Bluescope Steel Limited · ASX:BSL
Bluescope Steel — H1 2014 Earnings Presentation
67 slides from Bluescope Steel's earnings presentation, Feb 24, 2014
Slide 1: 1H FY2014 Financial Results Presentation
For personal use only 1H FY2014 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 24 February 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 • 1H FY2014 reported NPAT $3.7M, a $27.5M improvement on 1H FY2013 • $49.1M underlying NPAT, a $50.7M improvement on 1H FY2013 • $74.0M underlying NPAT before period-end inventory net realisable value adjustments • Building Products ASEAN, North America & India underlyi
Slide 6: Summary (ctd)
Summary (ctd) For personal use only • Building Components & Distribution Australia underlying EBIT loss of $10.9M. Conditions remain difficult • NZ Steel & Pacific underlying EBIT of $38.6M, a significant improvement over 1H FY2013, driven by improved steel spreads, volume and sales mix, and higher
Slide 7: Financial headlines 1H FY2014 vs. 1H FY2013
Financial headlines 1H FY2014 vs. 1H FY2013 SIX MONTHS ENDED For personal use only $M (unless marked) 31 DEC 20121 31 DEC 2013 1H FY14 vs 1H FY13 Total revenue 3,703.5 3,998.9 External despatches 2,830.8Kt 2,813.1Kt ~ EBITDA Underlying 2 181.4 301.1 EBIT Reported 32.3 91.0 Underlying 2 2
Slide 8: Segment Discussion
For personal use only SEGMENT DISCUSSION
Slide 9: Building Products ASEAN, North America and India
Building Products ASEAN, North America and India Underlying EBIT growth of 62% on 1H FY2013 For personal use only Comments on 1H FY2014 Underlying EBIT ($M) • Overall: improved margins, volume and cost management partly offset by adverse FX 50.9 48.2 • Thailand: successful initiatives in sales, mark
Slide 10: Building Products ASEAN, North America and India: IDR depreciation
Building Products ASEAN, North America and India Indonesian performance heavily impact by rapid depreciation of IDR in 1H FY2014 For personal use only IDR / USD exchange rate 12,500 Depreciated 18.2% 12,000 from Jul-Dec 2013 11,500 11,000 10,500 10,000 9,500 9,000 0 Jun- Dec- Jun- Dec- Jun- Dec- Jun
Slide 11: Coated Products JV – progress working 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 – VIEWKOTE® trial successful under customer approval process – Feasib
Slide 12: Global Building Solutions
Global Building Solutions Continuing improvement in U.S. performance but softer China building volumes Comments on 1H FY2014 Underlying EBIT ($M) For personal use only • North America: – Higher volumes – continued improvement in non-res 20.9 1 16.2 construction. Activity improved in all major end-us
Slide 13: Global Building Solutions: restructuring and earnings leverage
Global Building Solutions The restructuring of our North American business has given us strong earnings leverage to volume recovery For personal use only 1H FY2014 earnings were 22% stronger … despite volume 28% lower than in than 1H FY2009 … that period Underlying EBIT of Buildings North America ($
Slide 14: Hot Rolled Products North America
Hot Rolled Products North America Underlying EBIT improved $15.7M on 1H FY2013 from stronger spread and seasonally strong volume For personal use only Comments on 1H FY2014 Underlying EBIT1 ($M) • Spread improvement primarily due to higher hot 48.7 rolled coil prices, partly offset by higher scrap c
Slide 15: Coated & Industrial Products Australia
Coated & Industrial Products Australia Underlying EBIT improved to $27M on better volume and spread For personal use only Comments on 1H FY2014 Underlying EBIT ($M) • Spread improved driven by lower raw material costs 26.9 • Domestic volumes improved; stronger HRC and metal coated sales to pipe & tu
Slide 16: Australian demand
Australian demand Improvement in volume in 1H 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 1,800 (No. 5 Blast Furnace Reline) 63% 1,600 64% Construction 65% 1,400 27% (436k
Slide 17: Building Components & Distribution Australia
Building Components & Distribution Australia For personal use only Comments on 1H FY2014 Underlying EBIT ($M) • Pricing & margin impacted by a very competitive market. Lower average selling prices only partly offset by lower 2H steel feed costs (7.1) 1H • Increased volumes driven by a slight improve
Slide 18: New Zealand and Pacific Steel Products
