Bluescope Steel Limited · ASX:BSL
Bluescope Steel — FY2014 Earnings Presentation
67 slides from Bluescope Steel's earnings presentation, Aug 25, 2014
Slide 1: FY2014 Financial Results Presentation
For personal use only FY2014 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 25 August 2014 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 • FY2014 reported net loss after tax (NLAT) $82.4M, a $24.7M improvement on FY2013 • $112.3M underlying net profit after tax (NPAT), growth of $105.6M on FY2013 • $89.6M 2H FY2014 underlying NPAT before period-end inventory net realisable value adjustments • Net debt of
Slide 6: Summary
Summary For personal use only • Coated & Industrial Products Australia underlying EBIT of $65.4M, up $95.7M on FY2013, mainly due to higher domestic volumes, lower export volumes and increased spread. First positive EBIT result since FY2010 • Building Components & Distribution Australia underlying E
Slide 7: Summary
Summary For personal use only • Global Building Solutions underlying EBIT of $18.5M. Strong performance in North America Buildings despite difficult winter period; China Buildings weaker • Hot Rolled NA underlying EBIT of $104.6M, 57% growth largely due to increased spreads • Non-current asset carry
Slide 8: Financial headlines FY2014 vs. FY2013
Financial headlines FY2014 vs. FY2013 YEAR ENDED For personal use only $M (unless marked) 30 JUNE 20131 30 JUNE 2014 FY2014 vs FY2013 Total revenue 7,290.3 8,006.9 External despatches of steel products 5,754.3 5,630.3 Lower exports EBITDA Underlying 2 389.7 577.4 EBIT Reported 23.1 102.3
Slide 9: Segment Discussion
For personal use only SEGMENT DISCUSSION
Slide 10: Coated & Industrial Products Australia
Coated & Industrial Products Australia Underlying EBIT up $95.7M to $65.4M on better volume and spread For personal use only Comments on FY2014 Underlying EBIT ($M) • Lower export volumes combined with stronger domestic 65.4 volumes (galvanised and painted products) 2H 38.5 • Spread increased driven
Slide 11: Australian demand
Australian demand Domestic despatches grew 7% in FY2014 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 2H FY14 1,800 (No. 5 Blast Furnace Reline) 63% 1,600 64% Construction 65% 1,40
Slide 12: Building Components & Distribution Australia
Building Components & Distribution Australia Integration of acquisitions on track; margins remain challenging For personal use only Comments on FY2014 Underlying EBIT ($M) • Higher despatch volumes driven by acquisitions and slightly better market activity (11.9) 2H (18.3) • Cost benefits realised f
Slide 13: New Zealand and Pacific Steel Products
New Zealand and Pacific Steel Products EBIT grew $40.9M on FY2013 through better steel mix and spread, and higher iron sands volumes For personal use only Comments on FY2014 Underlying EBIT ($M) • Better despatch mix with a higher proportion of 74.7 domestic painted, ZINCALUME® and galvanised steel
Slide 14: Growing iron sands exports
Growing iron sands exports For personal use only Taharoa iron sands exports – actual and forecast (kt) Commencement of third ship 3,900 expected mid FY2016 1,300 Third ship Ship upgrade to large, Commencement of second ship 2,600 more efficient vessel: around end of FY2015 Taharoa Destiny 1,648 1,30
Slide 15: Australasian acquisitions complete and integrations on-track
Australasian acquisitions complete and integrations on-track For personal use only Orrcon & Fielders Pacific Steel • Transaction completed on 28 February 2014 • Transaction completed on 3 June 2014 • Integration process: • NZ$50M project to install billet caster and associated plant – Senior managem
Slide 16: Building Products ASEAN, North America and India
Building Products ASEAN, North America and India Underlying EBIT growth of 12% on FY2013 For personal use only Comments on FY2014 Underlying EBIT ($M) • Overall: better volume/mix, partly offset by Thailand political 88.9 79.6 instability and impact of IDR depreciation in 1H Thailand • Thailand: suc
Slide 17: Global Building Solutions
