ARRIUM LIMITED ASX APPENDIX 4D ABN 63 004 410 833 HALF … · 2016. 2. 16. · ARRIUM LIMITED ABN...

ARRIUM LIMITED ABN 63 004 410 833

ASX APPENDIX 4D HALF-YEAR FINANCIAL REPORT

NCN

ARRIUM LIMITED

RESULTS FOR ANNOUNCEMENT TO THE MARKET HALF-YEAR ENDED 31 DECEMBER 2015

Comparison to previous corresponding period (pcp)

2015

A$ million

2014

A$ million

Movement Change

%

Total revenue from ordinary activities 2,764.7 3,218.7 down 14.1

Statutory loss from ordinary activities after tax attributable to ordinary equity holders

(235.8) (1,493.1) down 84.2

Statutory net loss for the period attributable to ordinary equity holders

(235.8) (1,493.1) down 84.2

Underlying loss from ordinary activities after tax attributable to ordinary equity holders1

(24.1) (22.4) up 7.6

Underlying net loss for the period attributable to ordinary equity holders1

(24.1) (22.4) up 7.6

1 Details of the reconciliation of underlying to statutory results can be found attached to this document.

Dividends

There was no final dividend paid during the financial year and the Company does not propose to pay an interim dividend for FY16.

Net Tangible Assets 31 December 2015 31 December 2014

Net Tangible Assets per security ($) 0.20 0.40

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ARRIUM LIMITED ABN 63 004 410 833

ASX APPENDIX 4D HALF-YEAR FINANCIAL REPORT

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Details of Associates and Joint Venture Entities

Name of Associate or Joint Venture Entity Associate or Joint Venture Entity

Percentage holding

December 2015

Percentage holding

December 2014

BOSFA Pty Ltd Jointly controlled entity

- 50%

GenAlta Recycling Inc. Jointly controlled entity

50%

50%

Details of entities over which control ceased during the period

Name of Entity Date

OneSteel Recycling (Fiji) Limited 13 October 2015

There were no entities over which control was gained during the period.

Dividend Reinvestment Plan As no interim dividend is payable the Dividend Reinvestment Plan will not operate.

Other disclosures Further ASX Appendix 4D disclosures are located in the Arrium Limited Half-Year Financial Report.

This report is based on a Financial Report that has been subject to review and is not subject to any dispute or qualification.

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Arrium Limited ABN 63 004 410 833

Arrium Head Office: Level 40, 259 George St, Sydney NSW 2000, GPO Box 536, Sydney NSW 2001, Australia Phone: +612 9239 6666 Fax: +612 9251 3042

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ASX RELEASE

17 February 2016 ARRIUM LIMITED 1H FY16 RESULTSi,ii,iii

AT A GLANCE Underlying NLAT $24 million – lower iron ore prices Statutory NLAT $236 million – includes asset impairments, restructuring and other costs Underlying EBITDA $115 million – lower iron ore prices and adverse NRV in Mining Statutory EBITDA $40 million – includes restructuring costs Mining Consumables – strong performance despite weaker external environment

Underlying EBITDA $109 million, up 15% pcp Stable grinding media margins

Steel – strong lift in earnings pcp Underlying EBITDA $44 million, up 238% from $13 million pcp Further cost reductions, efficiency improvements and lower scrap prices

Mining – restructuring benefits offset by further decline in iron ore prices Underlying EBITDA negative $20 million – includes $22 million adverse NRV adjustment Restructuring announced June 15 tracked to plan

Restructuring organisation to rapidly reposition company with competitive and resilient businesses Targeting at least $200 million annualised cost reductions and productivity gains

Net debt $2,076 million – restructuring costs, lower iron ore prices, FX and adverse working capital Asset impairments $142 million – primarily in Mining Continue to comply with banking covenants Strategic review continues to progress and the company is assessing a number of proposals No interim dividend declared

Mining Consumables – strong performance despite weaker external environment Underlying EBITDA $109 million, up 15% from $95 million pcp Lower commodity prices: average copper, gold, iron ore prices down 26%, 10% and 38% respectively Some mines mothballed / production slowed Increased focus by miners on reducing costs Total grinding media sales volumes up 1% on prior half Further strengthened competitive position through roll out of next generation (NG) SAG ball – strong

customer support with growth expected in 2H16 Grinding media margins stable ROFE ~13% for Moly-Cop grinding media businesses in North and South Americaiv Capacity expansion at La Joya, Peru tracking to plan for commissioning mid 2016 Demand for rail wheels improved from low base Earnings expected to increase in 2H FY16 – increasing volumes (grinding media and rail wheels) Steel – earnings up significantly in difficult external environment EBIT positive for second consecutive half Underlying EBITDA $44 million, up 238% from $13 million pcp

Cost reductions, lower raw material costs and FX more than offset impact from: Decline in Asian prices to 12 year lows

Earnings improvement in all businesses other than Whyalla Steelworks Whyalla Steelworks operating loss $43 millionviii and capital expenditure of $24 million

October 2015 – announced $100 million cost reduction target to improve competitiveness Additional $60 million required to achieve cash breakeven at current low Asian steel prices

Continued improvement in domestic demand – increased construction activity Domestic sales volumes up 5% on prior half – reinforcing volumes up strongly

Recycling EBITDA breakeven – significantly lower scrap prices Steel earnings expected to be weighted to 2H – increasing volumes, cost reductions and anti-dumping

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Mining – restructuring benefits offset by further decline in iron ore prices

Export hematite sales 4.21Mt, target for FY16 ~9Mt Restructuring initiatives announced June 2015 completed Sharp fall in iron ore price November/December – average US$43/dmt with low of US$38/dmt mid Dec. Average Platts index price for 1H US$51/dmt down 38% from US$82/dmt pcp (62% Fe CFR China) Average loaded cash costv A$35.1/wmt, down 23% on prior half – in line with FY16 target Total cash cost (CFR China) A$57.6/dmt, down 11% on prior half Capital spend down 70% pcp – FY16 target ~A$7/t (~US$5/t) Underlying EBITDA negative $20 million – includes $22 million adverse NRV at half end

Restructuring and cost reductions Restructuring organisation to rapidly reposition company with competitive and resilient businesses Focus on transformation of Steel and Mining businesses Simplified and lower cost corporate structure ~300 reduction in Arrium workforce in 1H16 Targeting at least $200 million annualised cost reductions and productivity improvements next 2 years

Up $40 million from October 2015 announcement Achieved $20 million in 1H16, $70 million target 2H16 (annualised rate end FY16 $180 million)

Whyalla Steelworks Significant operating loss of $43 millionviii and cash loss including capital spend of $24 million in 1H16

Impact of low Asian steel prices and fixed iron ore feed cost Identified opportunities totalling ~$100 million cost reduction target announced October 15 Employee reduction across Steel and magnetite operations ~280 – previously announced Additional $60 million required to achieve cash breakeven at current Asian steel prices Work continuing to identify additional savings to sustain operations (labour, productivity,

efficiencies and waste reduction) Working closely with South Australian Government to identify options to sustain facility through

current low price environment Continuing to engage other State and Federal Governments on Whyalla and wider steel industry

challenges Beginning to plan for ‘care and maintenance’ options for all or part of Steelworks and Magnetite

supply chain, if unable to address cash loss position Planning work for consideration of ‘care and maintenance’ option to be completed by mid 2016

Mining Restructuring in 2015 targeted reduction in cash breakeven price to ~US$50/t for FY16 (FY15 US$84/t) Further reduction in cash breakeven price required – lower iron ore prices (US$43/t average from

October 15) Targeting a further ~A$10/t reduction in cost base Work to date has identified opportunities to further lower average cash breakeven price to ~US$45/t in

FY17 with assistance from contractors Continuing to work with contractors to agree reset of cost base

Strategic Review Continuing to progress the Strategic Review to achieve an appropriate structure and level of debt Arrium has received a number of proposals, including for the sale of Mining Consumables, interest in

other businesses, recapitalisation of the company and additional funding for the company Arrium will now consult with its lenders The Board is focused on achieving the best outcome for Arrium and its stakeholders

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RESULTS COMMENTARY Group

Mining and materials group, Arrium Limited (ASX:ARI) today reported an underlying net loss after tax (NLAT) of $24 million for the half year ended 31 December 2015, compared to an underlying NLAT of $22 million for the prior corresponding half. Stronger earnings in the Mining Consumables and Steel businesses were offset by the impact of lower iron ore prices in the Mining business. On a statutory basis, NLAT for the year was $236 million after including asset impairments of $142 million and restructuring and other charges of $70 million. Lower iron ore prices and a related adverse $22 million inventory valuation adjustment in the Mining business led to a decrease in underlying EBITDA from $189 million for the prior corresponding half to $115 million. Arrium’s Managing Director and CEO, Mr Andrew Roberts said: “It is currently a very difficult external environment for mining and steel companies globally, and Arrium is no exception as reflected in our disappointing first half Group results. Although we delivered solid earnings improvements in both our Mining Consumables and Steel businesses in very challenging conditions, the performance of our Whyalla businesses weighed heavily on Group earnings. “Pleasingly, our Mining Consumables business again performed well, delivering increased earnings in a weaker and more challenging global resources environment. “In Steel, all businesses other than Whyalla delivered improved earnings underpinned by increased construction activity and lower costs. “At Whyalla, the competitiveness of our Steel business was significantly impacted by the continued decline in Asian steel prices to 12 year lows. In Mining, the further sharp fall in iron ore prices through November and December more than offset the earnings benefits from the restructuring we announced last June. “In October last year we announced that work was progressing to transform both our Mining and Steel businesses and improve their earnings and cash generation in response to the weaker external environment. Despite the work progressing well, further deterioration in iron ore and Asian steel prices since October has led to the need for additional restructuring and cost savings. “We have a positive outlook for Mining Consumables and Steel demand and we expect earnings in these businesses to be stronger in the second half. We are also working rapidly to reposition Arrium as a more competitive and resilient business”, Mr Roberts said. Operations In Mining Consumables, underlying EBITDA was up 15% on the prior corresponding half to $109 million despite lower commodity prices and an increased focus by miners on lowering costs. Demand for grinding media remained strong, albeit some mines were mothballed or slowed in response to lower prices, with copper, gold and iron ore down 26%, 10% and 38% respectively. Grinding media volumes increased 1% on the prior half supported by contract renewals and the roll out of our market leading next generation (NG) SAG ball, which is receiving strong customer support. In rail wheels, sales volumes were up 11% on the prior corresponding half due mainly to an increase in maintenance activity and export sales, and reflects the first increase in rail volumes since FY13. The capacity expansion at La Joya, Peru is progressing well for commissioning mid-2016. The expansion is expected to provide the business with sufficient capacity for at least the medium term, and position the business for optimising cash generation. Earnings for Mining Consumables in FY16 are expected to improve in the second half due to increasing sales volumes, mainly related to the ramp up of a number of completed mine projects, further take up of the NG SAG ball and improving rail wheel demand.

