector’sreportcomplywithAccountingStandardAASB124RelatedPartyDisclosuresandtheCorporationsRegulations2001;and

(d) at thedateof thisdeclaration, thereare reasonablegroundstobelieve that themembersof theExtendedClosedGroupidentifiedinnote29willbeabletomeetanyobligationsorliabilitiestowhichtheyare,ormaybecome,subjectbyvirtueofthedeedofcrossguaranteedescribedinnote29.

ThedirectorshavebeengiventhedeclarationsbytheGroupChiefExecutiveandtheExecutiveDirectorGroupFinanceandStrategyrequiredbysection295AoftheCorporations Act 2001.Thisdeclarationismadeinaccordancewitharesolutionofthedirectors.


SignedinSydney,NSW,Australiaon1September2006

99iNdEPENdENT audiT rEPOrTto the members of Sims group limited

AuDit opinionInouropinion:

1.thefinancialreportofSimsGroupLimited:

› givesatrueandfairview,asrequiredbytheCorporations Act 2001inAustralia,ofthefinancialpositionofSimsGroupLimitedandtheSimsGroup(definedbelow)asat30June2006,andoftheirperformancefortheyearendedonthatdate,and

› arepresentedinaccordancewiththeCorporations Act 2001,AccountingStandardsandothermandatoryfinancialreportingrequirementsinAustralia,andtheCorporations Regulations 2001;and

2.theremunerationsdisclosuresthatarecontainedonpages23to34ofthedirectors’reportcomplywithAccountingStandardAASB124Related Party Disclosures (ASSB124)andtheCorporations Regulations 2001.

Thisopinionmustbereadinconjunctionwiththerestofourauditreport.

SCope the financial report, remuneration disclosures and directors’ responsibility

Thefinancialreportcomprisesthebalancesheet,incomestatement,cashflowstatements,statementofchangesinequity,accompanyingnotes to the financialstatements,andthedirectors’declaration forbothSimsGroupLimited(thecompany)andtheSimsGroup(theconsolidatedentity),fortheyearended30June2006.Theconsolidatedentitycomprisesboththecompanyandtheentitiesitcontrolledduringthatyear.

Thecompanyhasdisclosedinformationabouttheremunerationofdirectorsandexecutives(remunerationdisclosures)as required by AASB 124, under the heading “remuneration report” on pages 23 to 34 of the directors’ report, aspermittedbytheCorporations Regulations 2001.

ThedirectorsofthecompanyareresponsibleforthepreparationandtrueandfairpresentationofthefinancialreportinaccordancewiththeCorporations Act 2001.Thisincludesresponsibilityforthemaintenanceofadequateaccountingrecordsandinternalcontrolsthataredesignedtopreventanddetectfraudanderror,andfortheaccountingpoliciesandaccountingestimatesinherentinthefinancialreport.Thedirectorsarealsoresponsiblefortheremunerationdisclosurescontainedinthedirectors’report.

Audit approach

Weconductedanindependentaudit inordertoexpressanopiniontothemembersofthecompany.OurauditwasconductedinaccordancewithAustralianAuditingStandards,inordertoprovidereasonableassuranceastowhetherthe financial report is free of material misstatement and the remuneration disclosures comply with AASB 124 andtheCorporations Regulations 2001. Thenatureof anaudit is influencedby factors suchas theuseofprofessionaljudgement,selectivetesting,theinherentlimitationsofinternalcontrol,andtheavailabilityofpersuasiveratherthanconclusiveevidence.Therefore,anauditcannotguarantee thatallmaterialmisstatementshavebeendetected.Forfurtherexplanationofanaudit,visitourwebsitehttp://www.pwc.com/au/financialstatementaudit.

PricewaterhouseCoopersABN 52 780 433 757

Darling Park Tower 2201 Sussex StreetGPO BOX 2650SYDNEY NSW 1171DX 77 SydneyAustraliawww.pwc.com/auTelephone +61 2 8266 0000Facsimile +61 2 8266 9999

LiabilitylimitedbyaschemeapprovedunderProfessionalStandardsLegislation

100

Weperformedprocedurestoassesswhetherinallmaterialrespectsthefinancialreportpresentsfairly,inaccordancewiththeCorporations Act 2001,AccountingStandardsandothermandatoryfinancialreportingrequirementsinAustralia,aviewwhichisconsistentwithourunderstandingofthecompany’sandtheconsolidatedentity’sfinancialposition,andoftheirperformanceasrepresentedbytheresultsoftheiroperations,changesinequityandcashflows.WealsoperformedprocedurestoassesswhethertheremunerationdisclosurescomplywithASSB124andtheCorporations Regulations 2001.