Global Building Solutions Continuing lift in U.S. performance but softer China building margins Comments on FY2014 Underlying EBIT ($M) For personal use only • Overall: higher volumes and resulting cost benefit, partly 18.5 1 offset by weaker margins across all regions 18.0 19.1 Nth America 5.4 Prod
Slide 18: Hot Rolled Products North America
Hot Rolled Products North America Underlying EBIT grew 57% on FY2013 mainly from stronger spread For personal use only Comments on FY2014 Underlying EBIT1 ($M) • Spread increased primarily due to higher hot rolled 104.6 coil prices, partly offset by higher scrap costs 66.7 2H 55.9 • Favourable FX tr
Slide 19: Financials
For personal use only FINANCIALS
Slide 20: Underlying earnings
Underlying earnings For personal use only $M FY2013 FY2014 2H FY14 Significant lift in underlying EBIT Underlying EBIT 74.1 249.7 113.3 Underlying borrowing costs (69.8) (68.2) (38.1) FY2014 costs lower on lower average debt Interest revenue 3.6 3.7 1.8 levels. 2H includes higher costs of the NZ Pro
Slide 21: Reconciliation between reported NPAT and underlying NPAT
Reconciliation between reported NPAT and underlying NPAT1 For personal use only 2H FY2014 FY2014 NPAT / NPAT / (NLAT) $M (NLAT) $M Reported net loss after tax (86.1) (82.4) Underlying adjustments Deferred tax impairment 93.3 110.5 * Restructuring & redundancy costs 2 50.3 55.8 Steel Transformation P
Slide 22: Non-current asset carrying values
Non-current asset carrying values For personal use only • Write-back of carrying value of China Building Products: – Full reversal of previously impaired non-current assets ($88.1M pre-tax) as a result of strong historical and projected financial performance • Write-downs in our Australian distribut
Slide 23: Underlying EBIT variances
Volume & mix: CIPA 34 Underlying EBIT variances BCDA NZ Steel & Pacific Steel Global Buildings 7 56 4 Building Products 11 Net spread increase $34.4M 249.7 (0.5) For personal use only Raw material costs: 43.4 Coal 91 (14.9) Iron ore (11) Scrap, alloys & coating metals 18 113.2 External steel feed 18
Slide 24: Cash flow – 153% growth in operating cash
Cash flow – 153% growth in operating cash $M FY2013 FY2014 1H FY14 2H FY14 Reported EBITDA 338.7 429.9 259.1 170.8 For personal use only Adjust for other cash profit items 23.6 (1.2) 5.6 (4.4) Strong working capital performance, Cash from operations 315.1 431.1 264.7 166.4 including $103M benefit fr
Slide 25: Capital and investment expenditure
Capital and investment expenditure For personal use only FY2014 capital expenditure commitments ($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 26: Net working capital
Net working capital Operational improvement; overall increase due to acquisitions For personal use only 136.5 1,327.9 $55M increase in net working capital (203.4) comprised of $105M release of 1,273.3 operating working capital and $160M 10.9 110.6 increase via acquisitions $M Jun-2013 Receivables In
Slide 27: Inventory increase
Inventory increase Higher volumes on hand driven by acquisitions, higher demand and planned maintenance For personal use only RM $218.0M RM $233.6M WIP 610.7 FG 582.9 WIP 526.7 Other 159.6 $136.5M increase comprised of segmental increases: FG 520.9 Other 153.5 225.8 0.3 3.7 1,571.2 49.2 CIPA 1,434.7
Slide 28: Balance sheet – low gearing maintained
Balance sheet – low gearing maintained For personal use only Net debt ($M) Net debt / EBITDA Gearing (ND/ND+E) $261.6M net debt comprised of: • $728.2M gross debt, less • $466.6M cash This result benefitted by $103M from 5.5% favourable timing of year end cash 0.4x 0.4x 3.2% 4.4% flows FY2013 FY2014
Slide 29: Debt facilities maturity profile at June 2014
Debt facilities maturity profile at 30 June 2014 For personal use only Receivables securitisation program: 700 In addition to debt facilities, BSL has an Syndicated Bank Facility undrawn receivables securitisation NS BlueScope JV facilities (100%) program US unsecured notes $150M maturing Septem
Slide 30: CIPA planned maintenance