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In Steel, underlying EBITDA was up 238% to $44 million from $13 million for the prior corresponding half. The increase was due to cost reductions, improved margins over scrap and a lower AUD/USD, which more than offset the significant adverse impact of a further decline in Asian prices. The business was again underlying EBIT positive, the second consecutive underlying EBIT positive half since the GFC. Domestic demand continued to improve, mainly through increased construction activity in NSW and Victoria. Domestic sales volumes increased 5%, with volumes improving across all products associated with the construction sector, particularly the reinforcing range of products and the hot rolled structural products from Whyalla. Earnings in the Recycling business were lower than the prior corresponding half due to the impact of lower ferrous and non-ferrous prices more than offsetting cost reductions and productivity improvements. Steel earnings for FY16 are expected to be weighted to the second half. This is due to an expected increase in sales volumes from Whyalla and as a number of large infrastructure projects commence and ramp up. The business is also expected to benefit from further significant cost reductions and from recent anti-dumping decisions. In Mining, iron ore prices continued to decline. The average index price decreased 38% on the prior corresponding half to US$51/dmt. Restructuring initiatives announced last June were implemented, significantly lowering the export business’ average cash breakeven price. Iron ore prices fell sharply through November and December leading to the need to further reset the cost base. Restructuring and cost reductions Restructuring across the company is continuing with the aim of rapidly repositioning Arrium as a competitive and resilient business. This includes providing a more integrated and lower cost organisation with a simplified corporate structure, addressing loss making businesses including the Mining and Steel businesses at Whyalla, and ensuring the Steel-in-Concrete business is positioned to benefit from the growth in domestic construction activity. This has led to the company targeting $200 million of annualised cost reductions and productivity improvements over the next two years, including $100 million related to the Whyalla Steel business. All of the $200 million target has now been identified, with the initiatives being progressively implemented. The further deterioration in iron ore and Asian steel prices since October 2015 means the Whyalla Steelworks will need an additional $60 million to achieve cash breakeven if the current conditions prevail. While in Mining, a further ~A$10/t reduction in the cost base is being targeted. Work to identify opportunities to achieve this target is focused on labour, contractors, capital and equipment and freight. To-date, opportunities have been identified that would lower the targeted average cash breakeven iron ore price for FY17 to ~US$45/dmt. Balance sheet Following the company’s normal practice of testing the carrying value of its assets at the end of each reporting period, asset impairments totaling $142 million were recorded at the end of the half. This includes $106 million in the Mining business due to lower forecast iron ore prices, and $37 million in the Recycling business due to lower forecast scrap steel margins. Net debt at the end of the first half was $2,076vi million compared to $1,750vii million at 30 June 2015. The increase reflects an operating cash outflow for the half of $156 million, capital expenditure $139 million, adverse foreign exchange translation of $36 million, and proceeds from asset sales of $5 million. The Mining business and Whyalla Steelworks account for ~$230 million of the cash outflow through operating cash losses, capital expenditure and Southern Iron closure costs. F

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Strategic Review update Arrium continues to progress its Strategic Review with the objective of achieving an appropriate structure and level of debt in a low iron ore price environment. The company has received proposals from interested parties covering: A sale of the Mining Consumables business Interest in other businesses within the Group Recapitalisation of the company through new debt and equity funding New debt facilities The company has received a number of proposals for the Mining Consumables business. However, the value of the proposals was impacted by the deterioration in the external environment and the availability of financing for the resources sector, and did not adequately reflect the underlying value of the business which has continued to perform well in a very challenging environment. The recapitalisation proposals received could, if implemented, result in a sustainable capital structure enabling Arrium to pursue identified turnaround initiatives as well as future growth opportunities. The Board continues to assess the proposals received to determine the best option for Arrium, and the company will now consult with its lenders. Mr Roberts said: “Through the Strategic Review we have identified and assessed a range of options. We are carefully working through the proposals, having regard to the challenging external environment and the need to address the level and structure of debt within the Group. The Board remains focused on achieving the best outcome for the company and its stakeholders through this process.” The company will continue to update the market as the Strategic Review progresses, as appropriate.

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RESULTS SUMMARY

Statutory Dec-15 Dec-14 % Change$m $m

Total OperationsSales revenue 2,765 3,219 (14%)EBITDA 40 (22) 282%EBIT (210) (1,368) 85%Net profit/(loss) after tax (236) (1,493) 84%

Operating cash flow (156) 93 (268%)Net debt 2,076 1,430 45%Gearing (net debt / net debt + equity) 47.1% 32.6% 14.5ppEarnings per share (weighted average) - cents (8.0) (68.8) 88%

Underlying Dec-15 Dec-14 % Change$m $m

Total OperationsSales revenue 2,765 3,219 (14%)EBITDA 115 189 (39%)EBIT 7 (32) 122%Net profit/(loss) after tax (24) (22) (9%)

Operating cash flow (54) 183 (130%)Leverage Ratio (net debt / EBITDA, 12 month rolling basis) 7.5 2.6 188%Earnings per share (weighted average) - cents (0.8) (1.0) 20%

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SEGMENT ANALYSIS ARRIUM MINING CONSUMABLES Underlying EBITDA $109 million, up 15% from $95 million pcp Lower commodity prices: average copper, gold, iron ore prices down 26%, 10% and 38%

respectively Some mines mothballed / production slowed Increased focus by miners on reducing costs Grinding media margins stable Total grinding media sales volumes up 1% on prior half Further strengthened competitive position through roll out of next generation (NG) SAG ball –

strong customer support with growth expected in 2H16 ROFE ~13% for Moly-Cop grinding media businesses in North and South Americaiv Capacity expansion at La Joya, Peru tracking to plan for commissioning mid 2016 Demand for rail wheels improved from low base Mining Consumables continued to perform well despite a weaker external environment that included significantly lower prices for copper, gold and iron ore. Demand for grinding media continues in line with minerals processing requirements. However, lower commodity prices led to some higher cost mines either mothballing or slowing production, or reducing inventory levels to conserve cash. Total grinding media sales volumes increased 1% on the prior half underpinned by the business’ strong competitive position. Sales volumes were consistent across all regions, with the largest increase occurring in Peru with the commissioning of several new mining projects. In Chile, sales volumes were impacted by destocking, competition and operational issues at a number of mines. Total sales volumes for the segment were 560 thousand tonnes compared with 610 thousand tonnes for the prior corresponding half. The decrease includes weaker AltaSteel sales volumes of grinding rod related to low steel and iron ore prices, and lower rebar sales to the construction sector in western Canada. Lower commodity prices, which included copper, gold and iron ore being down 26%, 10% and 38% respectively, led to an increased focus by customers on reducing costs. The average selling price of grinding media was lower mainly due to the pass through of lower grinding media raw material costs, as well as the impact of general market conditions. Despite the challenging external environment, grinding media margins remained stable, reflecting the quality of the business and its pricing strategy. The business continued to win at least its strong share of grinding media demand from new mine projects and contract renewals, and continued to build on its sustainable competitive advantage, including through the roll out of the next generation (NG) SAG ball, which is receiving strong customer support. The NG technology has now been installed at our Lima, Peru, Kansas City, USA and Mejillones, Chile facilities. The new Kamloops, Canada facility, completed mid-2015, is operating well and producing high quality XTH SAG balls for the Canadian and Alaskan markets. Installation of the NG SAG ball technology at Kamloops is tracking well for commissioning in June 2016. In the current environment of lower commodity prices, mining companies are focused on superior ‘value in use’. This includes factors such as ball quality incorporating wear rates and consistency of performance, supply assurance, technical support and price. Our Moly-Cop grinding media business is very well placed to continue its success through its superior product performance, extensive supply chain, technical assistance, capacity advantage, scale benefits and focus on costs. The return on funds employed for grinding media in North and South America was ~13%iv. In the Australian rail wheels business, sales volumes improved for the first time since FY13. The improvement was due to increased maintenance activity, the recommencement of export sales and increased sales to the capital investment sector.