Weformedourauditopiniononthebasisoftheseprocedures,whichincluded:

› examining,onatestbasis,informationtoprovideevidencesupportingtheamountsanddisclosuresinthefinancialreportandremunerationdisclosures,and

› assessingtheappropriatenessoftheaccountingpoliciesanddisclosuresusedandthereasonablenessofsignificantaccountingestimatesmadebythedirectors.

OurproceduresincludereadingtheotherinformationintheAnnualReporttodeterminewhetheritcontainsanymaterialinconsistencieswiththefinancialreport.

Whileweconsideredtheeffectivenessofmanagement’sinternalcontrolsoverfinancialreportingwhendeterminingthenatureandextentofourprocedures,ourauditwasnotdesignedtoprovideassuranceoninternalcontrols.

Ourauditdidnotinvolveananalysisoftheprudenceofbusinessdecisionsmadebydirectorsormanagement.

independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethicalpronouncementsandtheCorporations Act 2001.

PricewaterhouseCoopers

WHBSeatonPartner Sydney 1September2006

iNdEPENdENT audiT rEPOrTto the members of Sims group limited

101

AsleadauditorfortheauditofSimsGroupLimitedfortheyearended30June2006,Ideclarethattothebestofmyknowledgeandbelief,therehavebeen:

a) nocontraventionsoftheauditorindependencerequirementsoftheCorporations Act 2001inrelationtotheaudit;and

b) nocontraventionsofanyapplicablecodeofprofessionalconductinrelationtotheaudit.

ThisdeclarationisinrespectofSimsGroupLimitedandtheentitiesitcontrolledduringtheperiod.

WHBSeatonPartner SydneyPricewaterhouseCoopers 1September2006

audiTOr’S iNdEPENdENCE dEClaraTiON

PricewaterhouseCoopersABN 52 780 433 757

Darling Park Tower 2201 Sussex StreetGPO BOX 2650SYDNEY NSW 1171DX 77 SydneyAustraliawww.pwc.com/auTelephone +61 2 8266 0000Facsimile +61 2 8266 9999

LiabilitylimitedbyaschemeapprovedunderProfessionalStandardsLegislation

102 SharEhOldEr iNFOrmaTiONas at 11 September 2006

VotinG riGHtSVotingrightsattachingtotheordinarysharesare,onashowofhands,onevoteforeverypersonpresentasamember,proxy,attorneyorrepresentativethereofanduponapolleachshareshallhaveonevote.

SuBStAntiAl SHAreHolDerS Ordinary SharesHugoNeuTrusts 32,263,924

M&GInvestmentManagementLimited 11,335,028

PerpetualTrusteesAustraliaLimited 10,708,620

DiStriBution oF HolDinGSRange Holders1-1,000 9,566

1,001-5,000 9,276

5,001-10,000 1,061

10,001-100,000 424

100,001–andover 38

Total 20,365

Therewere159holdersoflessthanamarketableparcelofshares.

StoCK eXCHAnGe liStinGTheCompany’sordinarysharesarequotedontheAustralianStockExchange.

ADr FACilitYTheCompanyhasasponsoredAmericanDepositaryReceipt(ADR)facilitywiththeBankofNewYork.ADRstradeontheover-the-countermarketintheUSAundercusipnumber829160100witheachADRrepresentingfour(4)ordinaryshares.FurtherinformationandinvestorenquiriesonADRsshouldbedirectedto:

ADr DepositaryTheBankofNewYorkDepositaryReceiptsDivision101BarclayStreet-22W,NewYork,NY10286USA.Telephone:(1212)8152476;Facsimile:(1212)5713050.Attn:JoanneWang

SHAreHolDer enQuirieSEnquiriesfrominvestorsregardingtheirshareholdingsshouldbedirectedto:ComputershareInvestorServicesPtyLimitedLevel3,60CarringtonStreet,SydneyNSW2000PostalAddress:GPOBox7045,SydneyNSW2001.Telephone:1300855080;Facsimile:(612)82345050