CIPA planned maintenance • The program to change out wearing staves on the Port Kembla blast furnace has commenced and is progressing well For personal use only • This program is in line with industry best practice, and we are benefitting from technical support being provided by NSSMC • In 1H FY2014
Slide 31: Indicative EBIT sensitivities for 1H FY2015
Indicative EBIT sensitivities for 1H FY2015 For personal use only Estimated impact on 1H FY2015 EBIT A$M 1 Assumption +/– US$25 / tonne movement in BlueScope’s average realised export HRC price 2 26 +/– 1¢ movement in Australian dollar / US dollar exchange rate 3 2 +/– US$10 / tonne movement in coal
Slide 32: Outlook & Summary
For personal use only OUTLOOK & SUMMARY
Slide 33: Recent initiatives will boost future earnings
Recent initiatives will boost future earnings For personal use only Fielders and Orrcon acquisition • Expected to exceed our 15% EBIT ROIC hurdle and be EPS accretive in FY2015 OneSteel Sheet & Coil acquisition • Expected to exceed our 15% EBIT ROIC hurdle and be EPS accretive in FY2015 Pacific Stee
Slide 34: Key priorities going into FY2015
Key priorities going into FY2015 • Deliver benefits of acquisitions, and progress announced iron sands expansions For personal use only • Maintain or build on market leading positions in Australian flat steel products to grow domestic volumes Australia & New Zealand – Capture higher residential cons
Slide 35: 1H FY2015 outlook
1H FY2015 outlook For personal use only • We expect first half FY2015 underlying NPAT similar to second half FY2014, subject to spread, FX and market conditions • Conditions in building construction markets of our key global regions are positive. We expect 1H FY2015 will benefit from expanding domes
Slide 36: Questions & Answers
For personal use only QUESTIONS & ANSWERS
Slide 37: Additional Information
For personal use only ADDITIONAL INFORMATION
Slide 38: Summary of financial items by segment
Summary of financial items by segment For personal use only Sales revenue Total steel despatches $M FY13 1H14 2H14 FY14 '000 tonnes FY13 1H14 2H14 FY14 Coated & Industrial Products Australia 3,349.4 1,781.6 1,820.6 3,602.2 Coated & Industrial Products Australia 2,614.9 1,198.7 1,164.3 2,363.0 Build
Slide 39: Committed debt facilities as at June 2014
Committed debt facilities as at 30 June 2014 For personal use only Committed Drawn Maturity Local currency A$M A$M Syndicated Bank Facility December 2015 A$675M A$675M A$27M US unsecured notes May 2018 US$300M A$319M A$319M NS BlueScope JV facilities (100%) - Corporate facilities Mar 2015 US$100M A$
Slide 40: Balance sheet
Balance sheet $M 30 Jun 2013 31 Dec 2013 30 Jun 2014 For personal use only Assets Cash 513.7 544.7 466.6 Receivables * 1,097.7 1,057.3 1,108.6 Inventory * 1,434.7 1,542.4 1,571.2 Property, Plant & Equipment 3,419.6 3,446.2 3,515.3 Intangible Assets 496.5 495.4 484.6 Other Assets 368.7 390.3 372.6 To
Slide 41: Reconciliation of reported to underlying earnings by nature of item
Reconciliation of reported to underlying earnings by nature of item $M FY2013 FY2014 1H FY2013 2H FY2013 1H FY2014 2H FY2014 For personal use only Reconciliation of EBITDA and EBIT EBITDA 2 Reported 338.7 430.0 189.7 149.0 255.7 174.3 EBIT 2 Reported 23.1 102.3 32.3 (9.3) 91.0 11.3 Discontinued busi
Slide 42: Reconciliation of reported to underlying earnings by segment
Reconciliation of reported to underlying earnings by segment $M FY2013 FY2014 1H FY2013 2H FY2013 1H FY2014 2H FY2014 Coated & Industrial Products Australia Reported EBIT (54.9) (26.2) 2.4 (57.3) (0.9) (25.3) Restructure / redundancies 16.3 48.4 1.6 14.7 4.9 43.5 Asset impairments - 7.2 - - - 7.2 As
Slide 43: Coated & Industrial Products Australia – Financial and despatch summaries
Coated & Industrial Products Australia Financial and despatch summaries For personal use only Key segment financial items Despatches breakdown $M FY13 1H14 2H14 FY14 '000 tonnes FY13 1H14 2H14 FY14 Revenue 3,349.4 1,781.6 1,820.6 3,602.2 Hot rolled coil 505.6 263.8 214.8 478.6 Underlying EBITDA 140.
