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1 The Directors DoloMatrix International Limited Suite Alfred Street North Sydney NSW December 2011 Subject: Proposal to Acquire the Assets and Business of DoloMatrix International Limited Dear Directors Introduction 1 On 15 December 2011 DoloMatrix International Limited (DMX) announced that it had entered into a Share Sale Agreement and Asset Sale Agreement (the Agreements) with Tox Free Solutions Limited (Tox) to sell 100% of the assets and business of DMX (DMX Business) for a price of $58.0 million1 (the Asset Sale). Subsequent to the completion of this transaction, DMX intends to make an equal access capital return with the objective of returning to DMX shareholders the majority of the net proceeds from the sale of the DMX Business (Capital Return) 2. The Asset Sale and Capital Return are referred to in the aggregate as the Proposed Transaction. 2 While there is no statutory requirement for DMX to obtain an independent expert s report (IER) in respect of the Proposed Transaction, the Directors of DMX have requested that Lonergan Edwards & Associates Limited (LEA) prepare an IER stating whether, in LEA s opinion, the Proposed Transaction is fair and reasonable and in the best interests of DMX shareholders. 3 LEA is independent of DMX and Tox and has no other involvement or interest in the outcome of the Proposed Transaction, other than the preparation of this report. DMX 4 DMX is a specialised provider of environmental and waste management solutions based in Australia. DMX provides a range of waste services including consultancy, project management, fixation and encapsulation, treatment and destruction of hazardous waste and contaminated site remediation. DMX primarily operates throughout Australia and also provides services in China, Mexico, and the USA. 1 The price is subject to adjustments on completion. 2 The DMX Board will assess the level of franking credits available after the completion of the Asset Sale and may declare a franked dividend prior to determining the amount of the capital return. Liability limited by a scheme approved under Professional Standards legislation

2 Tox 5 Tox is an Australian integrated waste management and industrial services company. The company specialises in waste collection and management, recycling services, landfill management, hazardous waste management, water treatment, industrial cleaning and the development of its licensed treatment technologies. Tox is listed on the Australian Securities Exchange (ASX) and operates across 26 facilities located nationally. Summary of opinion Assessment of the Proposed Transaction 6 LEA has concluded that the Proposed Transaction is fair and reasonable and in the best interests of DMX shareholders, in the absence of a superior proposal. We have arrived at this conclusion for the reasons set out below. Valuation of the DMX Business 7 LEA has valued 100% of the DMX Business at between $56.3 million and $64.5 million, as summarised below: Value of DMX Business Value contribution EBITDA EBITDA multiple Low High $000 Low High $000 $000 Chemical collection and recycling 7, ,850 42,550 Waste destruction 4, ,375 23,625 Entech / Waste Audit ,000 1,125 SRL Plasma / Hazwaste (1) 980 (2) - - 3,850 6,850 Corporate (1,750) (8,818) (9,693) Value of the DMX Business 11,380 56,257 64,457 Note: 1 Includes the assessed values of Plascon sales and Hazwaste s Barrick and Ghana projects. 2 Represents the average EBITDA from available historical performance. n/a not applicable. Rounding differences may exist. Assessment of fairness 8 Pursuant to Australian Securities & Investments Commission (ASIC) Regulatory Guideline 111 Content of expert reports (RG 111), an offer is fair if: The value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer. 9 This comparison, in the circumstances of the Proposed Transaction, is shown below: S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 2

3 Low $000 High $000 Mid-point $000 Value of consideration 58,000 58,000 58,000 Value of 100% of the DMX Business 56,257 64,457 60,357 Extent to which the consideration exceeds (or is less than) the value of the DMX Business 1,743 (6,457) (2,357) Amount per DMX share (cents) 1.2 (4.6) (1.7) 10 As the consideration offered by Tox is within our assessed value range of 100% of the DMX Business, in our opinion, the Proposed Transaction is fair. Assessment of reasonableness 11 Pursuant to RG 111, a proposal is reasonable if it is fair. Consequently we have concluded that the Proposed Transaction is both fair and reasonable, in the absence of a superior proposal. 12 In concluding that the Proposed Transaction is fair and reasonable we have also had regard to the following factors: (c) (d) the Proposed Transaction implies a value of 38.6 cents per DMX share, which is significantly above the listed market price of DMX shares prior to the announcement of the Proposed Transaction if the Proposed Transaction does not proceed, the price of DMX shares is likely to trade at a significant discount to our valuation and the price per share implied by the Proposed Transaction given the relative illiquidity of DMX shares, the Proposed Transaction provides DMX shareholders with the opportunity to realise their investment in the company at a significant premium to listed market prices prior to the announcement of the Proposed Transaction based on tax advice received by DMX, the proposed sale of the DMX Business to Tox will not have any adverse tax consequences for DMX. Proposed capital return 13 In relation to the proposed capital return we note: the proposed capital return applies to all shareholders equally having regard to the number of shares they hold the proposed capital return will not affect the voting or other rights attaching to each DMX share and each shareholder will have the same proportionate interest in DMX before and after implementation of the proposed capital return. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 3

