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Sims Metal Management Releases Special Committee Findings On UK Investigation; Goodwill Impairment

Appendix A:

Findings of the Special Committee

Sims Metal Management Limited (the "Company") announced on 21 January 2013 that the Board of Directors had established a Special Committee (the "Committee") to investigate inventory valuation issues in the Company's UK business. The immediate priorities of the Committee were to determine the amount by which the value of inventory was overstated and the impact on the Company's accounts; conclude if the issues giving rise to the overstatement were limited to the Company's facilities in the UK; identify the root causes of the write-down and where breakdowns in the Company's control environment had occurred; and to direct and oversee the implementation of corrective actions. Additionally, the Committee was tasked with assessing, if appropriate, any necessary actions in respect of employees and third parties determined to be responsible. The Committee has now substantially completed its investigation and reports the following:

1. Inventory write-down adjustment in the UK, impact on the Company's accounts, and restatement of prior period results

The Committee, with the assistance of the Group CEO and CFO, internal audit, PwC, and Baker & McKenzie, oversaw a thorough investigation at the Company's Newport and Long Marston facilities in the UK. A full physical count of inventory was performed at the Newport facility of which 85% of all the inventory was re-weighed and evaluated. At Long Marston, a physical count was completed which was supplemented by comparing production results with yield recovery assumptions. Based on these procedures, the Committee has concluded that a write-down of inventory of $78 million will be required, versus a preliminary assessment of circa $60 million. The write-down adjustment has been independently verified by the Company's external auditor PricewaterhouseCoopers ("PwC").

The write-down represents circa 29% of the value of inventories in the UK and 9% of inventory on a Group-wide basis before the write-down, as at 31 December 2012. The inventory write-down will partially impact the Company's first half Fiscal 2013 results and also cause a restatement of prior period results. The write-down adjustment in the UK will be separately identified as a significant item in the first half Fiscal 2013 results.
Table 1:
UK Inventory write-down by product category
(in A$ millions) HY13 Prior Periods Total
Recycling Solutions $13 $50 $63
Ferrous Trading $3 $12 $15
Total inventory provision 1,2 $16 $62 $78
1) The full inventory write-down by Region is attributable to the Europe reporting segment.
2) Depending on the impact of foreign exchange and the prior periods that are restated, the amounts of the inventory impairment in the prior periods column could vary from the amounts above.

2. Assessment of the control environment in relation to other sites including SRS sites outside of the UK

In addition to the verification procedures completed at Newport and Long Marston, the Committee oversaw inventory valuation processes, accomplished via stock take and other verification procedures, at all other sites in the UK and principal SRS sites in Continental Europe and North America. At the conclusion of those investigations, the Committee has determined that the overstatement of inventory was unique to circumstances at the UK locations in Newport and Long Marston. The Committee found no evidence of control deficiencies or inventory miscalculation at any locations other than Newport and Long Marston. This assessment has been independently verified by PwC.

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