Bluescope Steel Limited · ASX:BSL
Bluescope Steel — Investor Presentation (October 2015)
37 slides from Bluescope Steel's investor presentation, Oct 26, 2015
Slide 1: Strategic Initiatives and Outlook Update
For personal use only Strategic Initiatives and Outlook Update Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 26 October 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 – key takeaways
Introduction – key takeaways For personal use only Excellent • 1H FY2016 earnings upgrade1 progress on cost reductions • Company to continue steelmaking in Australia Acquisition of • Low cost, high value business remaining 50% of North Star • Benefits of full ownership Deleveraging • Leverage target
Slide 4: Agenda
Agenda For personal use only Trading and outlook update Australia and New Zealand steelmaking update Acquisition of remaining 50% of North Star Summary 4
Slide 5: Trading and Outlook Update
For personal use only TRADING AND OUTLOOK UPDATE
Slide 6: 1H FY2016 outlook better than previously expected
1H FY2016 outlook better than previously expected For personal use only • At our FY2015 results announcement on 24 August 2015, we indicated that we expected 1H FY2016 underlying EBIT to be similar to 2H FY2015 • We now expect 1H FY2016 underlying EBIT to be approximately 40% (approximately $50M) hi
Slide 7: 1H FY2016 outlook: what's changed?
1H FY2016 outlook: what’s changed? For personal use only Australian Steel • Earlier delivery of cost reductions Products • Strength in domestic demand - including residential construction growth • Lower A$:US$ Other segments • Incremental changes Going forward • Spot spreads are lower than lagged sp
Slide 8: Australia & NZ Steelmaking Update
For personal use only AUSTRALIA & NZ STEELMAKING UPDATE
Slide 9: Our strategy defines our portfolio management priorities
Our strategy defines our portfolio management priorities For personal use only Grow Deliver Ensure ongoing premium branded steel businesses competitive commodity steel supply financial strength with strong channels to market in our local markets Coated & Painted Building Solutions North Star Austral
Slide 10: Australian steelmaking – good progress on initiatives to deliver $200M savings
Australian steelmaking – good progress on initiatives to deliver targeted $200M savings in FY2017 For personal use only Employees and • “Game-changing” cost reduction approach without industrial unions action: – Memorandum of agreement on new three-year enterprise agreements – Three-year wage freeze
Slide 11: Company decision to continue steelmaking at Port Kembla
Company decision to continue steelmaking at Port Kembla For personal use only • The Board has made the decision to continue steelmaking at Port Kembla, subject to ratification of new Enterprise Agreements • Given further declines in steel prices, the business must continue to reduce costs, improve o
Slide 12: New Zealand steelmaking – progress on targeted NZ$50M savings
New Zealand steelmaking – progress on delivery of targeted NZ$50M savings in FY2017, but more to do For personal use only Employees and • “Game-changing” agreement: unions – New two year agreement – 1% pay increase over two years – Forgo annual bonus payments and – 100 direct jobs to be removed Raw
Slide 13: Acquisition of Remaining 50% of North Star
For personal use only ACQUISITION OF REMAINING 50% OF NORTH STAR
Slide 14: BlueScope acquires remaining 50% and moves to full ownership of North Star
BlueScope acquires remaining 50% and moves to full ownership of North Star – aim to maximise asset value For personal use only Agreement • Acquiring 50% interest in North Star from Cargill for US$720M – Exercised ‘Right of Last Refusal’ under shareholders’ agreement; matching the price bid by an ext
Slide 15: Compelling acquisition: full ownership enhances portfolio value and optionality
Compelling acquisition: full ownership enhances portfolio value and optionality and improves business flexibility For personal use only 1 Competitively advantaged U.S. hot rolled coil supplier 2 Consistent with BSL strategy to maximise value of North Star 3 Exposed to sustainable markets demonstrati
Slide 16: Competitively advantaged U.S. hot rolled coil supplier – high performing mill
Competitively advantaged U.S. hot rolled coil supplier 1 High performing U.S. steel mill For personal use only EBITDA margin EBITDA per tonne 16.6% 109 US$ per metric tonne 78 8.2% North Star U.S. industry average North Star U.S. industry average Year to 31 March 2015. Source: North Star BlueScope S
Slide 17: Strong operating and financial performance and free cash flow generation
1 Competitively advantaged U.S. hot rolled coil supplier Strong operating and financial performance and free cash flow generation For personal use only Sales volume (million tonnes) Sales revenue (A$M) 2010-2015 CAGR: +4.0% 1.95 1.97 1.98 2.02 1,488 1,525 1.85 1.93 1,394 1,366 1,253 1,241 2010 2011
Slide 18: Earnings relatively consistent through the cycle
1 Competitively advantaged U.S. hot rolled coil supplier Earnings relatively consistent through the cycle, noting annual variability For personal use only EBITDA and spread EBITDA (US$m) U.S. mini-mill spread (US$/t) 180 172 500 160 160 152 400 140 133 120 114 300 107 106 107 102 100 100 85 78 81 76
Slide 19: Geographically advantaged: North Star's strategic location
Competitively advantaged U.S. hot rolled coil supplier 1 Geographically advantaged: North Star’s strategic location For personal use only Scrap sourcing Proximity to customers • Facility located in Delta, Ohio • Geographic advantage – ~90% of North Star customers are within a ~250 • Directly within