4 14 If the Proposed Transaction is approved, based on financial information currently available, it is expected that DMX shareholders will receive approximately 39.0 cents per share in cash3. In contrast, in our opinion, DMX shareholders are likely to realise significantly less than 39.0 cents per share if they sold their shares on-market in the absence of the Proposed Transaction. This is because DMX shares are relatively illiquid and have generally traded at a discount to the current estimate of the quantum of the proposed capital return (a situation we would expect to revert to in the absence of the Proposed Transaction). Transaction costs would also be incurred by DMX shareholders who sell their shares on-market. 15 In addition, in our opinion, the proposed capital return will not materially prejudice the company s ability to pay its creditors. This is primarily because: creditors of the DMX Business will be transferred to Tox upon implementation of the Proposed Transaction DMX proposes to retain sufficient cash balances to enable other creditors to be paid and to meet projected operating expenses for up to one year. Other considerations 16 In considering the Proposed Transaction, DMX shareholders should also note that Transpacific Industries Group Limited (TPI) holds 22.7% of the issued shares in DMX and previously bid for DMX in Given the complementary nature of the DMX and TPI operations, it is possible that TPI could table a higher offer and/or superior proposal for DMX than that implied by the Proposed Transaction. However, at the date of this report no higher offer or superior proposal has been received. General 17 In preparing this report we have considered the interests of DMX shareholders as a whole. Accordingly, this report only contains general financial advice and does not consider the personal objectives, financial situations or requirements of individual shareholders. 18 The taxation consequences of approving the Proposed Transaction depend on the individual circumstances of each investor. Shareholders should read the taxation advice set out in the Explanatory Memorandum and should consult their own professional adviser if in doubt as to the taxation consequences of the Proposed Transaction. 19 The ultimate decision whether to approve the Proposed Transaction should be based on each shareholders assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. Shareholders considering their response to the Proposed Transaction should be aware that our assessed values of the DMX Business and DMX shares have been determined having regard to their medium / longer term prospects. Given the current market conditions individual shareholders may have a different time horizon. 3 As per the ASX announcement on 15 December DMX shareholders should note that the actual amount returned to shareholders may vary from the above amount. This is because the actual amount realised and returned to shareholders will depend on, inter alia, the actual transaction costs, net debt at the date of completion and trading in the period subsequent to 30 November S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 4

5 20 If shareholders are in doubt about the action they should take in relation to the Proposed Transaction or matters dealt with in this report, shareholders should seek independent professional advice. 21 For our full opinion on the Proposed Transaction, and the reasoning behind our opinion, we recommend that DMX shareholders read the remainder of our report. Yours faithfully Julie Planinic Authorised Representative Martin Holt Authorised Representative S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 5

6 Table of contents Section Page I Outline of the Proposed Transaction 8 Conditions 8 II Scope of our report 9 Purpose 9 Basis of assessment 9 Limitations and reliance on information 11 III Profile of DMX 13 Overview 13 DMX operating businesses 13 Financial performance 17 Financial position 21 Shares on issue and performance 23 IV Industry overview 26 Hazardous waste 26 Hazardous waste industry in Australia 26 V Valuation approach 29 Methodology selected 30 VI Valuation of 100% of DMX 31 Valuation methodology 31 Assessment of EBITDA for valuation purposes 31 EBITDA multiple 32 Other operations 35 Value of DMX Business 38 Net debt 38 Other liabilities 38 Fully diluted shares on issue 39 Value of DMX shares 39 Overall EBITDA, EBIT and PE multiples 39 VII Evaluation of the Proposed Transaction 41 Assessment of reasonableness 42 Other matters 46 S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 6

7 Appendices A Financial Services Guide B C D E Qualifications, declarations and consents Listed company multiples Valuation evidence from recent transactions Glossary S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 7

8 I Outline of the Proposed Transaction 22 On 15 December 2011 DoloMatrix International Limited (DMX) announced that it had entered into a Share Sale Agreement and Asset Sale Agreement (the Agreements) with Tox Free Solutions Limited (Tox) to sell 100% of the assets and business of DMX (DMX Business) for a price of $58.0 million4 (the Asset Sale). Subsequent to the completion of this transaction, DMX intends to make an equal access capital return with the objective of returning to DMX shareholders the majority of the net proceeds from the sale of the DMX Business (Capital Return) 5. The Asset Sale and Capital Return are referred to in the aggregate as the Proposed Transaction. 23 Specifically Tox will acquire: (c) 100% of the shares in DMX s four operating subsidiaries, namely, DoloMatrix Australia Pty Ltd, Dolomatrix Environmental Solutions Pty Ltd, Entech Industries Pty Ltd and Waste Audit and Consultancy Services (Aust) Pty Ltd, on a cash and debt free basis6 any other assets held within DMX that are required for the reasonable operation of DMX and its associated business units, such as trade receivables, inventories, property, plant and equipment, intellectual property, business records, customer lists and contracts certain liabilities held by DMX, such as trade payables and provisions for employee entitlements. However, the acquisition will exclude bank facilities, hire purchase agreements, related party loans and other loans which have a security or claim over DMX assets7. Conditions 24 The Proposed Transaction is subject to certain conditions, including: (c) shareholder approval pursuant to ASX Listing Rule 11.2 to approve the sale of the DMX Business and s256 and s257 of the Corporations Act 2001 (Cth) (Corporations Act) (by way of an ordinary resolution) to approve the proposed capital return. These resolutions are inter-conditional, such that if the Capital Return is not approved by DMX shareholders then the Asset Sale will not take place and vice versa no material adverse change in the assets, liabilities, financial performance and position, profitability or prospects of DMX other conditions precedent including, inter alia, the payout of intercompany debts between DMX and its subsidiaries. 25 More detail on these and other conditions is set out in the Explanatory Memorandum. 4 The price is subject to adjustments on completion. 5 The DMX Board will assess the level of franking credits available after the completion of the Asset Sale and may declare a franked dividend prior to determining the amount of the capital return. 6 Refer to paragraph 47 for DMX s current organisation structure. Tox will not acquire any shares in Camden Ltd which is currently dormant and will be liquidated. 7 These financial obligations will be settled from the proceeds of the Proposed Transaction. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 8