New Zealand and Pacific Steel Products EBIT improved $40.9M on 1H FY2013 through higher iron sands volumes, better domestic steel despatches and steel prices For personal use only Comments on 1H FY2014 Underlying EBIT ($M) • Improved spread (predominantly lower coal and 38.6 36.1 scrap costs) • High
Slide 19: Platform of BANZ growth initiatives announced in the last six months
Platform of BANZ growth initiatives announced in the last six months • Acquisitions are close to BlueScope’s core Australasian operations. Our objective is to improve For personal use only the efficiency with which we can serve our customers by further lowering costs through the integration of these
Slide 20: Agreement to acquire Pacific Steel Group downstream operations
Agreement to acquire downstream long-products rolling and marketing operations of Pacific Steel Group For personal use only • Announced acquisition agreement on 17 February 2014 • Producer and marketer of long products such as reinforcing steel, rod and wire, in NZ and Fiji. 120kt domestic (NZ & Fij
Slide 21: Growing iron sands exports to over 4.5Mtpa
Growing iron sands exports to over 4.5Mtpa For personal use only Total iron sands exports – actual and forecast (kt) Commencement of third ship 4,700 expected during FY2016 1,300 Third ship Commencement of second ship 3,400 expected during CY2015 Ship upgrade to large, 2,400 1,300 1,300 Second ship
Slide 22: Financials
For personal use only FINANCIALS
Slide 23: Underlying earnings
Underlying earnings For personal use only $M 1H FY13 2H FY13 1H FY14 Significant improvement in underlying EBIT Underlying EBIT 24.1 50.0 136.4 Underlying borrowing costs (34.8) (48.0) (30.1) Reduced borrowing cost on lower drawn Interest revenue 2.1 1.5 1.9 balances Profit from ordinary activities
Slide 24: Reconciliation between reported NPAT and underlying NPAT
Reconciliation between reported NPAT and underlying NPAT1 For personal use only 1H FY2014 NPAT $M Reported net profit after tax 3.7 Underlying adjustments Deferred tax impairment 2 17.2 Steel Transformation Plan (STP) release to align with carbon costs 16.0 Business development and pre-operating cos
Slide 25: Underlying EBIT variances
Underlying EBIT variances 136.4 5.8 For personal use only (20.0) 19.5 Net spread improvement $64.6M 42.4 Conversion & other costs: Export prices: Cost improvement initiatives 48 Raw material costs: Price (25) Volume (13) Coal 63 Foreign exchange impact 17 Escalation (38) Iron ore 2 Scrap, alloys & c
Slide 26: Cash flow – solid improvement in core earnings
Cash flow – solid improvement in core earnings $M 1H FY13 2H FY13 1H FY14 Reported EBITDA 189.6 149.2 259.1 For personal use only Adjust for other cash profit items (32.2) 8.5 5.6 Cash from operations 157.4 157.7 264.7 Mainly due to inventory (volume) and payables – Working capital movement (inc pro
Slide 27: Controlled capital expenditure and working capital
Controlled capital expenditure and working capital For personal use only Total capital expenditure ($M) Working capital items1 ($M) 302 229 215 (27.6) 44.9 1,357.9 200 2H 153 105 1H 76 102 1,273.3 107.7 FY2012 FY2013 1H FY2014 Expected 2H FY2014 (40.4) • Focused on prudent sustaining group capital e
Slide 28: Inventory increase
Inventory increase Higher volumes on hand driven by higher demand and planned maintenance For personal use only RM $223.6M RM $267.0M WIP 526.7 WIP 611.0 FG 506.2 FG 520.9 Other 158.2 $107.7M increase comprised of segmental increases: Other 153.5 120.7 30.4 5.8 1,542.4 1,434.7 (49.2) 112.2 CIPA $M N
Slide 29: Conservative balance sheet
Conservative balance sheet For personal use only Net debt ($M) Net debt / EBITDA1 Gearing (ND/ND+E) 11.8% 1.3x 4.4% 0.4x 0.4x 3.2% $213.7M net debt comprised of: • $758.4M gross debt, less 1H FY2013 FY2013 1H FY2014 Dec-12 Jun-13 Dec-13 annualised annualised • $544.7M cash (1) 31 Dec 2013 net debt t
Slide 30: Debt facilities maturity profile at December 2013
Debt facilities maturity profile at 31 December 2013 For personal use only Receivables securitisation program: 701 In addition to debt facilities, BSL has an Undrawn undrawn receivables securitisation program $150M maturing September 2015 Syndicated Bank Facility $175M drawn of Fully drawn NS Bl
Slide 31: CIPA planned maintenance