Slide 20: Further growth potential – additional 90ktpa over next two years
Competitively advantaged U.S. hot rolled coil supplier 1 Further growth potential – additional 90ktpa over next two years For personal use only North Star despatches since commencement (100% basis) Reviewing +79% further 2,000 incremental expansion options 1,500 Metric kt GFC 1,000 500 FY1998 FY2000
Slide 21: Consistent with BSL growth strategy to maximise value of North Star
Consistent with BSL growth strategy to maximise value 2 of North Star For personal use only Grow Deliver Ensure ongoing premium branded steel businesses competitive commodity steel supply financial strength with strong channels to market in our local markets Coated & Painted Building Solutions North
Slide 22: Exposed to sustainable markets demonstrating growth
3 Exposed to sustainable markets demonstrating growth End markets served (2015)1 North America light vehicle production (m units)2 For personal use only ’09 – ’14A CAGR:+14.6% ’14 – ’19E CAGR: +2.0% 18.4 18.6 18.8 17.0 17.5 18.0 15.1 15.4 16.2 12.6 13.1 11.9 8.6 Automotive 50% 2007A 2008A 2009A 2010
Slide 23: Experienced management team; engaged and motivated workforce
Experienced management team; engaged and motivated 4 workforce For personal use only Motivated • 380 employees producing 2.0 million tonnes per annum workforce • Incentivised to continuously improve safety, productivity, quality and profits • Zero work stoppages since inception Capable team • Manage
Slide 24: Strong cash flow generation, cashflow accretion and immediate earnings uplift
Strong cash flow generation, cashflow accretion and 5 immediate earnings uplift For personal use only 26% pro-forma FY2015 cash flow per share accretion $130M uplift in pro-forma FY2015 underlying EBITDA $96M uplift in pro-forma FY2015 operating cash flow 24% implied ROIC on North Star, before
Slide 25: Liquidity, net debt and deleveraging program
Liquidity, net debt and deleveraging program $53M $1,267M For personal use only Pro-forma net debt at 30 June $938M 2015 of $1.27Bn1 $275M Net debt - June 2015 Transaction funding North Star net debt Net debt - pro forma Jun-15 Funding • Committed interim (12 month) debt funding to be refinanced in
Slide 26: Summary of acquisition highlights
Summary of acquisition highlights For personal use only • High quality business with strong competitive advantage • Excellent financial track record • Highly cashflow accretive • BlueScope’s move from 50% partner to 100% full ownership – Enhances BlueScope portfolio value – Improves future portfolio
Slide 27: Summary
For personal use only SUMMARY
Slide 28: Summary
Summary For personal use only Excellent • 1H FY2016 earnings upgrade1 progress on cost reductions • Company to continue steelmaking in Australia Acquisition of • Low cost, high value business remaining 50% of North Star • Benefits of full ownership Deleveraging • Leverage target of 1.0 times net deb
Slide 29: Questions & Answers
For personal use only QUESTIONS & ANSWERS
Slide 30: Additional Information
For personal use only ADDITIONAL INFORMATION
Slide 31: North Star operates a 2.0 mtpa HRC mini-mill supplying the Midwest steel market
North Star operates a 2.0 mtpa HRC mini-mill supplying the Midwest steel market For personal use only • Flat products mini mill located in Delta, Ohio • Located on 524 acres and connected to the Norfolk Southern rail line • Built over 1995-1996, making the mill amongst the newest in North America •
Slide 32: Best-in-class operating and financial performance
Best-in-class operating and financial performance For personal use only Three months ended 30 June 2015 LTM as of 30 June 2015 Utilisation rate (1) EBITDA margin EBITDA (US$) per tonne (2) (3) 100% 17.0% $110 North Star NA mini mill peers (4) 69% 10.1% $88 (4) 87% 9.4% $80 (5) 97% 7.6% $77 (6) 84% 8
Slide 33: FY2015 pro-forma cash flow per share accretion of 26%
FY2015 pro-forma cash flow per share accretion of 26% For personal use only Pro forma underlying CPS1 for FY2015 A$m Net cash flow before financing activities1 127.9 Shares outstanding (million)4 565.2 BSL pro forma underlying CPS (A$ per share) $0.23 100% of North Star FY2015 underlying EBITDA 242.
Slide 34: Pro forma accounting summary & adjustments
Pro forma accounting summary & adjustments Year ended 30 June 2015 Reverse 50% equity 100% impact of North FY2015 A$M FY2015A Funding costs accounting Star Pro forma For personal use only Income Statement Sales 8,540.1 - - 1,525.3 10,065.4 1 Underlying EBITDA 644.8 (112.5) - 242.8 775.1 +$130m D&A (
Slide 35: U.S. Midwest mini-mill spread
U.S. Midwest mini-mill spread For personal use only U.S. Midwest HRC price less scrap and pig iron blended price 1,200 US$ metric tonne, nominal 800 506 400 283 238 0 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q FY05 FY06 FY06 FY07 FY07 FY08 FY08 FY09 FY09 FY10 FY10 FY11 FY11 FY
Slide 36: Strong safety culture
Strong safety culture For personal use only • Employee safety is a core value • 100% involvement from all employees – safety conversations and audits every month • 12 years out of 17 years of operations without a lost time injury (LTI) 11 10 9 9 7 4 4 4 4 3 3 1 1 1 1 1 0 0 0 0 0 0 2005 2006 2007 200
Slide 37: Strategic Initiatives and Outlook Update
For personal use only Strategic Initiatives and Outlook Update Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 26 October 2015 BlueScope Steel Limited. ASX Code: BSL
BlueScope Steel — Investor Presentation (October 2015) on 6ix