9 II Scope of our report Purpose 26 While there is no statutory requirement for DMX to obtain an IER in respect of the Proposed Transaction, the Directors of DMX have requested that LEA prepare an IER stating whether, in LEA s opinion, the Proposed Transaction is fair and reasonable and in the best interests of DMX shareholders. Basis of assessment 27 Our assessment of the Proposed Transaction has been undertaken as if it was required under s640 of the Corporations Act. Consequently, in preparing our report we have given due consideration to the Regulatory Guides issued by ASIC, particularly RG RG 111 distinguishes fair from reasonable and considers: a proposal to be fair if the value of the offer price or consideration is equal to or greater than the value of the securities or assets that are the subject of the proposal. A comparison must be made assuming 100% ownership of the target company / business a proposal to be reasonable if it is fair. A proposal may also be reasonable if, despite not being fair but after considering other significant factors, shareholders should approve the proposal in the absence of any superior proposal. 29 There is no legal definition of the expression in the best interests. However, RG 111 states that a proposal may be in the best interests of the members of the company if there are sufficient reasons for security holders to vote in favour of the proposal in the absence of a superior proposal. 30 In our opinion, if the Proposed Transaction is fair and reasonable under RG 111 it must also be in the best interests of DMX shareholders. 31 Our report has therefore considered: Fairness (c) the market value of the DMX Business the value of the consideration to be paid the extent to which and differ (in order to assess whether the Proposed Transaction is fair under RG 111) Reasonableness (d) (e) (f) what the Proposed Transaction equates to in terms of a per share value to DMX shareholders the extent to which (d) exceeds the recent trading price of DMX shares the extent to which a share of the synergies likely to arise upon the acquisition of the DMX Business by Tox are being shared with DMX shareholders S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 9

10 (g) (h) (i) (j) the listed market price of DMX shares the likely market price of DMX shares if the Proposed Transaction is not approved by DMX shareholders the value of the DMX Business to an alternative bidder, and the likelihood of a superior proposal emerging prior to the date of the DMX shareholder meeting to approve the Proposed Transaction other risks, advantages and disadvantages. Capital return 32 Section 256B of the Corporations Act permits a company to reduce its share capital in a way that is not otherwise authorised by law if the reduction: (c) is fair and reasonable to the company s shareholders as a whole does not materially prejudice the company s ability to pay its creditors; and is approved by its shareholders in accordance with the requirements of the Corporations Act. 33 These rules are designed to protect the interests of shareholders and creditors by: (c) addressing the risk of such transactions leading to the company s insolvency seeking to ensure fairness between all of the company s shareholders; and requiring the company to disclose all material information. 34 A reduction of capital may be either an equal reduction or a selective reduction. The reduction is an equal reduction if: (c) it relates only to ordinary shares it applies to each holder of ordinary shares in proportion to the number of ordinary shares they hold; and the terms of the reduction are the same for each holder of ordinary shares. 35 The proposed capital return satisfies these requirements and is therefore an equal reduction of capital. Further, under the proposed capital return: (c) no DMX shares will actually be cancelled or surrendered as a result of the proposed capital return all DMX shareholders will be treated equally in proportion to the size of their DMX holding DMX shareholders will own the same percentage interest in DMX pre and post implementation of the proposed capital return. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 10

11 General 36 This report has been prepared to assist the Directors of DMX in making their recommendation to DMX shareholders in relation to the Proposed Transaction and to assist the shareholders of DMX assess the merits of the Proposed Transaction. The sole purpose of this report is to set out LEA s opinion in relation to the Proposed Transaction. This report should not be used for any other purpose. 37 The ultimate decision whether to approve the Proposed Transaction should be based on each shareholders assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If in doubt about the Proposed Transaction or matters dealt with in this report, shareholders should seek independent professional advice. Limitations and reliance on information 38 Our opinion is based on the economic, sharemarket, financial and other conditions and expectations prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. 39 Our report is also based upon financial and other information provided by DMX and its advisers. We understand the accounting and other financial information that was provided to us has been prepared in accordance with the Australian equivalents to International Financial Reporting Standards. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld. 40 The information provided was evaluated through analysis, enquiry and review to the extent considered appropriate for the purpose of forming an opinion on the Proposed Transaction from the perspective of DMX securityholders. However, we do not warrant that our enquiries have identified or verified all of the matters which an audit, extensive examination or due diligence investigation might disclose. Whilst LEA has made what it considers to be appropriate enquiries for the purpose of forming its opinion, due diligence of the type undertaken by companies and their advisers in relation to (for example) prospectuses or profit forecasts is beyond the scope of an IER. 41 Accordingly, this report and the opinions expressed therein should be considered more in the nature of an overall review of the anticipated commercial and financial implications of the proposed transaction, rather than a comprehensive audit or investigation of detailed matters. 42 An important part of the information base used in forming an opinion of the kind expressed in this report is comprised of the opinions and judgement of management of the relevant companies. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 11