CIPA planned maintenance For personal use only • A program to change out wearing staves on the Port Kembla blast furnace has commenced • This is in line with industry best practice, and we are leveraging our relationship with NSSMC • The actual number is still being determined, but there may be up t
Slide 32: Indicative EBIT sensitivities for 2H FY2014
Indicative EBIT sensitivities for 2H FY2014 For personal use only Estimated impact on 2H FY2014 EBIT A$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 33: Outlook & Summary
For personal use only OUTLOOK & SUMMARY
Slide 34: 2H FY2014 outlook
2H FY2014 outlook For personal use only • We expect second half FY2014 underlying NPAT similar to first half. The expectation is based upon typical seasonality, planned second half maintenance activities in Australia and assumes minimal impact of the political situation in Thailand. This is before p
Slide 35: Suite of businesses with strong competitive advantages
BlueScope has a suite of businesses with strong competitive advantages … For personal use only BlueScope Australia & New Zealand Building Products • Only local flat products producer in Australia & NZ • Clear leader in high quality coated and painted steel • Leading coating & painting capability in
Slide 36: Each has strong near-term growth opportunities
… and each has strong near-term growth opportunities For personal use only BlueScope Australia & New Zealand Building Products • Integrating Australian acquisitions to better serve • Base business growth expected to continue customers and deliver target returns above hurdle • Integrating Pacific Ste
Slide 37: Questions & Answers
For personal use only QUESTIONS & ANSWERS
Slide 38: Additional Information
For personal use only ADDITIONAL INFORMATION
Slide 39: Overview of Pacific Steel Group's downstream rolling & marketing operations
Overview of Pacific Steel Group’s downstream rolling & marketing operations For personal use only Key points Manufacturing facilities • Producer and marketer of long products such as billet, Fiji rod, bar, reinforcing coil and wire • Rolling mill • In FY2013 sold approximately 120kt to New Zealand &
Slide 40: Summary of key terms of PSG acquisition and transitional arrangements
Summary of key terms of PSG acquisition and transitional arrangements For personal use only • Assets and marketing operations associated with: Assets purchased – Rolling and wire mills at Otahuhu, Auckland, New Zealand (including rolling mill land) – Rolling mill in Fiji • NZ$60M Asset purchase pric
Slide 41: Summary of key terms of PSG acquisition (ctd)
Summary of key terms of PSG acquisition and transitional arrangements (ctd) For personal use only • BlueScope to have full operational control of the rolling and wire mills from completion Arrangements until • The PSG steel plant will supply billet to the acquired rolling mills until the Glenbrook b
Slide 42: Summary of financial items by segment
BlueScope Group Summary of financial items by segment For personal use only Revenue Total steel despatches A$M 1H13 2H13 FY13 1H14 A$M 1H13 2H13 FY13 1H14 Coated & Industrial Products Australia 1,667.9 1,681.5 3,349.4 1,781.6 Coated & Industrial Products Australia 1,247.9 1,366.9 2,614.9 1,198.7 Bui
Slide 43: Committed debt facilities as at December 2013
BlueScope Group Committed debt facilities as at 31 December 2013 For personal use only Committed Drawn Maturity Local currency A$M A$M Syndicated Bank Facility December 2015 A$675M A$675M - US unsecured notes May 2018 US$300M A$337M A$337M NS BlueScope JV facilities (100%) - Corporate facilities Mar
Slide 44: Balance sheet
BlueScope Group Balance sheet $M 31 Dec 2012 30 Jun 2013 31 Dec 2013 For personal use only Assets Cash 193.1 513.7 544.7 Receivables * 971.4 1,097.7 1,057.3 Inventory * 1,411.6 1,434.7 1,542.4 Property, Plant & Equipment 3,224.6 3,419.6 3,446.2 Intangible Assets 436.0 496.5 495.4 Other Assets 376.1
Slide 45: Reconciliation of reported to underlying earnings by nature of item
BlueScope Group Reconciliation of reported to underlying earnings by nature of item ($M) FY2013 1H FY2013 2H FY2013 1H FY2014 For personal use only Reconciliation of EBITDA and EBIT EBITDA 2 Reported 338.7 189.7 149.0 255.7 EBIT 2 Reported 23.1 32.3 (9.3) 91.0 Discontinued Business (gains)/losses 8.