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Underlying EBITDA for Mining Consumables increased 15% on the prior corresponding half, from $95 million to $109 million due to cost efficiencies, FX benefits and stable sales volumes. ARRIUM STEEL EBIT positive for second consecutive half Steel Underlying EBITDA $44 million, up 238% from $13 million pcp

Cost reductions, lower raw material costs and FX more than offset impact from: Decline in Asian prices to 12 year lows

Earnings improvement in all businesses other than Whyalla Steelworks Whyalla Steelworks operating loss $43 millionviii and capital expenditure of $24 million

October 2015 – announced $100 million cost reduction target to improve competitiveness Additional $60 million required to achieve cash breakeven with current low Asian steel

prices Continued improvement in domestic demand – increased construction activity

Domestic sales volumes up 5% on prior half – reinforcing volumes up strongly Recycling EBITDA breakeven – significantly lower scrap prices In Steel, underlying EBITDA was up 238% to $44 million from $13 million for the prior corresponding half due to cost reductions, lower raw material costs and a lower AUD/USD more than offsetting the adverse impact of a further decline in Asian prices. The business was again underlying EBIT positive, the second consecutive underlying EBIT positive half since the GFC. Domestic steel demand continued to improve, mainly from increased construction activity with sales volumes improving across all products associated with the construction sector, particularly the reinforcing range of products and the hot rolled structural products from Whyalla. Total domestic steel volumes increased 5% on the prior half. The increase in construction activity was mainly in NSW and Victoria, with residential, large commercial projects and government funded infrastructure being key contributors to the improvement. A number of the planned large government funded infrastructure projects have commenced and are now ramping up which is expected to deliver an increase in sales volumes in the second half. There is a strong pipeline of infrastructure projects scheduled for construction over the medium term and the business remains well positioned to benefit from increased steel demand. Sales revenue for the half was $1,453 million, down 7% on $1,567 million for the prior corresponding half as the increase in domestic sales volumes was more than offset by lower average selling prices. The company’s focus on transforming the Steel business in response to the significantly lower Asian steel prices and margins contributed to an improvement in earnings for all Steel businesses, other than the Whyalla Steelworks. This included repositioning of Metalcentre to focus on project construction and the reseller segments, and the lowering of its cost base including the closure of 13 sites, which together delivered increased volumes and improved earnings in the half. The Australian Tube Mills business also delivered improved earnings through the right-sizing of its manufacturing capabilities, including the closure of the Somerton facility in Victoria and improving asset utilisation and performance. In Recycling, earnings were lower than in the prior corresponding half with the business reporting a breakeven EBITDA outcome. The lower earnings were due to the impact of weaker ferrous and non-ferrous prices more than offsetting cost reductions and productivity improvements.

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ARRIUM MINING

Export hematite sales 4.21Mt, target for FY16 ~9Mt Restructuring initiatives announced June 2015 completed Sharp fall in iron ore price November/December – average US$43/dmt with low of US$38/dmt

mid December Average Platts index price for 1H US$51/dmt down 38% from US$82/dmt pcp (62% Fe CFR

China) Average loaded cash costv A$35.1/wmt, down 23% on prior half – in line with FY16 target Total cash cost (CFR China) A$57.6/dmt, down 11% on prior half Capital spend down 70% pcp – FY16 target ~A$7/t (~US$5/t) Underlying EBITDA negative $20 million – includes $22 million adverse NRV at half end

The earnings performance of the Mining business was significantly impacted by the sharp fall in iron ore prices through November and early December which more than offset the benefits of the restructuring initiatives announced in June last year. The average iron ore index price declined further to US$51/dmt for the half, down 38% on the average for the prior corresponding half of US$82/dmt. The iron ore index price ranged between $50 – 60/dmt through the majority of the half before the sharp decline in November and December. The average for these two months was down to US$43/dmt, and reached a low of US$38/dmt in mid-December. Revenue decreased 51% to $253 million, from $512 million in the prior corresponding half due to the lower prices and reduced export sales. Export ore sales for the half were 4.21Mt, down from 6.58Mt in the prior corresponding half, and in line with the FY16 target previously announced. Arrium’s average price for the half was A$58/dmt CFR (US$42/dmt). This represents ~83% of the average Platts index 62% Fe index price for the half, and ~85% including the impact of M + 1 pricing. The average loaded cash cost for the half was A$35.1/wmt (~US$25/wmt), down 23% on the prior half and in line with the previously reported FY16 target. Underlying EBITDA for the half was negative $20 million, down from $77 million primarily due to lower iron ore prices and an end of half adverse inventory revaluation adjustment of $22 million due to the sharp decline in actual and forecast iron ore market prices towards the end of the year. The business recorded a significant cash outflow for the half due the impact of capital expenditure, Southern Iron closure costs and a wind-down of creditors. DIVIDEND The Board determined not to declare an interim dividend for FY16.

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OUTLOOK In Mining Consumables, we expect continued solid demand for grinding media, particularly given the recent completion of a number of new and expanded mining operations in the Americas, as well as from the ongoing deterioration of head grades for copper and gold. The business’ strong competitive position, including the high level of customer support for the new NG SAG ball, positions it well for continuing to win at least its strong market share of contract renewals and new projects, particularly given the increased focus by customers on ‘value in use’. Earnings for Mining Consumables are expected to increase in the second half due to stronger sales volumes, mainly related to the ramp up of a number of recently completed mine projects, further take up of the NG SAG ball, reduced impact of destocking and improving rail wheel sales. In Mining, demand for seaborne iron ore remains strong but prices are expected to continue to be under pressure and volatile due to the demand/supply balance and negative market sentiment. The business is focused on resetting its cost base in response to the recent further decrease in iron ore prices. Sales for the year are expected to be approximately 9Mt at an average grade of ~58.5 Fe, with around 85% of sales under term contracts with customers. In Steel, the outlook for the second half is positive underpinned by increasing construction activity and a strong rural sector. Residential construction, particularly high rise apartments in capital cities remains at high levels and a number of recently commenced government funded infrastructure projects are ramping up. This is expected to underpin stronger sales volumes in the second half, although we have seen a slower than expected start post the Christmas/new year period, largely related to the impact of wet weather on construction. Earnings in the second half are expected to be stronger due to increased sales volumes and from having a lower cost base due to the extensive cost reduction initiatives. We also expect to benefit from recent favourable anti-dumping decisions. Second half underlying earnings for the Arrium Group are expected to benefit from increased earnings in Mining Consumables and Steel, as well as the significant cost reductions across the Group.ix However, external factors such as iron ore pricing, South East Asian steel prices and margins and movements in FX are expected to be key influencers of earnings.

ENDS

Further information about Arrium Limited can be accessed via the website www.arrium.com. CONTACTS: Investor, Analyst and Media Steve Ashe General Manager Investor Relations & External Affairs Tel: +612 9239 6616 Mob: +61408 164 011 Email: [email protected]

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i Except as otherwise expressed, references in this document to net profit/loss after tax refer to net profit/loss attributable to equity holders of the parent. ii Unless otherwise stated, certain financial measures referred to in this document, including underlying results and ratios based on underlying results are non-statutory financial measures, which have not been audited or reviewed as part of KPMG’s audit report on the half year financial report. However, KPMG have undertaken a set of procedures to agree the financial information in this document to underlying information supplied by the Company. The Directors believe that using these non-statutory financial measures appropriately represents the financial performance of the Group’s total operations including continuing and discontinued operations. All balance sheet items are based on statutory financial information. Details of the reconciliation of non-statutory to statutory results can be found attached to this document. The ASX Release forms part of a package of information about the Group’s Half Year Financial Results for the half year ended 31 December 2015 and should be read in conjunction with the other 2016 Half Year Financial Results materials including the 2016 Half Year Results Presentation and the Half Year Financial Report for the 6 months to 31 December 2015. iiiSegment results referred to throughout this release are those reported in the 2016 Half Year Financial Report. They are equivalent to segment underlying results for continuing businesses in that segment. iv Excludes capacity expansions prior to their commissioning. Includes recently commissioned Kamloops, Canada facility in funds employed. v Includes mining, crushing, beneficiation, rail, road haulage and transshipping costs. Excludes capitalised costs (infrastructure, pre-stripping and mining licences) and depreciation and amortisation charges in respect of those costs, royalties, sales and marketing and corporate costs. vi USD debt translated to AUD at 0.73 (AUD/USD) at 31 December 2015. vii USD debt translated to AUD at 0.77 (AUD/USD) at 30 June 2015. viii Includes intercompany transactions. ix Assuming average iron ore price of US$44/dmt (Platts 62% Fe CFR China) and USD:AUD average exchange rate of $0.70 for 2H16.

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ATTACHMENT

Half-year ended 31 December 2015 Statutory Results Underlying Results

Reconciliation between Underlying and Statutory Results

Continuing operations

Discontinued operations

Total Operations Statutory

Impairment1Tax

adjustments2

Restructuring costs & Other

items3

Total Operations Underlying

Sales revenue 2,764.7 - 2,764.7 - - - 2,764.7 Other revenue/income 16.4 - 16.4 - - - 16.4 Total revenue/income 2,781.1 - 2,781.1 - - - 2,781.1 Gross profit/(loss) 329.1 - 329.1 - - - 329.1 EBITDA 39.8 - 39.8 - - 75.0 114.8 Depreciation, amortisation and impairment (249.8) - (249.8) 141.7 - 0.4 (107.7) EBIT (210.0) - (210.0) 141.7 - 75.4 7.1 Finance costs (39.6) - (39.6) - - 1.3 (38.3) Profit/(loss) before tax (249.6) - (249.6) 141.7 - 76.7 (31.2) Tax (expense)/benefit 14.2 - 14.2 0.5 2.3 (9.5) 7.5 Profit/(loss) after tax (235.4) - (235.4) 142.2 2.3 67.2 (23.7) Non-controlling interests (0.4) - (0.4) - - - (0.4) Net profit/(loss) after tax (235.8) - (235.8) 142.2 2.3 67.2 (24.1) 1 Comprising impairment of intangible assets, mine development expenditures and property, plant and equipment in Mining and Recycling.2 Prior period tax adjustments.3 Related to redundancies and other direct expenditure associated with business restructures and organisational changes. Other items in net profit/(loss) after tax of $16.2m relates to transaction costs and other non-recurring costs.