12 43 We in no way guarantee the achievability of budgets or forecasts of future profits. Budgets and forecasts are inherently uncertain. They are predictions by management of future events which cannot be assured and are necessarily based on assumptions of future events, many of which are beyond the control of management. Actual results may vary significantly from forecasts and budgets with consequential valuation impacts. 44 In forming our opinion, we have also assumed that the information set out in the Explanatory Memorandum is complete, accurate and fairly presented in all material respects. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 12

13 III Profile of DMX Overview 45 DMX is a specialised provider of environmental and waste management solutions based in Australia. The company provides a range of waste services including consultancy, project management, fixation and encapsulation, treatment and destruction of hazardous waste and contaminated site remediation. DMX primarily operates throughout Australia and also licenses technology and provides services in China, Mexico, and the USA. DMX operating businesses 46 The DMX group has been largely established through a series of acquisitions as summarised in the table below: DMX acquisition history Purchase Business acquired Announcement date price $m BCD Technologies Pty Ltd / SRL Plasma Pty Ltd 10 Mar Chemsal (1) 7 Sep Entech Industries Pty Limited / Hazwaste Pty Limited 29 Jan Waste Audit and Consulting Services Pty Limited 11 Jun Veolia s packaged chemical waste business 31 May Evermoore Environmental Services 4 Jun Total (excluding costs of acquisition) 55.3 Note: 1 Acquisition included $8 million of land and buildings related to the operations. 47 The structure of the DMX Group is shown in the table below. The company comprises six key operating businesses namely, Chemsal, BCD Technologies Pty Ltd (BCD), Entech Industries Pty Limited (Entech), Waste Audit and Consulting Services Pty Limited (Waste Audit), SRL Plasma Pty Limited (SRL Plasma) and Hazwaste Pty Limited (Hazwaste). S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 13

14 DMX group structure DoloMatrix International Ltd DoloMatrix Environmental Solutions Pty Ltd Waste Audit & Consultancy Services (Aust.) Pty Ltd Camden Ltd FIJI Entech Industries Pty Ltd BCD Technologies Pty Ltd SRL Plasma Pty Ltd DoloMatrix Australia Pty Ltd Hazwaste Pty Ltd Dolomatrix Asia Ltd Hong Kong 50% share DoloMatrix Australia Pty Ltd trading as Chemsal MD Environmental Solutions Pty Ltd 50% share Dolocorp Pty Ltd Dolocrete WA Pty Ltd Chemsal 48 On 1 July 2006 DMX acquired Chemsal for $30 million (excluding acquisition costs) by way of a combination of cash and $2 million of DMX scrip. The business unit was enlarged in May 2010 when DMX acquired Veolia s packaged chemical waste business in Sydney, primarily operating in the metropolitan area. The purchase price of $2.2 million was funded from DMX s existing cash reserves. 49 Chemsal is a specialised provider of recycling, reuse and treatment services for chemical waste. Its major national competitors are TPI and Tox. The business was established in 1981 primarily as a recycler of surplus chemical raw materials based in Melbourne. Services include collection (packaged, bulk liquid and bulk solid waste), storage, chemical treatment and fixation, recycling, hazardous chemical relocation, surplus chemical trading, laboratory relocations, decontamination, site remediation and chemical disposal. 50 Chemsal processes a range of waste products including paint and paint-related items, flammable liquids, bulk liquids, packaged chemical waste, laboratory chemicals and fluorescent lamps. Operations are based in Victoria, New South Wales (NSW), South Australia and Western Australia. 51 Chemsal s primary customers are municipal authorities via tendered and contracted local council household collections. DMX recently announced the renewal of its NSW Office of Environment & Heritage contract for three years to 30 June 2014 (FY14), with two, one year options and its contract with Sustainability Victoria which was extended to FY12. Existing contracts are held with the Local Government Association of Tasmania, Western Australian Local Government Association, Gold Coast City Council and Logan City Council. Other customers include chemical manufacturers, paint manufacturers, research laboratories, hospitals, schools and universities, dry cleaners and maintenance service providers. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 14