Slide 44: Coated & Industrial Products Australia – Underlying EBIT variance
Conversion & other costs: Coated & Industrial Products Australia Cost improvement initiatives 39 Escalation (34) One-off (3) Underlying EBIT variance Other (2) 65.4 0.3 For personal use only Net spread increase $61.0M 34.4 21.4 Raw material costs: Coal 61 Iron ore (11) Scrap, alloys & coating metals
Slide 45: Coated & Industrial Products Australia – Despatch mix
Coated & Industrial Products Australia Despatch mix (kt) For personal use only 1,366.9 FY2014 Product Mix 1,198.7 1,164.3 Export 478.5 Export 238.5 235.8 HRC CRC Painted Plate Metal Coated Other 960.2 928.5 Domestic 888.4 Domestic 2H FY13 1H FY14 2H FY14 45
Slide 46: Coated & Industrial Products Australia – Revenue and underlying costs FY2014
Coated & Industrial Products Australia Revenue and underlying costs FY2014 For personal use only Revenue Underlying costs (to EBIT line) A$3,602m A$3,536m Non-steel business costs relate to: Conversion & Overhead Non-steel business Components (in order Non-steel business • Export coke sales • Export
Slide 47: Spread continues to be a major determinant of segment profitability
Coated & Industrial Products Australia Spread continues to be a major determinant of segment profitability East Asia HRC price (US$/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 $800 SB
Slide 48: External forecasters’ outlook for key end-use segments
Coated & Industrial Products Australia External forecasters’ outlook for our key end-use segment exposures For personal use only Residential construction Non-residential construction Engineering construction Change in real value of work done Annual % Change Annual % Change Annual % Change (Fin Yrs)
Slide 49: Australian residential construction approvals
Coated & Industrial Products Australia Australian residential construction approvals For personal use only Annual Australian residential construction approvals (private sector) to June 2014 191 180 180 177 175 172 170 162 163 161 161 160 160 157 151 151 149 152 146 147 142 139 136 131 131 130 127 Mu
Slide 50: Australian residential construction commencements
Coated & Industrial Products Australia Australian residential construction commencements For personal use only Annual Australian residential construction starts (public & private) to March 2014 174 176 173 175 170 170 171 165 158 160 151 154 152 155 156 155 148 149 145 146 146 140 141 Multi-dwelling
Slide 51: House prices and alterations & additions activity
Coated & Industrial Products Australia House prices and alterations & additions activity For personal use only National renovations activity has shown a strong correlation with movements in real housing prices Quarterly alterations & additions activity vs house prices 1 (YoY % change) 25 Real A&A Va
Slide 52: Australian non-residential construction approvals
Coated & Industrial Products Australia Australian non-residential construction approvals For personal use only Rolling 12 month value of work approved (public & private) – nominal A$M 45,000 Total Commercial & industrial Social & institutional 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 J
Slide 53: Australian Performance of Construction (PCI) index
Coated & Industrial Products Australia 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 Note:
Slide 54: Supply and pricing of iron ore and met coal to Steelworks
Coated & Industrial Products Australia 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 shipme
Slide 55: Progress on challenging unfair trade and dumping
Coated & Industrial Products Australia 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
Slide 56: Building Components & Distribution Australia – Financial summary