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ATTACHMENT

Half-year ended 31 December 2014 Statutory Results Underlying Results

Reconciliation between Underlying and Statutory Results

Continuing operations

Discontinued operations1

Total Operations Statutory

Impairment2Tax

adjustments3

Restructuring costs & Other

items4

Total Operations Underlying

Sales revenue 3,179.3 39.4 3,218.7 - - - 3,218.7 Other revenue/income 59.8 1.4 61.2 - - - 61.2 Total revenue/income 3,239.1 40.8 3,279.9 - - - 3,279.9 Gross profit/(loss) 61.6 21.9 83.5 - - - 83.5 EBITDA (0.2) (22.2) (22.4) 205.9 - 5.5 189.0 Depreciation, amortisation, and impairment (1,344.3) (1.2) (1,345.5) 1,124.1 - - (221.4) EBIT (1,344.5) (23.4) (1,367.9) 1,330.0 - 5.5 (32.4) Finance costs (49.4) - (49.4) - - 2.6 (46.8) Profit/(loss) before tax (1,393.9) (23.4) (1,417.3) 1,330.0 - 8.1 (79.2) Tax (expense)/benefit (67.7) (7.7) (75.4) 1.6 133.5 (2.5) 57.2 Profit/(loss) after tax (1,461.6) (31.1) (1,492.7) 1,331.6 133.5 5.6 (22.0) Non-controlling interests (0.4) - (0.4) - - - (0.4) Net profit/(loss) after tax (1,462.0) (31.1) (1,493.1) 1,331.6 133.5 5.6 (22.4) 1 Relating to the results of Ropes, Merchandising and US Recycling businesses. Excludes intercompany transactions. Statutory EBITDA and statutory net loss after tax including intercompany transactions are $31.0m loss and $37.3m loss respectively. 2 Comprising inventory write down in Mining and impairment of intangible assets, mine development expenditures and property, plant and equipment in Mining, Mining Consumables, Steel and Recycling and discontinued operations. 3 Prior period tax adjustments and write off of deferred tax assets including the impact of the repeal of the Mineral Resource Rent Tax. 4 Related to redundancies from organisational changes and other direct expenditure associated with business restructures. Other items in net profit/(loss) after tax of $2.7m relates to break fees associated with early termination of cross currency and interest rate swaps and other non-recurring costs.

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ATTACHMENT SEGMENT Half year ended 31 December$ millions 2015 2014 % Chg 2015 2014 % Chg 2015 2014 % Chg 2015 2014 % Chg

Total Revenue/Income 754.8 766.3 (1.5%) 253.1 511.8 (50.5%) 1,453.2 1,566.5 (7.2%) 475.7 600.5 (20.8%)EBITDA 108.8 94.5 15.1% (20.4) 76.6 (126.6%) 44.1 13.3 231.6% - 9.3 (100.0%)EBIT 82.7 72.1 14.7% (55.4) (64.6) 14.2% 3.7 (37.7) 109.8% (5.1) 4.3 (218.6%)Sales Margin % (EBIT%) 11.0% 9.4% 1.6pts (21.9%) (12.6%) (9.3 pts) 0.3% (2.4%) 2.7pts (1.1%) 0.7% (1.8 pts)Assets 2,602.8 2,620.2 (0.7%) 798.3 1,170.0 (31.8%) 1,867.3 1,847.8 1.1% 257.4 359.7 (28.4%)Funds Employed 2,239.3 2,183.5 2.6% 439.9 614.7 (28.4%) 1,348.6 1,309.6 3.0% 194.4 288.6 (32.6%)Return on Funds Employed (%) 7.5% 6.9% 0.6pts (24.7%) (11.4%) (13.3 pts) 0.6% (5.3%) 5.9pts (4.8%) 2.9% (7.7 pts)Employees (number) 1,837 1,848 (0.6%) 396 583 (32.1%) 4,993 5,260 (5.1%) 619 658 (5.9%)

MiningMining Consumables Recycling Steel

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15

ATTACHMENT FINANCIAL RATIOSHALF YEAR ENDED 31 DECEMBER

2015 2014 Change$m $m %

Sales Revenue 2,765 3,219 (14%)Other Revenue/Income 16 61 (74%)Total Income 2,781 3,280 (15%)Gross Profit 329 84 292%

EBITDA 115 189 (39%)Depreciation, amortisation & impairment (108) (221) (51%)EBIT 7 (32) 122%Finance costs (38) (47) (19%)Profit / (Loss) before tax (31) (79) 61%Tax benefit / (expense) 8 57 (86%)Profit / (Loss) after tax (24) (22) (9%)Non-controlling interests (0) (0) 0%Net profit / (loss) after tax (24) (22) (9%)

Total assets 6,197 6,406 (3%)Total liabilities 3,869 3,444 12%Total equity 2,328 2,962 (21%)Net debt 2,076 1,430 45%Funds employed 4,404 4,392 0%

Number of shares on issue (millions) 2,937 2,937 0%

Operating cash flow (54) 183 (130%)Free cash flow (192) (81) 137%Capital and investment expenditure 139 264 (47%)

Return on equity % (PAT / average total equity) (1.9%) (1.3%) (0.6 pp)Return on funds employed % (EBIT / average funds employed) 0.3% (1.3%) 1.6 ppSales margin % 0.3% (1.0%) 1.3 ppGross profit margin % 11.9% 2.6% 9.3 ppEarnings per share (cents) (0.8) (1.0) 20%Leverage Ratio (net debt / EBITDA, 12m rolling basis) 7.5 2.6 188%Gearing (net debt / net debt + equity) 47.1% 32.6% 14.5 ppInterest cover (times EBITDA, 12m rolling basis) 3.4 5.4 (2 times)Net tangible assets per share ($) 0.20 0.40 (50%)

Employees 8,348 9,201 (9%)Sales per employee ($000s) 331 350 (5%)

Iron ore tonnes sold (mt) 4.21 6.58 (36%)Raw steel production (mt) 1.24 1.23 1%Steel tonnes despatched (mt) 1.72 1.78 (3%)1Unless otherw ise stated, certain financial measures referred to in this document, including underlying results and ratios based on underlyingresults are non-statutory f inancial measures, which have not been audited or reviewed as part of KPMG’s review report on the half year financialstatements. How ever, KPMG have undertaken a set of procedures to agree the financial information in this document to underlying informationsupplied by the Company. The directors believe that using these non-statutory financial measures appropriately represents the financialperformance of the Group’s total operations including continuing and discontinued operations. Details of the reconciliation of non-statutory tostatutory results can be found in the Appendix to this document. All balance sheet items are based on statutory financial information.2 Details of the reconciliation of non-statutory to statutory results and between underlying results from total operations and underlying results fromcontinuing operations can be found in the reconciliation attached to this document.

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ARRIUM LIMITEDABN 63 004 410 833

FINANCIAL REPORTfor the half-year ended 31 December 2015

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Arrium Limited – Half-Year Financial Report

Contents

2

Directors’ Report 3

Income Statement 5

Statement of Comprehensive Income 6

Balance Sheet 7

Cash Flow Statement 8

Statement of Changes in Equity 9

Notes to the Financial Statements 11

Directors’ Declaration 30

Independent Auditor’s Review Report 31

Corporate Directory 33

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DireRep Your Dir

DirectorThe folloreport un

J C R MR B DavP G NanA G RobD C W RR WarnoD GoldsC R GalG J Smo PrincipaThe prinduring thmills intekey marferrous a

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KPMG, annetwork ofInternation

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KPMG

A W YouPartner Sydney 17 Febru

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AUDITOR’S IORATIONS A

Directors of A

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5

Income Statement FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED 2015 2014 Notes $m $m

Sales revenue 2,764.7 3,179.3Cost of sales (2,435.6) (3,117.7)Gross profit 329.1 61.6Other revenue 11.1 12.4Other income 5.3 47.4Operating expenses, including impairment losses 5 (555.8) (1,467.2)Finance costs (39.6) (49.4)Share of net profit of investments accounted for using the equity method

0.3

1.3

Loss from continuing operations before income tax 4 (249.6) (1,393.9)

Income tax benefit/(expense) 7 14.2 (67.7)

Loss from continuing operations after tax (235.4) (1,461.6)

Loss from discontinued operations after tax - (31.1)

Net loss for the period (235.4) (1,492.7)

Net (loss)/profit for the period is attributable to:

Non-controlling interests 0.4 0.4Equity holders of the parent (235.8) (1,493.1) (235.4) (1,492.7)The accompanying notes form an integral part of these financial statements.

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6

Statement of Comprehensive Income FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED 2015 2014 Notes $m $m Loss after tax (235.4) (1,492.7) Items that may be reclassified subsequently to profit or loss:

Cash flow hedges:

- net losses taken to equity (9.3) (2.5)- transferred to profit or loss 4.5 (2.9)- transferred to initial carrying amount of hedged items 0.6 (0.1) Fair value hedges: - reclassified to amortised cost 10.6 1.6- transferred to profit or loss (0.2) (0.9) Currency translation differences: - net investment hedges (30.1) (187.3)- exchange fluctuations on overseas net assets 38.2 231.4 Items that may not be reclassified subsequently to profit or loss:

Actuarial losses on retirement benefit obligations (2.5) (3.1)

Other comprehensive income, net of tax 11.8 36.2

Total comprehensive loss (223.6) (1,456.5) Total comprehensive (loss)/income attributable to:

Equity holders of the parent (224.3) (1,457.4)Non-controlling interests 0.7 0.9 (223.6) (1,456.5) Loss per share attributable to the ordinary equity holders of the parent:

Basic loss per share (cents per share) 9 (8.03) (68.79)Diluted loss per share (cents per share) 9 (8.03) (68.79) Loss per share for loss from continuing operations attributable to the ordinary equity holders of the parent:

Basic loss per share (cents per share) 9 (8.03) (67.35)Diluted loss per share (cents per share) 9 (8.03) (67.35)

The accompanying notes form an integral part of these financial statements. F

or p

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7

Balance Sheet AS AT CONSOLIDATED 31 December

2015 30 June

2015 Notes $m $mASSETS Current assets Cash and cash equivalents 303.6 194.8Receivables 559.9 617.6Derivative financial instruments 6.6 14.7Inventories 1,043.0 1,025.0Current tax assets 6.9 5.6Other current assets 5.1 9.2Disposal groups and assets held for sale - 87.4Total current assets 1,925.1 1,954.3

Non-current assets

Receivables 0.2 0.3Investments accounted for using the equity method 8.8 9.6Derivative financial instruments 1.3 13.6Other non-current assets 29.2 33.8Property, plant and equipment 5 2,064.1 2,113.8Mine development expenditure 5 92.0 106.6Other intangibles and goodwill 5 1,738.3 1,746.9Deferred tax assets 337.9 262.2Total non-current assets 4,271.8 4,286.8TOTAL ASSETS 6,196.9 6,241.1

LIABILITIES

Current liabilities Payables 839.7 1,008.7Derivative financial instruments 15.7 13.5Interest-bearing liabilities 6 20.2 67.9Current tax liabilities 9.9 8.7Provisions 312.0 307.4Disposal groups and liabilities held for sale - 90.9Total current liabilities 1,197.5 1,497.1

Non-current liabilities

Payables 6.1 0.3Derivative financial instruments 3.6 4.4Interest-bearing liabilities 6 2,359.3 1,877.1Deferred tax liabilities 73.7 68.4Provisions 228.3 238.9Total non-current liabilities 2,671.0 2,189.1TOTAL LIABILITIES 3,868.5 3,686.2NET ASSETS 2,328.4 2,554.9

EQUITY

Contributed equity 10 3,358.7 3,708.9Accumulated losses (1,066.7) (1,180.5)Reserves 30.0 20.8Parent interests 2,322.0 2,549.2Non-controlling interests 6.4 5.7TOTAL EQUITY 2,328.4 2,554.9 The accompanying notes form an integral part of these financial statements.