15 BCD 52 On 1 January 2006 DMX acquired BCD for $17.3 million through a combination of cash and DMX scrip. BCD is a leading provider of scheduled waste management services for persistent organic pollutants (POPs), which are hazardous substances due to their prolonged life cycle and the risk and ease of potential contamination transfer. In accordance with regulatory requirements only speciality licensed facilities process POP waste. BCD has been providing waste services for the destruction of POPs since BCD also offers ancillary waste management services and services related to the collection and treatment of contaminated industrial equipment. 53 BCD operates two fully licensed treatment facilities located at: Narangba (Qld) the Narangba facility receives and processes POPs for permanent destruction. This includes polychlorinated biphenyl wastes (PCBs), organochlorine and organophosphate pesticides (OCPs) and chlorinated solvents. Although the Australian government has been taking action against POPs such as OCPs for some time8, Australia continues to hold stockpiles of legacy chemicals requiring destruction. There is limited competition in Australia for POP destruction. The export of POPs is governed by the Basel Convention and is generally difficult and expensive9 Tottenham (Vic) the Tottenham facility is the only licensed facility in Australia which can destroy ozone depleting substances such as chlorofluorocarbons, halons, and methyl bromide. 54 BCD employs the Base Catalysed Dechlorination process at its Narangba (Qld) site and is continuing to refine DMX s proprietary patented Plascon technology10 at both BCD sites. BCD s subsidiary Thermal Treatment Solutions Pty Ltd (TTS) primarily focuses on the treatment of contaminated soils. 55 BCD s customers include government authorities, independent organisations, electrical utilities and other waste companies. Key clients include EPA Victoria, EPA South Australia, Refrigerant Reclaim Australia, Coffey Environments, Energex, Ergon Energy, Powerlink and Transgrid. Entech 56 On 29 November 2007 DMX acquired Entech and Hazwaste Pty Ltd (Hazwaste) for $1.1 million through a combination of cash and DMX scrip. On 4 June 2010 DMX acquired Evermoore Environmental Services for $0.7 million to complement its existing Entech businesses, with diversification opportunities into other waste and environmental services. 8 Import bans were imposed on PCBs in the 1970s and many OCPs were withdrawn from use in the 1980s. 9 Total Australian hazardous waste exports represent around 2% to 4% of the total Australian hazardous waste market and are largely comprised of copper, lead and zinc wastes, non-halogenated solvents and industrial catalysts. 10 Refer to paragraph 60. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 15

16 57 Entech specialises in developing unique solutions for environmental and waste management problems and services both the domestic and international markets. Entech s services include environmental and waste management consulting, auditing, training and project management solutions. Project solutions involve the design, engineer and commissioning of waste management technology to reduce and eliminate environmental impacts. This includes the areas of waste treatment and contaminated site remediation, water and air. Waste Audit 58 On 1 January 2008 DMX acquired Waste Audit for a purchase price of $1.4 million. Waste Audit primarily conducts waste audits, assessment and assists in development of waste management projects. In light of the upcoming introduction of Australia s carbon tax regime Waste Audit is focusing its attention towards carbon consulting services. 59 Waste Audit targets long-term partner relationships within the industrial and commercial sectors. Waste Audit has established partnerships with Lend Lease, Jones Lang LaSalle and Colonial First State. It services customers throughout NSW, Victoria, and Queensland. SRL Plasma 60 On 1 January 2006 DMX acquired SRL Plasma for a total consideration of $2.7 million as part of the acquisition of BCD. SRL Plasma operates, manufactures and markets DMX s propriety patented Plascon electric-arc plasma hazardous waste destruction process. Plascon uses plasma technology, rather than high temperature incineration to ensure safe waste destruction. Patents for the Plascon technology expire in 2016, however we understand DMX will continue to maintain protection over its intellectual property position due to product enhancements. 61 Plascon systems are currently licensed for operation in Australia, Japan, the UK, Mexico and the USA. Plascon technology has been deployed in 13 units across the globe (two in Mexico, two in the USA, four in Japan, two in Australia located at Nufarm sites and three located at DMX sites in Australia). Recent sales made by SRL Plasma were two units in FY06 and two units in FY08. Further near term opportunities have been identified in Mexico, Saudi Arabia and India. Other businesses Hazwaste 62 Hazwaste was acquired as part of the Entech acquisition on 29 November The business specialises in solutions for arsenic and related hazardous waste. Hazwaste uses DMX s patented Dolocrete technology in the waste treatment process, forming a double layer barrier to trap and repel waste moisture. This technology (which management believe is unique to DMX) is currently being employed in the treatment of arsenic residue. 63 Hazwaste secured a contract with Barrick Kanowna Ltd at the Kanowna Belle Gold Mine in Kalgoorlie (Western Australia) commencing in the first half of FY09 for a period of three years. The contract included the treatment of both stockpiled arsenic tailings and the mine s ongoing production. Contract renewal is currently under negotiation and DMX management anticipate a favourable outcome. Hazwaste continues to investigate sizable opportunities in Ghana, estimated at around 30,000 tonnes of stockpiled waste for treatment. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 16

