Bluescope Steel Limited · ASX:BSL
Bluescope Steel — H1 2015 Earnings Presentation
66 slides from Bluescope Steel's earnings presentation, Feb 23, 2015
Slide 1: 1H FY2015 Financial Results Presentation
For personal use only 1H FY2015 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 23 February 2015 BlueScope Steel Limited. ASX Code: BSL
Slide 2: Important Notice
Important Notice For personal use only THIS PRESENTATION IS NOT AND DOES NOT FORM PART OF ANY OFFER, INVITATION OR RECOMMENDATION IN RESPECT OF SECURITIES. ANY DECISION TO BUY OR SELL BLUESCOPE STEEL LIMITED SECURITIES OR OTHER PRODUCTS SHOULD BE MADE ONLY AFTER SEEKING APPROPRIATE FINANCIAL ADVICE.
Slide 3: Introduction
For personal use only INTRODUCTION
Slide 4: Progress towards our goal of Zero Harm
Progress towards our goal of Zero Harm For personal use only Lost time injury frequency rate Medically treated injury frequency rate 16.0 60.0 14.0 52.2 Medically treated injuries per million man-hours worked 47.1 Lost time injuries per million man-hours worked 8.0 29.1 22.4 21.9 4.8 17.0 4.1 3.5 3.
Slide 5: Summary
Summary For personal use only • 1H FY2015 reported profit after tax (NPAT) $92.7M, growth of $89.0M over 1H FY2014 • $79.6M underlying NPAT, increase of $30.5M on 1H FY2014 • Net debt of $408.1M at 31 December 2014 – ratio of 0.6x underlying EBITDA • Board of Directors has approved payment of a full
Slide 6: Summary
Summary For personal use only • Australian Steel Products underlying EBIT of $64.7M, up $50.8M on 1H FY2014. Lower raw material costs, higher domestic residential building activity and a positive contribution from acquisitions • NZ Steel & Pacific underlying EBIT of $2.6M, lower than the $38.6M achi
Slide 7: Financial headlines 1H FY2015 vs. 1H FY2014
Financial headlines 1H FY2015 vs. 1H FY2014 SIX MONTHS ENDED For personal use only $M (unless marked) 31 DEC 2013 31 DEC 2014 1H FY15 vs 1H FY14 Total revenue 3,998.9 4,361.8 External despatches of steel products 2,813.1Kt 2,991.6Kt EBITDA Underlying 1 301.1 334.0 EBIT Reported 91.0 185.6
Slide 8: Segment Discussion
For personal use only SEGMENT DISCUSSION
Slide 9: Australian Steel Products
Australian Steel Products Underlying EBIT up significantly to $64.7M on better product mix and spread. Best half year result for five years For personal use only Comments on 1H FY2015 Underlying EBIT ($M) • Stronger spread than 1H FY2014 on lower iron ore and 64.7 coal costs, and higher realised ste
Slide 10: Recent moves in steel price, commodity prices and A$
Australian Steel Products Recent moves in steel price, commodity prices and A$ US$/t US$/t $600 200 For personal use only SBB East Asia $500 HRC price (left axis) 150 PLV hard coking coal Current coal price1 down price (right axis) US$5/t on Sept 2014 $400 100 Iron ore index price Current HRC price1
Slide 11: Detached house approvals lifted in all regions of Australia in 2014
Detached house approvals lifted in all regions of Australia in 2014. A&A approvals increased in 2014 For personal use only Construction approvals of houses by region – rolling last 12 months Approvals of alterations & additions (value >$10k) ‘000 units $Bn, nominal 35 7.0 6.9 30 6.8 6.7 25 WA 6.6 Me
Slide 12: Australian demand
Australian demand Better mix but total volume similar to last two halves and better than FY2013. Dwelling construction best since 2009 For personal use only Total Australian external despatch volumes (Kt) 2H FY08 1H FY09 2H FY09 1H FY10 2H FY10 1H FY11 2H FY11 1H FY12 2H FY12 1H FY13 2H FY13 1H FY14
Slide 13: China's exports have increased; robust anti-dumping regimes are essential
China’s exports have increased; robust anti-dumping regimes are essential to curtail unfair trade For personal use only • Global steelmaking overcapacity persists, esp in China China – net exports of finished steel (Mt); years to August 76 • Dumping of steel now widespread – 104 anti-dumping 73 and
Slide 14: Australian Steel Products: focus on winning markets, reducing costs
Australian Steel Products Our focus is to target winning markets, reduce costs to serve customers and generate free cash flow For personal use only Target winning markets Case study: new TRU-SPEC™ COIL PLATE STEEL • Launched next-gen ZINCALUME® with Activate® • Invested $8M in coil-plate line adjace