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8

Cash Flow Statement FOR THE HALF-YEAR ENDED 31 DECEMBER CONSOLIDATED 2015 2014 $m $m Inflows/(Outflows) Cash flows from operating activities Receipts from customers 3,080.2 3,561.7Payments to suppliers and employees (3,187.1) (3,400.8)Interest received 0.6 1.2Interest and other finance costs paid (27.8) (46.3)Income taxes paid (21.8) (23.3)

Net operating cash flows (155.9) 92.5 Cash flows from investing activities Purchases of property, plant and equipment, mine development expenditure and other intangibles (138.6) (263.7)Proceeds from sale of property, plant and equipment 4.7 58.1Dividend received from associate entity - 1.6

Net investing cash flows (133.9) (204.0) Cash flows from financing activities Proceeds from issue of shares - 727.7Purchase of shares for equity based compensation - (2.6)Net proceeds from/(repayment of) borrowings 393.7 (1,058.5)Repayment of principal of finance leases (0.7) (0.6)Dividends paid - (41.0)

Net financing cash flows 393.0 (375.0)

Net increase/(decrease) in cash and cash equivalents 103.2 (486.5) Cash and cash equivalents at the beginning of the half-year

194.8 650.5

Effect of exchange rate fluctuations on cash and cash equivalents held 5.6 17.7Cash and cash equivalents at the end of the half-year 303.6 181.7 The accompanying notes form an integral part of these financial statements.

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9

Statement of Changes in Equity

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

NON-CONTROLLING

INTERESTS TOTAL EQUITY

CONTRIBUTED EQUITY

Issued capital

Employee compensation

shares

Total contributed

equity Accumulated

losses Total

reserves

Total parent

interests

CONSOLIDATED $m $m $m $m $m $m $m $m

Balance at 1 July 2015, as previously reported 3,720.6 (11.7) 3,708.9 (1,180.5) 20.8 2,549.2 5.7 2,554.9 Adjustment on adoption of AASB 9, net of tax1 - - - (3.7) - (3.7) - (3.7) Balance at 1 July 2015, restated 3,720.6 (11.7) 3,708.9 (1,184.2) 20.8 2,545.5 5.7 2,551.2 Net (loss)/profit for the period - - - (235.8) - (235.8) 0.4 (235.4) Other comprehensive income - - - - 11.5 11.5 0.3 11.8 Total comprehensive (loss)/income for the period, net of tax - - - (235.8) 11.5 (224.3) 0.7 (223.6)

Transactions with equity holders:

Share capital reduction (353.3) - (353.3) 353.3 - - - - Share-based payments expense - - - - 0.8 0.8 - 0.8 Vested shares - 3.1 3.1 - (3.1) - - - Total transactions with equity holders (353.3) 3.1 (350.2) 353.3 (2.3) 0.8 - 0.8

Balance at 31 December 2015 3,367.3 (8.6) 3,358.7 (1,066.7) 30.0 2,322.0 6.4 2,328.4

1 Upon the early adoption of AASB 9 Financial Instruments on 1 July 2015, the Group has applied AASB 9 on a prospective basis. In accordance with the transitional provision in AASB 9, comparative figures have not been restated. Refer to Note 1 for further information.

The accompanying notes form an integral part of these financial statements.

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10

Statement of Changes in Equity

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

NON-CONTROLLING

INTERESTS TOTAL EQUITY

CONTRIBUTED EQUITY

Issued capital

Employee compensation

shares

Total contributed

equity Accumulated

losses Total

reserves

Total parent

interests

CONSOLIDATED $m $m $m $m $m $m $m $m

Balance at 1 July 2014 2,985.6 (16.6) 2,969.0 778.7 (20.8) 3,726.9 4.0 3,730.9 Net (loss)/profit for the period - - - (1,493.1) - (1,493.1) 0.4 (1,492.7) Other comprehensive income - - - - 35.7 35.7 0.5 36.2 Total comprehensive (loss)/income for the period, net of tax - - - (1,493.1) 35.7 (1,457.4) 0.9 (1,456.5)

Transactions with equity holders:

Share-based payments expense - - - - (4.0) (4.0) - (4.0) Shares issued under Institutional Placement and Entitlement Offer 754.1 - 754.1 - - 754.1 - 754.1 Transaction costs arising on share issue, net of tax (18.7) - (18.7) - - (18.7) - (18.7) Purchase of shares for equity based compensation - (2.6) (2.6) - - (2.6) - (2.6) Vested shares - 5.3 5.3 - (5.3) - - - Dividends paid - - - (41.0) - (41.0) - (41.0) Total transactions with equity holders 735.4 2.7 738.1 (41.0) (9.3) 687.8 - 687.8

Balance at 31 December 2014 3,721.0 (13.9) 3,707.1 (755.4) 5.6 2,957.3 4.9 2,962.2

The accompanying notes form an integral part of these financial statements.

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11

Notes to the financial statements

1. Basis of Preparation of Half-Year Financial Report 12

2. Significant Accounting Estimates and Judgements 14

3. Segment Information 15

4. Significant Income Statement Items 20

5. Impairment of Non-current Assets 20

6. Interest-bearing Liabilities 22

7. Income Tax 23

8. Dividends 24

9. Earnings Per Share 25

10. Contributed Equity 26

11. Held For Sale Assets and Discontinued Operations 26

12. Financial instruments 27

13. Contingencies 29

14. Events after Balance Sheet Date 29

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12

1. BASIS OF PREPARATION OF HALF-YEAR FINANCIAL REPORT The financial report includes the condensed financial statements for the consolidated entity consisting of Arrium Limited and its subsidiaries.

This condensed general purpose financial report for the half-year ended 31 December 2015 has been prepared in accordance with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001 (Cth).

This half-year financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 30 June 2015 and any public announcements made by Arrium Limited during the half-year in accordance with the continuous disclosure requirements of the Corporations Act 2001 (Cth).

Going concern The financial statements of Arrium Limited have been prepared on a going concern basis which contemplates the realisation of assets and the discharge of liabilities in the ordinary course of business.

The Group has net assets of $2,328.4 million at 31 December 2015 which have decreased since 30 June 2015 as a result of operating losses of $235.4 million. The Group has positive net current assets as at 31 December 2015 of $727.6 million.

The Group's net debt position (cash and cash equivalents less drawn debt facilities) is $2,075.9 million at 31 December 2015. This has increased from 30 June 2015 by $325.7 million. This is due to a number of factors including a weakening in the AUD:USD exchange rate (as the majority of debt is repayable in US dollars) and cash outflows arising from continued restructuring of operations. It is also due to decreased operating cash flows as a result of lower iron ore prices and continued challenging operating conditions for the Steel businesses. While the decline in the AUD:USD exchange rate increases net debt in Australian dollars it also increases the Australian value of the Group’s US dollar denominated assets and income streams.

In preparing the financial report, the Directors have made an assessment of the ability of the Group to continue as a going concern. The Group’s ability to meet its ongoing operational and debt obligations requires the Group to achieve forecast cash flows including achieving cost savings from announced and planned restructuring activities in Steel and Mining.

The Group has prepared detailed cash flow forecasts for the next 12 months, which incorporate continued actions to address going concern. The Group uses best estimate assumptions in the development of cash flow forecasts which include the use of independently sourced information for key assumptions. The Directors note, however, that some of the key assumptions underpinning the cash flow forecasts are inherently uncertain and subject to variation due to factors which are outside of the control of the Group. This includes iron ore prices, South East Asian steel prices, the AUD:USD exchange rate and demand for the Group's products. Key assumptions included in cash flow forecasts are an iron ore 62% Fe price of US$44 for H2FY16 and US$45 for FY17, AUD:USD foreign exchange rate of $0.70 for H2FY16 and $0.69 for FY17 and a recovery in steel margins over the forecast period.

In the event that assumptions vary significantly from those forecast, the Group considers that it has options available to meet its obligations. These include divestment of significant businesses or assets and sourcing additional or alternate funding or terms from financiers. Arrium continues to progress its previously announced strategic review and debt reduction continues to be a key priority for the company.

The Group is in compliance with its debt covenants at 31 December 2015 and based on the Group's estimates incorporating the key assumptions referred to above, is forecast to remain in compliance for the period of at least 12 months from signing of the Directors' report on the half year financial statements. Deterioration in forecast cash flows as a result of adverse variation in key assumptions noted above may adversely impact compliance with debt covenants and obligations over this period, which may require a request for certain covenant relief.

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13

1. BASIS OF PREPARATION OF HALF-YEAR FINANCIAL REPORT (CONTINUED) There is a risk that the Group will not achieve forecast operating cash flows, realise sufficient cash proceeds from asset sales or not receive the ongoing support of financiers. These factors give rise to uncertainty which may be material, as to whether the Group will continue as a going concern and therefore whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.