17 DMX Asia 64 Entech has a 50% interest in the recently established DoloMatrix Asia joint venture with its partner Weston Solutions Taiwan. Based in Shanghai, the joint venture is focused on promoting DMX s technologies and services to a broad range of potential customers, including government authorities and multinational companies. The joint venture recently commenced its first contract for the treatment of fly ash from household waste incineration. Several prospective contracts are also being pursued. Thermal Treatment Solutions 65 On 22 June 2009 DMX announced the successful establishment of a 50:50 JV arrangement with MECO Environment LLC. The JV operates a single, mobile state of the art Direct Thermal Desorption Unit (DTD) which can be deployed to either of its sites for the pre treatment decontamination process for solid waste. On 8 October 2010 BCD purchased the remaining 50% interest for $7,500. Financial performance 66 The financial performance of DMX for the three years to FY11 is set out below: DMX financial performance 30 Jun Jun Jun 11 $m $m $m Revenue Other income Total revenue EBITDA before significant items Depreciation and amortisation (4.1) (2.6) (2.9) EBIT before significant items Significant items (1) (2.5) (0.2) (0.4) Net interest (0.9) (0.6) (0.6) Net profit before tax (0.3) Tax (1.2) (1.1) (1.4) Net profit after tax (1.4) Note: 1 Significant items comprise: Acquisition expenses (2) - (0.2) - Costs associated with a discontinued acquisition - - (0.4) Accelerated amortisation & impairment of intangibles (3) (2.5) - - Total significant items (2.5) (0.2) (0.4) 2 Relate to the Veolia Packaged Waste business acquired on 31 May 2010 and the consultancy business of Evermoore Environmental Services acquired on 4 June This reflects the write-down of customer databases. This database consists of historical and current customers from which revenue is expected to be derived in future. Rounding differences may exist. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 17

18 67 DMX s reportable segments reflect its strategic business units and include: (c) (d) Chemical collection and recycling includes the collection, processing, recycling and sale of chemicals paints and oils. This segment primarily represents the Chemsal business Waste destruction includes the collection, processing and destruction of hazardous waste. This segment primarily represents the BCD and TTS businesses Other segments includes the Entech and Waste Audit business units and SRL Plasma and Hazwaste Corporate corporate overheads. 68 DMX s results by segment are shown below: DMX segment data HY to 31 Dec 09 HY to 30 Jun 10 Year to 30 Jun 10 HY to 31 Dec 10 HY to 30 Jun 11 Year to 30 Jun 11 $m $m $m $m $m $m Sales Chemical collection & recycling Waste destruction Other segments EBITDA before significant items: Chemical collection & recycling Waste destruction Other segments - (0.1) (0.2) (0.2) Corporate / unallocated costs (1.3) (1.0) (2.4) (1.3) (1.1) (2.4) EBITDA margins before corporate / unallocated costs Chemical collection & recycling 31.3% 33.5% 32.3% 34.6% 28.4% 31.4% Waste destruction 50.4% 56.9% 53.8% 51.2% 44.6% 47.3% EBIT margins before corporate / unallocated costs Chemical collection & recycling 23.1% 22.7% 22.9% 26.4% 20.8% 23.5% Waste destruction 43.1% 49.5% 46.4% 42.7% 34.1% 37.6% Note: 1 Significant items relate predominately to acquisition costs recorded in corporate overheads. Rounding differences may exist. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 18

19 69 The key factors impacting the performance in FY10 and FY11 are discussed below: Commentary Chemical collection & recycling FY10: Sales revenue increased as a result of strong domestic household volumes which offset the decline in volumes from the industrial sector. The Veolia packaged waste business was acquired in June. FY11: Sales revenue increased supported by strong agricultural and domestic household volumes which offset soft volumes in the industrial sector. The industrial sector remained under pressure with little benefit from the strength of the mining sector. The Veolia packaged waste business performed above expectations post a successful integration and contributed to the result. In-house treatment and recycling processes delivered strong margins. Waste destruction FY10: The business operated steadily during FY10 with an improved second half result. Companies delayed waste disposal during the first half as a result of weaker metal prices. Volumes and metal prices improved during the second half in part mitigating the first half performance. Gas volumes were steady for the year. The MECO JV commenced operations in May completing the remediation of the Narangba property before beginning its first commercial job in late June. FY11: The increase in overall revenues was underpinned by the uplift in non PCB volumes and the recovery in metal prices, particularly copper. Minimal contribution from TTS. A less favourable mix of non PCB and PCB volumes negatively impacted EBITDA and margins. Gas volumes were steady for the year. The Queensland flood clean-up activities provided a minor benefit for the business. Other FY10: FY11: The Barrack mine contract performed close to budget during its second stage. An encouraging result was reported from the recently established Chinese JV. Plascon sales remained constrained as a result of low priced carbon and corporate capital constraints. However inquiries improved. The business shifted its marketing focus towards other chlorinated chemicals and the manufacture of nanotubes given the uncertainty in the climate change sector following an inconclusive Copenhagen Climate Change Convention. The Entech consulting operations reported an improved result supported by the recent acquisition of Evermoore in June In its third year and third stage, the Barrick mine contract performed above budget as a result of increased volumes. Negotiations are currently underway to renew this contract for a further three years and management expect a favourable outcome. Consultancy revenues were soft and were impacted by one-off restructuring costs. The DMX Asia operation won its first contract involving the treatment of fly ash for a three year period. Plascon sales remained subdued, however several possible contacts are in the early stage of negotiation. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 19