Slide 46: Reconciliation of reported to underlying earnings by segment
BlueScope Group Reconciliation of reported to underlying earnings by segment ($M) FY2013 1H FY2013 2H FY2013 1H FY2014 For personal use only Coated & Industrial Products Australia Reported EBIT (54.9) 2.4 (57.3) (0.9) Restructure / redundancies 16.3 1.6 14.7 4.9 Asset Impairments - - - - Sale of pre
Slide 47: Building Products ASEAN, North America & India: Financial summary
Building Products ASEAN, North America & India Financial summary For personal use only Key segment financial items Despatches by business A$M 1H13 2H13 FY13 1H14 '000 tonnes 1H13 2H13 FY13 1H14 Revenue 800.4 835.1 1,635.5 915.5 Thailand 180.0 172.7 352.7 182.9 Underlying EBITDA 54.8 72.5 127.4 76.9
Slide 48: Building Products ASEAN, North America & India: Underlying EBIT variance
Building Products ASEAN, North America & India Underlying EBIT variance 50.9 For personal use only 4.6 0.4 2.9 Gross margin reduction $0.5M 12.1 31.4 0.5 (23.7) 22.7 1H FY2013 Export prices Domestic Raw material Volume & mix Conversion TBSL FX translation 1 1H FY2014 prices costs & other costs Gross
Slide 49: Global Building Solutions: Financial and despatches summary
Global Building Solutions Financial and despatches summary For personal use only Key segment financial items Despatches by business A$M 1H13 2H13 FY13 1H14 '000 tonnes 1H13 2H13 FY13 1H14 Revenue 728.5 634.8 1,363.3 807.1 North America Buildings 111.8 99.0 210.8 121.7 Underlying EBITDA 29.4 21.4 50.
Slide 50: 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 $2.2M 20.9 2.3 (4.2) 16.2 7.7 13.2 4.4 (27.3) 20.1 1H FY2013 Provision Domestic Raw material Conversion & Volume & mix Other 1H FY2014
Slide 51: Coated & Industrial Products Australia: Financial and despatch summaries
Coated & Industrial Products Australia Financial and despatch summaries For personal use only Key segment financial items Despatches breakdown A$M 1H13 2H13 FY13 1H14 '000 tonnes 1H13 2H13 FY13 1H14 Revenue 1,667.9 1,681.5 3,349.4 1,781.6 Hot rolled coil 244.7 260.9 505.6 263.8 Underlying EBITDA 73.