Notwithstanding the uncertainties set out above, the Directors believe at the date of the signing of the financial report there are reasonable grounds to continue to consider that the going concern basis of preparation is appropriate. Accounting policies The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 30 June 2015, except for the adoption of new standards and interpretations as of 1 July 2015 noted below.

Other than noted below, the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

AASB 9 Financial Instruments

The Group early adopted AASB 9 Financial Instruments (2014) with a date of initial application of 1 July 2015. This standard replaced AASB 139 Financial Instrument: Recognition and Measurement.

The impact of this standard for the Group is as follows:

Classification and Measurement

The Group has classified its financial assets and financial liabilities in accordance with AASB 9 as set out in Note 12. There were no changes in measurement of the Group’s financial assets and financial liabilities as a result of the changes in classification required by AASB 9.

The ‘incurred loss’ impairment model for financial assets in AASB 139 has been replaced by an ‘expected loss’ model in AASB 9. The Group applies the simplified approach to providing for expected credit losses, which requires the expected lifetime losses to be recognised as provision for all trade receivables. The loss allowance provision for trade receivable as at 30 June 2015 has been restated through opening accumulated losses as at 1 July 2015 with the following impact:

CONSOLIDATED

Accumulated

losses Provision for doubtful

debts $m $m

Closing balance as at 30 June 2015 (1,180.5) (2.4)Increase in provision for doubtful debts calculated under (3.7) (3.7)Opening balance as at 1 July 2015 (1,184.2) (6.1)

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1. BASIS OF PREPARATION OF HALF-YEAR FINANCIAL REPORT (CONTINUED)

Hedge Accounting

AASB 9 introduced a new hedge accounting model to more closely align hedge accounting with risk management objectives. Key improvements in AASB 9 impacting the Group include:

Risk components – AASB 9 permits hedge accounting for a non-financial component of an economic risk that is separately identifiable and measurable. The Group uses swap and option products to hedge exposure to movements in copper, nickel, aluminium and Brent oil price indices. Previously, under AASB 139 non-financial components of commodity price risk exposures were prohibited from being designated as hedge items and as a result had the potential to cause ineffectiveness in the hedge relationships. The designation of component hedges reduces the potential for changes in fair value of derivatives being recognised in the income statement as ineffectiveness.

Cost of hedging – AASB 9 allows the time value of an option to be excluded from the designation of a financial instrument and accounted for as a cost of hedging. The fair value of changes in these elements are recognised in other comprehensive income and depending of the nature of the hedged item will either be transferred to the income statement in the same period as the underlying transactions or be capitalised into the carrying value of the hedged item. The change in accounting treatment avoids the change in fair value of derivatives attributable to the time value options being recognised in the income statement as ineffectiveness.

Hedge effectiveness – AASB 9 requires that the hedge effectiveness assessment be forward–looking and does not define prescribe effectiveness parameters. Under AASB 139, the Group was required to test effectiveness both prospectively and retrospectively with hedge accounting only applied if the relationship was 80 to 125 per cent effective. This change has not had a material impact on the income statement.

The Group has applied AASB 9 on a prospective basis. There was no retrospective adjustment to the Group result.

2. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses based on historical experience and on other various factors it believes to be reasonable under the circumstances. Actual results may differ from the judgements, estimates and assumptions.

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3. SEGMENT INFORMATION

HALF-YEAR ENDED 31 DECEMBER 2015 Mining

Consumables1 Mining1 Steel1 Recycling1Total

segments $m $m $m $m $m

Segment revenues Sales to external customers 726.8 249.6 1,423.8 364.5 2,764.7 Intersegment revenue 24.9 - 20.5 106.8 152.2 Other revenue/income from external customers 3.1 3.5 8.9 4.4 19.9 Total segment income 754.8 253.1 1,453.2 475.7 2,936.8 Unallocated 0.2 Intersegment eliminations (155.9) Consolidated Income 2,781.1 Consolidated share of profit of equity accounted investments 0.3 - - - 0.3 Segment earnings before interest, tax, depreciation and amortisation 108.8 (20.4) 44.1 - 132.5 Depreciation and amortisation (26.1) (35.0) (40.4) (5.1) (106.6) Segment earnings before interest and tax 82.7 (55.4) 3.7 (5.1) 25.9 Restructuring costs4 (59.3) Impairment6 (141.7) Transaction costs and other (17.4) Finance costs7 (38.3) Unallocated8 (19.4) Intersegment eliminations 0.6 Consolidated loss before tax9 (249.6) Tax benefit 14.2 Consolidated loss after tax (235.4)

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3. SEGMENT INFORMATION (CONTINUED)

AS AT 31 DECEMBER 2015 Mining



Segment assets 2,594.0 798.3 1,867.3 257.4 5,517.0 Investments accounted for using the equity method 8.8 - - - 8.8 Unallocated Tax assets 344.8 Cash and cash equivalents 303.6 Other assets 40.0 Intersegment eliminations (17.3) Consolidated assets 6,196.9 Segment liabilities 363.5 358.4 518.7 63.0 1,303.6 Unallocated Tax liabilities 83.6 Interest-bearing liabilities 2,379.5 Other liabilities 118.8 Intersegment eliminations (17.0) Consolidated liabilities 3,868.5 Other segment information Capital expenditure 44.2 55.9 37.0 0.8 137.9 Unallocated capital expenditure 0.7 Consolidated capital expenditure 138.6

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HALF-YEAR ENDED 31 DECEMBER 2014 Mining



Segment revenues Sales to external customers 734.5 508.3 1,484.6 451.9 3,179.3 Intersegment revenue 27.0 - 38.1 141.8 206.9 Other revenue/income from external customers 4.8 3.5 43.8 6.8 58.9 Total segment income 766.3 511.8 1,566.5 600.5 3,445.1 Unallocated and discontinued operations Discontinued operations 40.9 Other revenue/income2 9.4 Intersegment eliminations3 (215.5) Consolidated Income 3,279.9 Segment share of profit of investments accounted for using the equity method 1.1 - - - 1.1 Unallocated 0.2 Consolidated share of profit of equity accounted investments 1.3 Segment earnings before interest, tax, depreciation and amortisation 94.5 76.6 13.3 9.3 193.7 Depreciation and amortisation (22.4) (141.2) (51.0) (5.0) (219.6) Segment earnings before interest and tax 72.1 (64.6) (37.7) 4.3 (25.9) Restructuring costs4 (4.2) Write down of inventory to net realisable value5 (205.9) Impairment6 (1,124.1) Transaction costs and other (1.3) Finance costs7 (49.4) Unallocated and discontinued operations Discontinued operations 5.0 Other8 (12.7) Intersegment eliminations3 1.2 Consolidated loss before tax9 (1,417.3) Tax expense (75.4) Consolidated loss after tax (1,492.7)

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AS AT 31 DECEMBER 2014 Mining



Segment assets 2,611.5 1,170.0 1,847.8 359.7 5,989.0 Investments accounted for using the equity method 8.7 - - - 8.7 Unallocated and discontinued operations Tax assets 120.7 Cash and cash equivalents 181.7 Discontinued operations 89.7 Other assets 53.6 Intersegment eliminations3 (37.4) Consolidated assets 6,406.0

Segment liabilities 436.7 555.3 538.2 71.1 1,601.3 Unallocated and discontinued operations Tax liabilities 74.5 Interest-bearing liabilities 1,611.3 Discontinued operations 72.7 Other liabilities 119.6 Intersegment eliminations3 (35.6) Consolidated liabilities 3,443.8

Other segment information Capital expenditure 41.6 188.1 29.5 3.0 262.2 Unallocated capital expenditure 1.5 Consolidated capital expenditure 263.7 1 Segment results are equivalent to the underlying results of each segment and comprised of continuing operations only. There were no discontinued operations for the half-year ended 31 December 2015. 2 Other income of unallocated for the half-year ended 31 December 2014 includes foreign exchange losses reported within net foreign exchange gains in other income at the consolidated group. 3 Intersegment eliminations for the half-year ended 31 December 2014 include eliminations between the reportable segments and discontinued operations. 4 Restructuring costs related to redundancies from organisation changes and other costs associated with restructuring comprising Mining $3.4m, Steel $16.0m and Recycling $0.5m. The remaining balance is unallocated. In 2014, restructuring costs related to Mining $0.4m, Mining Consumables $0.1m and the reversal of previously raised restructuring provisions in Recycling $0.7m, with the remaining balance unallocated. 5 Related to Mining low grade ore stocks. 6 Impairment expense of property, plant and equipment, mine development expenditure and intangibles related to Mining $106.2m, Recycling $36.8m, unallocated $0.1m and impairment reversal of property, plant and equipment in Steel $1.4m. In 2014, the impairment expense of property, plant and equipment, mine development expenditure and intangibles related to Mining $960.1m, Steel $111.6m, Mining Consumables $39.4m, Recycling $12.7m, unallocated $0.1m and remaining balance discontinued operations. Refer to Note 5 for further detail. 7 Finance costs include $10.6m gain (2014: $2.6m loss) on termination of interest rate swaps. 8 Includes corporate costs, shared based payment expense for the vesting of rights under the Performance Rights Plan and other provisions and costs. 9 The half-year ended 31 December 2014 consolidated loss before tax includes a loss of $23.4m relating to discontinued operations. There were no discontinued operations for the half-year ended 31 December 2015.

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3. SEGMENT INFORMATION (CONTINUED) Identification of reportable segments The Group has identified its operating segments based on internal reporting that is reviewed and used by the MD&CEO and the executive management team in assessing performance and in determining the allocation of resources.

The operating segments are identified by management based on the nature of the products provided, with each operating segment representing a strategic business unit that offers different products and serves different markets.

The reportable segments are based on operating segments including those that meet the aggregation criteria as determined by the similarity of the products produced and sold as these are the sources of the Group’s major risks and have the most effect on the rates of return.