Slide 15: New Zealand & Pacific Steel
New Zealand & Pacific Steel Softer result mainly due to weaker iron ore prices and volume For personal use only Comments on 1H FY2015 Underlying EBIT ($M) • Lower earnings from iron sands exports due to weaker iron 38.6 ore prices and volumes 36.1 • Favourable steel despatch mix with higher proporti
Slide 16: NZ construction and manufacturing outlook remains strong
New Zealand & Pacific Steel NZ construction and manufacturing outlook remains strong For personal use only Residential building consents – running strong Non-residential construction consents – strong growth ‘000 units Moving annual total of value of consents 2,500 5.5 (NZ$Bn) 2,000 5.0 1,500 4.5 1,
Slide 17: Iron sands exports – our economics
New Zealand & Pacific Steel Iron sands exports – our economics For personal use only Taharoa • Current EBIT and cash break-even per tonne of mid US$60’s 62% Fe iron ore price1 on recent improvement in oil prices, FX and cost reductions • Second ship starting in late FY2015; shipping capacity 1.3Mtpa
Slide 18: Building Products ASEAN, North America and India
Building Products ASEAN, North America and India Improvement on 2H FY2014; weaker against 1H FY2014 mainly due to slower recovery Thailand For personal use only Comments on 1H FY2015 Underlying EBIT ($M) • Overall (vs 1H FY14): improvements in Indonesia and India, 50.9 partly offset by softer result
Slide 19: ASEAN painted and coated steel growth
Building Products ASEAN, North America and India ASEAN painted and coated steel growth For personal use only 500Ktpa opportunity in ASEAN coated home appliance steels Large and growing addressable market in Thailand Forecast CAGR of 7% Actual Market CAGR of 24% +35% 1,459 Other Thailand 1,360 1,268
Slide 20: Global Building Solutions
Global Building Solutions Continuing lift in U.S. performance but softer China building volumes & margins Comments on 1H FY2015 Underlying EBIT ($M) For personal use only • Overall: North American growth offset by weakness in China 20.5 19.3 engineered buildings • Engineered Buildings North America:
Slide 21: Global Building Solutions: North American recovery
Global Building Solutions Continued recovery in North American business gives us further earnings leverage to volume recovery For personal use only 1H FY2015 earnings were 73% stronger … despite volume 17% lower than in than 1H FY2009 … that period Underlying EBIT of Buildings North America ($M) Vol
Slide 22: Outlook going into CY2015 remains buoyant for North America
Global Building Solutions Outlook going into CY2015 remains buoyant for North American business For personal use only FW Dodge forecast of U.S. non-residential construction Architectural Billings Index 1,200 60 Expansion 1,100 55 Million square feet 1,000 50 900 45 Contraction 800 40 700 35 600 30 F
Slide 23: Hot Rolled Products North America
Hot Rolled Products North America Underlying EBIT grew 38% on 1H FY2014. Continued strong despatches and margin improvement For personal use only Comments on 1H FY2015 Underlying EBIT1 ($M) • Higher selling prices and lower feed costs resulting in 67.1 margin improvement 55.9 48.7 • Favourable FX tr
Slide 24: US steel industry: sector consolidating, end markets strong
Hot Rolled Products North America US steel industry: sector consolidating and most end markets strong For personal use only • Positive growth forecast in North Star’s key end markets – US flat steel demand automotive (~45% revenue) and construction (~25% revenue) CAGR +3% % – Not heavily impacted by
Slide 25: North Star: track record of growing production and despatches
Hot Rolled Products North America North Star: track record of growing production and despatches For personal use only North Star despatches since commencement (100% basis) +75% 2,000 Reviewing further incremental expansion 1,500 options metric Kt 1,000 500 0 FY1998 FY2000 FY2002 FY2004 FY2006 FY2008
Slide 26: Financials
For personal use only FINANCIALS
Slide 27: Underlying earnings
Underlying earnings For personal use only $M 1H FY2014 2H FY14 1H FY15 Significant EBIT growth Underlying EBIT 136.4 113.3 169.7 Slightly higher than 2H Underlying borrowing costs (30.1) (38.1) (36.4) FY2014 due to higher Interest revenue 1.9 1.8 3.7 average debt balance Profit from ordinary activit