Building Components & Distribution Australia Financial summary For personal use only Key segment financial items Despatches breakdown A$M FY13 1H14 2H14 FY14 '000 tonnes FY13 1H14 2H14 FY14 Revenue 1,375.6 714.3 871.3 1,585.6 Domestic despatches 696.7 364.2 441.7 805.9 Underlying EBITDA (8.1) (2.7)
Slide 57: Building Components & Distribution Australia – Underlying EBIT variance
Building Components & Distribution Australia Underlying EBIT variance For personal use only Gross margin reduction $9.4M 4.5 (22.8) (25.4) (9.2) 7.5 (0.2) FY2013 Domestic prices Raw material costs Volume & mix Conversion FY2014 & other costs Gross margin increase $2.0M (10.5) 12.5 (1.2) (1.8) (10.9)
Slide 58: New Zealand & Pacific Steel Products – Financial summary
New Zealand & Pacific Steel Products Financial summary For personal use only Key segment financial items Despatches breakdown $M FY13 1H14 2H14 FY14 '000 tonnes FY13 1H14 2H14 FY14 Revenue 681.0 419.6 451.3 870.9 Domestic despatches 254.9 130.8 152.1 282.9 Underlying EBITDA 80.8 63.7 63.8 127.5 Expo
Slide 59: New Zealand & Pacific Steel Products – Underlying EBIT variance
New Zealand & Pacific Steel Products Underlying EBIT variance For personal use only Net spread reduction $2.9M 74.7 (18.8) 6.2 Export prices: Prices (12) 56.4 FX (16) 33.8 (27.6) 35.3 (10.6) FY2013 Export prices Domestic prices Raw material Volume & mix Conversion costs FX translation 1 FY2014 costs
Slide 60: New Zealand & Pacific Steel Products – Steel despatch mix
New Zealand & Pacific Steel Products Steel despatch mix (kt) – excludes Pacific Steel long products For personal use only FY2014 Product Mix 316.9 318.1 290.3 Export 166.0 Export 186.7 159.5 HRC CRC Painted Plate Metal Coated Other 152.1 Domestic Domestic 130.2 130.8 2H FY2013 1H FY2014 2H FY2014 60
Slide 61: 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 FY13 1H14 2H14 FY14 '000 tonnes FY13 1H14 2H14 FY14 Revenue 1,635.5 915.5 827.4 1,742.9 Thailand 352.7 182.9 184.3 367.2 Underlying EBITDA 127.4 76.9 63.0 139.
Slide 62: Building Products ASEAN, North America & India – Underlying EBIT variance
Building Products ASEAN, North America & India Underlying EBIT variance 88.9 For personal use only 79.6 Gross margin reduction $3.3M 6.5 11.2 (10.6) 5.5 (5.3) (39.2) 41.2 FY2013 Export prices Domestic Raw material Volume & mix Conversion TBSL FX translation 1 FY2014 prices costs & other costs Gross
Slide 63: Coated Products JV – progress from working together with NSSMC
Building Products ASEAN, North America and India Coated Products JV – progress from working together with NSSMC For personal use only • New products and solutions for customers utilizing NSSMC’s technology – Home appliance segment – first sales of painted home appliance product to new Japanese custo
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 FY13 1H14 2H14 FY14 '000 tonnes FY13 1H14 2H14 FY14 Revenue 1,363.3 807.1 715.7 1,522.8 North America Buildings 210.8 121.7 103.0 224.8 Underlying EBITDA 50.8 34.6 2
Slide 65: Global Building Solutions – Underlying EBIT variance
Global Building Solutions Underlying EBIT variance One-off prior period (FY2005-FY2009) For personal use only provision adjustment in 1H FY2013 Net margin reduction $5.9M 25.7 18.0 7.7 3.7 (5.0) 18.5 13.0 (45.1) 26.2 FY2013 Provision Prices Raw material Conversion & Volume & mix Other FY2014 adjustm
Slide 66: Impact of changes to AASB on financial statements
Impact of changes to AASB 119 on financial statements For personal use only • Changes to AASB 119 Employee Benefits came into effect for BlueScope on 1 July 2013 • The revised standard now requires the return on the defined benefit superannuation fund assets to be derived using the same bond yield a
Slide 67: FY2014 Financial Results Presentation
For personal use only FY2014 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 25 August 2014 BlueScope Steel Limited. ASX Code: BSL