Mining The Mining segment’s operations are located in South Australia; the Middleback Ranges, approximately 60 kilometres from the Whyalla township, and Southern Iron, which includes the Peculiar Knob tenement, located approximately 90 kilometres from the Cooper Pedy township. The Mining segment exports hematite iron ore to external customers and supplies both pelletised magnetite iron ore and some hematite lump iron ore to Arrium’s integrated steelworks at Whyalla. On 23 January 2015, the Group announced the redesign of its Mining segment including the mothballing of its Southern Iron operations.

Mining Consumables The Mining Consumables segment comprises Moly-Cop grinding media businesses, Waratah Steel Mill and AltaSteel, with businesses located across North America, South America, Indonesia and Australia.

The Mining Consumables segment supplies resource companies with a range of key mining consumables, including grinding media and rail wheels.

Steel The Steel segment manufactures billet at its integrated steelworks in Whyalla and two electric arc furnaces. The manufacturing operations also include several rolling and wire mills. The Whyalla steelworks produces common and special grade billet as feedstock for the downstream Rod and Bar mills as well as producing rail and structural steel products for sale to external customers. Billets produced from Whyalla and the Sydney and Laverton electric arc furnaces are rolled into a wide range of long products for sale or further processing.

The Steel segment also distributes a diverse range of manufactured and externally sourced steel and metal products including structural steel sections, steel plate, angles, channels, reinforcing steel and carbon products to the construction, manufacturing and resource markets.

Recycling The Recycling segment supplies steelmaking raw materials to domestic and international steel mills, as well as non-ferrous metals for recycling. The Recycling segment operates in 8 countries through a combination of physical operations in the form of collection sites and trading offices that supply raw materials to foundries, smelters and steel mills in Australia and globally.

Intra/intersegment transfers The Mining segment sells pelletised and lump iron ore to the Steel segment. The Recycling segment sells raw materials to the Steel and Mining Consumables segment.

All sales between segments are conducted on an arm’s length basis, with terms and conditions no more favourable than those which it is reasonable to expect when dealing with an external party, except for the transfer of iron ore from the Mining segment to the Steel segment which occurs at cost.

Unallocated Investments accounted for using the equity method, cash and cash equivalents, current taxes, deferred taxes, borrowings, derivative financial instruments and certain financial assets and liabilities are not allocated to the segments as they are managed on a group basis.

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4. SIGNIFICANT INCOME STATEMENT ITEMS

CONSOLIDATED 2015 2014 $m $m

Loss before income tax includes the following specific expenses/(income): Depreciation of property, plant and equipment 88.9 115.7 Amortisation of mine development expenditure 15.1 81.2 Amortisation of finite-life intangible assets 4.0 23.5 Restructuring costs1 63.8 4.2 Write down of inventory to net realisable value 12.7 207.3 (Gain)/Loss on settlement of interest rate swaps2 (10.6) 2.6

1 Restructuring costs related to redundancies from organisational changes and other direct expenditure associated with business restructures. 2 Recognised in finance costs

5. IMPAIRMENT OF NON-CURRENT ASSETS The Group assesses impairment of all assets at each reporting date by evaluating conditions specific to the Group and to the particular asset or cash generating unit (CGU) that may lead to impairment. These include business performance, technology, economic and political environments and future business expectations. If an impairment indicator exists, the recoverable amount of the asset is determined. Given the current uncertain economic environment, management considered that the indicators of impairment were significant enough, and as such, these assets have been tested for impairment in this financial period. As a result of the impairment testing, asset impairment loss of $106.7m has been recognised in the Mining CGU primarily relating to the impact of low iron ore prices and $36.8m in the Recycling group of CGUs primarily due to the impact of a delayed recovery in South East Asian steel margins on forecast future cash flows. The estimated recoverable amounts based on value in use for the Mining CGU and Recycling CGUs is $439.9m and $192.6m respectively. (a) Summary of impairment losses recognised during the half-year period

Impairment losses of the Group recognised in “Operating Expenses” in the Income Statement during the half-year ended 31 December by category of assets are as follows:


Goodwill 36.8 52.4Mining tenement rights - 219.8Property, plant and equipment 72.2 355.8Exploration rights - 20.1Mine development expenditure 32.7 475.9 141.7 1,124.0 F

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5. IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED) (b) Carrying amount of goodwill and intangibles with indefinite useful lives allocated to

each of the CGUs

For the purpose of impairment testing, goodwill and/or indefinite life intangibles have been allocated to the Group’s CGUs/groups of CGUs which represent the lowest level within the Group at which they are monitored for internal management purposes.

The aggregate carrying value of goodwill and indefinite life brand names according to the operating segments are as follows:

CONSOLIDATED As at 31 December 2015 As at 30 June 2015

Goodwill Indefinite life

intangibles Total GoodwillIndefinite life

intangibles Total $m $m $m $m $m $m

Mining Consumables

1,328.4

58.6

1,387.0

1,300.1

57.0

1,357.1

Steel 190.9 - 190.9 190.9 - 190.9Recycling 87.3 - 87.3 124.1 - 124.1Unallocated - 0.7 0.7 - 0.7 0.7 1,606.6 59.3 1,665.9 1,615.1 57.7 1,672.8 (c) Key assumptions used in value in use calculations The recoverable amount of the CGUs/groups of CGUs to which goodwill and/or indefinite life brand names have been allocated has been determined based on a value in use calculation using the cash flow projections based on the five-year forecast approved by the Board. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below.

DISCOUNT

RATE (POST-TAX) TERMINAL

GROWTH RATE As at 31

December 2015As at 30

June 2015As at 31

December 2015 As at 30

June 2015CGU/group of CGUs % % % %

Mining Consumables 10.0 10.1 3.0 3.0Mining 9.8 9.8 N/A N/ASteel 9.7 9.7 2.5 2.5Recycling 9.7 9.5 2.5 2.5

The calculation of value in use is most sensitive to the following assumptions:

Discount rates

Gross margins

Raw materials price fluctuation

Market conditions

Growth rate used to extrapolate cash flows beyond the forecast period.

Discount rates – discount rates reflect management’s estimate of the time value of money and the risks specific to each CGU/group of CGUs that are not already reflected in the cash flows. In determining appropriate discount rates for each unit, regard has been given to a weighted average cost of capital of the entity as a whole and adjusted for country and business risk specific to the CGU. The Group has applied post-tax discount rates to discount the forecast future attributable post-tax cash flows. The equivalent pre-tax discount rates are as follows: Mining Consumables 11.9% (June 2015: 11.9%), Mining 16.0% (June 2015: 14.3%), Steel 11.4% (June 2015: 12.1%) and Recycling 11.7% (June 2015: 11.3%).

Gross margins – the basis used to determine the value assigned to the margins in the CGUs are the actual margins achieved, adjusted for efficiency improvement as well as movements in input costs and international steel prices in line with external sources of information.

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5. IMPAIRMENT OF NON-CURRENT ASSETS (CONTINUED) Raw materials price fluctuation – values assigned to this key assumption are consistent with external sources of information except for Arrium owned mines, where the value assigned is in line with mining contracts and other cost escalators such as oil.

Market conditions – assumptions on key domestic market segment activity including construction, mining, agriculture and manufacturing are consistent with external sources of information. Assumptions including GDP, CPI and wages escalation are consistent with external sources of information. Long-term forecast exchange rates are used which are consistent with external sources of information.

Growth rate estimates – are based on published industry research and do not exceed the growth rate of the markets or country to which the CGUs/group of CGUs are dedicated.

(c) Sensitivity to changes in assumptions For the following CGUs, the actual recoverable amount based on the value in use calculation exceeds its carrying amount. Management recognises that the cash flow projections, discount and growth rates used to calculate the value in use may vary to what they have estimated. Management notes the value in use estimate is particularly sensitive to the following assumptions: INCREMENTAL IMPAIRMENT LOSS 1% TERMINAL

GROWTH RATE1% DISCOUNT

RATE INCREASE $m $m

Mining 106.7 126.0Recycling 66.6 63.3

6. INTEREST-BEARING LIABILITIES At balance date, the Group had the following interest-bearing liabilities:

CONSOLIDATED As at

31 December 2015 As at

30 June 2015

$m $m

Current

Finance lease 1.4 1.4Unsecured

Bank loans 18.8 1.4US Private Placement – at amortised cost - 65.1

20.2 67.9

Non-current

Finance lease 8.6 9.3 Unsecured Bank loans 2,073.9 1,593.0

US Private Placement – at amortised cost 276.8 274.8

2,359.3 1,877.1

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6. INTEREST-BEARING LIABILITIES (CONTINUED) (a) Loan facilities Amounts drawn at 31 December 2015 include the following combination of syndicated multi-currency debt facilities, bilateral facilities and long term notes to institutional investors (US Private Placement – ‘USPP’):

MATURITY DATE

BANK LOANS USPP

USD $m

CAD $m

USD$m

INTEREST RATE %

DATE ISSUED

Jul-17 539.3 10.4 – – – Oct-17 – 35.2 – – – Jul-18 507.3 60.0 91.0 7.33% Jul-08 Dec-18 12.0 – – – – Jul-19 226.0 220.0 – – – Jul-20 – – 32.0 7.43% Jul-08 Jun-21 – – 58.0 5.61% Jun-11 Jun-23 – – 21.0 5.71% Jun-11

Total 1,284.6 325.6 202.0 (b) Hedging As at 31 December 2015, the drawn loan facilities formed part of a hedge, or were hedged using instruments as follows:

HEDGING ITEM

BANK LOANS USPP

AUD $m

USD $m

CAD $m

USD $m

Designated as a Hedge of Net Investment – 774.41 277.2 1 79.02 Interest Rate Swap – Cash Flow Hedge – 425.0 75.0 –

1. During the period net losses of $24.3m (June 2015: net gains of $198.7m) on the translation of the designated debt were recorded in equity.

2. During the period net losses of $5.5m (June 2015: net losses of $47.8m) on the translation of the designated debt were recorded in equity.