103

AuDitorPricewaterhouseCoopersDarlingParkTower2201SussexStreet,SydneyNSW1171

prinCipAl BAnKerCommonwealthBankofAustralia48MartinPlace,SydneyNSW2000

tWentY lArGeSt SHAreHolDerS

No. of shares

% held

1 HUGONEUCORPORATIONC/-RIVERTERMINALDEVELOPMENTCOMPANY 32,263,924 25.89

2 JPMORGANNOMINEESAUSTRALIALIMITED 13,468,478 10.81

3 WESTPACCUSTODIANNOMINEESLIMITED 10,928,058 8.77

4 NATIONALNOMINEESLIMITED 5,233,751 4.20

5 RBCDEXIAINVESTORSERVICESAUSTRALIANOMINEESPTYLIMITED<PIPOOLEDA/C>

3,841,806 3.08

6 ANZNOMINEESLIMITED<CASHINCOMEA/C> 2,022,738 1.62

7 CITICORPNOMINEESPTYLIMITED 1,852,636 1.49

8 COGENTNOMINEESPTYLIMITED 1,586,355 1.27

9 UBSNOMINEESPTYLTD 1,488,892 1.19

10 AMPLIFELIMITED 1,221,840 0.98

11 COGENTNOMINEESPTYLIMITED<SMPACCOUNTS> 843,399 0.68

12 RBCDEXIAINVESTORSERVICESAUSTRALIANOMINEESPTYLIMITED<PIICA/C>

520,193 0.42

13 MILTONCORPORATIONLIMITED 445,000 0.36

14 ARGOINVESTMENTSLIMITED 405,000 0.32

15 UCAGROWTHFUNDLIMITED 400,000 0.32

16 CITICORPNOMINEESPTYLIMITED<CFSILCWLTHAUSTSHS11A/C> 365,964 0.29

17 THEAUSTRALIANNATIONALUNIVERSITY 365,000 0.29

18 CAMROCK(AUSTRALIA)PTYLIMITED 302,200 0.24

19 WARBONTNOMINEESPTYLTD<UNPAIDENTREPOTA/C> 260,286 0.21

20 UBSWEALTHMANAGEMENTAUSTRALIANOMINEESPTYLTD 252,613 0.20

78,068,133 62.63

For more up to the minute investor relations, visit www.sims-group.com

104

2006 - 2002

(A$’000s) 2006 2005 2004 2003 2002

TotalOperatingRevenue 3,754,509 2,565,603 1,879,465 1,609,512 1,422,934

ProfitBeforeInterestandTax 301,912 289,613 168,408 114,177 76,644

NetInterestExpense (16,313) (5,366) (1,846) (2,199) (5,436)TaxExpense (88,953) (87,216) (54,059) (36,936) (22,649)

OperatingProfitafterTax 196,646 197,031 112,503 75,042 48,559

NetCashFlowsfromOperations 208,571 192,807 91,247 128,507 103,211

EarningsperShare-basic 174.2¢ 216.3¢ 122.6¢ 82.2¢ 54.0¢DividendsperShare 105.0¢ 160.0¢ 86.0¢ 54.0¢ 36.0¢

ReturnonShareholders’Equity 16.4% 38.1% 25.1% 18.9% 14.3%CurrentRatio(to1) 1.8 1.8 1.6 1.8 1.8NetDebttoFundsEmployed(to1) 0.24 0.10 0.04 (0.22) 0.06

NetTangibleAssetBackingperShare $4.68 $4.22 $3.97 $3.57 $2.83

2001 - 1997

(A$’000s) 2001 2000 1999 1998 1997

TotalOperatingRevenue 1,358,487 1,090,095 990,626 1,394,273 1,145,121

ProfitBeforeInterestandTax 68,012 48,602 4,863 70,690 57,636NetInterestExpense (10,954) (7,080) (5,982) (5,725) (2,305)TaxExpense (16,193) (15,367) (5,276) (22,490) (20,443)

OperatingProfitafterTax 40,865 26,155 (6,395) 42,475 34,888

NetCashFlowsfromOperations 97,124 16,489 46,875 68,719 16,739

EarningsperShare-basic 46.6¢ 30.4¢ (7.6¢) 51.9¢ 44.7¢DividendsperShare 32.0¢ 25.0¢ 20.0¢ 36.0¢ 30.0¢

ReturnonShareholders’Equity 13.3% 9.4% -2.5% 15.3% 15.1%CurrentRatio(to1) 1.8 1.7 1.6 1.8 1.5NetDebttoFundsEmployed(to1) 0.24 0.34 0.13 0.25 0.14