Slide 52: Coated & Industrial Products Australia: Underlying EBIT variance
Conversion & other costs: Cost improvement initiatives 24 Coated & Industrial Products Australia Unit costs change on volume change Escalation 3 (21) One-off 1 (23) Underlying EBIT variance Other 3 Net spread improvement $50.2M 1.3 For personal use only (14.0) 26.9 Raw material costs: Export prices:
Slide 53: Coated & Industrial Products Australia: Despatch mix
Coated & Industrial Products Australia Despatch mix (kt) For personal use only 1H FY2014 Product Mix 1,366.9 1,248.0 1,198.7 478.5 Export Export 345.4 238.5 HRC CRC Painted Plate Metal Coated Other 960.2 Domestic 902.6 888.4 Domestic 1H FY13 2H FY13 1H FY14 53
Slide 54: Revenue and underlying costs 1H FY2014
Coated & Industrial Products Australia Revenue and underlying costs 1H FY2014 For personal use only Revenue Underlying costs (to EBIT line) A$1,782m A$1,755m Non-steel business costs relate to: Conversion & Overhead Non-steel business Components (in order Non-steel business • Export coke sales • Exp
Slide 55: Spread continues to be a major determinant of segment profitability
Coated & Industrial Products Australia Spread continues to be a major determinant of segment profitability East Asia HRC price (US$/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 56: External forecasters' outlook for key construction exposures
Coated & Industrial Products Australia External forecasters’ outlook for our key construction exposures For personal use only Residential construction Non-residential construction Annual % Change Annual % Change (Fin Yrs) HIA F’casts (Oct 2013) (Fin Yrs) BIS Shrapnel F’casts (Nov 2013) 7.5 Average 1
Slide 57: Australian residential construction starts
Coated & Industrial Products Australia Australian residential construction starts For personal use only Quarterly number of Australian residential construction starts (total new houses) to September 2013 1 (Number per quarter) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 Jun- Jun- Jun- Jun- Jun-
Slide 58: 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 value
Slide 59: 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 60: 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 61: Building Components & Distribution Australia: Financial summary
Building Components & Distribution Australia Financial summary For personal use only Key segment financial items Despatches breakdown A$M 1H13 2H13 FY13 1H14 '000 tonnes 1H13 2H13 FY13 1H14 Revenue 720.4 655.2 1,375.6 714.3 Domestic despatches 358.1 338.6 696.7 364.2 Underlying EBITDA 1.6 (9.7) (8.1
Slide 62: Building Components & Distribution Australia: Underlying EBIT variance
Building Components & Distribution Australia Underlying EBIT variance For personal use only Gross margin reduction $8.3M (7.1) 3.9 (10.9) 0.6 (22.1) 13.8 1H FY2013 Domestic prices Raw material costs Volume & mix Conversion 1H FY2014 & other costs Gross margin reduction $4.6M 4.0 (10.9) 0.8 (18.3) 8.
Slide 63: New Zealand Steel & Pacific Steel Products: Financial summary
New Zealand Steel & Pacific Steel Products Financial summary For personal use only Key segment financial items Despatches breakdown A$M 1H13 2H13 FY13 1H14 '000 tonnes 1H13 2H13 FY13 1H14 Revenue 318.9 362.1 681.0 419.6 Domestic despatches 124.7 130.2 254.9 130.8 Underlying EBITDA 22.3 58.5 80.8 63.
Slide 64: New Zealand Steel & Pacific Steel Products: Underlying EBIT variance
New Zealand Steel & Pacific Steel Products Underlying EBIT variance For personal use only (11.6) 38.6 26.1 0.2 Net spread improvement $26.2M 32.5 0 (2.3) (6.3) 1H FY2013 Export prices Domestic prices Raw material Volume & mix Conversion costs FX translation 1 1H FY2014 costs 31.1 (29.2) Net spread r
Slide 65: Steel despatch mix
New Zealand Steel & Pacific Steel Products Steel despatch mix (kt) For personal use only 1H FY2014 Product Mix 316.9 290.3 Export 261.0 186.7 159.5 Export 136.3 HRC CRC Painted Plate Metal Coated Other Domestic Domestic 124.7 130.2 130.8 1H FY2013 2H FY2013 1H FY2014 65
Slide 66: Comment on change to accounting standard
Comment on change to accounting standard 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 as that used t
Slide 67: 1H FY2014 Financial Results Presentation
For personal use only 1H FY2014 Financial Results Presentation Paul O’Malley, Managing Director and Chief Executive Officer Charlie Elias, Chief Financial Officer 24 February 2014 BlueScope Steel Limited. ASX Code: BSL