7. INCOME TAX (a) Reconciliation of income tax benefit/(expense) to prima facie tax payable

Half-year ended 31 December CONSOLIDATED 2015 2014 $m $m

Loss from continuing operations before income tax (249.6) (1,393.9)Loss from discontinued operations before income tax - (23.4)Total loss before income tax (249.6) (1,417.3)Prima facie income tax credit calculated at 30% (74.9) (425.2) Research and development allowance (5.0) (9.1) Capital gains non-taxable (1.0) (6.9) Difference in overseas tax rates 0.1 (1.8) Adjustments in respect of income tax of previous years 5.9 24.1 Unrecognised tax benefits 48.8 423.9 Non-deductible goodwill impairment 11.0 15.8 Deductible foreign currency items 0.8 (13.8) MRRT related taxation expense - 70.2 Other items 0.1 (1.8) Total taxation (benefit)/expense (14.2) 75.4

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7. INCOME TAX (CONTINUED)


Aggregate income tax (benefit)/expense is attributable to: Continuing operations (14.2) 67.7Discontinued operations - 7.7 (14.2) 75.4

(b) Unrecognised deferred tax assets Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax asset that can be recognised, based upon the likely timing and the level of future taxable profits.

Deferred tax assets have not been recognised in respect of the following items:

CONSOLIDATED As at 31 December 2015 As at 30 June 2015

$m $m

Deductible temporary differences 324.0 274.8 Tax losses 233.3 233.3 Capital losses 19.2 7.9 576.5 516.0

8. DIVIDENDS The following dividends have been paid, declared or recommended since the end of the preceding financial year:

On ordinary shares Dividend per ordinary $m cents December 2014 Final dividend for 30 June 2014, paid on 16 October 2014

41.0 3.0

Dividend not recognised at the end of the half-year No interim dividend was declared for the half-year ended 31 December 2015 and 31 December 2014.

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9. EARNINGS PER SHARE The following reflects the earnings and share data used in the calculation of basic and diluted earnings per share:

(a) Earnings

Half-year ended 31 December 2015 2014 $m $m

Loss attributable to equity holders of the parent (235.8) (1,493.1)Add: Adjustment for employee compensation shares 0.3 1.0Loss used in calculating basic and diluted earnings per share attributable to equity holders of the parent (235.5) (1,492.1)

Net loss for the period attributable to continuing operations (235.4) (1,461.6)Less: Non-controlling interests (0.4) (0.4)Loss from continuing operations attributable to equity holders of the parent (235.8) (1,462.0)Add: Adjustment for employee compensation shares 0.3 1.0Loss used in calculating basic and diluted earnings per share from continuing operations attributable to equity holders of the parent (235.5) (1,461.0) (b) Number of ordinary shares

Number of shares

Weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share 2,931,783,292 2,169,091,659 (c) Earnings per share

Half-year ended 31 December 2015 2014

Loss per share attributable to the ordinary equity holders of the parent:

Basic loss per share (cents per share) (8.03) (68.79)Diluted loss per share (cents per share) (8.03) (68.79) Loss per share for loss from continuing operations attributable to the ordinary equity holders of the parent:

Basic loss per share (cents per share) (8.03) (67.35)Diluted loss per share (cents per share) (8.03) (67.35)

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10. CONTRIBUTED EQUITY CONSOLIDATED As at 31

December 2015

As at 30 June 2015

$m $m

Issued capital (a) 3,367.3 3,720.6 Employee compensation shares (b) (8.6) (11.7) Total contributed equity 3,358.7 3,708.9

(a) Issued capital Number of ordinary shares: 2,937,293,755 (June 2015: 2,937,293,755) Issued and paid-up 3,367.3 3,720.6

(b) Employee compensation shares Number of ordinary shares: 5,452,779 (June 2015: 6,106,529) Shares held in trust under equity-based compensation arrangements (8.6) (11.7) Number of

ordinary shares

Value of ordinary

shares $m Movements in issued capital for the period On issue at the beginning and at the end of the period 2,937,293,755 3,720.6

Share capital reduction - (353.3)On issue at the end of the period 2,937,293,755 3,367.3

Movements in employee compensation shares for the period

Held in trust at the beginning of the period (6,106,529) (11.7)Shares vested 653,750 3.1Held in trust at the end of the period (5,452,779) (8.6) On 19 August 2015, the Company reduced its share capital by $353.3m for the amount that is not represented by available assets, reflecting impairment charges incurred by the Company and Consolidated Entity during the year ended 30 June 2015. The reduction was made in accordance with section 258F of the Corporations Act 2001 (Cth) and had the effect of reducing the share capital account and eliminating accumulated losses at the Company and Consolidated Entity level. There was no impact on the number of issued shares or on the Statement of Comprehensive Income or Statement of Cash Flows.

11. HELD FOR SALE ASSETS AND DISCONTINUED OPERATIONS Changes to the details of the operations held for sale and discontinued operations during the period are as follows:

Australian Tube Mills (ATM) The ATM business manufactures structural pipe and tube from facilities at Acacia Ridge, QLD and Newcastle, NSW. As at 30 June 2015 the business was classified as a disposal group held for sale and presented as part of discontinued operations.

As at 31 December 2015 the assets of the ATM business are expected to be recovered through continuing use as part of the Steel business. Accordingly, the ATM business is no longer classified as a disposal group held for sale as at 31 December 2015. The income statement and relevant notes for the comparative period to 31 December 2014 have been restated to include ATM as part of continuing operations.

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12. FINANCIAL INSTRUMENTS

Carrying amounts versus fair values

The following summarises the fair values of financial assets and financial liabilities, together with the carrying amounts in the balance sheet.

CONSOLIDATED Carrying

amount Fair value

$m $m

Current financial assets Cash and cash equivalents 303.6 303.6Receivables 559.9 559.9Derivative financial instruments

Forward contracts – cash flow hedges 3.3 3.3Forward contracts – held for trading 2.4 2.4Option contracts – cash flow hedges 0.9 0.9

870.1 870.1

Non-current financial assets Receivables 0.2 0.2Derivative financial instruments

Forward contracts – held for trading 1.3 1.3 1.5 1.5

Current financial liabilities Payables 839.7 839.7Derivative financial instruments

Forward contracts – cash flow hedges 8.1 8.1Forward contracts – held for trading 7.1 7.1Option contracts – cash flow hedges 0.5 0.5

Interest-bearing liabilities Finance lease 1.4 1.4

Unsecured Bank loans 18.8 18.8

875.6 875.6 Non-current financial liabilities Payables 6.1 6.1Derivative financial instruments

Forward contracts – held for trading 1.7 1.7Interest rate swap contracts – cash flow hedges 1.9 1.9

Interest-bearing liabilities Finance lease 8.6 8.6

Unsecured Bank loans 2,073.9 2,073.9 US Private Placement – at amortised cost 276.8 296.1

2,369.0 2,388.3 F

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12. FINANCIAL INSTRUMENTS (CONTINUED) Management has assessed that cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

Financial instruments carried at fair value The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The Group uses various methods in estimating the fair value of a financial instrument. These comprise:

Level 1: The fair value is calculated using quoted prices in active markets.

Level 2: The fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

Level 3: The fair value is estimated using inputs for the asset or liability that are not based on observable market data.

The fair values of the financial instruments as well as the methods used to estimate the fair values are summarised below:

CONSOLIDATED

As at 31 December 2015 As at 30 June 2015

Level 2 Total Level 2 Total $m $m $m $m

Financial assets Forward contracts 7.0 7.0 13.4 13.4Option contracts 0.9 0.9 2.7 2.7Interest rate swaps - - 12.2 12.2 7.9 7.9 28.3 28.3 Financial liabilities Forward contracts 16.9 16.9 13.7 13.7Options contracts 0.5 0.5 1.0 1.0Interest rate swaps 1.9 1.9 3.2 3.2 19.3 19.3 17.9 17.9

For financial instruments not quoted in active markets, the Group uses valuation techniques such as present value techniques, comparison to similar instruments for which market observable prices exist and other relevant models used by market participants. These valuation techniques use both observable and unobservable market inputs.

Financial instruments that use valuation techniques with only observable market inputs or unobservable inputs that are not significant to the overall valuation include interest rate swaps, cross-currency interest rate swaps and forward exchange contracts not traded on a recognised exchange. These instruments are included in Level 2.

Transfer between categories The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. There were no transfers between categories during the period.

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13. CONTINGENCIES

Third party claims The Group has been involved from time to time in various claims and lawsuits incidental to the ordinary course of business, including claims for damages and commercial disputes relating to its products and services. Based on legal advice obtained, other than amounts already provided for in the accounts, the Directors do not expect any material liability to eventuate.

14. EVENTS AFTER BALANCE SHEET DATE There have been no other circumstances arising since 31 December 2015 that have significantly affected or may significantly affect:

(a) the operations;

(b) the results of those operations; or

(c) the state of affairs of Arrium in future financial years.

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33

Corporate Directory ACN 004 410 833 ABN 63 004 410 833

DIRECTORS Mr Jeremy C R Maycock (Chairman) Mr R Bryan Davis Mr Peter G Nankervis Mr Douglas C W Ritchie Mr Andrew G Roberts (MD&CEO) Ms Denise Goldsworthy Ms Rosemary Warnock

COMPANY SECRETARY Mr Mark Edler Ms Naomi James (Joint Company Secretary) REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS C/- Company Secretary, Arrium Limited Level 40, 259 George Street Sydney NSW 2000 Australia Telephone: +61 2 9239 6666 Facsimile: +61 2 9251 3042 Internet: www.arrium.com

SHARE REGISTRY Boardroom Pty Limited GPO Box 3993 Sydney NSW 2001 Australia Telephone: 1300 737 760 or +61 2 9290 9600 Facsimile: +61 2 9279 0664 Email: [email protected] Internet: www.boardroomlimited.com.au

EXTERNAL AUDITOR KPMG

AUSTRALIAN SECURITIES EXCHANGE LISTING Arrium Limited’s fully paid ordinary shares are quoted on the Australian Securities Exchange (ASX:ARI).

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ARRIUM LIMITED ASX APPENDIX 4D ABN 63 004 410 833 HALF … · 2016. 2. 16. · ARRIUM LIMITED ABN...

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