Slide 28: Underlying EBIT variances
Underlying EBIT variances Improvement in steel businesses offset by weaker iron sands volumes Net spread increase $47.3M For personal use only 19.1 (0.7) 169.7 (39.2) 4.8 136.4 29.7 21.1 (1.5) Raw material costs: Coal 33 Iron ore 21 Conversion & other costs: Scrap, alloys & coating metals (27) Volum
Slide 29: Reconciliation between reported NPAT and underlying NPAT
Reconciliation between reported NPAT and underlying NPAT1 For personal use only 1H FY2015 NPAT $M Reported net profit after tax 92.7 Underlying adjustments Accounting adjustment on closure of defined benefit superannuation (19.0) Tax asset write-back (5.5) Asset sales (3.5) Business development and
Slide 30: Cash flow
Cash flow $M 1H FY14 2H FY14 1H FY15 Reported EBITDA 255.7 174.2 349.9 For personal use only Strong operating cash performance – up 30% Adjust for other cash profit items 5.6 (4.4) (8.9) on 1H FY2014 Cash from operations 261.3 169.8 341.0 Working capital outflow; noting June 2014 Working capital mov
Slide 31: Net working capital
Net working capital For personal use only 1,462.0 5.9 29.8 $95.9M of the $134.1M increase driven by FX impact (fall of • $80M contribution to increase from AUD:USD AUD:USD) 115.9 depreciation • Increase in volume on 1,327.9 hand due to timing of (17.5) shipments predominantly in Building Products an
Slide 32: Capital and investment expenditure
Capital and investment expenditure For personal use only FY2014 and FY2015 capex commitments ($M) Expected FY2015 capital and investment expenditure ($M) Largest projects: • Billet caster & Pacific Steel integration • Painting and coating capacity in Building Products • Expansion of NZ iron sands •
Slide 33: Balance sheet – low gearing maintained
Balance sheet – low gearing maintained For personal use only Net debt ($M) Net debt / EBITDA Gearing (ND/ND+E) $408.1M net debt comprised of: 1 • $798.4M gross debt, less 8.0% 0.6x 1 4.4% 5.5% This result • $390.3M cash 0.4x 0.4x benefited by $103M from favourable timing 1H FY14 FY14 1H FY15 Dec-13
Slide 34: Debt facilities maturity profile at December 2014
Debt facilities maturity profile at 31 December 2014 BSL bank facility termed out with lower cost For personal use only Receivables securitisation program: 367 In addition to debt facilities, BSL has BSL Syndicated Bank Facility two undrawn receivables securitisation NS BlueScope JV facilities (10
Slide 35: Indicative EBIT sensitivities for 2H FY2015
Indicative EBIT sensitivities for 2H FY2015 For personal use only Estimated impact on half year EBIT A$M 1 +/- US$10 / tonne movement in BlueScope’s average realised export HRC price 2 +/- 14 +/- US$10 / tonne movement in coal costs at Australian Steel Products -/+ 11 +/- US$10 / tonne movement in i
Slide 36: Outlook & Summary
For personal use only OUTLOOK & SUMMARY
Slide 37: Key growth drivers FY2016 onwards
Key growth drivers FY2016 onwards For personal use only • Build on market leading positions in Australian flat steel products to grow domestic volumes – Capture higher residential construction volumes driven by increased construction activity. BIS Shrapnel Australia and HIA forecasting 7.3% and 5.9%
Slide 38: 2H FY2015 outlook
2H FY2015 outlook For personal use only • We expect 2H FY2015 underlying EBIT higher than 2H FY2014 by up to 20 per cent • We will see ongoing business growth and the benefits of a falling AUD:USD but recent significant falls in global steel prices will compress margins in 2H FY2015 compared to 1H F
Slide 39: Questions & Answers
For personal use only QUESTIONS & ANSWERS
Slide 40: Additional Information
For personal use only ADDITIONAL INFORMATION
Slide 41: Summary of financial items by segment
Summary of financial items by segment For personal use only Sales revenue Total steel despatches $M 1H14 2H14 FY14 1H15 '000 tonnes 1H14 2H14 FY14 1H15 Australian Steel Products 2,246.3 2,351.6 4,597.9 2,478.8 Australian Steel Products 1,336.8 1,312.9 2,649.6 1,414.8 New Zealand and Pacific Steel 41
Slide 42: Committed debt facilities as at December 2014