20 Outlook for FY12 70 In the release of DMX s FY11 results on 30 September 2011 DMX management provided further commentary for the FY12 outlook: The two major operations, Chemsal and BCD, performed strongly in the year [FY11]. The smaller divisions improved significantly over the same period last year. Entech improved significantly returning to profit this year. These operations are expected to continue to improve in FY The Company continues to seek both organic and acquisitive growth. Continued cash generation from a solid base should enable the business to grow. 71 On 24 November 2011 at DMX s annual general meeting DMX management made the following comments in relation to DMX s outlook in FY12: (c) (d) (e) continued improvement in core operations Chemsal geographic expansion (SA & WA) Chemsal Australian Paint Manufacturers Federation (APMF) Agreement11 Improvement in consultancy results First quarter operational results up on last year. 72 Specific outlook commentary across each of its strategic business units is highlighted in the table below: DMX outlook commentary Chemical collection and recycling Waste destruction Consultancy operations Renewal of NSW household collection contract 2 years + two 1 year option Successful tendering of WA household collection contract 4 years Exploration of alternative water based paint disposal routes Carbon pricing no upside until ETS introduced Increase number of large decontaminations DTD to increase contribution Gas volumes to remain at current level Copper prices declining Developing revenue pipeline Significant resource re-use opportunities being explored Carbon consulting First China contract operational 11 APMF Agreement relates to the APMF Paint Care Program for paint collection in Victoria which will replace the existing DYH program operated by Sustainability Victoria for a trial period of 12 months. APMF predicts that under the scheme the increase in the recovery of post-consumer A&D [Architectural & Design] paint and packaging for proper recycling or disposal will be approximately 1.5 million kg for the 12 month duration of the trial. APMF has entered into an agreement with Chemsal to provide both domestic and trade paint waste disposal. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 20

21 DMX outlook commentary Plascon Mexico stage 1 PCB trial due to commence in December 2011 Strong enquiries from Middle East countries Submitted tender to Unido with Ramky Environmental India for PCB destruction Engaged with scientific organisations to prove production of carbon nanotubes12 Hazwaste / Dolocrete Expected renewal of Barrick WA contract 3 years treatment ~300 tonnes per annum Sampled analysed for Ghana project results promising stockpile of ~30,000 tonnes requires treatment Financial position 73 A summary of DMX s financial position as at 30 June 2009, 2010 and 2011, is set out below: DMX financial position 30 Jun Jun Jun 11 $m $m $m Cash and cash equivalents Trade and other receivables Inventories Total current assets Property, plant and equipment Intangibles (1) Deferred tax assets Other Total non-current assets Total assets Trade and other payables Borrowings Provisions Other Total current liabilities Borrowings Other Total non-current liabilities Total liabilities Net assets Nanotubes are used widely in the electrical industry, high strength resin compounds and related industries. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 21

22 Note: 1 The increase in intangible assets in FY10 reflects the acquisitions of Veolia Packaged Waste business on 31 May 2010 and the consultancy business of Evermoore Environmental Services on 4 June Rounding differences may exist. Net debt 74 DMX s net debt position improved in FY11 supported by stronger operating cash flows and limited capital expenditure during the period: DMX net debt 30 Jun Jun 11 $m $m Bank loans (1) Lease liability (1) Insurance premium funding (1) Cash at bank (0.9) (1.2) Cash on deposit (3.0) (6.9) Net debt Note: 1 Represent current and non-current secured liabilities. 75 All banking covenants were met for the year ended 30 June Intangible assets 76 A summary of DMX s reported intangible assets as at 30 June 2010 and 2011 is set out below: DMX intangibles 30 Jun Jun 11 $m $m Goodwill (1) Plascon (2) Customer related (3) Management systems (4) Intellectual property (5) Capital development Total intangibles Note: 1 Goodwill primarily relates to Chemsal and BCD. 2 Relates to the Plascon patent and licenses held by SRL Plasma and BCD. The recoverable amount is determined by value-in-use calculations. 3 This consists of a database of historical and current customers from which revenue is expected to be derived in future. The recoverable amount is determined by a value-in-use calculation. 4 This reflects an in-house developed quality control system. 5 Relates to contracts in place for the use of the Dolocrete process. Rounding differences may exist. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 22

23 Shares on issue and performance 77 As at 14 December 2011 DMX had million fully paid shares on issue. In addition, the company had 4.25 million options on issue exercisable at 30 cents per share, which expire on 19 December Substantial shareholding as at 14 December DMX has five substantial shareholders13 as shown below: Substantial shareholders Ordinary % of total Entity shares held shares issued TPI 31,018, Weston Aluminium Pty Limited 21,515, CVC Limited 13,797, Acorn 13,214, Schroders 6,955, Total 86,500, Note: Rounding differences may exist. Share price performance 79 The price of DMX shares from 1 July 2009 to 14 December 2011 is summarised below: DMX Share price performance table High Low Close Monthly Volume (1) $ $ $ 000 Quarter ended September ,737 December ,465 March ,103 June ,627 September ,154 December ,330 Month ended January ,438 February ,872 March April May June July August ,861 September ,390 October November December 2011 (2) Being those shareholders with a relevant interest in 5% or more of the ordinary shares on issue. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 23