NetTangibleAssetBackingperShare $2.45 $2.11 $2.48 $2.60 $2.57

TEN yEar TrENd Summary

105

CorporAte AnD reGiStereD oFFiCeSims Group limitedSimsGroupHouseLevel6,41McLarenStreet,NorthSydneyNSW2060Australia(GPOBox4155,Sydney,NSW2001)Tel:(612)99569100;Fax:(612)99549680JLSutcliffe,GroupChiefExecutiveRBCunningham,Exec.DirectorGroupFinance&StrategySABryce,GroupGeneralManagerHumanResourcesGEvans,GroupFinancialControllerFMMoratti,CompanySecretary&GeneralCounselPSRicketts,GroupGeneralManagerFinance&AdminSUnkovic,GroupGeneralManagerAudit&Compliance

AuStrAliASirJosephBanksCorporateParkLevel2,32-34LordStreet,BotanyNSW2019Australia(POBox651,Botany,NSW1455)Tel:(612)81131600;Fax:(612)81131622DRMcGree,ManagingDirectorAustralia&NewZealandRBonnette,GeneralManagerSA&NTPFarmer,GeneralManagerQld&PNGJGlyde,GeneralManagerVic&TasGHowe,GeneralManagerOperations,Australia&NewZealandCMcGrath,GeneralManagerWADSMcLean,GeneralManagerManufacturingPNetchaef,GeneralManagerRecyclingSolutionsKRadhakrishnan,SeniorVicePresident,Asia–RecyclingSolutionsJWhitaker,GeneralManagerNSW

uniteD StAteS oF AMeriCASims Hugo neu Corporation110FifthAvenue,Suite700NewYorkNY10011USATel:(1212)6040710;Fax:(1212)6040722CRJansen,ChiefExecutiveOfficerJBBarco,GeneralManagerOperations&EngineeringBSBrandt,ChiefCorporateCounselEastJTBuckland,SeniorVicePresidentRPColton,GeneralManagerSoutheastRAKelman,SeniorVicePresident&GeneralManagerSAMiller,ChiefCorporateCounselWestJPNeu,SeniorVicePresident&GeneralManagerMAPartridge,ExecutiveVicePresident&ChiefFinancialOfficerJAPayesko,GeneralManagerCommercialNortheastEAPumphreyIII,GeneralManagerCommercialWestWJSchmiedel,PresidentSimsHugoNeuGlobalTradeLSShinn,GeneralManagerNortheast

CAnADASims Group Canada limited11760MitchellRoad,Richmond,BCV6V-1V8CanadaTel:(1604)3011600;Fax:(1604)3011601HDhillon,GeneralManager

neW ZeAlAnD Joint VentureSims pacific Metals limitedCnrManuandKahuStreets,Otahuhu,Auckland,NZTel:(649)2761809;Fax:(649)2766407ABarrett,GeneralManager

uniteD KinGDoMSims Group uK limitedLongMarston,Stratford-upon-AvonWarwickshireCV378AQ,UKTel:(441789)720431;Fax:(441789)720940WTBird,ManagingDirector–MetalsRecyclingGDavy,ManagingDirector–SimsRecyclingSolutions-Europe&NorthAmericaPBird,GeneralManagerSouthWest&HomeCountiesRBurke,GeneralManagerSouthWalesMCoombs,FinancialDirectorSCottam,GroupTechnicalDirector-SimsRecyclingSolutionsRKilpatrick,GeneralManagerGroupEngineering&ProjectDevelopmentPMumby,ExecutiveGeneralManagerOperationsDWilliams,CompanySecretaryPWright,GeneralManagerNorthernRegion

AuStrAliAn Joint VentureAustralian refined Alloys pty limitedJKouw,GeneralManager

eQuitY inVeStMentSlandfill Management Services pty limitedJJFalzon,ManagingDirector

SiMS internAtionAlCHinASuite2701,No.166,EastLuJiaZuiRoadChinaInsuranceBuildingPudong,Shanghai200120ChinaTel:(8621)68419191;Fax:(8621)68419090FZhang,ChiefRepresentative

MAlAYSiA36thFloor,MenaraMaxisKualaLumpurCityCentre50088KualaLumpur,MalaysiaTel:(603)26157311;Fax:(603)26157313RLoh,ChiefRepresentative

inDiAPrestigePoint,2NdFloorNewNo33,HaddowsRoadChennai600006,IndiaTel:(9144)42132123;Fax:(9144)42132124UNandi,ChiefRepresentative

VietnAMSuite1316,13thFloor,HanoiTower49HaiBaTrungStr.HanoiVietnamTel:(84)49343982;Fax:(84)49343966PNgoc,ChiefRepresentative

maNagEmENT dirECTOry

DesignedandProducedbyComputershare

www.sims-group.com

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