Committed debt facilities as at 31 December 2014 For personal use only Committed Drawn Maturity Local currency A$M A$M Syndicated Bank Facility - One year tranche Nov 2015 A$100M $100M - - Three year tranche Nov 2017 A$200M $200M - - Five year tranche Nov 2019 A$200M $200M - US unsecured notes May 2
Slide 43: Balance sheet
Balance sheet $M 31 Dec 2013 30 Jun 2014 31 Dec 2014 For personal use only Assets Cash 544.7 466.6 390.3 Receivables * 1,057.3 1,108.6 1,091.1 Inventory * 1,542.4 1,571.2 1,687.1 Property, Plant & Equipment 3,446.2 3,515.3 3,652.8 Intangible Assets 495.4 484.6 493.7 Other Assets 390.3 372.6 416.2 To
Slide 44: Inventory movement
Inventory movement For personal use only RM $273.0M RM $218.0M WIP 726.0 FG 560.3 WIP 610.7 Other 165.5 $115.9M increase comprised of segmental increases: FG 582.9 Other 159.6 80.0 4.0 1,687.1 1,571.2 (121.7) 153.6 Building Products segment - 93.7 mainly due to timing of deliveries and FX $M NZ and
Slide 45: Australian Steel Products: Financial and despatch summaries
Australian Steel Products Financial and despatch summaries For personal use only Key segment financial items Despatches breakdown $M unless marked 1H14 2H14 FY14 1H15 '000 tonnes 1H14 2H14 FY14 1H15 Revenue 2,246.3 2,351.6 4,597.9 2,478.8 Hot rolled coil 263.8 214.9 478.6 216.7 Underlying EBITDA 111
Slide 46: Australian Steel Products: Underlying EBIT variance
Australian Steel Products Conversion & other costs: Volume (lower per unit costs) 3 Cost improvement initiatives 22 Underlying EBIT variance Escalation (22) One-off, discretionary & other (11) Net spread increase $62.9M (4.5) For personal use only (7.6) 64.7 26.9 More profitable steel destination mi
Slide 47: Australian Steel Products: Despatch mix
Australian Steel Products Despatch mix (Mt) For personal use only 1.41 1.34 1.31 1H FY2015 Product Mix 0.34 Export 0.25 0.24 Export 0.13 0.12 Domestic - 0.14 externally sourced HRC Metal Coated Plate Painted CRC Other inc ext sourced 0.95 0.95 0.93 Domestic - BSL manufactured Domestic 1H FY14 2H FY1
Slide 48: Australian Steel Products: Revenue and underlying costs 1H FY2015
Australian Steel Products Revenue and underlying costs 1H FY2015 For personal use only Revenue Underlying costs (to EBIT line) A$2,479m A$2,414m Non-steel business costs relate to: Conversion & Overhead Non-steel business Components (in order Non-steel business • Export coke sales costs of value): •
Slide 49: Spread continues to be a major determinant of segment profitability
Australian Steel Products Spread continues to be a major determinant of segment profitability East Asia HRC price (US$/t) and indicative steelmaker HRC spread (A$/t) For personal use only Spread: SBB East Asia HRC price less cost of 1.5t iron ore fines and 0.71t hard coking coal $800 SBB East Asia H
Slide 50: External forecasters' outlook for key end-use segments
Australian Steel Products External forecasters’ outlook for our key end-use segment exposures For personal use only Residential construction Non-residential construction Engineering construction Change in real value of work done HIA Forecast (Nov 2014) Annual % Change Annual % Change Annual % Change
Slide 51: Approvals of new detached houses have lifted strongly
Australian Steel Products Approvals of new detached houses have lifted strongly in the last 18 months For personal use only Australian residential construction approvals Change in Australian residential construction approvals (private sector) – ‘000 units (private sector) – ‘000 units 15 110 14 Othe
Slide 52: Commencements lag approvals
Australian Steel Products Commencements lag approvals, and have only achieved full momentum in the last 12 months. Further, BSL despatches lag commencements (eg roof, gutter and fence installation) For personal use only Australian residential construction commencements Change in Australian residenti
Slide 53: Australian non-residential construction approvals
Australian Steel Products Australian non-residential construction approvals For personal use only Rolling 12 month value of work approved (public & private) – nominal A$M 45,000 Total Commercial & industrial Social & institutional 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Jun- Jun- Jun-
Slide 54: Australian Performance of Construction (PCI) index