24 Note: 1 Monthly volumes for the quarter ended represent average monthly volumes. 2 Up to 14 December Source: Bloomberg. 80 The following graph illustrates the movement in the DMX share price compared to the S&P /ASX All Ordinaries Index over the five years to 14 December 2011: DMX share price history Five years to 14 December 2011 $1.25 $1.00 $0.75 All Ordinaries Index $0.50 $0.25 Dolomatrix International Ltd $0.00 Dec 06 Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Source: Bloomberg. 81 As indicated above, DMX shares significantly underperformed the S&P / ASX All Ordinaries Index, particularly in the 2007 and 2008 years. This underperformance in 2007 and 2008 appears to have been due to: (c) (d) downgrades to DMX s FY07 earnings guidance throughout the year reported negative cash flows from operations during FY07 and reported EBITDA well below initial expectations rejection by the DMX board and DMX s shareholders of the TPI takeover offer in June 2008 reported negative cash flows from operations during FY08. Liquidity in DMX shares 82 The liquidity in DMX shares based on trading on the ASX over the past 12 months is set out below: S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 24

25 Start date End date Value $000 Volume 000 As a % of issued capital WANOS (1) $000 1 month 15 Nov Dec ,792 3 months 15 Sep Dec , ,792 6 months 15 Jun Dec 11 2,369 10, , months 15 Dec Dec 11 3,926 17, ,792 Note: 1 WANOS weighted average number of shares on issue. Source: Bloomberg. 83 We note that the low level of liquidity is primarily a result of the small free float in the company. The top five shareholders in DMX own 63.2% of the total issued shares (as discussed in paragraph 78) and hence the overall level of shares traded (as a percentage of issued capital) reflects this. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 25

26 IV Industry overview Hazardous waste 84 Hazardous waste is characterised as a refuse that in some way may adversely impact living beings, the environment and/or property (particularly when handled, transported or disposed) due to its physical, chemical and biological properties. The United Nations identifies a substance or a waste as hazardous if it is among other things, explosive, flammable, corrosive, infectious, poisonous, toxic and/or ecotoxic. 85 Hazardous waste takes a range of different forms (solid, liquid or gas) and can be discharged either to land, water or air. The three major hazardous waste streams include: (c) municipal includes components of electronic equipment, batteries, household chemicals and aerosols, paint, pesticides, fuels and gas, and certain skin cosmetics commercial and industrial includes chemicals (solid, liquid and gas), bio-waste (medical and clinical), heavy metals, electrical equipment, and radioactive demolition waste equipment, batteries, paint, polymers, plastic, treated timber, floorings, asbestos, and contaminated soils. Hazardous waste industry in Australia 86 Australia is a member of the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Disposal (the Convention) established on 5 May The General obligations of a member in accordance with Article 4 of the Convention, states that each member shall take the appropriate measures to: (c) Ensure that the generation of hazardous wastes and other wastes within it is reduced to a minimum, taking into account social, technological and economic aspects; Ensure the availability of adequate disposal facilities, for the environmentally sound management of hazardous wastes and other wastes, that shall be located, to the extent possible, within it, whatever the place of their disposal; Ensure that persons involved in the management of hazardous wastes or other wastes within it take such steps as are necessary to prevent pollution due to hazardous wastes and other wastes arising from such management and, if such pollution occurs, to minimize the consequences thereof for human health and the environment. 87 Based on reported volumes of hazardous waste annually released to the Convention, Australian generated around 1.1 million tonnes of hazardous waste in Hazardous waste volumes increased to 2005 and stabilised post this period, as shown in the graph below is the latest available date, notwithstanding that this report was prepared in S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 26

27 Reported total amount of hazardous waste generated annually in Australia 2001 to 2007 Mt Source: National Waste Report, The sources of hazardous waste generation are highlighted in the chart below: Relative amounts of hazardous waste generated in Australia, by type of source 2007 Other (1) 6.1% Ink, dye, pigment & paint production waste 7.3% Clinical wastes 8.1% Waste oils/water, hydrocarbons/water mixtures, emulsion 34.4% Waste mineral oils unfit for original use 21.4% Residues arising from industry waste disposal operations 22.7% Note: 1 Other wastes include: wastes from surface treatment of metals and plastics 2.43% wastes from resin, latex, plasticizer, glue production 1.24% (c) wastes from production, formulation and use of photographic chemicals 0.45% (d) waste chemical substances arising from unknown environment 0.37% (e) pharmaceutical production wastes 0.31% Source: National Waste Report, 2010 (f) waste containing or contaminated with PCBs, PCTs, PBBs 0.31% (g) waste pharmaceuticals, drugs and medicines 0.27% (h) biocides and phytopharmaceuticals production waste 0.24% (i) waste tarry residues 0.17% (j) organic solvent production/formulation wastes 0.11% (k) explosive wastes not subject to other legislation 0.11% (l) wood preserving chemical manufacture waste 0.04%. S:\DoloMatrix International Limited\IER-ID32\Report\ Report.docx 27