Australian Steel Products Australian Performance of Construction (PCI®) index For personal use only 70 65 60 55 >50 Expanding 50 <50 Contracting 45 40 35 30 25 20 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Note: The A
Slide 55: Supply and pricing of iron ore and met coal to Steelworks
Australian Steel Products Supply and pricing of iron ore and met coal to Steelworks For personal use only Supplier Term Approximate Volume (p/a) Pricing Basis 10 years from Linked to average monthly index in the month of Iron ore BHP Billiton Up to 4.18Mt lump & fines 1 July 2009 shipment Others Sho
Slide 56: Progress on challenging unfair trade and dumping
Australian Steel Products Progress on challenging unfair trade and dumping For personal use only Process Current Duties1 • Preliminary Affirmative Determination (PAD) issued Oct 2012; • Interim Dumping Duties (IDD) rates: Minister sign off Dec 2012 – Japan 0-7.5% Hot rolled coil – Korea 2.6-11.8% (A
Slide 57: Blast furnace maintenance program
Australian Steel Products Blast furnace maintenance program For personal use only • The program to change out wearing staves on the Port Kembla blast furnace continues to plan • In 1H FY2015 two planned maintenance stoppages were held in August and November. One more is planned for the balance of FY
Slide 58: New Zealand & Pacific Steel: Financial summary
New Zealand & Pacific Steel Financial summary For personal use only Key segment financial items New Zealand Steel despatches (flat products) $M 1H14 2H14 FY14 1H15 '000 tonnes 1H14 2H14 FY14 1H15 Revenue 419.6 451.3 870.9 489.9 Domestic despatches 130.8 139.7 270.6 131.7 Underlying EBITDA 63.7 63.8
Slide 59: New Zealand & Pacific Steel: Underlying EBIT variance
New Zealand & Pacific Steel Underlying EBIT variance For personal use only 38.6 Net spread reduction $29.8M Predominantly due to large fall in iron Mix improvement in ore prices, partly steel business offset (21.7) offset by improved by lower iron sands Higher per unit mining costs due to steel pric
Slide 60: New Zealand Steel despatch mix
New Zealand & Pacific Steel New Zealand Steel (flat products) despatch mix (kt) – excludes Pacific Steel For personal use only 1H FY2015 Product Mix 290.3 295.7 251.1 Export 155.9 Export 159.5 119.4 HRC CRC Painted Plate Metal Coated Other Domestic 130.8 139.8 131.7 Domestic 1H FY2014 2H FY2014 1H F
Slide 61: Pacific Steel despatch mix
New Zealand & Pacific Steel Pacific Steel (long products) despatch mix (kt) For personal use only 1H FY2015 Product Mix 135.9 Export Export 49.4 Rod Coil wire Coil reinforcing Domestic 86.5 Domestic 1H FY2015 61
Slide 62: Building Products ASEAN, North America & India: Financial summary
Building Products ASEAN, North America & India Financial summary For personal use only Key segment financial items Despatches by business $M unless marked 1H14 2H14 FY14 1H15 '000 tonnes 1H14 2H14 FY14 1H15 Revenue 915.5 827.5 1,742.9 898.6 Thailand 182.9 184.3 367.2 171.6 Underlying EBITDA 76.9 63.
Slide 63: Building Products: Underlying EBIT variance
Building Products ASEAN, North America & India Underlying EBIT variance Gross margin increase $8.1M For personal use only 5.2 (4.4) 50.9 7.3 (5.0) 47.8 (9.1) 1.0 1.9 Conversion & other costs: Cost escalation (9) Cost improvement initiatives 6 One-off / other (6) 1H FY2014 Export prices Domestic Raw
Slide 64: Global Building Solutions: Financial and despatches summary
Global Building Solutions Financial and despatches summary For personal use only Key segment financial items Despatches by business $M unless marked 1H14 2H14 FY14 1H15 '000 tonnes 1H14 2H14 FY14 1H15 Revenue 732.5 651.9 1,384.3 785.4 Engineered Buildings North America 121.7 103.0 224.8 140.1 Underl
Slide 65: Global Building Solutions: Underlying EBIT variance
Global Building Solutions Underlying EBIT variance For personal use only Net margin reduction $6.0M Conversion & other costs: Freight (3) Cost escalation (7) 12.0 (8.8) Cost improvement initiatives 7 Volume (lower vols in China) (4) 20.5 19.3 (9.2) 1.1 3.7 1H FY2014 Prices Raw material costs Convers
Slide 66: 1H FY2015 Financial Results Presentation
For personal use only 1H FY2015 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 23 February 2015 BlueScope Steel Limited. ASX Code: BSL